Want to learn how to manage your small company business accounts?
With 90% of businesses failing due to cash flow problems1 managing money has to be first on your list of priorities to ensure your business gets off on the right foot.
Get your head in the cloud and find a way to manage your business accounts that makes you happy.
Want to know the secret of how to make business accounting manageable and almost pain free? Follow these simple steps to make dealing with your company finances plain and simple… leaving you on cloud 9!
1 So, what is accounting?
Well, it’s the process of recording the financial transactions that your business enters into2 with other businesses and individuals as well as what tax it will be liable for. The aim of it is to help you see your business’ financial position and what has helped or hindered it.
How can you make all that math and recording transactions easy?
The key is to be organised right from the start! Dealing scribbled bits of paper and a shoe box filled with receipts will cost you more for an accountant to spend time organising the mess of paperwork. If you’ve started out like this don’t worry, it’s still totally worth getting organised now to prevent future headaches.
Getting your paperwork in order means that you will keep a closer eye on your money throughout the year helping avoid unexpected bills. Wherever stage your business accounts are at – take a rain check – and let’s boss this accounting malarkey!
2 How to ensure you run your small business accounts like a BOSS
1. Be organised and keep organised
Keep records from the start
Register with HMRC
Open a business bank account
Set up your financial record-keeping system
Register with Companies House (only if you’re a limited company)
2. Bookkeeping
You don’t need to be a math’s boffin to manage the accounts for a small business. All you have to remember is:
Cash flow is king: It’s the difference between you effectively managing your money so you can pay your bills or being out of business! Keeping a close eye on who you owe money to (take credit where you can) and who owe you money to. Never spend VAT that belongs to the government and ensure your VAT return is up to date.
Record everything: From invoices, expenses, outgoings, paying suppliers, chasing money owed and paying employees make sure everything is documented. This can all take time and can get very confusing if you aren’t organised. You could hire someone to do this for you but if money is tight, our advice is to keep away from paperwork and go digital! Cloud accounting software makes dealing with accounts almost pain-free!
It just so happens that business accounting can be as easy as online banking! Whether you’re a big or small company, accounting apps are a timesaving, paper-free way to manage your money and keep top of your finances on the go!
3. Cloud accounting software
What is it? Well…software (generally in mobile form such as an App) is provided by a number of companies, some of the most well-known are Sage, Xero, Quickbooks5 and KashFlow. Their software makes running your business’ accounts simpler, faster and more efficient.
Why is it so great?
Easy to use: Users are given a dashboard snapshot of the key figures that you need to know to manage your accounts rather than scrolling through pages of reports.
Send invoices online and encourage quick payment: Your customers can pay in just a few clicks following a receipt of an invoice through payment providers like WorldPay or Stripe. Great for cash flow! Plus, the transaction is pulled straight into your books (saving you time).
Credit control functionality: Invoice details are automatically logged so that you can keep track of expected payments and keep on top of what’s overdue. They also allow you to chase late payments via email allowing customers to ‘pay online’.
Increase productivity: Create professional looking proposals and invoices on the go and send them through the software! Helping you become more productive with your time and getting paid faster!
Manage your money on the go: No time in the office? No problem. If you’ve got a smart-phone or tablet, you’re sorted! Quickly create an invoice whilst having your morning brew or chase overdue payments whilst on site.
Automated bookkeeping: Smart-scanning Add-Ons automatically pull your receipts, bills and expenses straight into your accounts data.
Reports (accounts): You can pull off a cash report, or a profit and loss statement and the numbers you see truly reflect the current position of the business.
VAT & staying compliant: Rest assured that your information is safe as their software uses the same data encryption as online banking and the data is sat securely in the cloud, so you aren’t going to lose receipts. Some link directly with HMRC helping you to never miss things like your VAT deadline; as you’ll receive reminders and can do the return easily via the software.
Run payroll
Be in control: Being on top of your finances helps you plan (or at least be aware) of the money that’s due in and out so you don’t get any nasty surprises.
In a nutshell, you can get one app to deal with all your finances!
No more spreadsheets, no more sending unprofessional invoices to customers, no boxes full of receipts or sifting through loads of scrupled up paperwork, plus with easy ways to chase your outstanding payments, see your up to date bank balance!
With prices starting from £5 per month it’s a no-brainer! Allowing you to manage your finances even when you’re at the pub! I’ll drink to that!
4. Annual accounts for a sole trader
What accounting obligations does a sole trader have?
Maintaining proper records so you can manage your business accounts, but it also provides an audit trail for tax purposes. You’ll need to keep your accounts records for 5 years.
Business bank account: It’s not a legal requirement for a sole trader but it is advisable to have separate bank accounts for your personal and business transactions. If you don’t have separate accounts, you must keep clear records of what is personal and related to your business.
Stock: If you have stock (and work in progress) you should carry out a stock taking exercise at the end of the accounting year and keep a record of this.
Employee records: If you employ people, you’ll need to keep a record of everything paid to them, including wages, expenses and benefits.
Filing a self-Assessment tax return: The tax year runs from 6 April to 5 April and relevant accounts need to be completed before the following 31 January. So, you’ll need an Annual Balance sheet and Profit & Loss account each year to back up your return.
No need to file accounts with a public body (like Companies House for limited companies)
5. Annual accounts for a limited company
What accounting obligations does a Limited Company have?
After the end of its financial year, your private limited company must prepare:
Full (‘statutory’) annual accounts to be filled with Companies House & HMRC
A Company Tax Return to be filled with HMRC
Pay any Corporation Tax (calculate it using the above two)
Statutory accounts should include:
A ‘balance sheet’, which shows the value of everything the company owns, owes and is owed on the last day of the financial year
A ‘profit and loss account’, which shows the company’s sales, running costs and the profit or loss it has made over the financial year
Notes about the accounts
A director’s report (unless you’re a ‘micro-entity‘)
You might have to include an auditor’s report, this depends on the size of your company. The balance sheet must have the name of a director printed on it and must be signed by a director.
