I am often asked what is the best way to keep your accounting records. There is no “one size fits all approach” as it depends on where your business is at and what you can afford to pay. There are 3 possibilities – paper, spreadsheet or accounting software.
1. Paper records
Keeping cash books or paper records is a hard no from me unfortunately. Keeping paper records means you have no idea how your business is performing on a weekly/monthly basis and you aren’t able to extract any meaningful information from your records easily. It also leaves it more difficult to keep an eye on your turnover which can cause issues e.g. in the case of needing to know whether you should register for VAT.
2. Excel spreadsheet
Many of my clients use spreadsheets to track their income and expenses. Spreadsheets are a great option for small businesses who do not want the added expense of a monthly subscription for accounting software. A spreadsheet can give you all the information that you need in a format that works for you. It is also simple and free!
I like to organise expenditure into categories e.g. materials, subscriptions, advertising, professional fees etc. Depending on what your income looks like, you might want to also categorise your income so you know how much you are making on each separate product or service line in order to help you make decisions on your offerings in the future.
3. Accounting software
When a company begins to grow or becomes VAT registered, accounting software may become necessary. It definitely makes doing VAT returns much easier and makes sense for businesses with a high level of low value sales. There are many accounting packages on the market. The one that you choose will depend on the features you need (for example receipt uploader, automatic bank feed) and the cost per month.
The most popular platforms are Xero, Quickbooks, Sage and Surf Accounts. Be aware the prices are usually quoted excluding VAT so the packages may be more expensive than the price you see advertised. I am a partner with Sage and can get a good discount for any of my clients who are looking to start using accounting software. I find Sage the easiest and most intuitive to use. Sage also have a reasonably priced introductory package for small businesses.
Check out my blog here for further useful information for small businesses.
Disclaimer: This post does not constitute financial advice and is for information and educational purposes only. This blog does not constitute an accountant/client relationship.