Accounting Tips For The Self Employed

Strong accounting practices and good management of your finances are crucial skills for startup health, yet so few people know how to take care of their accounts.

With all the pressures and responsibilities of developing a startup resting on your shoulders, the last thing you need is trouble with your tax obligations and financial security. The best way to avoid issues is to keep your finances under control so you can stave off any potential nasty surprises and concentrate on building your startup business.

In this article, we’ll look at a few simple and basic techniques that can help you maintain good accounting practices.

Start Early

Allowing your accounts to get into a state of disarray before deciding something must be done is not the way to discover good accounting practice. A notoriously complex side of doing business, the easiest way to control your finances is to keep tasks small and easily manageable.

By starting to manage your accounts at the beginning of the tax year, instead of towards the end of the year when you’ll have a lot more figures to wrap your head around, you can make things for more simple and far less time consuming.

Record Every Transaction

Invoices, receipts and bills that relate to your business are like artifacts. Absolutely invaluable, to be protected and preserved above all else. These records are essentially your evidence. Proof to HMRC that your tax return is accurate and proof to yourself in the event of an accounting error.

Keeping them stored on a computer, online or even in an old-fashioned filing cabinet means you can easily refer back to them at any point. This is vital during an audit by the government and endlessly helpful when maintaining your accounts. Be sure to keep these records well beyond the tax year they belong to, as if you are audited the state may look further back than just your most recent tax return.

Keep and Maintain Your Books

It may sound like the most mundane business exercise you can think of, but trust me, soon you’ll look to love bookkeeping.

The books are your transaction records, often put together in a database, spreadsheet or through some specialised accounting software; the latter I highly recommend. Whatever form you use, this allows you to see exactly what is coming in and going out of your business. It allows you to track your credit, your income and how much you are spending on developing the business.

If you neglect the records, you simply can’t get a good understanding of your business’s financial health. You won’t know how exactly how your income compares to your outgoing, you won’t be able to track spending and this means you can’t spot trends, like potential overspends that are costing your dearly, because you can’t see the bigger picture.

In order for records to be effective, they must be updated religiously with every single business transaction you make. If you do this, you’ll have the perfect platform from which to control your business’s finances.

Save For Tax Costs

For the low-income self-employed who’ve only just started working to build their startup, it’s easy to focus on that magical £11,000 personal tax allowance. Completely tax-free, it can be tempting to avoid saving for your tax bill until you reach that amount, if and when that is. But that is a dangerous plan.

First, you have to consider national insurance, which is a low cost but important tax. Second, you have to remember that once you climb over that £11,000 hump, the percentage you are taxed can hit you like a brick.

Suddenly, instead of a small amount of tax per month, you’re losing a massive amount of money to paying your tax bill. Of course, in financial terms this makes no difference, it’s still the same amount of cash, but in human terms, this can be the difference between being able to afford rent or not.

The simplest way to avoid financial calamity caused by an unexpected tax bill is to save little and often. Instead of waiting to inch over the £11,000 allowance, save like you mean to go over it. It can be hard to predict annual income as a self-employed individual, but even your roughest guess is good enough to spare you the trouble of gathering larger sums together all at once to appease the taxman.

Consult an Expert

To become a fully qualified accountant, you need to study for at least three years at University level. Small wonder then, why most people struggle to manage their accounts when they don’t have such knowledge.

Accounting is a tricky thing, and one of the biggest mistakes you can make is avoiding seeking help when you need it. If your accounts are in a mess, or you can’t get your head around something, wasting time wondering how to solve the issue is just going to dig a bigger hole.

If you need an expert, consult one. It may be an extra cost, but it’s a cost that could very well save your business from financial collapse.

Russell Smith, a chartered accountant from Leeds in the UK, is a financial expert with over ten years of experience running his own business.