Bookkeeping is a legal necessity for all businesses, with contracting businesses being no exception. Beyond it being a legal requirement, it is a very useful way to keep important company financial data together, ready for formal financial reports. If carried out well, good bookkeeping can help save a lot of time and stress.
As you would expect, a limited company has to retain more information than Sole Traders, nevertheless, it is important to understand basic bookkeeping and decide whether this is something that can be done ‘in-house’ or whether you would rather hire a professional to take care of it for you or your company.
What is bookkeeping?
Bookkeeping is the process of keeping records of a company’s financials. This fundamentally involves keeping a record of income into the business, expenditure out of the business, and of any assets and liabilities held by the company. Expenditure also includes keeping records of company expenses that can be claimed back. Although this explains the basic principles of bookkeeping, there is likely to be some learning required if you have never dealt with company bookkeeping before. However, with a little time, it is entirely possible to do your own bookkeeping or for your limited company. HMRC actually provide free training to help small businesses owners, helping them stay compliant.
The risks of DIY?
Although it is possible to maintain the business records yourself, there are some risks to be aware of. We have highlighted some of the potential dangers you could face by diving unprepared into managing your own bookkeeping.
1) Administrative errors
Although in essence bookkeeping can be relatively straightforward for small businesses, the volume of transaction in and out of the business can soon create an environment where items can be accidentally overlooked. It is important to ensure that for companies that income or expenditure is recorded at the time it is accrued as opposed to when it is paid. Any administrative errors that may be missed could look suspicious, so it is obviously worth ensuring everything is perfect before it is submitted. Poor bookkeeping can be accurate but contain insufficient information leading to headaches later on for submission of the company accounts. This certainly shouldn’t put you off though, as there are plenty of software packages that incorporate bookkeeping capabilities to help remove some of the potentials for human error.
2) Prioritisation
It is likely that you would rather spend time bringing income into your business and keeping it running smoothly. This could mean administrative tasks get pushed to the bottom of your priority list and something more important can always be justified to prevent completing your bookkeeping duties at regular intervals. This can lead to a buildup of information that needs to be captured, which can subsequently lead to loss of supporting documents like receipts and administrative errors. This can obviously be mitigated if you are well organised and stick to a strict schedule of updating your ‘books’ – or you may even enjoy doing it!
Once again, further peace of mind could be had by appointing a specialist accountancy firm.
3) Time cost
A general assumption could be that DIY bookkeeping is cheaper as you don’t need to exchange cash for the service to be carried out by someone else. However, this may be counterintuitive depending on how long it actually takes you to complete in-house. There is the obvious time cost for the use of your time, which could potentially be better spent bringing income into the business. To further compound this, it is likely that you will be significantly slower at creating and arranging the necessary spreadsheets in comparison to a highly experienced bookkeeper or accountant. Additionally, you might find the whole process stressful, which may be enough of a justification alone to have your bookkeeping reviewed or outsourced to a professional.
4) Education
You are going to need to understand the process enough to ensure you produce compliant spreadsheets. This could be difficult to juggle at the same time as running or starting a contracting business. There may also be the need to learn different types of software that you are using to report your data on, which could also increase the potential for information to be lost or mistakes to be made.
Despite some of the potential risk you could face from carrying out the bookkeeping for yourself or your limited company, it is important to be aware of your basic financial situation so that you understand the financial health of your business. If you are interested in understanding the fundamentals of your company finances and are happy to learn and make time to update your ‘books’ little and often then DIY may be the best solution for you. If you are the opposite and simply want as little to do with this process as possible, then it might be time to find yourself an accountant who can take up this task.
At Gorilla Accounting, we offer an all-inclusive accountancy package for just £85 + vat per month. If you would like more information on this, call 0330 024 0406 or email info@gorillaaccounting.com.
