Bookkeeping is an essential part of any commercial business. From self-employed sole traders to multi-national conglomerates, a slick accounting operation will help businesses boost their profits and make smarter spending decisions. Accurate records are also a legal obligation for many businesses, such as limited companies, so it’s important for companies to stay on top their numbers if they are to keep HMRC happy.
Long before the digital revolution, book keeping was done the old-fashioned way. Typically this meant manually logging numbers and figures in a paper ledger and storing receipts and paperwork away in dusty filing systems. But the times have changed. Computers have revolutionised the way we all live, including the way businesses manage their financial affairs. Today, specialist accounting software has all but replaced the paper ledgers of old and is now the go-to way for businesses large and small to keep track of their finances.
Digital accounting software provides a wealth of benefits for businesses of all sizes. It can be used to accurately log expenditure and revenue and also help business owners to forecast their sales growth and manage inventories. It can provide bigger picture information about the health of a business, allowing companies to make more informed decisions about the direction of the business – and ultimately boost profits.
Although bookkeeping is a crucial part of running any business, it can also be a time consuming and onerous process. Running a business means juggling a range of different tasks, from managing staff to developing marketing strategy – and book keeping can feel like another burdensome task to contend with.
For small businesses in particular, maintaining the books can be a real challenge. Many smaller companies are still stuffing shoeboxes with receipts and hoping for the best when HMRC’s deadlines start looming. But this is a risky tactic however and can result in errors – not to mention a lot of headaches along the way and the possibility of not fulfilling the legal obligations set down by the tax man.
This is exactly why so many businesses are going digital with their bookkeeping needs. Software is helping to make the financial process smooth and easy and while the demands on businesses grow ever-stronger, digital bookkeeping can lighten the load and free up time for busy business owners and finance staff.
What records must your business keep and for how long
There are a range of legal obligations that businesses must meet when it comes to managing their company finances. These ensure that the company is taxed at the correct rate, staff are paid at the correct levels and VAT is charged at the right level.
The information that HMRC require from businesses may include:
- detail about money spent and money received by the company, including any government funding from Covid-19 support schemes
- information about any assets the company owns
- details of any debts owed by or to the company
- a list of stock the company owns by the financial year end
- information about the stocktaking process and information used to determine the stock figure
- a log of all products or goods bought and sold
- information about who these products and goods where bought from and who they were sold to
In many cases businesses will also need use this information to create the paperwork required for the annual accounts and company Tax Return.
What can bookkeeping software do for you
Bookkeeping software can make a huge difference to businesses of all sizes. One of the key advantages is the speed with which is can log and process data, as traditionally more time-consuming tasks involved in bookkeeping become automated. This makes data processing more accurate, more speedy and most efficient.
Bookkeeping software – also known as accounting software – has developed into a must have product for a range of businesses. It provides a one stop shop where all transactions can be recorded and processed in a quick and accurate way, which not only makes accounting less of a headache, but also provides a picture of the health of the business and can inform smarter decision-making going forward.
A huge variety of software packages are on the market, and many of them have additional features available which allow businesses to manage billing, payroll, accounts payable, tax filing and financial reporting – alongside their bookkeeping.
Some of the key features accounting software can offer include:
Bank connections – many software packages provide direct connections with a company’s banking provider, allowing all transactions associated with the business to be transferred straight into the business bank account
Online ledger – it’s possible to use software to create a singular version of the books which can be accessed by range of people across the business, from the finance team to the business partners.
Dashboards – this is a visual snapshot of the business’s incomings, outgoings and other transactions which can be generated through a digital software package
Mobile notifications – many software packages can be linked up to smartphones so that alerts for key business deadlines are pinged straight to the handsets of selected staff
Quotes – another handy feature is to use software to generate quotes which can then be issued direct to customer. Customers can then digitally accept the quote with the simple click of a button
Online invoicing and payments – invoices can also be sent directly from the software package to the customer, offering them a range of digital payment options which then connect directly to the business accounts
Making Tax Digital makes computerised bookkeeping a must
Making Tax Digital is an initiative from HMRC to introduce digital bookkeeping into business operations up and down the country. The project aims to make recordkeeping more accurate and less troublesome for the business, with information relayed in real time from the company accounts straight to the tax man.
Business that are VAT registered or that employ staff are legally obliged to send their financial records digitally to HMRC, as part of the Making Tax Digital initiative. For these businesses, digital record keeping is an absolute must in order to comply with HMRC’s requirements.
But for those businesses beneath the VAT threshold, it’s also still wise to consider digital book-keeping – the process provides a wealth of benefits and the digital first approach is fast becoming the ‘new normal’. Although telephone and postal communication with HMRC is still an option for these businesses, the government department is anticipating that digital channels will eventually become the normal way for businesses to share their financial information.
The Making Tax Digital initiative first began with the introduction of real-time reporting of payroll data from businesses directly to HMRC. This allows employers access to an online business tax account on HMRC’s gov.uk pages, with live information about how much PAYE they’ve paid and are due to pay. The personalised online snapshot on gov.uk also contains information about the business’s tax obligations – including details about corporation tax, VAT and other taxes which are due.
The next stage of the initiative then required VAT registered business to report their VAT-related figures every quarter to HMRC. From April 2019 onwards, this has become the norm for businesses that sit within this category.
What are the limitations of bookkeeping software
The benefits of bookkeeping are wide-reaching and vast. However, like many digital systems, there are still certain accounting tasks that will require the expertise of a living, breathing human!
Even the cleverest computer software cannot replace the expertise of an experienced accountant. Despite all the 21st century advanced in technology, It still takes a human conversation with a financial advisor or accountant to come up with a smart business plan or to develop a new business structure. The expertise of a trained professional provides a level of insight and understanding that simply isn’t possible to replicate with a computer.
In the world of financial reporting, even the tiniest of inaccuracies in the figures can result in a hefty fine or penalty. That’s why it’s always worth having a second pair of eyes to look over the books and ensure that all the information recorded is correct. Again, there’s no substitute for an accountant or financial advisor at this stage, ensuring that all the books are balanced before they are submitted.
The best of both worlds
The benefits of accounting software are varied and huge – and in many cases, the digital-first approach is a legal obligation, making it a must-have for organisations above the VAT threshold, for example.
However, it’s important to stress that software cannot work alone. The most effective approach for businesses is in fact a hybrid approach – combining the use of digital book-keeping software with the expertise of a trusted accountant or advisor.
The benefit of an accountant is that can find tax savings that software cannot, and can advise on things like selling your business, or how to maximise tax savings. They can also ensure that the business stays compliant and pays exactly the right amount of tax.
When it comings to growing the business, an accountant can offer strategic financial advice to help the business achieve its financial goals and maintain its health. And in a world where the tiniest of errors in a financial report can land a hefty penalty or fine, the engagement of an accountant is also a smart business move which will save money in the long run.
An Accounting Gem can offer you advice on the best software for your company, and the peace of mind of working with an experienced and friendly team of accountants who can look beyond the figures and offer help and guidance on any and all business accountancy matters.
You can reach us on 01473 744 700 or via email at contactus@aag-accountants.co.uk.
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