Business Records and Book keeping
The key to effectively managing your new franchise is a robust and comprehensive bookkeeping system. Even if you intend to operate a very small franchise as a sole trader, you still need to generate financial records for your self-assessment tax return. Each year the HMRC randomly select a number of business to perform an investigation with. This involves looking very closely at the financial life of your franchise. The more detailed your business records are the better.
What is Bookkeeping?In essence every bookkeeping or accounting system is the same. They all basically track the money coming into your business, and the money you are spending. Business records allow you to instantly see:
- If your business is making the profit you expected
- Whether your costs are increasing that could potentially reduce your profits
- How much tax you will have to pay
- If you have enough money to pay your franchise royalty
- How much cash you have in your business bank account
This information feeds into your cashflow forecasts and your profit and loss statement. Don’t forget that you are taxed on the profits you make. This is the difference between the the money your franchise earns, minus all allowable expenses. Good bookkeeping enables you to accurately calculate that figure.
Business Records ManagementThere are no set rules about how your business tracks its finances. Business records (that have to be kept in storage for at lease 6 years if you are running a limited company) have evolved over the years and now consists of 3 basic components:
Cash BookThis is just another name for your cashflow records. This business record tracks all of the cash moving in and out of your franchise. It is important, as it records the money you spend on goods or services you use to run your business. Any allowable expenses can be offset against your tax bill, so keeping this business record bang up-to-date is vitally important. Also, when your turnover reaches £81,000 you will need to register for VAT. Your cash book will tell you when you are near this threshold.
Sales LedgerThis is the business document that usually tracks the invoices you have sent to customers. You should be able to instantly see who has paid, and more importantly, who is late settling their debt to you. This level of records management is essential to ensure you are paid the money that is owed to your business.
Purchase LedgerThe companion to your sales ledger is your purchase ledger. This business record tracks every purchase you make for your business. When you reach the VAT threshold, this ledger will allow you to claim back the VAT that you have paid.
If you also have employees, you will also need to record their salary and National Insurance payments in a separate ledger. HMRC provide form P11 that is usually used as the foundation of most business’s employee ledger.
Additional RecordsIf you intend to operate your franchise as a limited company you are required by law to produce a profit and loss statement each financial year. If you are a sole trader or a partnership (without limited status) a profit and loss business record is still a handy tool to help you more efficiently manage your franchise. Remember secure storage of your financial records is required by law if you are running a Company.
Tracking Your CashBusiness records can of course be kept with manual systems, but it’s more likely that you will use a computerised business records management system. There are many systems on the market from simply setting up an Excel spreadsheet to more sophisticated systems including:
- TASB Books 1 [www.tassoftware.co.uk]
- Sage Instant Accounts [www.sage.co.uk]
- MYOB BusinessBasics [www.mamut.com/uk/myob]
- QuickBooks (SimpleStart) [www.quickbooks-software.co.uk]
- Small Business Accounting [www.msofficeaccounting.co.uk]
Business records management should be one of your top priorities as you set-up your new franchise. These records are not only required by law, they are also one of your most useful tools. Try and keep your financial records as up-to-date as you can. They can then give you a snapshot of your business at any one time. You need this information to forward plan how you will develop your franchise in the future.