Every small business beginners must keep abreast with some fundamental bookkeeping facts in order to maintain success in business. Business thrives on the wheel of information which only effective bookkeeping and records keeping can provide. One of the essentials of these records is the financial records. In this article I am going to build around the context of recording financial transactions.
1. Reasons for effective and efficient record keeping: The first bookkeeping fact for small business beginners is to understand the reasons for effective and efficient record keeping. All businesses need to keep records of their financial transactions for several practical reasons. These reasons include but not limited to:
· Knowing your financial situation: You need to know how well you are doing, whether you are making or losing money, what money you have in hand, and what money is owed to you and by you. If you endeavor to keep up-to-date records you will have a reasonable idea of your company’s financial health.
· Legal requirement: People keep record because the law requires them to do so. You are required by law to keep to all the documents - bills and receipts - which form the basis of information on your tax return for six years. This record includes petty cash records, bank counterfoils, and goods in and out records.
· Tax returns Matters: To be able to make adequate tax returns, people keep record. You need to show the taxman, bank manager and any investors how things stand within the company.
· Business turn over evaluation: It is important you know your turnover, precisely. For instance, in some countries if you turnover more than a certain amount in any twelve-month period, you are obliged by law to register for VAT purposes within 30 days of crossing this threshold. Failure to comply can result in heavy penalties. After registration, you need to keep accurate records for the VAT man.
· For witness Purposes: The life we are living in today is full surprises. People lie with impunity and make you suffer for what you know nothing about. But if you have records of that transaction, it will become an evidence to save from trouble.
There are several inexpensive book-keeping packages on the market that make book-keeping an easy experience. However, you can use a simple spreadsheet or literally keep records where you write down the money flowing in and out of your business under different headings. Record keeping is one thing, interpreting the figures is another and both are fundamental to the health of your business. This is where the services of an accountant become fundamental. However, you can save yourself a fortune in accountancy fees by keeping well organized records.
2. Audited accounts: Auditing your account is another bookkeeping fact you need to understand as a small business beginner. Do you need to get you accounts audited? Sole traders and partnerships do not have to get their accounts audited by a qualified accountant. But if your company is a limited company you do not need to have your accounts audited if your turnover is below a certain threshold, though you must still file your accounts at Companies House. As a small company, you can file a shortened balance sheet and special accountant's report if you choose.
3. Categorizing income and expenses: Make your business life simple. Get all the confusion out of your business. Give each sales invoice a unique reference number and file them in that order. Do the same for purchase invoices and receipts. Keep all this paper work in two sets of files, one for sales and one for purchases. That way you can track paperwork quickly in the face of a tax or VAT inspection.
· Money in: Create one section of your cashbook for all the money you have been paid. Start from the left of the page, assign columns for the date of the transaction, the amount received, the customer’s name and your own invoice reference number.
· Money out: Create another section in your cashbook for all the outgoings. Start from the left of the page, assign columns for the date of the transaction, your cheque number, the supplier or payee you have paid the money to, the amount you have paid, the reference number you put on the supplier’s invoice and finally, a column for petty cash (which you draw from the bank).
· You will also need to keep a note with details of each transaction: Divide expenses up into columns with headings such as: cost of sales, rent and rates, utilities, insurance, wages, telephone, stationery, travel, postage and so on. At the end of the tax year, you can add up the amounts under headings to get a breakdown of your expenses for the taxman.
4. Keep on top of cash flow: Try at least every month to do ‘bank reconciliation’. This involves taking the previous balance as shown in your bank statement, adding all payments in and subtracting those you have made. The new balance is your new bank balance. If it does not, either you or the bank has made an error.
To keep a more accurate measure of your financial health, keep a running total of your cash balance at the same time as you enter money in and out. You do not need any special knowledge or qualifications to keep the books of your own company. The only hard part is being disciplined about doing it regularly.
5. Petty cash: If you have a petty cash float; keep a sheet of paper petty in the cash box on which you note down every purchase. Always get a receipt for every item and staple them to the sheet of paper.
Whenever you put more money into petty cash, update the new balance onto a new record sheet and transfer the old sheet and its receipts to your folder of expenses receipts. You can keep a keep the float at a constant N5,000, either in cash, or cash plus receipts. When you need to top up the cash, only put in as much as you need to, to take it back to N5,000 mark again, and remove all the receipts to enter into your records properly.
