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Keep track of your cashflow
Why you need bookkeeping
Bookkeeping
The activity of keeping records and organising your business's financial data on a day-to-day basis. It provides a way to keep track of what your business receives and spends. It’s more transactional.
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Accounting
The process of taking the financial data collated in bookkeeping to prepare reports, give you insights into your business and provide information for assessment by HMRC.
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Why do you need to keep an eye on your books?
It helps you keep an eye on income and expenses
You want your business to succeed, so you need to know you’re getting more income in than expenses you’re paying out.
It’s good business practice
An accurate, well-kept set of books is one of the most important areas when you’re running a successful business. It’s good practice too – it gives you a clear view of the health, profitability and viability of your business.
It’s handy to keep on the right side of any tax owed
It’s also a legal requirement for business owners in making sure you stay compliant with HMRC requirements and pay the right amount of tax and contributions.
6 more reasons you need bookkeeping:
- You can check that you’re making more money than you’re spending (negative cash flow is a big killer of early-stage businesses)
- You’ll have reliable financial information for planning and budgeting decisions
- You can see if a cash gap is coming and take steps to avoid it
- You’re more likely to find incorrect payments (or even fraud) that might cost you money
- You can complete accurate tax returns
- Having your financial information organised makes it easier for you to work with lenders, investors and accountants
1. Record your expenses
Reflect on the key expenses for your business and how you manage and record them. Every business purchase you make should be noted. You should also hold onto the receipt or proof of purchase, if you plan to claim that expense as a tax deduction.
Top tip
If you’ve already gone through our learning on cost structure, you can review how income is being recorded through your bookkeeping processes.
Start-up expenses
When you gets started, you’re likely to have more expenses than income for a while.
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Bills and operating expenses
Generally varied cost of sales and more fixed day-to-day expenses or wages or professionally fees.
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Out of pocket expenses
Stuff like travel, meals and accommodation.
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2. Record your income
Think about the income that comes into the business and how you manage and record this. Also known as your sales figures, you can often get the info downloaded directly from point of sale or invoicing software. Invoices are the most often used method of recording sales or income.
Top tip
If you’ve already completed the revenue streams module, review and reflect on how any income is being recorded through your bookkeeping processes.
Invoices
Invoices are the most often used method of recording sales or income. Invoicing records the detail of the sale, sets out payment expectations and monitors your progress in getting paid.
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Alternative sales recording
Not all sales are recorded through invoicing. If you run a shop, or take payments online, then you’ll often record them through a platform like Shopify or Wix. But you still need to count them!
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Other income
You may receive income from other sources, like grants, or loans, or funding from investors, so you’ll need to record all of these sources of income too.
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FreeAgent's advice for getting it done
1. Pick your hour a week
The most simple step is to create a routine for managing your books. For many businesses this can be as simple as dedicating an hour a week to it. Remember to clock off this time in your diary and set reminders so you don’t forget.
2. Have a weekly checklist
Keep up to date with your invoices. And if invoicing is taking too much of your time, think about automating parts of the process.
3. Manage your bills
Keep a record of outstanding bills to suppliers so you’ll always know who you owe, how much you owe and when to pay.
4. Reconcile your bank transactions
Stay on top of your bank transactions so you have an up-to-date view of your cash flow.
5. Check that your projects are earning enough
Where’s your time best spent? Record all your costs and unbillable time against your projects to get the full view.
6. Learn one new thing about your business
What secrets is your business hiding from you? Turn detective and consider things like reviewing your pricing, understanding seasonaility in your business and monitoring what you competitors are up to.
7. Two-minute daily tasks
- Record expenses as you go
Do you have a receipt in your wallet right now, likely to be forgotten or lost? Take a quick snap of that receipt on your phone. - Track your time on the go
Going to a client meeting? Track your time there and then, before you forget. Remember to also track time you don’t charge a client for, so you can measure your project’s profitability.
Free accounting software for our business customers
FreeAgent's accounting software is used by over 150,000 small businesses to monitor cashflow, fire off invoices and record expenses.
And whether you're just starting out or already up and running, you can get FreeAgent for free (optional add-ons may be chargeable), as long as you retain your NatWest business current account.
Plus, nine out of ten small business owners who use FreeAgent say it helps them to feel more confident about their business finances.**
Find out more about how FreeAgent can help you to nail the admin, take care of tax and see the bigger picture on your business finances.
**FreeAgent customer survey, Spring 2023
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Business banking is available to eligible customers who are over 18 and have the right to be self-employed in the UK.
This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the NatWest Group Economics Department, as of this date and are subject to change without notice.