Running your own business as a sole trader can be difficult, especially when you have to do it all yourself. Whilst you’ll want to focus your energy on providing the best you can for your customers or clients, the accounting for your business should not be overlooked. In fact, ensuring you have a strong accounting system in place can be the real difference between sinking or swimming when it comes to the success of your business. Here’s why sole traders need to focus on good accounting:
- One of the easiest ways to keep your sole trader accounting stress-free is to keep your personal finances separate from your business finances. You can do this by opening separate bank accounts (although there is no legal requirement for you to do so). We highly recommend this strategy as it will allow you to quickly see all your business expenses and earnings, without having to sift through any personal expenditure. Sole traders who do not keep their finances separate will spend inordinate amounts of time and energy trying to work out what is what, and this commonly makes the accounting side of running a business so frustrating.
- Keeping good accounts is particularly important for sole traders because it allows you to keep an eye on your cashflow. A healthy cashflow is paramount to the survival of your business as it means you can continue trading viably. Being able to understand your cashflow will enable you to see where you need to put aside more money
to pay for expenses (including your tax bill), as well as where you can afford to spend more to invest in your business.
- Last but not least, it is vital that you keep good accounting records when it comes to the time of year when you have to declare and pay for your income tax. As a sole trader, you are solely responsible for completing a self-assessment tax return, as opposed to working as an employee where your employer will deduct tax directly from your salary through a Pay As You Earn (PAYE) scheme. By keeping your accounting records clear and accurate, you’ll make less mistakes, remember to claim for all allowable expenses, and avoid having to pay any penalties.
Good accounting is crucial for sole traders’ businesses to be able to thrive. If you’re worried about spending too much time or making mistakes on your accounting, then why not speak to our team at Kench & Co about how we can help get your accounting completed as efficiently as possible.