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Bookkeeping
What is bookkeeping?
All businesses and those who are self-employed are required to record and keep evidence of financial transactions. These may include storing and recording purchases invoices, sales invoices, payroll records, receipts and payments made by an individual person or by an organisation or company. Therefore, bookkeeping is a way to document and classify accounting transactions, in addition to monitor business performance and manage accounting and reporting requirements
Objectives and Importance of Bookkeeping
Whether you are a small business owner, or have set up your own accounting system as someone who is self-employed, or you have hired someone to set up your systems for you, keeping a careful track on your business bookkeeping is vital to ensure you are always compliant with legal filing requirements from HMRC and other government bodies.
Objectives for your bookkeeping include;
- Evaluating the health of your business and performance against budgets.
- Monitoring profits and taxes to reduce the risk against HMRC investigation.
- Ensuring you stay on top of credit control to improve your cash flow.
The last objective (cash flow management) is key because you should know at any given time who owes you or your business money. According to the Office of National Statistics, cash flow is responsible for up to 90% of business failures!
Types of bookkeeping – what is included in bookkeeping services?
There are several standard processes of bookkeeping, these include the single-entry and double-entry bookkeeping methods, although many businesses now opt for cloud accounting solutions to manage their business. Bookkeeping services for small business are often tailored to an individual client considering many factors such as the industry, size of the business and volume of transactions.
In the past, these types of bookkeeping services would have used old paper ledgers and cashbooks, but now with robust web systems and cloud bookkeeping technology, keeping digital records is better for improving accuracy and can inevitably help reduce the amount of tax lost to avoidable miscalculations. HMRC has recently introduced new guidance and requirements through ‘Making Tax Digital’ (MTD) and so with handy data capturing software such as Receipt Bank and digital software such as Xero, Sage, and QuickBooks, financial information can now be easily sent directly from the bookkeeping records to HMRC for filing.
Who needs bookkeeping services?
Nearly everyone who has a legal requirement to keep records of financial transactions will need to think about bookkeeping and accounting. From small and medium size businesses who must keep appropriate records under company and tax law, to large businesses who often employ a finance team to ensure a firm’s sophisticated systems handle financial data in an appropriate and responsible manner. Also, anyone who is self-employed, or individuals who own rental properties with more complex tax affairs all have a duty to keep records for HMRC.
How much do bookkeeping services cost?
Many bookkeepers or accountants will provide a range of bookkeeping services based on the following costs:
- Fixed monthly fees
- Hourly rates
- Volume-based – e.g. the more bank transactions, the more work and therefore higher fees
Having a bookkeeper or accountant who is open and transparent about pricing and not one that encourages you to give them a bag of receipts once a year and charges by the hour will ensure you are working with someone who understands the needs of your businesses. Also, ideally investing in technology and automated online bookkeeping systems which will quickly scan and upload receipts and auto-forward supplier invoices will help a business save money and time.
It is important to note that whoever looks after your bookkeeping services should be familiar with the basic practical skills of bookkeeping such as using accounting software, entering accounting transactions and producing a range of reports that provide meaningful and timely information.
Are bookkeeping services tax deductible?
Typically, yes! Providing they are wholly and exclusively for the trade of the business.
What is the difference between accounting & bookkeeping services?
Traditionally, bookkeeping is storing and recording the core transactions of the business, reconciling bank transactions to ensure completeness, analysing purchase invoices etc, whilst accounting tends to be the analysis of this data and converting them into meaningful reports to assess the performance of the business, tax calculations and the preparation of accounts for public record or HMRC.
It is important to note that if you are anticipating growth in your business and especially if you are hiring staff, then it might be best to seek support from a single person or firm to handle your bookkeeping, accounting and tax requirements. This is because with improvements in cloud technology many accountants can now deliver cost-effective bookkeeping and can actually work out cheaper to have a single company providing accounting and bookkeeping than several separate service providers.
What can an accountant do that a bookkeeper can’t?
Most accountants are regulated, qualified and certified professionals who have often studied and worked in the profession for many years.
Historically, small businesses would seek regular support from an in-house or external bookkeeper and then provide their accountant with those figures once a year for the accounts preparation and dreaded company tax bill! However, with the enhancements in online bookkeeping software then bookkeeping and accounting services are now frequently provided by innovative accountants who recognise that they can add significant value to a business by supporting with all business requirements and become valued advisers to a business – particularly avoiding any unexpected tax bills!