Started a business and clueless about accounts

[ALLIS0N]

I’ve started up a small business and I haven’t a clue what to do about the paperwork. So far I’ve just been writing down money in and out on a piece of paper ( I know I know ).

I don’t even know where to start on doing proper accounts.

I do have a business bank account and all payments have gone through that. And everything is set up legally. I have an accountant who will do the tax return, but obviously I will have to give him accounts. And I don’t have any 😳

Please help.

I should say that nothing will be done in cash, everything goes through the bank account. And I do have a note of everything spent so far.

Get Xero, it links to your online banking and you can then 'reconcile' each transaction for what it is. There are codes for things coming in like 'sales' and codes for things going out like 'direct expenses' 'travel expenses'. Are you sole trader, partnership or limited company?

It’s a limited company.

well you need to keep a record of your income (sales and payments) and expenditure (your costs to make the sales eg post, fuel, storage costs, wages/commission)
paper records of the receipts and copy invoices for example should be kept.

it depends how complicated it all is as to what would be best for you. i used to do it all on different excel spreadsheets because the accounting packages over complicated things for me.

obviously most important thing is that everyone is paying you and you comply with all your legal requirements. the accountant should help you with that. ask them what they'd suggest.

There’s loads of books about basic balance sheets and finances for small businesses. Would that help? Or maybe see if there’s a short online course through the local college or business link/chamber of commerce. Otherwise could you afford to pay someone to do it for you?

When you set up did you have to put together a business plan or even a basic outline of costs vs income?

I did ask the accountant but they were pretty vague, said maybe quick books . But I think that’s very complicated for me. I can’t even use excel properly 🥺

I have no need for payroll as I don’t employ anyone. And I don’t need to issue Invoices, I get paid straight away.

I’d recommend getting a freelance bookkeeper & a Xero subscription and having the bookkeeper come in one day or even a few hours a month (or remotely) to do the bookkeeping.

You’ll need them or your accountant to record all your assets (bought into the business and bought for the business since you stated), record what you pay yourself & advising you whether however you are paying yourself is the most tax efficient way to do so.

Xero records all of your expenditure and income by getting your business bank account to feed in to the accounting software & then the bookkeeper categorises all the transactions. If you are issuing invoices they can be very easily issued from the software too, by you or whomever is doing the books.

Once that is sorted all your Accountants have to do is extract the data from there to do your accounts (which are basically done by the software so should you cost less). It means you can concentrate on making your business work & any money you spend on outsourcing the finance admin will more than likely be saved by having the books done properly, it’s often a false economy to do them yourself, especially if it’s something you don’t feel comfortable with.

Can I ask why you decided to start out as a Ltd company? It’s often better to start out as a sole trader then when you get to a turnover level that is worth going Ltd the Ltd company is formed as a separate entity and ‘buys’ the goodwill of the business from you personally, which can effectively give you anything up to 20k of tax free income. If you are below the VAT threshold then being a Ltd company rarely has any financial benefit to you personally. Was it your accountant that advised you to go Ltd or are you in an industry that requires it (which carries a risk if not Ltd)?

I have never come across any business that doesn’t invoice! You need to so you show what you’ve been paid for!! It can be simple.

Get online and look at the videos teaching excel. It’s not difficult if your income and outgoing is not that many transactions.

@chipsandgin - thank you, that’s all very helpful. I took legal advice and yes, I have to be a limited company.

I’ve not paid myself anything so far, as I have other income, this business is part time. At the end of the year the accountant will advise on The best way to extract money.

I’ve been researching Xero online since @StylishMummy recommended it upthread.

@Rainbowshine I didn’t need a business plan as I wasn’t borrowing money.

I appreciate everyone’s advice, thank you.

You need a plan even if you’re not borrowing money. A basic “this is how much it costs to run the business, this is how much I predict I will get coming in for work” to make sure it’s not running at a loss. How did you do that? Basic balance sheets aren’t much more than that, so it doesn’t need to be difficult. You could do that on excel if you don’t have lots of transactions going in and out.

Get a self-employed bookkeeper to do your accounts if you don't want to do them. They might be able to offer a computer package as a bureau service (save you having to pay for the package) or just do it on spreadsheets. Then you can rest easy, knowing that the accounts are sorted, leaving you free to do the day job.
Keep track of finances now - it's much simpler than trying to sort a mess after the year-end.

Keep track of finances now - it's much simpler than trying to sort a mess after the year-end

YY. That’s why I’m asking MN now, before my folder of bits of paper gets any fatter.

Where are you based? I bet that there's a MNer out there looking for new business!

@ALLIS0N

I did ask the accountant but they were pretty vague, said maybe quick books . But I think that’s very complicated for me. I can’t even use excel properly 🥺

I have no need for payroll as I don’t employ anyone. And I don’t need to issue Invoices, I get paid straight away.

Get a better accountant. It's pretty poor not to offer basic advice re book-keeping etc.

I'd certainly never suggest anyone who doesn't know what they're doing to jump straight into something like Quickbooks - it's one of the less "idiot proof" ones out there. Lots of people foul it up and then end up having to re-do it (or get a book-keeper to re do it!).

I usually recommend a free/simple system called VT cash book which is a very simple/quick way of recording the in's and out's, very similar to recording it on a simple spreadsheet, as a starter system for small business new start-ups. Not only is it easier to use, it's also easier for your accountant (hopefully a new one) to check and correct as needed at the year end.

@senua

Get a self-employed bookkeeper to do your accounts if you don't want to do them. They might be able to offer a computer package as a bureau service (save you having to pay for the package) or just do it on spreadsheets. Then you can rest easy, knowing that the accounts are sorted, leaving you free to do the day job. Keep track of finances now - it's much simpler than trying to sort a mess after the year-end.

But check out that the book-keeper is qualified/experienced. There are some brilliant ones out there that do a cracking job, but others that give the impression of doing a good job, fur coat and no knickers, i.e. the paperwork is neatly filed, numbered, etc., but the actual book-keeping is full of holes, i.e. ledgers not balanced etc., so still need remedial work by the accountant. There are also some who spend far too much time, doing all kinds of fancy ledger work, that just isn't needed for a simple business - i.e. purchase and sales ledgers for a small simple business using cash accounting!

Thank you @Badbadbunny, that’s good advice.