You must send copies of the statutory accounts to; all shareholders; Companies House and HM Revenue and Customs (HMRC) as part of your Company Tax Return.
If your company is small, a micro entity or dormant, you might be able to send simpler (‘abridged’) accounts.
| Action | Deadline |
|---|---|
| File first accounts with Companies House | 21 months after the date you registered with Companies House |
| File annual accounts with Companies House | 9 months after your company’s financial year ends |
| Pay Corporation Tax or tell HMRC that your limited company does not owe any | 9 months and 1 day after your ‘accounting period’ for Corporation Tax ends |
| File a Company Tax Return | 12 months after your accounting period for Corporation Tax ends |
Although you have different deadlines for sending your accounts to Companies House or HMRC you may be able to send them at the same time.
Your accounting period for Corporation Tax is the time covered by your Company Tax Return.
What do your company end of year reports need to include?
HMRC
Company Tax Return Your Company Tax Return (CT600) containing details of your company’s income, less any tax allowances and expenses.
The remaining amount – your profit – will then be used to calculate how much Corporation Tax your company needs to pay.
Annual Accounts
The Annual Accounts you need to submit to HMRC are made up of the following:
Income statement (Profit and Loss statement): This summarises your company’s financial transactions over a period of time. It starts with your income and then subtracts any expenses incurred in operating the business. The bottom line of the income statement shows how much profit (or loss) the company made during the accounting period.
Balance sheet/statement of financial position: this reports a company’s assets, liabilities, and shareholders’ equity at a specific point in time. It provides a snapshot of your business’s financial health as of a particular date. The balance sheet should show that your company’s assets are equal to your liabilities and your equity. It uses the formula Assets = Liabilities + Equity.
Footnotes: Information about the transactions between your company and its directors (such as loans, advances and guarantees).
Confirmation Statement
As a director of a limited company, you’re legally obliged to confirm your company information with Companies House once a year and within 14 days of its due date (normally a year after your incorporation or the date you last completed a Confirmation Statement).
Top tip:
Get your expenses in order: Every pound you claim as a business expense is a pound taken off your company profits, and less profit means less Corporation Tax to pay! Not sure if you can claim something? HMRC’s rule is that expenses must be “wholly and exclusively” for business use, so if you bought something specifically for your business – you can probably claim it as an expense. Your accountant will be able to help if you are unsure of what you can and can’t claim.
Round up those overdue invoices: Your company year-end should be as accurate as possible, so turn to the debt collector a few weeks beforehand and chase up any unpaid invoices you may have. Once you have the money in your company bank account, you can reconcile your accounts in your accounting software making sure they’re 100% accurate.
Final thoughts
Bookkeeping can be made easy and flexible with cloud accounting, we highly recommend that you use it to keep yourself organised. End of year accounts are a little more involved so you might want to hire someone to help you out with them especially if you are a limited company.
An accountant can also give you tax saving advice and specialist tips. The run-up to your year end is the perfect time to think about some financial and tax planning. It can help minimise your tax bill in the immediate future as well as the long-term. Options include paying money into ISAs, bringing your spouse or partner into your business and channeling some of your income into a pension.
Common Questions (Q&A)
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Generally, accounts are split into 3 financial statements: Income Statement (Profit and Loss) and the Confirmation Statement or Directors Report.
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Company accounts work like this: The company's trading activity is recorded on the Profit and Loss statement. This profit figure then gets adjusted to reflect the cash actually generated by the business through the Cash Flow statement. Once it emerges from the Cash Flow statement, then you can see how it turns up on the Balance Sheet.
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Before filing your company year end, make sure you have records for everything – this can mean getting statements of account from suppliers, copies of bank and credit card statements from financial institutions, and records of any other income you receive.
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At least six years from the end of the company accounting period they relate to.
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12 months after the end of the accounting period it covers. You’ll have to pay a penalty if you miss the deadline.
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It’s usually 9 months and one day after the end of the accounting period.
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Within nine months of your year end (within 21 months of your registration date if it’s your first return).
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In short, you can be fined, and your company struck off the Companies House register if you don’t send your accounts and/or Confirmation Statement when due.
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Your Company Tax Return (CT600) containing details of your company’s income, less any tax allowances and expenses. The remaining amount – your profit – will then be used to calculate how much Corporation Tax your company needs to pay.
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An Income Statement or Profit and Loss Statement summarises your company’s financial transactions over a period of time. It starts with your income and then subtracts any expenses incurred in operating the business. The bottom line of the income statement shows how much profit (or loss) the company made during the accounting period.
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A Balance Sheet or Statement of Financial Position this reports a company's assets, liabilities, and shareholders' equity at a specific point in time. It provides a snapshot of your business’s financial health as of a particular date. The balance sheet should show that your company’s assets are equal to your liabilities and your equity. It uses the formula Assets = Liabilities + Equity.
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As a director of a limited company, you’re legally obliged to confirm your company information with Companies House once a year and within 14 days of its due date (normally a year after your incorporation or the date you last completed a Confirmation Statement). This is your confirmation statement.
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Maintain proper records; open a business bank account; carry out a stock take; keep employee records and file a self-Assessment Tax Return.
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They are: all of your key figures are in one place; you can send invoices and chase payment; manage your money on the go and increase your productivity; automated bookkeeping enabling you to scan in invoices and receipts; pull off reports and statement; stay compliant with VAT and data; run payroll and be in control of your finances.
