May 21, 2005

UK Small Business Accounting Basics

The best time to get a grip on your UK small business accounting is on Day 1. That’s right. Managing your company finances from the beginning can help you avoid wasting a lot of time further on down the road and can help keep your headaches at bay. This habit might even keep your business from dying a premature death. Why?

Because in business as in life it all comes down to cash flow. Money moves into your business account and money moves out of it. Sometimes it seems that money moves out a lot faster than it moves in, but that’s a different story. Understanding basic UK small business accounting principles really isn’t all that difficult.

It’s likely that you can remain in business for a while without having your UK small business accounting under control, but if you’re looking to grow and expand your business, it won’t be possible without knowing exactly what funds are coming in and, equally important, when, and what funds are being spent (and how quickly). Another advantage of understanding basic accounting principles is that you’ll know when your UK small business turns a profit. Just because money is coming in doesn’t mean that it’s all profit! In fact, even when money rolls in, businesses operate at a loss.

Budgeting might seem like another unnecessary accounting task for the UK small business owner, and perhaps in the beginning it is. But if you look at budgeting from another view, you can begin to understand that it can actually help you control your finances. It’s also a great way to ensure you have money available in the future for whatever business bills you’ll need to pay. A budget should cover a period of time. Its goal is to ensure that the income you expect to come in over this period of time exceeds or equals your expenses that flow out. This point is commonly known as the break even point.

Having a business checking account and a basic accounting system will help keep your UK small business on track. It’s not necessary at this point to spend money on highly-paid s or a software-based accounting system, especially if these types of expenditures have not been budgeted for.

But as your UK small business grows, so too will your accounting needs and responsibilities. From this point forward, you’ll probably begin dealing with more complex accounting procedures that involve things like depreciation, payroll, VAT, corporate and income taxes, travel expenses, profit and loss statements, balance sheets, accounts payable and accounts receivable, vendors and related credit issues, and more.

The good part of all this is that it generally means your business is beginning to grow. The bad part is that if you’re not good with figures, this growth can rapidly escalate out of control. It’s important to realize if and when it’s time to hand your UK small business accounting responsibilities over to someone with more experience in this area and also someone you can trust.

Barclay's Bank sponsors a small business web site with a wealth of UK small business accounting links. View them at Clearlybusiness .

David
Small Business Resource

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