Staying on top of your finances is super important when you’re self employed either as a sole trader or a director of your own limited company.
You need to know if you’re making a profit, how much you need to put aside for tax and what’s left for you to take out of the business.
The only way you can achieve this is by keeping your accounts up to date, also known as keeping the books.
Here’s some tips to make keeping the books easy and cheap.
Keep it simple when getting started
If you’re just starting out and have very straight forward accounting needs then a simple spreadsheet is as good a place as any to start keeping your books.
By putting together your accounting data in this way you’ll learn about how things are made up, balancing the bank accounts and the recording of costs and income.
This example sheet (click here) has a tab each for:
- Income / business receipts paid into the bank
- Payments made from the bank
- Income / business receipts paid into a PayPal account
- Payments made from a PayPal account
- Income / business receipts paid into your personal bank
- Payments made from your personal funds
As confirmation that you’ve recorded everything correctly you can do a check or reconciliation for each business bank or PayPal account as follows:
Opening Balance brought forward at the start of the year (which may be £nil if it’s a new account)
Add total receipts / income
Less total costs
Should equal closing balance at the year end
If the closing balance does not agree to the balance on the bank statement, online report or PayPal account and there is a difference then you’ve made an error in the bookkeeping. The difference needs to be found by checking off the transactions to the bank or PayPal statements.
Within the sheet you’d enter the amount in the total column as well as record it under the appropriate income or cost heading. This is known as doing the bookkeeping analysis.
If you’re VAT registered you would add in a column for VAT and record just the net amount (total cost less VAT) under the appropriate heading for the bookkeeping analysis.
To finalise your accounts you’d add together all of the cost headings and subtract them from the total of your income to arrive at your profit (or loss if your costs are greater than your income).
For Cloud Accounting use FreeAgent
Having used most of the Cloud Accounting systems out there and seen numerous clients keep their books on them I’d say that by far the simplest for business owners to use is FreeAgent. Most business owners seem to find it intuitive to use and if they did need support the exemplary guides on the FreeAgent site along with the support team seems to sort any issues out that occur.
Not only that but if you have a NatWest bank account it’s absolutely FREE to use. I call that a blooming good deal saving a small company owner in excess of a couple of hundred pounds a year.
A NatWest business bank account is easy to set up (click here) and you can apply online without any need to visit a Branch.
If you don’t want a NatWest bank account then you can save 10% on FreeAgent – click here
When we take on new clients who have set themselves up with FreeAgent they are “keeping the books” really well which is credit to the FreeAgent team and their head accountant Emily who has written some fabulous and helpful content.
From our point of view, as accountants FreeAgent is simple to use having easy access to a year end “Trial Balance” (the main report we like to see) which surprisingly doesn’t seem to be available in all Cloud Accounting systems.
If you like tech use Coconut
If tech and Apps are more your thing then try out Coconut – click here
Coconut launched in January 2018. It’s designed specifically for freelancers, self-employed people and small business owners and is taking the market by storm. As well as being an easy to set up bank account (no need to visit a branch, do it all online through the App) Coconut uses machine learning to do the bookkeeping for you allocating your income and costs to the right headings. Receipts can be uploaded against a transaction and then binned rather than stored in paper files. Customer invoices can be created and sent within the App helping you get paid on time.
Simply put it frees people from keeping the books by combining banking, payments and accounting into one simple product.
For the self employed sole trader it even sums things up into the same headings that are on the self assessment. So there’s no excuse not to get your tax return filed way ahead of the January deadline!
If you’re tech savvy and want easy accounting and tax then Coconut is the tool for you.
An alternative to Coconut is Tide – click here to find out more.