Essential accounting skills for new business owners

Bookkeeping and accounting are the foundation stones that all successful businesses are built on.

From troubleshooting cash flow problems to spotting cost savings, small business owners reveal bookkeeping tips that help them stay profitable.

Of all the hats that start-up owners have to wear, bookkeeping and keeping track of finances are often seen as the least glamorous.

Compared to the creativity and excitement of creating a brand or launching a marketing campaign, bookkeeping can be a bit dull.

Why bookkeeping is important

Accurate accounts are vital to the success of your business.

Bookkeeping and accounting have two primary focuses.

First, they help you identify the flow of money through your business from customers to suppliers, known as ‘cash flow’.

Second, they help you forecast and work out how changes to costs and revenue will affect your profit.

This allows you to work out how much money your business needs to make in order to succeed.

Having a clear picture of your business’s financial health is important if you’re looking for investment or applying for a business loan.

Financial institutions and investors will want to see how your business performs before deciding whether to invest.

In the early stages of a start-up, it can be a good idea to handle bookkeeping and the accounts yourself.

This way, you’ll know the true state of your business.

As your business grows or if you’re less confident with business finances, you may want to outsource these tasks, but it pays to understand key bookkeeping skills.

8 essential bookkeeping and accounting tips

1. Keep track of your cash flow

Cash is critical for the success of start-ups. A study by the Department for Business, Energy & Industrial Strategy (.pdf, 641.43 KB)Opens in new window found that 24% of businesses have their survival threatened by late payments.

Cash keeps the wheels of your business turning. Without cash, suppliers can stop deliveries, reducing your stock inventory and your ability to sell.

Bookkeeping lets you see what money is coming into and going out of the business.

This means you can spot any shortfalls before they become a problem.

You can identify surplus cash and use it to invest in business growth, such as additional marketing or stock.

Victoria Griffin, co-founder of Goji Hair in Cardiff, agrees: “I know people who have started a business and don’t know how to read their accounts or haven’t anticipated how much cash flow is needed. They look at a profit and loss and go ‘Great, we’ll make x at the end of the year’, but they’ve completely overlooked the fact that they need to have enough cash flow in the business.”

Download our cash flow forecast template to get started.

2. Monitor your financial health

A balance sheet is like an up-to-date financial health check for your business.

A balance sheet is divided into liabilities – how much money you owe to others, such as suppliers – and assets, which is how much you have, including cash, inventory and equipment.

Long-term growth comes from having a strong balance sheet, where your assets outweigh your liabilities.

A balance sheet is handy if you need to raise investment as investors can summarise your business’s financial health.

Download our balance sheet template to help get started.

3. Forecast revenue and growth

Accounting can be a useful way to predict revenue, growth and profit.

You can use accounting software to test your assumptions, such as how many customers you may expect in the next month, and see how this affects your cash flow.

These projections can help you spot potential problems and set goals such as sales targets.

You don’t need complex accounting software, either.

“I use Excel for forecasting and accounts,” says Victoria. “I have used things such as FreeAgent, while my daughters have set up a small business, and they use an online accounting package called Xero, which does a similar sort of thing. Online software has all these tools to understand profit and loss.”

Forecasting is important according to My Outdoor Classroom CIC‘s owner Kate Collins, as it can remove a lot of stress about finances.

“I was really obsessive about planning for the year,” she says. “I’d think about where the money’s going to come from and making sure we had enough money and working out how many parties we had to do. It’s not a fun part of the business, but it is really helpful if you can look ahead for a year and plan for the periods where you’re not making so much money.”

Read our guide to sales forecasts.

4. Keep on top of tax

Allocating income against costs and liabilities is an important accounting skill.

One approach is to have separate accounts for different liabilities, such as VAT and corporation tax.

A dedicated business account is a legal requirement for limited companies.

While sole traders can use a single current account for both personal and business banking, it’s best to keep these separate.

Having a separate dedicated account for your business avoids the need to sift through bank statements searching for transactions when filling in tax returns.

Daniel Edwards of D&K Accounting agrees. 

I follow the profit-first methodology. So I’ve got a bank account with three different pots of cash. Every time we get paid, we move VAT and tax into separate pots. Using a tool such as QuickBooks automates the process and makes life a lot easier. I use GoCardless for my payments, and they manage all direct debits for me, and again the process is automated.

5. Automate bookkeeping tasks

Online bookkeeping and accountancy tools do more than create columns of numbers.

Cloud-based financial tools let you automate many mundane bookkeeping tasks, freeing you up to focus on other aspects of your business.

From automatic invoicing to accepting payments using your smartphone, modern accounting software can help you keep on top of your money.

“We use an app called Receipt Bank, which you can scan your receipts on,” explains Daniel, whose accountancy firm specialises in small businesses.

“That means we get digital copies and can see our clients’ paperwork almost instantly. Clients can throw away the receipts as they don’t need them anymore, and the app can link directly to accounts software such as QuickBooks. It’s no longer labour-intensive compared to having to type them all out into Excel.”

Automation has expanded into other financial tasks, such as payroll. The Pudding Pantry‘s Anthony Quinn uses smartphones to automate timesheets for his hospitality business.

“We use an app called Planday, which clocks staff in out using their phones. So we don’t even need to do manual timesheets anymore, which were all handwritten and took hours to enter.”

6. Learn bookkeeping basics

It can be tempting to call in the accountants from the start.

Handing over bookkeeping and accounts can free up your time to focus on other aspects of your business, but it’s important you have a handle on your financial fundamentals.

Always check your accounts, and ask questions of your bookkeeper or accountant if you’re not sure.

“It’s good for start-up owners to do it themselves,” says Daniel. “Doing your own bookkeeping and accounts means you can actually get in touch with the business that you’re running, then hand it off to an accountant as your business grows.”

Read our guide to small business bookkeeping tips for success

7. Choose the right accounts software

Forget images of pouring over leather-bound ledgers, filling in columns of figures and sweating over a calculator.

You don’t have to do things by hand. Modern bookkeeping software can help keep your business operating within the law.

From calculating tax and VAT owed to HMRC to generating payslips and sending invoice reminders, good accounting software can work as a tireless digital accountant.

“Personally I would go with QuickBooks, but all platforms are similar,” explains Daniel. “The only difference between them is cost and colour. Look out for deals such as lifetime subscriptions to save money in the long run.”

Kate agrees: “We use Sage for payroll, and it’s really useful. It’s difficult to get a handle on accounts when you don’t come from that kind of background, and I found it hard to get my head around bookkeeping. The fact the software just works out everything for you is great.”

8. Know when to outsource bookkeeping

While a degree of bookkeeping knowledge is essential, it’s wise to know your limitations.

As your business grows, bookkeeping can become more time-consuming and accounts more complex.

If you find yourself worrying about whether you’re handling your accounts correctly or keep putting off bookkeeping tasks, it could be time to outsource it.

Accountants can do more than simply keep on top of the books, according to Daniel – and they needn’t cost the earth.

“A lot of accountants will offer a free initial consultation, so even at the planning stage of starting up, I would suggest getting one,” he says, especially if you’re seeking funding for your business. “When going through the Start-Up Loans Company’s application process, for example, they’ll ask for cash flows and your profit and loss for the first two years. Having an accountant who can help you with that and actually understand whether or not the business you’re looking to do is viable is a fairly important part of the start-up journey.”

Read our guide on how to find a good accountant