No matter what type of business you run you must have a method of keeping your records. It could be paperwork in a folder, transactions recorded on a spreadsheet or the use of bookkeeping software. Whilst all of those options work fine, we are huge advocates of future-proofing your business by going paperless and fully digital.
What is Digital Bookkeeping?
Digital bookkeeping is quite simply the opposite of paper-based bookkeeping. Do you remember the old account ledger books with columns and columns of hand written information contained within? Maybe we are all too young for those memories now!
Digital bookkeeping is the process of using either software on a computer or in the cloud (not hosted on your actually machine) to keep records of your outgoings, incomings, VAT payments, cash flow records and basically anything to do with the 'numbers' of running your business.
There are lots of options for digital bookkeeping software and most now offer a monthly or annual subscription basis. The benefit of this is that you pay for only what you need, you can upgrade for additional features as it makes sense for your business and the software is updated frequently and new options are constantly being developed.
Some business are completely digital, some are a hybrid of paper and digital. It really depends how you send or receive invoices and what makes sense for your business. But one thing for sure is that digital bookkeeping is now the preferred option for HMRC, banking, accountants and, once they see the benefit, most business owners.
Making Tax Digital (MTD)
Another driving force that should encourage you to think paperless is the Government’s Making Tax Digital initiative, or MTD, which is being introduced by HMRC now so that within five years almost all businesses will have to keep digital records.
Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs. HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world and is making fundamental changes to the way the tax system works.
If you are a VAT registered business with a turnover over £85k you already have to use MTD compliant software to keep your books and prepare and submit your VAT returns.
The new legislation states that Sole Traders and rental property owners with annual income above £10k must be MTD compliant from April 2024.
This is going revolutionise the way these businesses manage their taxes, with the key changes being the need for MTD compliant software and quarterly returns being made to HMRC - yes you read that right, you will need to submit digital records to HMRC every three months.
This is going to come around very quickly and the emphasis being placed on this initiative suggests that you should get on board now to ensure you are not left behind or struggling to comply at the last minute. There are a lot of resources being put towards this which will help you get ready.
This fabulous pandemic we are all experiencing has certainly streamlined this timescale as many businesses have simply had to embrace going paperless - necessity being the mother of all invention!
Want to know more about this? You can read all the Government advice on Making Tax Digital here.
Four Benefits of Digital Bookkeeping for a Small Business
Rather than feel forced into digital bookkeeping, we certainly would encourage you to see it as a huge opportunity to make a very positive impact on your business. Here’s our four main reasons why:
1. Keeping Control
Keeping your bookkeeping in-house by using digital software means it is right and under your nose is an excellent way to keep control of your finances and your business without actually increasing your workload. Too many business owners don’t really have a full understanding of their financial situation which leads to risky decision making or, just as bad, fear of success.
Digital bookkeeping keeps you in full control, which leads us to the next benefit...
2. Easy Financial Overview
The most important aspect of running your business is to know your financial position at any given moment. Digital bookkeeping will allow you to maintain a good overview of your cash position and liabilities. This can be so valuable in helping you to make important and informed decisions about your business, quickly! You don’t need to wait for your accountant to return completed books or quarterly VAT returns to you to know when you stand, you can run management reports from your software on demand. Key reports including who owes you money, year to date profit and cashflow.
We would certainly advise you to get these key reports set up that you can review them monthly (or even weekly), which will help you with...
3. Saving Costs
By using various reporting functions you can quickly see who owes you money and focus on chasing that up, or with which supplier you spend the most and negotiate better terms or discounts. The ways to find savings are numerous with easy access to this information.
Additionally, whilst you may have to pay a subscription for some bookkeeping software they are usually very affordable and you will save hours in fees of paying someone to turn your shoeboxes of receipts and invoices into legally compliant digital files. Digital bookkeeping software is easy to use and most can be quickly taught to any staff member, which leads us onto...
4. Scalability
Growing a business can be quite challenging and a painful process. Increasing your turnover rapidly often increases your workload and your paperwork. But if you have already embraced digital bookkeeping then the change is actually fairly minimal and the process doesn’t change. Using a digital bookkeeping system makes it much easier to have additional staff or a dedicated bookkeeping department manage your books because the processes and systems are in place.
We could wax lyrical about each and every reason to go digital, but these four key benefits we feel offer huge advantages for even the smallest of businesses.
What’s the Best Digital Bookkeeping Software for a Small Business?
There is lots of MTD compliant small business software options on the market and you can find a comprehensive list on the HMRC website. Whilst we encourage you to shop around to find the best MTD software for you, we really like Xero and recommend it to all of our clients. In fact we like it so much we offer an hours free training session to get you started for new and existing clients.
The Main Features of Xero
So what is it about Xero that we like? Let’s look over the key features that the platform offers:
Cloudbased
Log-in securely to your Xero account from anywhere at any time. This has never been so important than during the pandemic when most of us have to work isolated and at home.
Bank Reconciliation
Keep your financials in Xero up to date. Categorise your bank transactions directly from your live bank feed each day using our suggested matches.
Send Invoices & Quotes
Work smarter with intuitive invoicing software. Send invoices and quotes from your phone or desktop, as soon as the job is done.
VAT Returns
Xero calculates VAT, prepares and files returns securely with HMRC using software that’s compatible with HMRC systems.
Contacts and Smartlists
Look up a customer or supplier to see a full history of sales, emails, invoices and payments as well as contact details.
Manage Supplier Invoices
Get copies of original documents and key data into Xero automatically without manual data entry using Hubdoc.
Reporting
Track your finances with accurate accounting reports. And collaborate with your accountant online in real time.
Stock
Manage inventory and keep track of what's in stock. Populate invoices and orders with details of items you buy and sell.
Xero also helps you to pay bills, accept payments, manage expense claims, track projects, deal with currency conversion and much more!
Xero Heroes
In case you were wondering, whilst we are an approved Xero partner, we are not paid to promote Xero and we do work with other systems. However, having evaluated a few different systems Xero the one we find best for our clients and are therefore happy to recommend it. A significant benefit for both us and our client is that it reduces our workload which enables us to reduce the rates we charge clients. The work we do is more streamlined for those clients using Xero - it’s a simpler process. Win win for all of us! So we want all of our clients to become Xero Heroes!
If you are an existing client or would like us to manage your accounts, then we are very happy to arrange an hour’s free training on moving your bookkeeping onto the Xero platform. Get in touch with us...
☎️TEL: 01480 775 611
📧hello@evolveaccounting.uk
Here's a link to Xero if you want to check it out for yourself: https://www.xero.com