Being self-employed brings many challenges perhaps the biggest for many is keeping their business accounts. Not everyone is good at maths, and they quite rightly worry about getting their accounts wrong and having problems with the tax authorities. In this article, we give you some tips to help you to keep your accounts in order.
Use a spreadsheet
If your business is not complex, you will be able to keep your accounts on a spreadsheet. There are plenty of templates available for software like Excel, which you can use to keep basic business accounts. However, we recommend that you learn how to use spreadsheets for your business accounts. There are some very good, short yet detailed, Excel training courses available, which you can take online at a time to suit you. Taking this approach will ensure you know how to use the software properly and stop you from making what could be serious mistakes.
When to employ an accountant
This spreadsheet approach is ideal for sole traders who provide services or a firm with a small turnover and only a few customers. However, using a spreadsheet is not for all firms. If you make products and have a lot of customers, employ other people or have a high turnover, which makes you liable for VAT, a better approach is to use an accountant. Once you get to this stage, keeping accounts can become quite complicated, so it is easy to miss something. If you do this and file an incorrect tax return, you can end up with huge problems. Employing an accountant is the safest approach.
This may seem expensive and many firms leave it too long before employing either their own accountant or using a third party to do their accounts. This is usually a big mistake.
Keeping track of complex accounts is time consuming and without training and the right software, you will not do it efficiently. A professional accountant will do it much faster and economies of scale means that they will be more efficient. Therefore, they are often a cheaper option than you doing your own accounts.
The fact that you will not have to buy specialist accountancy software is another cost factor that means employing an accountant makes a lot of sense.
The biggest mistake self-employed people make when it comes to their accounts is not keeping them up to date. When it is time to fill in their tax returns many self employed people find themselves working on their accounts literally day and night.
Inevitably, documents such as receipts get lost, which means the accounts are not accurate. Losing receipts that prove expenses can result in a bigger than necessary tax bill.
Not including some invoices because they have been lost looks like fraud to the tax authorities. The consequences of not keeping up with your accounts are potentially serious, so it is not wise to do so. In addition, it turns a relatively simple task into a virtually impossible one.
Do not forget profit and loss
Another reason it is important to keep up with your accounts is that you need to be constantly analysing whether you are making a profit and watching your cash flow. If your accounts are not up to date you will not be able to spot when a rise in material costs means that you are making a loss on a product or service rather than a profit.
As you can see your accounts are important, so please don’t neglect them.
Post written in collaboration with Online IT courses