2.Which financial records should I keep?
Business owners should maintain records such as business tax returns, financial statements, income statements, balance sheets, cash flow statements, statements of retained earnings, and general ledger. It’s important to keep accurate and comprehensive financial records to monitor your business's progress, prepare financial statements, identify income sources, track deductible expenses, and prepare tax returns.
3.How can I separate my personal and business finances?
Mixing business and personal finances is a common mistake among small business owners. Accurate reporting is essential for growth, and separating these finances is crucial.
You can start by getting a Unique Taxpayer Reference (UTR) number, for your business. Next, open a business bank account to keep your business transactions separate from your personal ones. Consider applying for a business credit or cash card to manage and track business expenses more efficiently. It is also essential to diligently track your expenses, retain receipts for business transactions, and file taxes separately for your personal and business finances.
4.What is the difference between cash and accrual accounting?
The main difference between cash and accrual accounting lies in the timing of when revenue and expenses are recorded. In simple terms, cash accounting focuses on the actual flow of cash in and out of a business, recording transactions only when money is received or paid.
On the other hand, accrual accounting records transactions when they are earned or incurred, regardless of when the cash is exchanged. This means that with accrual accounting, you account for revenue when it's earned and expenses when they're incurred, even if the payment hasn't been made or received yet
Accrual accounting provides a more accurate picture of a company's financial health, while cash accounting is simpler and more straightforward.
5.How can I improve my financial reporting and record-keeping?
To improve your financial reporting and record-keeping, apps and softwares can be an invaluable tool in organising financial records as well as coordinating with bookkeepers and accountants. By centralising records in one location, the process is simplified, and accurate reporting is more easily achieved. Additionally, implementing a secure, shared, and centralised financial reporting system can improve communication and collaboration among team members, ensuring that everyone is on the same page and that the reporting process runs smoothly.
6.How do I choose the right accounting software for my business?
Consider factors such as ease of use, affordability, scalability, integration with other software, and the availability of customer support when choosing accounting software. It's essential to select a software solution that meets your business's specific needs and can grow with your company.
Some popular accounting software options include Wave Accounting, Xero, FreshBooks, and QuickBooks Online, with prices starting around $10 to $15 per month.
7.What are the essential financial statements I need to prepare?
The three essential financial statements are the balance sheet, income statement, and cash flow statement. The balance sheet shows a company's assets, liabilities, and equity. The income statement summarises revenues, expenses, and net income. The cash flow statement provides an overview of cash inflows and outflows during a specific period.
8.What is the difference between a tax deduction and a tax credit?
A tax deduction reduces your taxable income, while a tax credit directly reduces your tax liability. For example, if you have a £1,000 tax deduction and £50,000 in taxable income, your taxable income would be reduced to £49,000. A tax credit, on the other hand, would directly reduce your tax liability by the credit amount.
9.How often should I review my financial statements?
Regularly reviewing your financial statements is essential for understanding your business's financial health and making informed decisions. Ideally, you should review your financial statements monthly, but quarterly reviews are also acceptable for smaller businesses.
10.What is the accounting equation?
The accounting equation is a fundamental principle in accounting that states a business's total assets are always equal to the sum of its liabilities and owner's equity. In simple terms, it can be represented as: Assets = Liabilities + Owner's Equity. This equation is the foundation of the double-entry accounting system used by businesses of all sizes.
Here's a brief explanation of each component:
Assets: These are the resources your business owns, such as cash, inventory, equipment, and buildings.
Liabilities: These represent what your business owes to others, such as loans, credit card balances, and accounts payable.
Owner's Equity: This is the residual interest in the assets of the business after deducting liabilities. In other words, it's what the owner or owners have invested in the business, plus any profits that haven't been distributed.
As a business owner, the accounting equation helps you understand the financial health of your business. It shows how your assets are financed, either through debt (liabilities) or investments by the owners (equity)].By maintaining this balance, you can ensure that your business records are accurate and up-to-date, allowing you to make informed decisions about your company's financial future.
11.How do I set up and manage my business's bookkeeping system?
Choose between cash and accrual accounting, select accounting software, establish a chart of accounts, and set up a regular schedule for recording transactions, reconciling accounts, and reviewing financial statements. You may also want to consider hiring a bookkeeper or accountant to assist you with these tasks.
12.When should I consult an accountant?
As an SME or startup, we understand the budget constraints that make you want to do everything on your own.
But these are several scenarios in which you should consult an accountant:
When starting a business: An accountant can provide valuable advice on the best legal structure for your business, setting up accounting systems, and tax planning. They can also help you identify eligible tax deductions and ensure you're compliant with tax laws from the beginning.
Tax return preparation and filing: An accountant can prepare and file tax returns, identify tax deductions, and help you avoid costly mistakes, penalties, or audits.
Financial statement preparation: Accountants can prepare financial statements, such as balance sheets, income statements, and cash flow statements, which are essential for understanding your business's financial health and making informed decisions.
Business growth and expansion: When you're considering growing your business through cross-selling, upselling, or other strategies, an accountant can provide guidance on the best methods for growth and help with financial planning.
Tax planning: Accountants can help you develop tax strategies to minimise your tax liabilities and ensure compliance with tax laws.
When facing complex financial situations: If your business has complex financial situations, such as self-employment or complicated investments, it may be beneficial to consult an accountant to navigate these challenges,
At Zmartly, we strive
to provide the full suite of professional accounting services that businesses
and private individuals alike require for their accounting needs