A guide to bookkeeping and accounting systems

Why do you need a system?

Hopefully your business is going to provide you with a good source of income. And over the years you will be building something that could have significant value. There are several very important reasons why you should systemise your book keeping and accounting:

Start off as you mean to go on. Your business needs to be well organised and controlled. The way that you set up your record keeping is a foundation for everything else that you do in your business.
Keep time and cost to a minimum. By processing all your transactions in a systematic and methodical way, you will minimise the amount of time you spend doing the books and the amount of money that you spend with your accountant. And your VAT return is something that you can easily do yourself if you have the right systems in place
Getting information. There is a legal requirement to keep books and records going back 6 years. Simple systems will allow you to do this quickly and easily. You also need information about your business to help you in your decision making and when you come to sell your business. Even applying for a mortgage will mean having information about your business performance.
Management. You need to know who owes you money and how much you owe. You need to know how much you've got in the bank and how much profit you are making. Some simple systems allow you to get this information easily.
Avoiding penalties. Apart from wasting your valuable time, poor systems could result in fines and penalties. The taxman and the VAT man are getting much tougher on this.
Most important. Once you have a system, you can ask someone else to operate it for you. This is a fundamental key to growing any business. As your business grows you may want to pass the book keeping on to another person so that your time is free to do the more important and more valuable things.

What do we mean by a system?

A system is simply an organised method of processing transactions consistently over and over again.

For your business this could mean a manual book keeping system or a more advanced computer based system. Both have their advantages and you should think carefully about which one is right for you.

Manual system or computer system?

At one time all systems were kept manually. In recent years many businesses have turned to computer systems to help process large amounts of information. As the cost of computer systems has fallen, many smaller businesses have also started using computer-based systems.

Your decision about whether to go for a manual system or a computer based systems is likely to be based on:

Your skills. If you have never used a computer system before then you may be much better off with a manual system. A book doesn't take any time to switch on and can be very simple to operate. When you make a mistake with an entry in a book it can usually be corrected very easily. Computer mistakes often take more time.
The size and complexity of your business. If you are going to be handling lots of transactions, buying and selling on credit then a computer system can save you a significant amount of time and give you more control. Once you have entered all the information, management information can be produced quickly and easily.
The cost. A personal computer and printer is likely to cost around £1,000. You will then need to buy a suitable accounting programme. These start at around £75 for a reasonable one.

You must also allow time and money for training. There are many providers of training including us. Allow a minimum of £250 for individual tuition and sufficient time to learn the basics. Colleges may offer cheaper courses but these often use older versions of the software and will not be specific to your business.

Having a computerised book keeping system is only going to save money on your accountancy fees if the system is properly used and maintained. The cost of preparing accounts from a badly run system can be considerably more than if a manual system was being used.
The future. Is your business going to grow quickly and need more sophisticated systems in the future. If so, you may want to invest in a computer system now but make sure that it is capable of still handling your business as it grows.
Your accountant. Check on what system your accountant is familiar with. If you start using a system that your accountant is familiar with you will be able to get help with setting things up correctly and avoid many of the basic problems.

Click here to read our review of popular manual and computer-based accounting systems

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