Of course, you are busy! You have plenty to do every day to run your business, keep your customers happy and then there is the admin side of things. When you already have a lot to do if something big, an expected project say, comes up you might find that it absorbs all your attention. In this situation it can be a shock when you suddenly realised that the year’s up. And then it hits you – you’ve got a self-assessment return to file, and you’ve got absolutely no idea where to begin.
Only two things can help you ensure you don’t get into this tricky situation again – accounting, and bookkeeping. These are important financial processes that’ll assist you with financial control and end-of-year tax affairs. But they’re not the same thing, and it’s important you understand the difference moving forward.
What is bookkeeping?
Bookkeeping is the process of keeping accurate records of business transactions. All financial transactions are recorded and stored in your ‘books’. Additional activities include verifying and recording invoices, paying suppliers and keeping receipts.
What is a bookkeeper?
A bookkeeper is a data entry professional. A bookkeeper’s role is to maintain accurate business records. The ‘books’ a bookkeeper maintains are then used by an accountant to prepare finance reports and file tax returns. Some accounting practices offer bookkeeping as part of their service, so everything’s under one roof.
Do I need a bookkeeper?
You can practice good bookkeeping yourself with software. There’s countless tools out there, such as Rydoo. If you’re already on top of your books but are struggling to keep tabs on your invoices, you can track invoices with Solna.
If you don’t want a hand in maintaining your books, outsourcing to a bookkeeper is the only way. Bookkeepers typically charge £50 an hour. Most freelancers will need three to four hours a month, so the outlay will be around £200 per month. If you earn way more than this then it makes sense to outsource to free up your time.
What is accounting?
Accounting is the process of presenting financial information in various reports. A relevant example is the end of year self-assessment. Simply put, accounting is the art of presenting information in different forms, such as balance sheets and income statements.
What is an accountant?
An accountant is a finance expert who manages your tax affairs on your behalf. Your accountant exists to provide up to date monetary business advice and help you run a tax efficient operation. Bookkeepers, by comparison, crunch data. They don’t provide advice or assist with the creation of financial reports or tax returns.
Do I need an accountant?
You don’t need an accountant to file your self-assessment tax return. You can do this yourself online in a matter of minutes. However, in doing so you run the risk of paying more income tax than you should. For example, you might not make proper use of your allowable expenses or setup a tax efficient payment structure.
Accountants are worth their weight in gold because they can advise you on the most tax efficient structure for your business. For instance, they might set up a PAYE scheme for you and note some payments as dividends. This is all complicated stuff if you’re not familiar with accounting – which is why you need an accountant.
What are the best ways to find an accountant?
If you are looking for your first account to work with or you think it is time for a change here are some tips on to help you make a good choice.
• Word of mouth. Ask other business owners and friends for recommendations
• Look at independent reviewers. You can look at accountants website which may well include testimonials. However, to get an impartial point of view it is probably best to look at independent sites
• Check if they have specialism. Many accountants cover the straight forward work that a business needs them for. However, some will have specialist skills. Depending on your business needs you may want to check if they have specialist knowledge, perhaps in your industry.
Bringing A and B together
Whether you choose to take on a bookkeeper or do it yourself, it’s important you bring bookkeeping and accounting together. The functions are separate but the relationship between them needs to be very close. Quality bookkeeping will make your accountant’s life easier. In turn and quality accounting makes sure your financial reports, tax returns etc are well put together.
Don’t forget that many day-to-day tasks you might assume are covered by bookkeeping aren’t. Bookkeeping doesn’t send out invoices for you nor does it automate payment reminders if they become past due. And, while bookkeeping will help you make informed business decisions, it won’t track your customer credit scores so that you stay in the loop about their risk profile. For these tasks, you will need to use an automated system that can generate invoices, chase them automatically and will allow you to check credit scores of your current and potential customers – so you know which customers are likely to be the riskiest when it comes to getting paid on time.
About the author: Inna Kaushan is co-founder of Solna, a smart invoicing platform powered by credit score data. Solna speeds up the invoicing and payment process for freelancers and small businesses. Through leveraged credit data that is overlaid on the platform’s invoicing and reporting functionality, users get a clear picture of their customer’s financial health and their overall exposure to risk. The system’s automated credit control functionality automatically chases overdue invoices – freeing up time and ensuring faster payment.