How to Do Accounting: Step-by-Step

Running a business comes with lots of new learning curves, and we’re here to help you out with one of the more complex lessons: accounting.

We know accounting isn’t the most exciting of topics, so we’ve broken it down into an easy step-by-step guide to help you become an accounting expert in your own right.

However, if you’re interested in outsourcing your accounting, you can use our free quote-finding tool. Just give us a few brief details, and we’ll match you up with trusted accounting firms, who’ll be in touch with tailored, no-obligation quotes for you to compare.

How do you do accounting?

We’ve laid out a step-by-step guide covering how to do your businesses accounting. These steps are:

1. Open a business bank account
2. Track expenses
3. Set up payroll
4. Set up payment processes
5. Get tax educated
6. Outsource

1. Open a business bank account

Having a business bank account will make it easier to track your expenses, and ensure your books are accurate. Having organised financial records will also make it easier for you if you want to look for funding in the future, as you’ll be able to present your numbers clearly.

2. Track expenses

The easiest way to track your expenses is to keep hold of your receipts. Whilst paper receipts still exist, you can digitally scan and store these so you’re less likely to lose them. Some shops offer to email you the receipt – sending these to a business email address, or even an accounting-specific email, can help you stay on top of your expenses.

Alongside keeping your personal and business financial transactions separate, it’s a good idea to itemise your receipts by category so you can accurately track them:

• Business travel
• Advertising and marketing
• Meals and entertainment
• Home office

You can also keep track of your expenses through invoices, bills, and bank statements.

3. Set up payroll

Setting up payroll means you can pay yourself and your employees accurately and on time. You also need to ensure that deductions are made, such as tax and pension contributions.

This can be done using payroll software, which help calculate payroll correctly each month and can also automate payroll tasks.

4. Set up payment processes

Getting paid is one of the more exciting parts of running a business, but how you set this up depends on the nature of your business.

If you offer services, then you could take payment through PayPal or accounting software that allows you to invoice clients, such as Xero or Wave. You can also collect payments through a bank transfer.

If you’re selling goods online, you should look at an ecommerce platform that has in-built payment gateway, or a platform that allows you to integrate a third-party payment provider.

If you have a brick-and-mortar business, you should opt for an EPOS (electronic point of sale) system. An EPOS system will allow you to take payments, and includes other functions to help run your business. Lots of EPOS systems integrate third-party accounting software, making it much easier to keep an accurate record of your books.

5. Get tax educated

As one of the certainties of life, it’s important to get educated on the taxes your business needs to pay. The most straightforward way to ensure you stay compliant is by keeping an accurate record of your expenses, setting aside money to pay your taxes, and ensuring you know how and when you need to pay your tax.

Your business’s taxes depend on its legal structure, and it can be difficult to figure out what exactly your business needs to pay, and what, if any, deductions your business may be eligible for. It’s a good idea to use a professional accountant to figure out your business’s tax obligations, to prevent any errors or fines.

6. Outsource

Outsourcing some or all of your tax and accounting tasks to an accountant or accounting firm can make it a lot easier to run your business. Tax and accounting can get complex, and the more expertise you have on hand, the more accurate and efficient this aspect of your business will be.

If you don’t feel your business is quite ready or big enough to outsource everything, you can choose to outsource only the more complex jobs, such as tax or payroll. This way you don’t need to worry about getting anything wrong, especially as doing so can mean you face penalties or fines. Getting it right the first time round will prevent a ton of hassle.

A good place to start outsourcing is by taking a look at our list of the best accountants in the UK. We explore accounting firms, and who they’re best for.

Accounting 101

Accounting often includes tons of unfamiliar phrases and words that can make it a lot more confusing than it needs to be. We’ve curated everything you need to know about accounting jargon:

Accounts receivable and accounts payable

Accounts receivable is the money your business is owed for goods or services. On your balance sheet, this is considered an asset.

Accounts payable is the money you owe to other businesses or suppliers for goods or services. This is considered a liability on your balance sheet.

Accounting period

The time period in which financial statements are prepared. This period could be based on the month, quarter, or year.

