If you've been playing for a while, you can skip to the second post when it becomes available. Improved financial record-keeping and good habits can save you time and stress while opening the door to growth, no matter what stage your firm is in. Today, we'll look at why keeping records is crucial, how to construct a war chest, and when and how to hire an accountant. We'll also go over the factors to consider when choosing software for invoicing, receipt storage, and account administration. If you have any questions about accounting in Croydon, please do not hesitate to contact Cruseburke Accounting Services. Why should you be concerned about accounting? There are two key reasons to organise your finances. Tax compliance and the ambition to run a profitable business are examples of these. In terms of your tax obligations, the penalty for noncompliance will differ by country. There are usually late filing fines, interest, and in some countries, jail time for tax evasion. It can take years for the tax authorities to investigate you, so just because you haven't heard from them in a few years doesn't mean you're out of the woods. Having an accurate set of 'books' is the foundation of tax compliance and knowing your figures. This entails accurately tracking all financial transactions in your company. You'll want to be able to track everything. Avoiding tax fines is a good reason to get your accounting in order, but you should also have some internal motivation. Do you want to manage a profitable business and reach your financial objectives? Whatever your objectives are, you must stay on top of your numbers. Obtaining payment Invoicing When you're just starting out, the most crucial thing is to get paid. You've probably figured out that in order to be paid as a freelancer, you'll need to send an invoice. There are numerous invoicing solutions available, and all accounting software should include this feature. Among the options are:
Customers should be able to pay you as easily as feasible. Give them the option to pay within the invoice if at all possible. Payment gateways can be added to your invoices using a tool like Xero. This implies that a customer can open your invoice and then proceed to a payment screen, where they can enter their credit card information and immediately pay your invoice. Accept full or partial payment at the start of each project rather than at the finish to minimise the chance of payment delays (or not getting paid at all). Bank accounts for work and personal use should be kept separate. When it comes to establishing your financial records, you'll appreciate the fact that you may break off your business transactions into their own distinct account. Check to ensure that all of your monthly subscriptions are charged to a company account rather than a personal account. If you are in the early phases of your firm, you may wish to use a personal credit card until you have established a business card. At the very least, aim to have a credit card that is only used for business transactions, since this will make it much easier to distinguish between personal and business spending. It's easy to lose sight of how much money you're spending on your credit card. Paying off the business credit card on a weekly basis can help you keep on top of things. This may not be viable if you require credit; nonetheless, I would question if relying on credit to maintain a freelance business is prudent. Expenses Expense reduction We've been discussing the importance of cash flow and following through on payments that are owed. In addition to growing income or boosting the rate at which consumers pay you, another option for expanding your cash buffer is to lower your expenses. To begin, make a list of all of your monthly and annual expenses. If you have an accounting system, you should be able to recognise this rather easily. Running a general ledger report will allow you to examine profit and loss totals for the year, as well as transaction listings for each spending line. Many of you may not have an accounting system in place right now. If you don't have a list of your spending, I'd suggest exporting your bank statement(s) to a spreadsheet and looking over that. You may have certain regular subscriptions that you are no longer using or do not require. Begin by cancelling any unnecessary subscriptions. This procedure emphasises the need of having accurate reports that enable you to readily access and evaluate account information on a regular (monthly / quarterly) basis. Receipt administration You went through an exercise in the last part when you reviewed your spending and trimmed away whatever you didn't need. Another aspect of expense management is the requirement in most countries to preserve proof of company purchases in the form of a receipt. There are numerous methods for storing receipts, but the most essential thing is that you have a system in place! The following are some of the best receipt management tools:
Physical receipts can fade or be lost over time, so I recommend storing everything in one location on the cloud. We provide best accountants for freelancers in Croydon to assist them in dealing with all of their expenses and paying taxes while they continue to do what they love. Yes, we can assist you with your tax returns as well, using our freelancer tax returns.
