Brilliant Start-Up, 2nd Edition

Do your books

step 13

Watching your finances is essential. In this step, we:

1 Devise a simple book-keeping system.

2 Look at the merits of hiring a book-keeper.

3 Cover the pitfalls of dealing in cash.

4 Run through the main tax issues.

5 See how to avoid tax legally.

We’ve skated fairly lightly over paperwork so far. This is because

‘good systems’ won’t make you a success. However, having

none at all can quickly flatten an otherwise successful business.

Don’t worry, I’ll make this as painless as possible…

Keep your book-keeping system simple

Simple, but disciplined.

Many small businesses operate the ‘box under the bed’ system

of book-keeping. They then turn up at an accountant two

days before a tax deadline with handfuls of paper and ask

them to complete their return. There are obvious downsides

to this approach:

166 brilliant start-up

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You’ll rack up large accountancy fees.

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You’ll probably come to the attention of the Revenue,

who’ll want to inspect you (and then want to go all the way

back over any previous years’ figures).

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There’s the risk of late payment fines and interest payments.

But there is a more important risk:

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You won’t know on a day-to-day basis if you are making

money.

It’s like setting off to sea without a map or compass (or whatever

they use these days). To keep the basic systems, do the following.

Keep a record of everything you purchase, and a record of

everything you sell

File all your receipts and invoices in date order. When you pur-

chase things, ask for a VAT receipt and not just a credit card

receipt (this particularly applies to petrol stations and restau-

rants). If you don’t get a receipt, then it’s hard to claim tax

back against your tax bill.

Put a number on the top of each receipt. When you receive

payment, put a note on the invoice and the date of payment.

Your invoices don’t have to be at all fancy (though see Step 16

on branding). You just need the date, your name and address,

your invoice number, the customer

name and the amount. If you are a

limited company, you also need to

include your company number. If

you are registered for VAT, you will also need to include the

amount of VAT and your VAT number.

your invoices don’t have to

be at all fancy

Do your books 167

Enter these records into your ‘books’

This can literally be a set of books. Manual accounting systems

are perfectly acceptable and work fine. Enter all your expenses

into a ‘purchase ledger’, and your sales into your ‘sales ledger’.

Alternatively, buy a simple piece of book-keeping software.

There are many great ones on the market. I’d avoid anything

overly complex at this stage. It’s easy to upgrade your systems

as you grow.

From this, you’ll get a position of your profit and loss on a

month-by-month basis. But that’s not it.

‘Reconcile’ your accounts

This is the bit that can turn you prematurely grey. You’ll often

find that what your books tell you should be in your bank

account, and what’s actually there, are a very different matter.

And your bank balance doesn’t lie. Therefore, you have to go

through your bank statements and tick off every item against

your books. Then go through your books and find any pay-

ments not listed (i.e. those you made with petty cash). Where

the figures don’t tally (i.e. you have a missing receipt), then

make an entry showing this in your books.

At the end of the exercise your sets of figures should match up.

Should.

Make sure you hold on to these records at the end of the year.

The Revenue requires you to keep tax records for five years,

and six years for VAT.

Hire a book-keeper

Some people love book-keeping. It gives them a deep sense of

peace that all is right in the world. I salute them. Personally