Managing the accounts of a limited company can seem daunting, but by following best practices, businesses can ensure their financial health and compliance with statutory requirements. At Thomas Barrie & Co, we are committed to helping companies streamline their accounting processes, making it easier for them to focus on growth and success.
Below, we outline some essential practices that every limited company should adopt.
Maintain accurate and up-to-date records
The foundation of effective accounting is maintaining accurate and current records. This involves regularly updating your books to reflect all financial transactions. Keeping precise records helps track your company’s financial health and ensures compliance with HMRC regulations. Failure to maintain proper records can result in penalties and hinder the company’s ability to secure financing.
Use reliable accounting software
Investing in reliable accounting software is crucial for modern businesses. Software such as Xero, QuickBooks, Sage or FreeAgent simplifies managing accounts, generating financial reports and ensuring compliance with tax regulations. These platforms offer features like automated invoicing, expense tracking and integration with bank accounts, which save time and reduce the likelihood of errors.
Separate personal and business finances
One of the cardinal rules for limited company directors is to keep personal and business finances separate. Mixing these can lead to complications and make it challenging to maintain accurate records. Open a dedicated business bank account for all company transactions. This simplifies bookkeeping and provides a clear audit trail, which is essential during financial reviews or audits.
Regularly review financial statements
Regularly reviewing financial statements is vital for understanding your company’s financial position. Monthly or quarterly reviews of profit and loss statements, balance sheets and cashflow statements can highlight trends, identify potential issues and inform strategic decisions. Regular reviews also help ensure your accounts are up-to-date and compliant with statutory requirements.
Plan for taxes
Tax planning should be an ongoing activity rather than a last-minute scramble. Understanding your tax obligations and planning accordingly can help avoid surprises and ensure timely compliance. Take advantage of available allowances and reliefs, such as the annual investment allowance (AIA) and research and development (R&D) tax credits. Setting aside funds for corporation tax throughout the year is also wise to avoid cashflow issues when payments are due.
Implement internal controls
Establishing strong internal controls is essential for preventing fraud and ensuring the accuracy of financial reporting. These controls include segregation of duties, regular reconciliations and authorisation procedures for transactions. For example, having different individuals handle invoicing and payments can reduce the risk of fraudulent activities. Regular audits of these controls can identify weaknesses and areas for improvement.
Prioritise cashflow management
Effective cashflow management is vital for the sustainability of any business. Monitor cash inflows and outflows closely to ensure your company has sufficient liquidity to meet its obligations. Forecasting cashflow can help anticipate periods of high expenditure and plan accordingly. Implementing efficient invoicing and credit control processes can help maintain a healthy cashflow.
Prepare for year end
Year-end accounting involves closing the books for the financial year, preparing financial statements and filing accounts with Companies House and HMRC. Start preparing early to ensure that all transactions are recorded, accounts are reconciled and necessary adjustments are made. This proactive approach helps to avoid last-minute stress and ensures accuracy in financial reporting.
Embrace digitalisation
Digitalisation offers numerous benefits for accounting, from improved efficiency to enhanced accuracy. Transitioning to digital record-keeping and utilising cloud-based accounting solutions can streamline processes and provide real-time access to financial data. HMRC’s Making Tax Digital (MTD) initiative also requires businesses to maintain digital records and submit VAT returns using compatible software.
Seek professional advice
While managing accounts in-house is feasible for many businesses, seeking professional advice can provide valuable insights and ensure compliance with complex regulations.
Chartered accountants can offer expertise in tax planning, financial reporting and strategic planning, helping businesses navigate the intricacies of accounting and taxation.
At Thomas Barrie & Co, we are dedicated to supporting businesses in achieving their financial goals through expert advice and tailored accounting solutions.
Whether you need assistance with tax planning, financial reporting or day-to-day accounting, our team is here to help. Get in touch today.