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Bookkeeping is a crucial component of business finance, but it is also one of the most difficult aspects of running your own company. You probably didn't become self-employed because you enjoy looking at spreadsheets and keeping track of your costs. You're happiest when you're doing what you love, whether it's running your craft business, selling goods online, or delivering excellent customer service. What exactly is a bookkeeper and what do they perform? Bookkeepers must keep an accurate record of all business costs and expenses. This not only aids in understanding a company's profitability, but it is also required when filing your tax return as part of the Self Assessment process each year. Bookkeeping also entails the processing of invoices, the review of bank statements, and the pursuit of any unpaid invoices. What exactly is the distinction between bookkeeping and accounting? Accounting and bookkeeping are two concepts that are frequently used interchangeably in corporate finance. Bookkeeping refers to the day-to-day administrative chores that maintain track of the money your company gets and spends. Accounting is a high-level form of business finance that examines a company's financial health through reports and forecasts. Auditing, analysis, and financial reporting are common accounting responsibilities, such as preparing a balance sheet to report on assets and liabilities or performing a cash flow prediction. These reports provide a more analytical perspective of your firm and can be valuable when making critical business choices. How to Perform Bookkeeping Here are our top five suggestions. 1. Select an accounting technique. To begin, you must select an accounting approach for your company: cash basis accounting or traditional accounting. What’s best for your business will depend on how you’ve set it up, so it’s better to chat to an accountant if you’re unclear. 2. Establish a structure and organise everything. The size of your company will most likely dictate how you wish to organise your financial administration. There are numerous free and paid accounting software alternatives available, but you may be content with a simple Excel spreadsheet. The important thing is that everything is in order and that you are filing your invoices, bank statements, and receipts. 3. Determine how long you should retain your financial records. After the Self Assessment date, you must preserve your business records for at least five years. Accounting records for limited corporations must be kept for at least six years. More information can be found in our record keeping guide. 4. Reclaim tax on permitted expenses. When calculating how much tax you must pay each year, you can deduct part of your self-employed expenses from your turnover. Make sure you're not one of the small businesses losing thousands on unclaimed company costs, whether it's due to misplacing receipts or not knowing what you can and can't claim. 5. Budget for your tax bill It can be difficult to predict how much tax you'll owe HMRC by the Self Assessment deadline on 31 January, but it's critical that you've allocated enough money to pay the bill. If this is your first year in company, be aware that you must pay the current year's tax bill as well as the first instalment of the following year's bill on the same day – this is known as payment on account. You've decided to take the plunge and start a new business. It's likely that you'll be stuck with the financial transactions for the foreseeable future. You must have a clean record of your business for at least six years in order to be eligible. If you fail to comply, you may be subject to a punishment of £3000. We can assist you with best bookkeeping for small businesses by referring you to one of our Croydon accountants. As a sole trader, you must keep business accounts just like any other type of firm. Contrary to popular assumption, being a single trader does not necessarily imply that you work alone (though you may) or that you do not employ anyone (though you might not). Some sole trader may employ dozens of employees and appear to be corporations. The term 'sole trader' merely refers to the structure of your business for tax purposes, and thus the type of records you must keep. A sole trader is frequently referred to as being self-employed' (though that term can also apply to single-person companies). Here's a primer on accounting for the sole proprietorship business structure. Why is it necessary to keep accounting as a sole trader? As best accountants for a sole trader, you must calculate how much tax you owe each year. This will be considerably easier if you have a clear picture of your income and expenses. Because your tax will not be deducted monthly through a PAYE system, maintaining track of your accounts prevents you from accidentally depleting the funds you need to pay HMRC on 31 January. When you're self-employed, it's useful to know how much you're spending and earning. With everything laid out, you may find possibilities to raise your profit margin — for example, by switching suppliers or raising the price of some items or services. As a sole trader, what accounts do I need to keep? By law, you must keep a record of your income and expenses for five years after the 31st of January tax submission deadline. It's critical that you have them available for HMRC if they ask for them. Here is a list of all the records you should keep:
Sole trade rare subject to the same taxation as workers. You must calculate and pay these yourself by the 31 January after the end of the tax year using HMRC's self-assessment tax return. The following are the taxes that sole trader must pay:
Can I deduct company expenses? Sole traders, like corporations, can deduct business expenses from their tax payment. The government has set out the expenses it would accept to prevent people from claiming money back for goods that aren't utilised for company purposes. The following are the self-employed business expenses that are currently on the list:
Is it necessary for me to have a separate company bank account? As a sole trader, you and your business are treated as one entity for tax and legal purposes. It is not a legal obligation for a sole trader to have a separate business bank account, but it is a very excellent idea. Trying to separate your business costs from your personal ones may rapidly get complicated if all of your payments are made from the same account, making it significantly more difficult to keep track of your expenses. Furthermore, you may not want to offer your personal account information to your consumers. Some banks charge fees for specific business accounts, although they frequently include valuable tools for generating invoices, preparing tax returns, and managing payroll (if you employ staff). |
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August 2022
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