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Basic business accounting procedures

To start a business you will need to choose or create a business plan. While this is an obvious step many people who want their own business don't have an idea, just the desire to be an entrepreneur. For the budding entrepreneur, there are many options; buying a franchise or an existing business, or looking to others for ideas for a start-up business. Once you have decided on the business you wish to start, then the real work begins. The simplest form of business entity is the sole proprietorship. If you choose this legal structure, then legally speaking you and the business are the same. Establishing a sole proprietorship is cheap and relatively uncomplicated.

Bookkeeping and Administration:-

Good bookkeeping of all your records is essential, and a legal requirement. All your business records must be kept for at least seven years. The VAT, Inland Revenue, Wages Inspectorate organisation and others, have the right to come and inspect your records. Some have draconian powers of investigation. It may be a tough lesson but inefficient administration and not knowing your profitability and loss is one of the easiest routes to failure!

An investigation into the affairs of your business can also prove to be very costly, stressful and time consuming. All these can have an adverse affect upon your business. If you are not good at administration, or if you are busy running other aspects of your business, it is essential you have a competent person overseeing this area. Buying at the wrong or uncompetitive prices, being overcharged, or charged for items and goods not received, does all too frequently occur. Late payment of invoices can also be a big problem, as it can cause havoc with your cash flow.

Difficulty in assessing your VAT, not reclaiming your VAT due to you and failing to pay suppliers on time can also prove problematic. Suppliers, customers and even a business's own staff and will take advantage of businesses whose administration is poor; therefore you cannot afford complacency in your administration. Being paid late and not sending your own invoices out on time can prove to be very costly to a small business. If money doesn't come in on time, how will you be able to pay your suppliers and staff?? Are you losing customers because of it? If you are known to have financial difficulties, you can lose customers and suppliers.

What Records Should I Keep?
Until recently there was no legal requirement to keep records for income tax, although Customs & Excise require registered traders to keep records for VAT. However, HM Revenue and Customs have always advised businesses that it was in their own interests to keep all the records needed to help prepare accounts and tax returns. Rules introduced in the 1994 Finance Act mean that you now need to keep all appropriate records.

HM Revenue and Customs will Normally Expect You to:-

Record all sales and other business receipts as they come in, and retain the record
Keep back-up records, for example, invoices, bank statements and paying-in slips to show where the income came from
Record all purchases and expenses as they arise, ensure - unless the amounts are very small - that you have, retained, invoices for them
Keep a record of all purchases and sales of assets used in your business
Record all amounts taken out of the business bank account, or in cash, for you or your family's personal use
Record all amounts paid into the business from personal funds, for example, the proceeds of a life assurance policy.
You will have to retain your records for five years from the latest date by which your tax return is to be filed.