#Let's talk new business bookkeeping 📒 🆕
New "Sole Trader" Bookkeeping
Most Pest Controllers start out as a sole trader, which makes perfect sense. Simple and straightforward.
Most of my clients start off with a spreadsheet to manage their expenses.
Keep their receipts in a carrier bag or box. Invoices are created in Word or Excel. Use their own bank account for payments and customer invoice payments.
And so, they carry on, disorganised not really knowing what to do, until April 5th comes around or even January 31st, when panic sets in! You find an accountant willing to do your self-assessment return for you, but the cost knocks you for six! How can it be that expensive to do a bit of accounting you ask……?
There is a more cost-effective way and one that you can do yourself if you have time. But, first a few things to note.
Being Self Employed
When people talk about being self-employed, they usually mean that they work as a sole trader. So, rule number one is register with HMRC as being self-employed. Saves time at the end of your first year, you will already have your UTR (unique tax reference number), but also a legal requirement. You don’t need a HMRC fine when you’re just starting out!
Did you know that when you set up as a sole trader, you and your business are considered the same legal entity? That means that if your business is unable to pay its debts, those you owe the money can recover the debt from your personal assets!
On the flip side, it also means that any profit your business makes is all yours (once you pay tax and Ni).
Now would be a good time to check your business liability insurance covers you for anything going wrong. Also, have a plan in case anything happens to you. Who would finish any jobs, who do you trust to take over short term? Do you have a money put aside in case you get sick for a couple of weeks?
So, lets talk about money now
Open a bank account just for business transactions. Keep personal and business money separate.
This will make your life so much easier and less complicated and speed up reconciling your business bank transactions.
You only need a basic account with a business debit card to start.
Taking money out
Taking money out of the business, for personal use, is generally referred to as drawings.
Most of my clients take what they refer to as a wage. Whether weekly or monthly or even as and when needed, this money is you, drawing money out of your business. This is not a wage or salary and cannot be classed as an expense to the business.
As a sole trader all the money in the business is yours, and all your income must be declared to HMRC and taxed accordingly on your self assessment form. When you take the money out is up to you but be prepared to have enough left to pay tax and NI.
How do you want to deal with keeping records of customer enquiries, quotes you give and invoices you raise? Will you use paper pads, or will you use software (APPS) on your mobile or tablet?
Easier in the short term to use pre-printed pads, and needs no initial preparation, however, will need storage, and ensuring nothing is lost before yu hand to your accountant or bookkeeper.
As you already use a mobile device daily, consider investing in an APP or software downloaded to your mobile or tablet. You will have to do a bit of initial set up, but any info you input, like customer name, address, telephone number, quotes
and invoices will automatically be saved electronically. All in one place, easily accessible. There are many on the market now and the cost is a business expense, thereby reducing your tax liability. Once set up, they can save you time. For example rasie a quote and if accepted you can change to an invoice at the push of a button. No having to re write the information again.
Expenditure (things bought for the business)
For things you buy when out on a job, for the business is called expenditure. You receive a small receipt for things like fuel, materials, and stationary.
Anything you buy for the business must have a valid receipt to prove the transaction. This is a requirement of HMRC.
You can either save all these bits of paper in a carrier bag or cardboard box or capture an image of each and save it electronically. You can then destroy the paper or bin it.
Using a snap capture feature on an APP or downloaded software, is so easy. Do it as you go about your day, takes seconds. If you save doing it until the end of week you will have many to do, and it seems to take ages.
Your do need to know and understand your numbers. Money in the bank is not a good indication of how good or bad your business is doing.
Consider using a profit and loss monthly report, so you understand whether you have made a profit or a loss. Investigate if a job made you as much money as you thought. Did you charge for every material used on a job?
Basically put, the amount of money coming into the business must be more than the money going out, but if you don’t know your numbers how can you be sure?
A simple profit and loss can be done by adding all the sales together for a month, adding up all the costs of doing that job. Take the costs from the sales and you have a gross profit.
Then you add up the cost of other business expenses and deduct – there, you have your net profit before tax. Hopefully, its not a negative amount!
Making Tax Digital
In just over a year, HMRC are bringing into effect new legislation, called MTD ITSA – making tax digital for income tax self-assessment.
All information supplied must be digital/electronic.
Although, an excel spreadsheet can still be used, it would serve you well to start making your business digital now.
All software companies are advertising MTD compliance. There is a lot of choice, so its not complicated or difficult.
Time and energy v hiring a bookkeeper
Doing your own finances will save you money, but if you don’t have the time, energy or understanding, it could be worth employing a bookkeeper to help.
Not only would a bookkeeper do your finances, but they can explain what it all means.
Sometimes, this is invaluable, and the cost is offset by the fact that on April 5th each year your accounts are done and ready to submit to HMRC.
No last-minute rushing around. No panic or stress.
Good luck in your new venture/adventure.
· Inform HMRC you are self employed · Open a business bank account · Find an APP or software that works for you “on the road” · Keep your records neat and tidy and hopefully lectronically · Learn your numbers, understand your business. · Money in must exceed money out to be called profit
Written by Julie Holland MICB
Over 12 years experience working in the franchise pest control world.
Owner of Blu Bookkeeping www.blubookkeeping.co.uk/about
Licensed, regulated, supported by The institute of Certified Bookkeepers
License number: 22783
Linked in profile: https://www.linkedin.com/in/julie-holland-62291971/
Facebook page: https://www.facebook.com/BluBookkeeping
Blu Bookkeeping specialises in franchise bookkeeping, helping sole traders, Pest Controllers and Locksmiths.