Lots of small business owners decide to do their own books, rather than employing an accountant. If you are self-employed, and have a knack for numbers, doing your own accounts can be a great way to keep costs down, and keep commercially aware of your finances.
While doing your own accounts can be perfectly manageable, it’s important to be aware of your legal obligations, and what you need to do to keep everything in check.
Why do you need to keep financial records?
If you’re going to be doing your own accounts, you first need to understand the rationale behind it all. You need to keep financial records for two main reasons.
1. Staying aware of your business performance: to be able to thrive, it’s essential to keep abreast of profits and losses.
2. Meeting your legal obligations: Her Majesty’s Revenue and Customs (HMRC) requires you to provide up-to-data financial information for tax purposes.
What you need to keep a record of
As soon as you start doing business, you need to keep a record of all your financial activities. This includes:
- Income made from sales
- Business expenses
- VAT records (if you are VAT registered)
- PAYE records (if you have employees)
- Information about your income
- What you are still owed
- What you still owe
- The value of all stock / incomplete work
- Your year-end bank balance
- Business investments
- Funds removed for personal use
What your accounts should include
All your records will be used to create a Profit and Loss Account, and a Balance sheet. Each of these will contain the following:
Profit and Loss Account:
You will also need to include a director’s report, and notes about the accounts.
Where to record information
Sophisticated accounting software allows you to easily keep track of your finances. Sage is one of the most widely used software packages in the UK. If you’d like to get to grips with using it, you can take a course.
If you would prefer to start off without software, though, you can keep your own records in Excel. Our accounts tutor, Pat, gives some great tips on using Excel for accounting here.
Building your confidence
Although you can begin doing your own accounts with no formal qualifications, it is a good idea to get some training first.
Our short AAT Accounting Skills to Run Your Business distance learning course is ideal for getting you prepared to carry out the whole process independently. If you’re still wondering about doing your own accounts, read our blog post about whether you should hire an accountant.