It might not be apparent at first glance, but different types of start-ups and SMEs have different intensities when it comes to keeping records. Everyone must keep records – indeed HMRC will fine you up to £3000 if you don’t, but for some businesses and types of work it’s easier than others.
However, keep records you must, and right from the start. Whereas larger businesses will have a dedicated accounts department to do this for them, if you’re small you don’t. But don’t despair. As long as you get a workable system in place you can make short work of it and put it firmly in the secondary position that it should be. This allows you to get on with your real business purpose.
The fear of keeping records
While HMRC can levy a fine of up to £3000 if you fail to keep and maintain accurate records, this isn’t as scary as it sounds. In reality, HMRC only normally take this course of action if you’re a repeat offender, or, if you’ve intentionally misled them or destroyed records.
However, this isn’t an excuse not to be on top of them, especially when there are free tools out there to help you make the job easier.
The basic premise of keeping records
Despite what you may think, there isn’t actually any set way that you have to keep your records. What you do need to bear in mind though is the basic premise – you must be able to justify both your business income and your business expenditure. For VAT you need to keep these records for 6 years and for Self Assessment you need to keep them for five years.
Where you need to move on to is understanding that records aren’t just about pleasing HMRC. They also make excellent business sense.
Types of records businesses should keep
Once you view your records as a resource then you can see the sense in keeping them in order.
The primary type of records you’ll need to keep when you first start-up your business are invoices. You’ll need to keep both invoices you send out, and invoices you have coming in. There’s nothing to say these have to be manual records, and electronic records are fine. Again, there’s no set way of doing this. You need to come up with a consistent numbering method and ensure you can tally income and outgoings against each and every invoice.
There are a few little extras to bear in mind with invoices. If you’re registered for VAT then you’ll need to put the registration number on your invoice. If you’re a limited company then you’ll also need to display your company registration number.
In addition to all invoices, you’ll also need to track and record all business expenditure. It’s much easier if you file these in order as needed rather than amalgamating them in an ad hoc way. Typically these receipts are not actually needed if your electronic accounting is up to scratch. They should be there to back it up.
Making short work of your records
For many small businesses the thoughts of keeping records can induce a rather painful headache. However, in reality this is nothing more than social conditioning leading us to believe it should be scary. In reality, if you use a systematic approach, and are consistent with it, then there is nothing scary at all.
The simplest solution, now you have the tech at your fingertips, is to use cloud-based accounting software. Software such as ours here at Pandle enables you to keep records in perfect order, without the stress and the hassle. Invoices and expenditure link up and you can quickly make sense of your business accounting. You can also cut out many of the laborious stages, such as invoice generation, making life as a start-up infinitely easier.