There’s no getting away from it – if you run a small business, you’ve got to run its bookkeeping too. Sometimes, this can seem like an overwhelming and lengthy job, especially if you’re not 100 per cent sure what you’re doing.
You also probably find it a bit of a chore, since you didn’t start your business to search through boxes of receipts, enter data into spreadsheets, or read through bank statements at eleven o’clock at night.
Here’s the good news. With the right approach and tools, you can make sure all aspects of bookkeeping when it comes to your small business are meticulously taken care of, without feeling stressed or sacrificing too many hours each month.
In this article, we’ll show you how.
It covers:
What is bookkeeping?
Using bookkeeping and accounting interchangeably is common, but the terms have different meanings. You’ll need to know the difference, because accounting can require support from an accountant or other financial professional (though you can use software to help with basic tasks).
So, how do they compare?
Bookkeeping is the process of recording all the money that goes in and out of your business
This involves collecting and storing financial information such as receipts, invoices and bank statements. Some bookkeeping practices are required by law, and must be accurate so you pay the right amount of tax to HMRC each year.
Accounting is the process of interpreting financial data and creating reports and forecasts
Accounting helps you understand the financial health and performance of your business. It’s a more complex process, so it can be helpful to collaborate with a certified accountant to make the most of your financial data.
That being said, you might not need to do this just yet. If you’re business is still small, bookkeeping should be your first priority for two reasons:
To make sure you’re doing everything right from a legal point of view and reducing your risk of being fined
Because without solid, accurate bookkeeping, any accounting you do will be based on flawed or incomplete data sets. This means any insights you try to gain would be unreliable
Once you’ve found your groove and got a solid foundation from bookkeeping, then you may consider how an accountant could help you power up your small business with more knowledge of its finances.
Can I do my own bookkeeping?
You certainly can. And it doesn’t have to be difficult, boring, or time consuming. Though many tasks fall under bookkeeping, there are five essentials that you need to do to keep things rolling smoothly and legally.
In the early days, you can manage these without too much trouble. But, as your business grows (along with the volume of its financial activity), it’s more cost-effective to hire an accountant or bookkeeper to take the reins while you focus on more valuable tasks.
In the meantime, here’s what you’ll need to do to keep clean books:
#1 – Record everything
Keeping an accurate record of all incoming and outgoing transactions is your primary bookkeeping task and a legal obligation. Each time you make a purchase or receive a payment, you must keep a record of the transaction details and the amount.
These financial records will be used later for your tax return, so accuracy is essential. It’s advisable to hold onto your receipts – in some cases, you’re required to retain records for a minimum period. For example, limited companies must keep records for six years after the end of the last accounting period they relate to.
up to six years is also recommended.
#2 – Reconcile transactions
You might have heard the term bank reconciliation. This is a key bookkeeping task that involves looking at your bank statement and checking it against your financial records. Line by line, you’ll need to make sure all the debits and credits on the statement appear in your records.
This process helps you spot errors like unexplained spending or charges, and double payments or record entries. Seeing these things early helps you investigate and make corrections before they cause trouble later on.
#3 – Monitor cashflow
Cash flow is the money that moves in and out of the business. “Cash in” includes all the money paid to you by customers (and any government grants, for example), while “cash out” includes everything from supplier payments and staff salaries to utility bills and rent.
It’s really important to keep a close eye on cash flow, because if it stops, your business won’t be able to function. By regularly checking how much liquid cash you have, you can better manage how you pay suppliers, invest in stock, or even extend your credit if needed.
But it’s about more than just how much is in the bank. You need to factor in current debts, how much customers owe you, when payments need to be made or are expected, and how much VAT you’re liable for.
#4 – Watch out for late payments
Every business deals with customers who don’t settle their debts on time.
There are many reasons this might happen, but from your point of view, it can’t go on too long. Late payments limit your flexibility and even prevent you from making basic purchases.
To keep cash flowing, you need to chase those customers who still have outstanding invoices. Remember to be specific about when you expect to be paid by, but always remain polite and professional.
It’s also a good idea to ask how you can support them in pushing it over the line – whether that’s allowing them to pay a different way or splitting payments into smaller chunks.
#5 – Pay tax
No matter what type of business you run, you need to pay tax on its earnings. There are a few different types of tax, each with its own criteria, rules, and processes.
Ultimately, it’s your responsibility to understand which applies to you, and how and when to submit your tax return to HMRC.
Doing this yourself is possible (even simple with software), but if you’re unsure, seek guidance or support from a bookkeeper or accountant.
Main types of tax
Income taxCorporation taxValue Added Tax (VAT)
This is paid by landlords and sole traders using a system called Self AssessmentThis is paid by limited companies, foreign companies with a UK branch or office, clubs, co-operatives, and other unincorporated associationsVAT is a tax charged on most goods and services sold by VAT registered businesses. If this is you, you’ll need to charge the applicable tax rates on whatever you sell and submit returns to HMRC
Source: Sage
How to make bookkeeping easier
These five bookkeeping tasks seem like a lot to think about, but you can make things significantly easier by following three golden rules. Combine these with quality accounting or bookkeeping software, and you’ll stay on top of your books every month without breaking a sweat.
Take a ‘little but often’ approach
Bookkeeping can be a time-consuming, stressful, and tedious job because many people let their individual responsibilities add up. But by putting it off, you give yourself more to do and increase the chances of mistakes.
It’s better to take a proactive approach and work on tasks more frequently for smaller chunks of time. Block out time in your calendar for each task at appropriate intervals (monthly, weekly, and daily). The more you do this, the faster you’ll get, and it’ll eventually become habit.
