Good bookkeeping = successful business

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Related tags: Cash, Value added tax, Money

A simple routine will help you keep the books in good order and provide you with a strong framework for a successful business, advises Stephen...

A simple routine will help you keep the books in good order and provide you with a strong framework for a successful business, advises Stephen Savill.

Making decisions about your bookkeeping is similar to driving a car to a destination you have never visited before. Would you set off without checking the route beforehand and making a note of the major junctions and turn-off points? Would you drive all the way without once checking your speedometer or ensuring that you had enough petrol?

Running a business is like taking a journey. If you plan properly, and constantly check your controls, bookkeeping will provide you with a strong framework for a successful business. At a minimum, you need to keep records for four of these controls - payroll, cash, VAT and stocktaking.

Staff and payroll

When it comes to staff and payroll records, one simple discipline will serve you well. Unless a new staff member arrives on their first day with a P45, insist they complete a P46 and send it to the Inland Revenue after they've completed their first week's work for you. If they subsequently bring in their P45, you can still cross-check details and send that to the Inland Revenue as well.

If you are doing your own payroll, complete all the entries every week. To do this, set up and use a deductions working sheet, the P11, for every member of staff, whether or not they pay National Insurance or income tax. Use the tax code from their P45 or a very recent payslip from their previous employer. In the absence of either, tax them at basic rate. Give everyone a payslip. Insist they sign for receipt of their wages, especially if you are paying cash. Summarise your outstanding liability for income tax and National Insurance each week on your "yellow" employer's payment record, the P32 form. Pay the income tax and National Insurance due to the Inland Revenue monthly and on time.

If all that sounds complicated - and it will become even more so if you do not do it weekly, especially at the April 5 financial year end - consider using a payroll bureau to do the job for you. It will cost about £1 per employee per week. but will keep you on the straight and narrow.


Cash is important for a number of reasons and needs to be recorded very carefully. Remember the Inland Revenue's view on unreconciled cash. If you have more cash than your daily takings show, the surplus will be treated as undeclared takings and a shortfall in cash against recorded takings will be treated as drawings. Either way you end up paying VAT and/or income tax. Better to do it properly from the start.

Every day or week, enter your takings in a cashbook, attaching to it the till readings and any credit card receipts. List all your cash purchases attaching receipts for each one. Remember, if you want to reclaim any VAT on purchases you must have a valid VAT invoice. Use the signed wages chit to cover payment of cash wages.

Use this formula to bank the balancing amount of cash:

Cash tills total takings + machine income — credit card receipts = Cash received (A)

Cash paid for Purchases + cash wages = Cash spent (B)

Cash received (A) — Cash spent (B) = Cash on hand (to be banked)

This simple weekly discipline will be totally transparent to the tax authorities and will avoid any subsequent complications or queries.

Another reason to record your cash flow is to ensure that you can pay your bills in full and on time. Good cash flow management avoids credit problems, ensures regular supplies and minimises interest and bank charges. It also tells you when you can afford to buy new equipment and when you have to be frugal.

You should also keep track of your own bank account. This is simple enough: to reconcile your bank account regularly, take your last bank statement, deduct cheques not yet presented, add cash and credit receipts banked, record your new balance and then keep it up to date with any cheques paid or monies banked. As you get used to managing your cash you can plan for future payments like rent, rates and VAT due.


You will already have a record of your cash purchases from your cashbook. To this, you need to add all invoices paid or to be paid by cheque, standing order, direct debit or credit card purchases. Do not forget to use the invoice amount, net of VAT charged.

Calculation of the net VAT due can be quite complex as VAT rates vary depending on what you are buying. VAT on machine income can also be quite confusing.

However, if you keep records with the appropriate invoices attached your accountant can quickly process these for you along with the cash takings from your cash book.

This is why it is best to have quarterly accounts prepared, handing your papers to your accountant within a week of the quarter's end and returned to you before the due date for VAT payment the following month end.

As with the payment of National Insurance and income tax, VAT should always be paid on time. Apart from avoiding charges for late payment, regular, consistent and timely payments indicate a well-controlled business compared to the many who have problems.

To avoid any problems with cash flow, it is also recommended that you keep a "broad-brush" running balance of your net VAT position so that you do not mistakenly believe you have more money than you think.


Regular stocktaking is also recommended as an essential tool for your business. It provides you with critical information. When you start off in a pub, your initial results can be easily distorted by the cost of your transfer stock. A second stock should be taken within four weeks to compensate for subsequent movements in stock levels. After that, stocks should be ideally be carried out every six to eight weeks.

This is the only way to be efficient in your stock holding, identify losses, understand the profitability of different products and categories (e.g. wines vs. spirits), and to compare your stock gross profit with your accounts gross profit. Your drinks gross profit may be 50 per cent, but is this lower than your budgeted GP?

The secret of good bookkeeping is keeping all your records up to date, week in, week out. Your licensed trade accountant should provide you with payroll services, business advice, quarterly VAT bookkeeping and undertake regular, preferably monthly, stocks for you. A good accountant will encourage you to keep all these records, even at the cost to him of lower fees, because through them you will have a greater control over your business.

Finally, you should remember that bookkeeping is not done just to satisfy the statutory authorities but to provide you with the information to optimise your profit on an on-going basis.

Further information

Stephen Savill is director of development at Austens, consultants, accountants and stocktakers to the licensed trade. The company provides the BII's free financial helpline on 0500 121926

Inland Revenue wages forms are available from your local tax office.

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