Bookkeeping

Records & Planning

All businesses need to keep records of their financial affairs. They are essential part of good financial management of the business. Moreover, as they are needed for reporting and taxation, they may be subjected to inspection. They must be complete, accurate and clearly presented.

It is far better to plan your approach to record keeping (or book keeping, for this purpose the terms mean the same) when starting out. Leaving it to the end of the first year just delays the problem. In fact, it is likely to make it worse as you will have to retrieve documents, such as receipts or bank statements, from wherever they have ended up. Inevitably some will have gone missing.

Of course, your accountant will be quiet happy to sort this out for you, for a price.

A little planning and preparation up front will avoid unnecessary accountant’s fees and save time. You will have a far better picture of the financial status of your business; you may be able to detect and resolve problems before they get out of hand.

Approaches

Leave it to your accountant +

This can be attractive and sensible. You should expect to pay for the book keeping but this may work out economical in the long run. The accountant will have the systems and procedures necessary to input the data quickly and efficiently. They will know the data entry is correct and be spared the need to review and correct, a time consuming task.

You will free up your own time to concentrate on developing your business.

Of course, you cannot leave “everything” to the accountant. You will need to provide invoices, receipts, sales summaries, and so on for every financial transaction. For a simple business where all transactions pass through the bank account, bank statements may be sufficient if you write on descriptions of each transaction. Remember that you are paying for your accountant’s time so the easier you make it for them, the lower the cost to you. You should sort and file documents. Make sure they are legible; provide additional details if necessary to make the nature of the transaction clear.

Paper based books +

Although this is falling out of fashion, this is still a good approach. For smaller businesses, it can be quick and simple. Discuss the layout with your accountant before setting up the books. They should be able to take totals from each page without needing to spend time re-analysing your figures.

Spreadsheet +

Spreadsheet based systems range from an automated version of paper books though to sophisticated linked, multipage models.

Apart from the simplest versions, I am not a fan of spreadsheets. There are undoubtedly flexible and can save time by providing totals for each “page”, but they are prone to errors which can take ages to flush out. Their main function seems to be to provide an intellectual challenge to their designers.

Above all, they offer little benefit over a proper cashbook package; see below.

Computerised cashbook +

A cashbook will record and analyse receipts and payments, enable bank reconciliations and, possibly, generate VAT returns. It is unlikely to support more complex actions such as generating invoices or but, for many small businesses, this is not necessary or even useful.

There are numerous cashbook systems to choose from. The best I know of is VT, available free from:

http://www.vtsoftware.co.uk/tranplus/download.htm

This is genuine, quality, properly maintained freeware; it is not a trial or time limited version. The link above includes a comprehensive user guide suitable for novices and experienced users.

If you are considering using a cashbook, you should at least give VT a fair trial.

Incidentally, when you install the cashbook, you will also install a 60 day trial version of VT Transaction, the accounting system used by many small accounting practices. This is definitely not for novices; I suggest you ignore it.

Full accounting system +

Few small businesses need a complete accounting system. The systems may not be expensive, some are even free. However, you will need to learn to use it properly. The system will not in itself prevent book keeping errors or prepare final accounts and tax returns; it does not replace the services of an accountant. The system can easily take up more time than it saves.

As business size and complexity increase, there comes a point where a system is useful. For example, you may need an integrated stock book or need to run sales and purchase ledgers to invoice payments. It is always worth asking your accountant for advice; they should have a proper understanding of your needs and point you at suitable choices.