You might be wondering why we’re covering a topic as simple as keeping records. Firstly, let’s establish why you need to keep records, then explain the impact record-keeping has on your business, accountant and most importantly, your time!
Why do we need to keep records?
The first (and perhaps most important) reason in terms of your business, is because you owe it to yourself to do so. Presumably, you have a real passion for what you do, and have spent a lot of time and effort growing your company. Many businesses fail because their owners don’t keep an eye on the ‘back-end’ of their affairs, failing to accurately track cash flow, pay suppliers on time or chase up old and outstanding debts etc. Although this may not be the best part of running a business, it is absolutely vital that you have accurate and organised records in order to keep track of things. A good rule of thumb is that you should keep all records for at least 6 years. If you are VAT registered, you have a legal obligation to keep records of any VAT related invoices or purchases.
It’s a good idea to get a lever-arch folder and split each month into sections such as:
- Bank Statements
- Sales Invoices
- Purchase Invoices
- HMRC/Legal Correspondence
Not only will keeping good records ensure that you know exactly what’s happening with your business – it can also save you money!
Since we do a lot of accounting and bookkeeping work for our clients here at QAccounting, allow me to pose two different scenarios to you:
Client X sends their records in a couple of old shoe boxes. They have literally just stuffed everything together without any organisation and lack back-up spreadsheets to support their records. This means the accountant, or bookkeeper, will need to spend roughly a full working day (sometimes longer) going through everything, categorising all the expenses and putting the records into an organised format so they can prepare a set of accounts.
Client X can expect the accountant to send a lot of queries back to him due to the state of submission.
Client Y sends their records in a lever-arch file, with the records for each month neatly categorised and filed. In addition, Client Y has supporting monthly spreadsheets to back up each section in the folder. This is a delight for the accountant, as all that is needed is a sense check between the spreadsheets and physical records to ensure everything looks to be in order, then go ahead and prepare the necessary documents. Client Y should only get a small number (if any) queries back from his accountant because they have kept good records.
So, do you think that Client X in scenario 1 should be charged the same as Client Y in scenario 2?
If you keep unorganised and poor records for the year – then expect to be charged more.
Why not find a coffee shop (or pop into our Creative Space which is free if you are a Freelance World client) and dedicate one morning each month to tidying up your records? Sure, it might not be the most exciting of things, but doing this will ensure you save a lot of time in the long run, and most importantly, could save you money!
If you have a book keeping software system such as FreeAgent or Kashflow – which tracks transactions and documentation – life is simplified even further owing to their expertly designed interfaces. Such software not only benefits you at the year end, but also on a monthly basis as you receive reports showing how well your business is doing. This means you no longer have to wait until the year end to find out if all your hard work is paying off!
Arrange a Callback!
If you would like to learn more or talk to an expert accountant, then please fill in the form below and we will get back to you!
What Legal Issues Might Contractors Face?
From tax investigations to client disputes and defamation
Does Length Of Contract Impact Your IR35 Status?
Should contractors be wary about working for a client over a long period of time?
What Do Our Contractor Accountancy Packages Include?
All your accountancy needs and more, for one fixed fee.