Starting a business is exciting, but there is also a lot to organise. You have to think about your customers, services, suppliers, marketing and day-to-day work. It is easy to leave the financial side until later, especially when you are busy trying to get your business off the ground. However, getting your finances in order from the beginning can save you time, money and stress later.
You do not need to be an expert in accounting to manage your business properly. You simply need to know what needs to be done, when it needs to be done and what records you need to keep. This checklist will help you cover the main financial areas before small problems turn into bigger ones.
Choose the Right Business Structure
Before you start trading, decide how your business will be structured. You may operate as a sole trader, form a limited company or choose another structure that suits your circumstances. This decision affects how you deal with tax, your financial records and your responsibilities.
Do not choose a structure simply because someone you know uses it. Think about your expected income, business plans, personal circumstances and how much administration you are prepared to handle. If you are unsure, speak to an accountant before registering your business. Getting the structure right at the start is usually easier than changing it later.
Open a Separate Business Bank Account
If you are running a business, keep your business money separate from your personal spending. This is one of the simplest things you can do to keep your finances organised. A separate account makes it easier to see what your business earns and spends.
It also makes your records much easier to check when you prepare your accounts or tax return. You will not have to go through months of personal transactions trying to work out which payments were for the business. If you use your personal account for business purchases occasionally, keep a clear record of them. Better still, move towards using your business account for all regular business transactions.
Keep Track of Every Business Expense
Do not wait until the end of the tax year to work out what you have spent. Record your expenses as you go and keep the relevant receipts or invoices. Small purchases can be easy to forget, and those forgotten expenses can add up over time. Depending on your business, your costs may include things such as:
Make sure an expense is genuinely related to your business before claiming it. If you are not sure whether something can be claimed, check before including it in your records.
Know What Tax You Need to Pay
Tax should not be something you think about a few days before a deadline. As soon as your business starts making money, get into the habit of putting some money aside for your tax bill. The amount you need to set aside will depend on your business structure, income and circumstances. If you are self-employed, you may need to deal with Income Tax and National Insurance through Self Assessment.
If you run a limited company, the company has its own tax and reporting responsibilities. It is also important to understand your tax deadlines. Missing a deadline can lead to penalties, even if you did not intend to make a mistake. Put the important dates in your calendar and give yourself enough time to prepare.
Get Your Bookkeeping Under Control
Good bookkeeping gives you a clear picture of how your business is doing. You should know what money has come in, what you have paid out, what customers still owe you and what bills you need to pay. You can use accounting software to record transactions, send invoices and keep your financial information in one place.
Choose a system that you can actually use comfortably. There is little point in paying for complicated software if you struggle to keep it updated. Set aside a regular time each week or month to check your records. Keeping up with them little by little is much easier than trying to sort everything out at the end of the year.
Understand Your Responsibilities as a Limited Company
If you decide to operate through a limited company, remember that the company is separate from you. You have additional responsibilities for keeping company records, preparing accounts and dealing with the relevant tax and filing requirements.
This is where accounting for limited company can become particularly useful. A good accountant can help you understand what needs to be recorded, what needs to be filed and when your responsibilities need to be dealt with. This can be especially helpful when you are new to running a company and do not want to spend your time trying to understand every accounting rule yourself.
Do Not Ignore Old Financial Mistakes
You may eventually find an error in your records or realise that something was not reported correctly. Do not ignore it and hope it disappears. Look into the issue, find out what went wrong and take the right steps to correct it.
If you discover an issue with previous tax reporting, getting professional advice can help you understand your options. Depending on the circumstances, HMRC disclosures may be part of the process of putting things right. The important thing is to deal with the problem rather than allowing it to remain unresolved.
Set Up a Simple Financial Routine
You do not need to spend hours every day looking at spreadsheets. A simple routine can keep your finances under control. At the end of each week, check your income, expenses and unpaid invoices. Once a month, review your bank balance, upcoming bills and tax savings.
Keep your receipts and financial documents organised so you can find them when you need them. This also gives you a chance to spot problems early. If your expenses are rising, customers are taking too long to pay, or your cash balance is getting lower than expected, you can act before the situation becomes difficult.
Review Your Finances as Your Business Grows
Your financial needs will change as your business grows. You may take on employees, register for VAT, buy equipment, work with larger clients or move from sole trader status to a limited company. Do not assume that the system you used when you started will always be suitable.
Review your finances regularly and get advice when you are unsure about a decision. It is much easier to make sensible changes when you have clear records and understand where your business stands.
Start Your Business on the Right Financial Foot
You do not need complicated financial systems to run a business well. Start with the basics, keep your records up to date, understand your tax responsibilities and deal with issues as soon as they come. Good financial habits from day one can save you a lot of time and trouble later. It gives you a stronger foundation to grow your business with confidence.
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