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The Best Way to Learn About Bookkeeping as an Entrepreneur

Tue, 01 April 2014

Lucy Cohen, Mazuma founder and Shell LiveWIRE winner contributes her advice on bookkeeping for entrepreneurs
First of all – what is bookkeeping?  Put simply, bookkeeping in business is the recording of financial transactions and is part of the process of accounting.
You may have heard the term “double entry bookkeeping” which is the method that a qualified bookkeeper or accountant will use but in real terms, any sort of recording of the business’ financial information is bookkeeping.
Bookkeeping is one of those things that most entrepreneurs know they have to do, but hate doing. It’s a boring admin job that is time consuming when you would be better placed spending your time building your business. True as this may be, it’s important to have a grasp of your figures – you’ll need to understand your financials if you are looking for investment, planning how to grow your business or just estimating how much tax you may have to pay.  And your business’ figures are built on your bookkeeping.
Bookkeeping isn’t just data entry – a lot of people think it is and they’re just plain wrong. Done correctly, bookkeeping builds the foundation of your accounts, lets you calculate your VAT returns and plan your cash flow. Done incorrectly, it’s a big fat waste of time.
So how do you get it right?  Well, first things first, you need to know what happens to the bookkeeping when it gets turned into a set of accounts – so look at a set of accounts.  Try and familiarise yourself with the income and expense headings in the profit and loss account and take a look at the balance sheet.  A quick search of the internet will bring up lots of sets of accounts for you to look at and these will give you an idea of what sort of thing to expect when your bookkeeping gets turned into a set of accounts. As you take note of the different income and expense headings think about your own receipts and invoices – how would you classify those? This should give you an idea of how to approach your bookkeeping and what sorts of things get included.
So now that you’ve got a bit more of a grasp of what sort of thing bookkeeping comprises of, you need to think about how you’re going to do it.  There are plenty of online bookkeeping software and accountancy services that offer good services if you are happy to do the data entry yourself.  If you’re comfortable with that then again, a quick online search will bring up some good options – and many of them offer a free trial period. There are also remote accountancy services that do all the bookkeeping for you as well as producing the year-end accounts and dealing with the tax returns. But of course these all cost money. If you’re just starting out then there is a lot to be said for a good old Microsoft Excel spread-sheet – and there are plenty of templates for bookkeeping that you can download for free.
Running a remote accountancy service, I am of course a bit biased and think that you should get an accountant on board from day one. But I fully understand that for many this simply isn’t an option because of cost, or the desire to understand the financial side of their business themselves first before handing the work to someone else – which I agree is a good thing to do. Just remember that whilst it is important that you understand your business’ figures, it shouldn’t become something that takes up all your time. After all, you’re an entrepreneur, not an accountant!  So when you get to the point that you’re getting bogged down in it all, you need to think about outsourcing it. That said though, if you’re going to give it a go here are a few handy hints for you!
  • Try not to get too carried away with creating expense headings, it will only complicate matters! I have genuinely seen people who run office-based businesses have separate expense codes for tea, coffee, milk, sugar and artificial sweeteners. In my opinion this is overkill when a simple ‘sundry’ expense heading would suffice!
  • Make sure that you pay for all business related items through your business bank account so you can reconcile the entries with your accounts paperwork.  It also provides an additional back up in the event of an HMRC investigation.  HMRC can now request to do something called a Business Records Check where they come and have a look at what sort of bookkeeping system you are operating.
  • Get into a routine – keep on top of the bookkeeping and it won’t become such a daunting task.
  • Keep all of your accountancy paperwork in one place. It sounds obvious but when things get busy it’s easy to succumb to a cluttered desk!
  • If you’re not sure if something is a tax deductible business expense, write a description of why you bought it next to the bookkeeping entry.  This will help your accountant decide if you can put it through your tax return or not.
Happy bookkeeping!

About Lucy Cohen (founder of Mazuma)

Lucy set up Mazuma in 2006 with her best friend and business partner Sophie Hughes. Mazuma was set up to do away with the boring accountancy stereotype and to make accountancy services cheap and accessible to the businesses that really needed them most.  Mazuma is now one of the UK’s largest providers of accountancy services to small and start-up businesses, and their UK success saw them launch in the USA in April 2011. They have won many awards over the years including the Shell LiveWIRE Wales Region award in 2007 and the HSBC Start–up Stars award in 2010. 

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