If you have decided to start your own business, good for you. More people have begun to strike out on their own after redundancy or simply because it is something that they have been passionate about for a long time, and this should be one of the most exciting times of your life. You have probably done all you can to prepare your business, from registering with HMRC to sorting out your bank account and making sure you have the proper insurance. But this isn’t the end of your responsibilities. In fact, you have to think carefully about your accounting and bookkeeping system and the taxes you have to pay as well; these all make up an integral part of running and operating a business.
From making sure your books are in order to manage your flow of cash to hiring an accountant to help you with controlling your expenses, the more you prepare your accounting and bookkeeping and have the proper knowledge about taxes, the better prepared you will be and the less stress you will have in the months – and even years – to come. Here, then, is what you should really know about accounting and taxes if you have a small business.
- Being in charge of tax returns
If you want to avoid any penalties when it comes to tax returns, you have to come to terms with it early on. The first step is to know the timeline, especially the most crucial dates for tax returns. If you are a sole trader, you will have the same deadline for self-assessment tax as everyone, but you will have some exceptions. For instance, if you have other earnings under PAYE and you would like HMRC to collect the tax from this, your deadline will be earlier. If you are not a sole trader, it gets more complex. You would have to think not only about corporation tax but also VAT, PAYE, National Insurance (NI) contributions, and income tax. If you want to avoid any crucial errors in this, you can go to an accountant like the central London accountants from GSM & Co. who can do all the necessary paperwork and compliance for you.
- Managing your cash flow
There’s no denying that you need cash – and plenty of it – when you are running your own business. If you have the proper cash flow – in other words, if you can properly monitor, analyse, and optimise the timing of the money going into your business as opposed to the timing of your spending, then you have good cash flow management. If your business tends to spend more than it receives at any given time, then you may be dealing with a cash flow issue. What you can do, therefore, is to avoid cash shortages which take too long. A shortage occurs when there is too big a gap between the time you receive money and the time you spend money.
If you want to avoid shortages, take a close look at your business plan and assess where you spend your cash, especially on things such as payroll, tax, and VAT. It’s important to plan your projections until the next year if you have already been in business for a while, but if you’re a start-up, plan your projections as early as the next week. Also, make sure you have a set plan for beating late-paying customers and minimising your finance bad debts. Make sure you set out clear payment terms for your clients, and don’t forget to follow up regularly as well. To avoid bad debts, do a proper background check on prospective clients and set up incremental payments so you don’t end up with a completely unpaid invoice at the end of a project.