1. Reasons for effective and efficient record keeping: The first bookkeeping fact for small business beginners is to understand the reasons for effective and efficient record keeping. All businesses need to keep records of their financial transactions for several practical reasons. These reasons include but not limited to:
· Knowing your financial situation: You need to know how well you are doing, whether you are making or losing money, what money you have in hand, and what money is owed to you and by you. If you endeavor to keep up-to-date records you will have a reasonable idea of your company’s financial health.
· Legal requirement: People keep record because the law requires them to do so. You are required by law to keep to all the documents - bills and receipts - which form the basis of information on your tax return for six years. This record includes petty cash records, bank counterfoils, and goods in and out records.
· Tax returns Matters: To be able to make adequate tax returns, people keep record. You need to show the taxman, bank manager and any investors how things stand within the company.
· Business turn over evaluation: It is important you know your turnover, precisely. For instance, in some countries if you turnover more than a certain amount in any twelve-month period, you are obliged by law to register for VAT purposes within 30 days of crossing this threshold. Failure to comply can result in heavy penalties. After registration, you need to keep accurate records for the VAT man.
· For witness Purposes: The life we are living in today is full surprises. People lie with impunity and make you suffer for what you know nothing about. But if you have records of that transaction, it will become an evidence to save from trouble.
There are several inexpensive book-keeping packages on the market that make book-keeping an easy experience. However, you can use a simple spreadsheet or literally keep records where you write down the money flowing in and out of your business under different headings. Record keeping is one thing, interpreting the figures is another and both are fundamental to the health of your business. This is where the services of an accountant become fundamental. However, you can save yourself a fortune in accountancy fees by keeping well organized records.
2. Audited accounts: Auditing your account is another bookkeeping fact you need to understand as a small business beginner. Do you need to get you accounts audited? Sole traders and partnerships do not have to get their accounts audited by a qualified accountant. But if your company is a limited company you do not need to have your accounts audited if your turnover is below a certain threshold, though you must still file your accounts at Companies House. As a small company, you can file a shortened balance sheet and special accountant's report if you choose.
3. Categorizing income and expenses: Make your business life simple. Get all the confusion out of your business. Give each sales invoice a unique reference number and file them in that order. Do the same for purchase invoices and receipts. Keep all this paper work in two sets of files, one for sales and one for purchases. That way you can track paperwork quickly in the face of a tax or VAT inspection.
· Money in: Create one section of your cashbook for all the money you have been paid. Start from the left of the page, assign columns for the date of the transaction, the amount received, the customer’s name and your own invoice reference number.
· Money out: Create another section in your cashbook for all the outgoings. Start from the left of the page, assign columns for the date of the transaction, your cheque number, the supplier or payee you have paid the money to, the amount you have paid, the reference number you put on the supplier’s invoice and finally, a column for petty cash (which you draw from the bank).
· You will also need to keep a note with details of each transaction: Divide expenses up into columns with headings such as: cost of sales, rent and rates, utilities, insurance, wages, telephone, stationery, travel, postage and so on. At the end of the tax year, you can add up the amounts under headings to get a breakdown of your expenses for the taxman.
4. Keep on top of cash flow: Try at least every month to do ‘bank reconciliation’. This involves taking the previous balance as shown in your bank statement, adding all payments in and subtracting those you have made. The new balance is your new bank balance. If it does not, either you or the bank has made an error.
To keep a more accurate measure of your financial health, keep a running total of your cash balance at the same time as you enter money in and out. You do not need any special knowledge or qualifications to keep the books of your own company. The only hard part is being disciplined about doing it regularly.
5. Petty cash: If you have a petty cash float; keep a sheet of paper petty in the cash box on which you note down every purchase. Always get a receipt for every item and staple them to the sheet of paper.
Whenever you put more money into petty cash, update the new balance onto a new record sheet and transfer the old sheet and its receipts to your folder of expenses receipts. You can keep a keep the float at a constant N5,000, either in cash, or cash plus receipts. When you need to top up the cash, only put in as much as you need to, to take it back to N5,000 mark again, and remove all the receipts to enter into your records properly.
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