So you’ve started a business? Nice, now you get to do accounting. Lucky you!
Because most startups have a lot going on, you might want to stick to the basics for now. We asked our friends over at Xero accounting software to talk us through some essentials for those first few weeks in business. Here are 5 important accounting jobs for startups to take care of.
1. Start recording all your transactions
Your finances (and how much tax you pay) are based on how money comes and goes from the business. So your first job is to get a handle on all those transactions.
Keep a note of every sale and every cost in one place. This is basic bookkeeping, and these records are known as your “books”. Your books will serve as a source of truth for all the money that’s gone in or out - and you’ll thank yourself later for starting early with a solid system.
Hold onto a copy of the corresponding invoices and receipts too, just in case you’re audited some day. With a Monzo Business account, you can attach photos of receipts to your transactions and transfers.
2. Open a business bank account
One great tip for newbies is to open a dedicated business bank account, and use it for all your transactions. That way, your bank statements can be used to double-check your bookkeeping. Of course, some transactions will happen outside of your business bank account. You may reach for the wrong card when buying supplies, or take a payment in cash. But it’ll help if most of them go through one bank account. It becomes your source of truth.
Learn more about Monzo Business accounts. You can get the basics for no monthly fees with Business Lite. Or take care of everything for £5 a month with Business Pro, and get automatic tax savings, accounting integrations and special offers like 6 months free Xero (if you’re new to Xero, terms apply).
3. Double-check your numbers
Mystery charges and mistakes will definitely happen to your business, so keep comparing your books and records to your business bank account. They’ll disagree with each other from time to time, and you’ll need to figure out why.
It could be an incorrect payment, a missed decimal point, a cash payment, or just a typo. Square it up. This is called bank reconciliation and it’s one of the most important parts of bookkeeping. Learn a little more about bank reconciliation in Xero’s guide.
4. Check your VAT obligations
Figure out if and when you need to register for VAT (or “Value Added Tax”). Once your sales pass a certain level, you have to. As of September 2020, you’ll need to start paying VAT once you hit £85,000 of turnover per year. (That can change, so make sure you check the latest with HMRC.)
If you register for VAT, you’ll need to add the tax to your prices and then turn that extra cash over to HMRC when you file a return. Most small businesses file every quarter - and hiring a bookkeeper can be a great help when it comes to handling VAT.
Saving for VAT and other taxes is painless with Monzo Business Pro (£5 a month). Just tell us how much you want to save for taxes, and it’ll automatically move into a Tax Pot each time you’re paid. Learn more about Monzo Business Pro.
5. Watch your budget
Finances might be tight in your first year of business, so careful accounting can help you stay on top of costs. It can also help you predict when that magical break-even point will arrive! So start recording income and expenses now, so you have a good picture of how the business is doing.
With a Monzo Business account, you can set a budget for your business based on your spend categories - like Equipment, Wages or Sales - and see how you’re doing against your budget at a glance.
This is the first in a 3-blog series on small business accounting. Next up, we’ll guide you through what to do when you’ve been in business a little longer. Stay tuned!
Apply for a Monzo Business account today 👇
With Monzo Business Pro for £5 a month, you can connect directly to Xero and see all your spending and income in one place.
And if you're new to Xero, you can get your first 6 months of Xero free (worth up to £180). Terms apply.
Or if you just need the essentials taken care of, you can get a Business Lite account for free. Tap above to learn more!