Running a Business – Why do I need to keep good financial records?

There are many reasons that keeping your accounts organised is beneficial, the main one being that you will be compliant.

HMRC can impose penalties on businesses whose accounts are not in good order and up to date. This penalty is generally in the region of between £250 and £500. However, in extreme cases, for instance if records were deliberately destroyed, the penalty could be up to £3000.
There are a variety of timescales that these records need to be kept for. They include business financial accounts which need to be kept for a minimum of six years. P.A.Y.E. records, including C.I.S. returns, which need to be kept for a minimum of 3 years. Also personal (self assessment) tax returns need to be kept for at least five years, starting after the deadline of 31 January of the applicable tax year.

Another reason for keeping business accounts in good order is to assist with the day to day running of your business. Having your accounts recorded and filed will enable you to locate an invoice for payment, or maybe dispute, with ease.

You will also be able to create an income and expenditure report for your business and this will also help you to budget and create a cash flow forecast. If the forecast is not as optimistic as you imagined it gives you the opportunity do something about changing the forecast, whether it be short term lending or creating more sales.

If you do need to approach the bank, or other financial institution, for any type of lending having a cash flow forecast shows you are in control of your business and the potential future.

Running your own business means you have to be responsible for a lot of different areas, not just what you are passionate about, which in the main is the reason you started your business.

However, although you are responsible it does not mean you have to deal with the business accounts. Hiring a bookkeeper is a way to take away the stress of the financial records and it may not be as expense as you think.