Digitise everything
When it comes to bookkeeping, paper can be problematic. Whether it’s scribbled notes, financial documents, or receipts, hard copies often get lost or damaged. And you can guarantee the ones that disappear will be the ones you need most. Aside from personal organisation, under Making Tax Digital rules, HMRC has required VAT-registered businesses to keep digital records and file digital tax returns using compatible software since 2022. MTD for Income Tax Self Assessment is being phased in from April 2026, initially affecting only those earning £50,000 or more in gross income.
Whether or not you’re already within the scope of MTD, the earlier you digitise, the better. Your record keeping will be more accurate, you’ll be able to search for, access, and share the data you need almost instantly, and you can back up everything securely.
Any form of digitisation is beneficial, but using dedicated software for your bookkeeping makes it significantly easier, as so much of it can be automated (more on this below).
Invoice efficiently
We’ve already touched on why healthy cashflow is so important. Make sure you establish an invoicing process that is as efficient as possible. You want to be invoicing as soon as work is completed and accepted, and persistently (but nicely) chasing any late payments.
Try to think of other ways to improve your process, such as breaking large jobs into multiple stages of invoicing, using customisable templates, automating tasks where possible, and setting up rolling invoices for repeat customers.
If you stick to these three golden rules, you’ll slash the hours it takes to keep clean books, save yourself a lot of headaches, and keep the cash flowing.
Which software features to look out for
To truly empower your bookkeeping abilities, you should be using a quality accounting or bookkeeping software solution. Why? Because all five of the tasks mentioned above can be at least partially (if not fully) automated.
Yep, that means:
Reduce hours to seconds for many individual tasks
Ensure more accuracy in record keeping
Make earlier discovery of errors and correct them sooner
Make compliance effortless
Have secure, frequent backups of all your info
Get real-time visibility of cashflow
There are many high-quality solutions out there that will help you achieve all this. And when you consider the monetary value of the hours you’d spend doing bookkeeping on paper or using generic tools like spreadsheets, software is often incredibly cost effective.
Choose software that offers plenty of support, as this can be essential if you’re new to bookkeeping.
These features are essential:
Digital record capture – Some solutions allow you to use a smartphone app or desktop scanner to capture everything from documents to receipts and can automatically pull the data straight into the system.
Automatic reconciliation – Software that integrates directly with banks automatically reconciles transactions against the digital records stored in the system. This literally means a key bookkeeping task is done for you.
Mobile functionality – Being able to access the software on a mobile device allows you to stick to your bookkeeping schedule, even when you’re on the move. This way, you can avoid tasks adding up simply because you didn’t have access to your system.
Tax automation – Software from reputable providers automatically calculates your tax in line with the latest legislation (even as it changes) and allows you to submit to HMRC with ease.
Secure cloud storage – Cloud based software securely stores and back-ups your data, so if you run into any issues onsite, you’ll have peace of mind that your information is safe and still accessible.
Reporting – Real-time financial reporting keeps you up to date with the latest on how your finances are doing, allowing you to make better decisions for your business.
Budgeting and forecasting – Speaking of decision-making, budgets and forecasting also help in the steer of your business. See how you’re progressing with your financial goals, making adjustments as you go.
Integrations – Even better if your accounting software integrates with your banking and other business systems, such as ecommerce and point of sale.
The best accounting software
These three accounting software providers offer many of the features listed above and make it easier to manage your bookkeeping and accounting responsibilities.
Sage Accounting
Plans & Pricing (excl. VAT):
Start – £18 per month: Invoicing, bank reconciliation, VAT submissions
Standard – £39 per month: Adds CIS, cash flow, quotes, advanced reporting
Plus – £59 per month: Adds inventory, multi-currency, and budgeting
Intro offer: 90% off for 6 months
Get started with Sage Accounting
Xero
Plans and pricing (excl. VAT)
Simple – £7 per month: Quotes, MTD for ITSA, bank reconciliation, Hubdoc receipt capture
Ignite – £16 per month: Enter bills, VAT filing to HMRC, optional bill payments and CIS returns
Grow – £37 per month: Pay up to 5 bills, expenses & mileage for 5 users (£2.50 per additional user), 5-person payroll, optional project tracking (£5 per user)
Comprehensive – £50 per month: Bill payments for 10, multi-currency support, project tracking (for 10 users)
Ultimate – £65 per month: Bill payments for 15, advanced analytics, up to 10-person payroll, enhanced budgeting and insights
Intro offer: 90% off for three months.
Get started with Xero
QuickBooks
Plans & Pricing (excl. VAT):
Sole Trader – £10 per month: Invoicing, cash flow, MTD for Income Tax, Self Assessment tools
Simple Start – £16 per month: Adds VAT submissions, CIS returns, and accountant access
Essentials – £33 per month: Multi-user, bills, time tracking, multi-currency
Plus – £47 per month: Stock tracking, project profitability, budgeting
Advanced – £115 per month: Up to 25 users, automation, batch invoicing, advanced reporting
Intro offer: 90% off for three months.
Get started with QuickBooks
Take control of your financial records
When you first start your business, keeping track of your financials can be intimidating.
But by taking the time to fully understand the five main bookkeeping tasks, you can take control of your financial records and build a solid foundation for any future accounting activities.
Stick to the three golden rules and consider using a quality software solution that automates much of the work, and you’ll be able to keep accurate and compliant books with only a few work hours a month.
Ryan Grundy is a content writer at Sage
More on small business bookkeeping
Bookkeeping when you’re a sole trader – What’s the difference between bookkeeping and accounting? Do you even need to do bookkeeping as a sole trader? Kate Gloudemans answers your questions
Self-employed invoice template – Here, we supply a helpful template to help you create your self-employed invoice and give you a few pointers on what to include
Hiring an accountant: a small business guide – Julie Corkish, ICAEW’s head of practice, explains what small business owners should consider when hiring an accountant
