Home based entrepreneurs have it easier in some ways than their counterparts who jump straight into premises and staff hiring. In other ways, however, it’s harder to maintain focus and discipline with bookkeeping when you’re one of the many homepreneurs and running a business from home.
Don’t Mix Business and Personal Finances
One of the biggest temptations is to pay for business expenses from a personal bank account. It may seem like a sensible option when you’re just starting out, to simply have one bank account for household and business combined, then sort things out through bookkeeping later.
But doing things this way actually makes business accounting more complicated, and if you hire an accountant for your end-of-year tax returns, it’s likely to cost more too. Bank statements form an important part of business records. If you have supermarket expenses mixed up with business transactions, someone has to go through and decide which is which. This means more hours with the books for you, or a higher bill from your accountant.
Take a professional route from the start with a business bank account. If you don’t need to borrow money to get started, it’s as simple to open a business account as it is to open a personal one, and most banks allow a grace period of around a year (some offer longer) before bank charges kick in. Find out what the fee structure is before you make a final decision on where to open your account.
Keep Your Books up to Date
During the early months of being in business, homepreneurs may only have a couple of transactions per day to record. It’s easy to let daily updating slip, but a bad habit to get into. Even if there’s just one record to update, do it. As time goes by, you’ll build a reliable habit and bookkeeping will take just minutes of your time. Eventually, you may decide to make a weekly appointment with the books but to start with, do it daily so it becomes part of your workflow.
Claim Your Expenses
If you’re using a part of your home for business activities, you’re entitled to claim a percentage of your household bills against tax, and you can also claim a mileage allowance when you’re using your car for business purposes. How much you can claim varies, however, depending on usage. If, for instance, you have one room that is dual purpose between business and leisure, you can claim less than if the room was solely for business.
An accountant can help you work out the expenses you could claim, and make sure your calculations are correct so you don’t submit inaccurate records to HMRC. Being aware you can claim something though is half the battle, so it’s worth investigating based on your unique circumstances.
Minimise Your Paper Trail
In a busy household, homepreneurs can find it a challenge to keep paper records as neatly organised as they need to be. Using a cloud storage service can help streamline the process. Free storage from providers such as your internet provider, Dropbox, iCloud, Google and many more will get you started until your needs grow more sophisticated.
- Scan paper receipts and upload them to a relevantly named folder in your cloud storage.
- Highlight the vendor, date and payment method.
- Use your phone to snap a photo, or scan from your printer if you have that capability.
- Upload the file to your online storage.
It’s a good idea to keep a local copy as backup and make sure you name files logically in a memorable way. HRMC accepts digital copies of receipts so you can safely throw the original one away to minimise the amount of paper you store.
Have a System and Stick with It
It doesn’t matter whether you maintain bookkeeping records manually in a physical ledger, open a spreadsheet in excel or use an online accounting service. What does matter is that you understand the system you’re using and avoid chopping and changing.
Homepreneurs need to consider the options with regard to bookkeeping and accounting right from the beginning, and allow your system to grow with you rather than getting bogged down in over-complication and making