Small business startups need the right foundations on which to build their growth, and one of these foundations is their accounting.
In 2019, there were 5.8 million SMEs in the UK. According to FSB, these businesses account for around half of the turnover of the UK’s private sector. Small and medium sized enterprises are the engine room of the British economy, and many of the most dynamic startups are in the UK tech sector.
But, in the current economic circumstances, even the most dynamic enterprises face challenges ahead, which is why they need to have the right kind of financial processes in place to keep them on track.
Here, we look at important accounting tips for small business startups.
Having control of your financials, and a good degree of insight into them, are essential if you want to get your accounting right from the start.
Entrepreneurial spirit and drive will not, in themselves, guarantee your survival.
Separate your personal and business finances. You don’t have to do this by law, but if you don’t, it may make things more complicated for you further down the line.
HMRC requires you to keep accurate records, and having a separate business account will help you to do this.
In theory, this sounds simple, even mundane, but it is a fundamental aspect of accounting that many businesses fail to get a grip on.
You must keep accurate accounting records, not just for the financial health of your business, but also because it is a legal requirement.
Without these records, you may not be able to claim legitimate business expenses, which can lower the amount of tax you have to pay.
And poor record-keeping can mean you’re unclear about your cash-flow (see below).
Your accounting records should include:
Sound bookkeeping is essential for startups. You can do this manually, but there is also a broad choice of accounting software to make this easier for you.
Without the money to pay your bills, you risk going out of business. You may also need money for salaries and other expenses.
Therefore, you must manage and maintain your cash flow.
It is the lifeblood of a startup. Keep track on who owes you money, and on who you owe money to.
You should be prepared for what money you will have coming in and going out, and have proper systems in place to make payments, and chase invoices where payments to you are late.
Don’t give credit unless you fully understand the risks and you have built credit costs into your pricing.
As a startup, you have certain obligations when it comes to being compliant. Depending on the type of business set-up you have, you will need to ensure you’re compliant in some of the following:
Legislative changes can occur regularly, so it’s also important to keep up to date with these too, as they can impact on whether your business is compliant or not.
There are essential costs you will have that keep your business running. If your business is a tech startup, for example, you will have various hardware and software costs that come with the territory.
Other expenses can include rent, business rates, wages, marketing and professional fees.
These expenses are normally tax-deductible, when you calculate your business’s profits. Once you take your expenses into account, you will have less profit, and therefore less tax.
Setting up a business can be exciting, and full of a sense of promise and opportunity.
But however forward-thinking your business model is, you should still put your financials first.
Ensuring your accounting information is up to date will provide the kind of firm foundation you need to then grow your business. Accounting is by no means the most interesting or exciting part of starting out in business, but it does provide the framework for future development.
When you start your own business, it can be a steep learning curve, involving you doing lots of things yourself that you wouldn’t have done before.
But a crucial lesson to learn is when it makes sense to get expert help, advice and support. DIY accounting involves a lot of risk and mistakes can often be costly if you get it wrong.
Will you taking on the burden of all your own accounting help and potentially hinder your business development? Sometimes, it’s best to trust an expert and leave the hard work to a small business accountancy firm.
Here at Venn Accounts, we build strong partnerships with our small business clients, and we can become your long-term strategic partners, providing you with the professional, cloud-based accounting support you need.