One of the questions I am often asked is around the documentation that a needs to be sorted out and stored for a new business. In the UK, by law we must hold all our primary documents for at least 6 years.
One of the most important accounting principles to mention is the business entity principle. The transactions of the business should be kept quite separate from the owners. All too often I see business owners taking out personal credit cards, and dipping into their personal accounts and vice versa. To lower accounting costs and avoid confusion, it is better to open a separate account for your business. If you need to introduce capital, then do it clearly and document it well. As a sole trader if you take out money via drawings from the bank or cash then document it well also. For a company it is more formal and slightly more complex, but the business entity principle still holds.
For a standard SME you would open the following lever arch files for the year:
SALES
PURCHASES
EXPENSES
BANK STATMENTS
TAX AND VAT
FIXED ASSETS AND STOCK VALUATIONS
ACCOUNTS AND TAX PLANNING
Then get dividers and sort according to the following:
- Sales Receipts – Both Cash and Credit Sales.
- Purchases.
- Bank Statements
- Expenses held separately. (Heat and Light, Motor Expenses, Council Tax and so on)
- Wages is a particularly involved expense and needs it own section.
- An unpaid Bills section for all those bills and purchases that have not been paid for as yet. Put in a divider at the top of the file so it is easy for you.
- Documented figures for the end of the year (Amount of Debtors and Creditors – with Proof)
- Assets bought – Invoice on the purchase date or full Hire purchase schedule.
- Potential Liabilities ( Future court case Claims, impending future repair costs)
- Stock Valuation for the end of the Period only and if relevant. This should be divided up into Finished Goods, Work in Progress and Raw materials for a manufacturing company.
- Drawings from the business. Clearly stated and documented.
- Capital Introduced into the business clearly stated and documented.
- HMRC reminders, statements and correspondence.
- Similar VAT information if relevant.
- Any other relevant information such as tax planning statements.
Keep everything chronologically filed. Every year start a brand new file, or set of files. “tidy desk, tidy mind” was the saying a lady told me when I was briefly working in a local bank.
If you are a company, it does get slightly more complex, since you need to add minutes of meetings, if you want to pay a dividend then you need sets of accounts drawn before you withdraw. Overall logic stays the same.
All of the above, if well collated, organised and presented will save you a load of money when it comes to doing your final accounts, or when the tax man pays you a visit.
At VN Accounting Ltd we offer a service that simplifies the above. All you do is simply scan and send the above in whatever order and we archive it for you online and do all your accounts at the same time.
To keep you updated, I will be posting a blog and review on what Accounting packages to use for the SME. Expected Aug 2013.
Vishal
VNanda 