5 ways to spring clean your business books in the new tax year
With the new tax year now under way, it’s a great time to think about making some changes to keep your business running as efficiently as possible in the year ahead.
One of the most important pieces of spring cleaning you can perform is giving your business books a proper sort-out, so that your financial information is as up-to-date and accurate as possible. But how do you go about doing this?
Here, Emily Coltman FCA, chief accountant at FreeAgent – who provide cloud accounting software for freelancers, micro-businesses and their accountants – offers her top tips to help you polish up your books and get your business set for fresh new growth in the months ahead.
Review your customer list
Look at who you sell to and how quickly each customer pays you. Then think about whether any of them regularly question your price, or expect you to deliver more services for no additional fee.
If so, you may want to consider whether those customers could actually be harming your business. It’s sometimes hard to turn customers away, particularly as a small business in the early stages of its life, but you may end up being glad of it in the long run – and your bill for headache pills will be much smaller! Remember: you don’t have to work with anyone you don’t want to.
Look at your cashflow
Take a look at your business bank account and see how much you had in the bank at the end of each month – and whether there are any noticeable times when you were really short of cash. Then consider what you could do next year to stop that happening again – for example, opening your business to new markets, putting your prices up, or borrowing extra money.
If you do not keep track of your cash, you could find yourself unable to pay bills on time, which will damage your relationships with your suppliers and make them not want to go the extra mile for you next time you need something delivered urgently. Remember, the better your relationships with your suppliers, the more you can do for your customers.
In the very worst case scenario your business could even not survive if it runs out of cash completely.
Be consistent in your categorisation
When you’re deciding which category to put your costs into, such as stationery or postage, you may well find that some of your business’s costs could easily go into more than one category. For example, a monthly subscription to a software provider could be Computer Software or Subscriptions.
While there may not be clear-cut guidance from HMRC about which category to choose in these situations, make sure you allocate these costs consistently as they recur. That way, if your accountant needs to move the cost to a different category for tax reporting, it’ll be quicker for them to do that. Also, it’s much easier for you to track how much you’re spending in each category if you always put the same costs in the same places.
Go back over your historic transactions and make sure that you’ve categorised your costs consistently.
Close any cancelled invoices or bills
You may have had to cancel an invoice that you’ve issued to a customer, or a supplier may cancel a bill they’ve given you. If this is the case, make sure these items aren’t showing in your books any more. This will also reduce the income or cost accordingly in your profit and loss account.
Review your suppliers
Think about what you’re buying and how much you spend with the people who you buy from. Maybe there’s a discount you could negotiate on the basis of bulk purchases, or for being a long-standing customer. And, if not, there may be other suppliers who can give you a comparable product at a cheaper price, or with a faster service.
One crucial point is not to compromise on the quality of what you buy. Flimsy business cards, for example, may save you some money, but they will probably be detrimental to your business in the long term. Make sure you spend enough to avoid devaluing your brand.
Emily Coltman FCA is chief accountant to FreeAgent, who make award-winning cloud accounting software for freelancers, micro-businesses and their accountants. Try it for free at www.freeagent.com