Every successful business journey has a silent partner: meticulous record-keeping. While it might not make headlines, keeping accurate records is the unsung hero that propels a business forward.
Whatever your business size or structure, this is a topic that deserves your attention. But there are specific things to be aware of if you’re a freelancer, sole trader, or limited company owner. And we’ve covered them all here!
Why should I worry about keeping business records?
Let’s get this out of the way first – why is record keeping such a big deal. Well, for these 3 reasons:
You’ll stay compliant: At the heart of it, maintaining accurate records is not a choice—it’s a legal requirement. This ensures you’re transparent with HMRC, reducing the risk of unwanted financial surprises.
You’ll make more informed decisions: By keeping an eye on your financial records, you’re better equipped to make decisions that affect the health and growth of your business. They show you where you’re doing well and where improvements are needed.
It’ll simplify your tax returns: Come tax season, having all your financial transactions documented will be a massive relief. Instead of rummaging through receipts and bank statements, you’ll have everything at your fingertips, making the entire process smoother.
How tools & software can make it easier
Life is much easier for the conscientious business owner than it was twenty, or even ten, years ago. Gone are the days of shoeboxes stuffed with receipts! Modern solutions can automate much of the process, making your life simpler. For starters:
For small businesses: The best accounting software for smaller businesses are tools like Xero or QuickBooks. They’re user-friendly and pack in features tailored for small operations. You can take photos of receipts, and manage the whole thing through your phone if you’re on the road a lot.
For larger organisations: Bespoke OCR reading software will embed inside the large players such as SAP, Oracle or Microsoft Dynamics 365. Ideal for bigger businesses with complex needs.
Tips to suit your business
Every business should be thinking about accurate record keeping. But there are nuances depending on your structure and status. Let’s break down what you need to know for your particular circumstances:
I’m a new Limited Company!
Launching a limited company? Congratulations! First up, always document your company’s formation and registration. And don’t overlook recording things like share allocations; these early decisions can have long-term implications.
The daily grind? It’s all about tracking. From each sale to every purchase, ensure everything’s recorded. And those invoices and receipts? They’re gold. Keep them safe and organised, as they’re your proof of business activities.
Ah, the year-end rush! But with proper record-keeping, it doesn’t have to be chaotic. Stay prepared by maintaining records of company accounts, and when tax season comes knocking, you’ll be ready.
I’ve got an established business!
With growth comes complexity. Juggling multiple revenue streams? Keep those records segmented and clear. And always—always!—differentiate between business and personal expenses.
Investments and assets:
Big purchases or investments on the horizon? Remember to track asset depreciation and maintain records of all your business ventures, loans included.
Your team is your most valuable asset. Ensure you have an impeccable record of payroll, along with contracts, benefits, and any other essential employee info (such as a copy of their ID, references, exam certificates, etc.)
I’m a freelancer!
Project-based record keeping:
You’re likely to have several different projects on the go at one time. Document different contracts and assignments to ensure clarity in your income streams. And those unique freelance expenses, like home office costs or travel? Track, track, track!
Invoicing and payments:
Balancing multiple clients can be tricky. Keep a clear record of all your invoices, and if a payment’s running late, you’ll know precisely when to send that gentle nudge.
The beauty of freelancing is that many expenses can be claimed as deductions. Equip yourself with knowledge on which ones can lighten your tax load, and your wallet will thank you.
Unclear about what you can and can’t claim for? Don’t fret. Assume it’s allowable, because it’s better to air on the safe side than try and dig them all out retrospectively! The best way – reach out to your friendly accountant, and we’ll talk you through it.
Common record-keeping mistakes we see far too often
Let’s face it, we all make mistakes. Here are some of the most frequent record-keeping errors we see:
Not keeping records long enough: For tax purposes, businesses in the UK are generally required to keep records for at least six years. Failing to retain records for the necessary duration can lead to complications if HMRC decides to launch an inquiry.
Mixing personal and business finances: Using personal accounts for business transactions or vice versa can muddle financial records, making it harder to determine genuine business expenses.
Overlooking small expenses: Some businesses fail to keep track of minor or incidental expenses, but these can add up over time and might be tax-deductible.
Not recording cash transactions: In the digital age, cash transactions can sometimes be overlooked, but it’s crucial to record these just as diligently as digital or card payments.
Failing to update records regularly: Infrequent updating can lead to lost receipts, forgotten transactions, or inaccuracies.
Relying solely on memory: Not recording transactions immediately and relying on memory can lead to forgotten or inaccurate entries.
Avoiding these common mistakes can save you time, money, and potential legal complications. Think you might have got yourself in a tangle? Here at Red76Tax we’re experts in getting you out. Reach out and we can give you the advice you need.