Assets

Something a business owns or uses.

Balance sheet

This sheet sums up the assets, liabilities, and capital of a business at a particular point in time.

Burn rate

Your burn rate is how quickly your business spends money. It’s an important factor to measure because it helps you manage your cash flow, and business decisions.

To measure your burn rate, pick a time period, and subtract your cash at the end of that period from your cash at the beginning of the period, to be left with how much you’ve spent. Then divide this number by the number of months (or weeks, or days) in your chosen period. You’ll then be left with how much you spent each month (or week, or day) in that period.

Capital

This is the money you have to spend on or invest into your business. This money is separate to your assets and liabilities.

Cash flow statement

This shows where and how your business is receiving and spending money.

Corporation tax

The tax your company needs to pay, based on the taxable profits of the period.

Income statement

This shows how much money your business has made or lost.

Which accounting software is best?

Accounting software is used by bookkeepers, accountants, and business owners to carry out accounting tasks. Accounting firms will often use cloud-based software to manage their clients’ financial records, and tax and accountancy services.

Some business owners will use accounting software if they want to keep accounting in-house. Typically, start-ups and small businesses will use accounting software instead of outsourcing all their accounting.

If you’re looking for accounting software for your business, you want a provider that offers your business the services you need, whether this is payroll, tax, or automation. Every business has different needs, but it’s important to find software that will help your business run that much smoother.

Most accounting software will have core accounting functions, but if you’re after extra features, make sure the provider you choose has them, or at least has the option to add-on or integrate these functions from a third-party.

Another important aspect is pricing. Most software providers offer a monthly package, making it affordable even for new businesses. Shop around for a provider that offers software packages at a price suited to your budget.

Our recommended accounting software includes Quickbooks Online, which is scalable, and offers third-party integration. Meanwhile, Xero is a good choice for start-ups or small businesses that want straightforward software.

Top accounting tips

Here are our expert-approved top tips to stay on top of your accounting:

• Stick to deadlines – being aware of and sticking to tax deadlines will make things so much easier and stress-free. Missing a tax deadline can cause a major hassle, and you may face a monetary fine. We suggest looking up tax deadlines, and making a note of them in your calendar, with regular reminders.
• Stay organised – whilst this is easier said than done, the more organised you are from the outset, the easier it will be for you to complete tax and accounting tasks. Even if you’ve slacked a little on the organisation until now, it’s never too late to start.
• Track and separate expenses – as well as tracking every expense, you also want to keep your business and personal expenses separate, to save you time and effort.
• Automate – we recommend using accounting software that includes automation. This way you don’t have to spend as much time doing manual work, and the software will generally be more accurate as it won’t allow for human error.
• Dedicated accounting time – set aside a dedicated amount of time each month to go through any necessary paperwork and payroll, and avoid letting receipts and invoices pile up.
• Outsource – outsourcing some or all of your tax and accounting can free up your time and energy. It also gives you access to an accounting professional, who can offer you advice and present you with more efficient solutions.

Does your business need an accountant?

Outsourcing to an accountant means you have more time, energy, and resource to put into other aspects of your business. Tax and accountancy are complex and time-consuming – outsourcing gives you experts on hand who can make the process a lot easier.

Keeping it in-house makes sense for some businesses, for example, if you have sufficient knowledge in accounting or you want to retain more control. In this case, you can still choose to outsource a more complex task such as managing taxes, or get advice from a professional accountant to ensure you’re on the right track.

In the long run, outsourcing saves your business money, as it can be costly to hire, train, and keep an in-house accounting team. As a start-up or small business, you can choose to rely on software or DIY it, but as your business grows, it may be hard to keep the cost of this down as you’ll need to scale up.

Outsourcing is suited to most businesses, as you can never go wrong by relying on expertise – especially when it comes to confusing areas of the law.

Need a quote?

If you’re considering outsourcing your tax and accountancy services, you can use our free quote comparison tool to be matched up with the right firms for your business. Just give us a few brief details and we’ll do all the hard work. You’ll then receive tailored, no-obligation quotes from the best accounting firms for you, so you can compare and save.