As a new business owner, you’re likely wearing many hats and probably feeling overwhelmed by the sheer number of tasks on your plate. From managing operations to driving sales and marketing, there are always multiple plates spinning every day. 

There is one area you can’t afford to overlook, however. One plate you need to ensure keeps spinning. And that’s your finances. Without a solid grip on your company’s accounting, it’s easy for expenses to spiral out of control or for cash flow issues to sneak up on you. And this can completely end your journey quicker than it began.

Even if you plan to hire an accountant, understanding the basics now will help you stay in control and make informed decisions from day one. So here are the key accounting concepts every new business owner needs to know to keep expenses in check and ensure long-term financial health.

1. Understand the key financial documents

To get a clear picture of your business’s financial performance, it’s essential to familiarise yourself with the most important financial documents. These will give you valuable insight into how well your business is doing and will help guide your financial decisions:

• Income statement: Shows how profitable your business is by detailing your revenue and expenses over a specific period.
• Balance sheet: Provides an overview of your business’s financial standing at any given point, including assets, liabilities, and equity.
• Profit and Loss (P&L) statement: Offers a detailed summary of your business’s revenue and expenses over a certain time frame, usually monthly, quarterly, or annually.
• Cash flow statement: Tracks the money coming in and going out of your business, helping you manage liquidity.
• Bank reconciliation: Ensures your bookkeeping aligns with your bank balance, which is crucial for maintaining accurate records and not freaking out when your tax bill appears.

2. Select the right accounting method

As a new business owner, you’ll need to choose between two accounting methods: cash-based or accrual-based accounting.

• Cash basis accounting: This method records income and expenses when the cash transaction occurs. It’s a straightforward and simpler approach, especially for small businesses.
• Accrual basis accounting: With this method, income is recorded when a sale is made, and expenses are recorded when incurred, regardless of when the cash is actually exchanged. This method provides a clearer picture of your business’s overall financial health.

While cash-based accounting is easier to manage, many businesses opt to switch to accrual accounting as they grow, as it offers a more accurate reflection of profitability.

3. Track your expenses carefully

Keeping track of your expenses is vital for preparing financial statements, claiming tax deductions, and monitoring your business’s growth. Whether you use a spreadsheet, hire a part-time bookkeeper, or invest in accounting software, it’s important to develop a system that works best for you.

Note: Always keep records of receipts and invoices! This helps ensure accuracy and makes it easier to handle any tax-related queries down the line.

4. Choose the right accounting software 

Accounting software can save you time, reduce errors, and provide valuable insights into your business’s financial health.

Here’s why it’s essential:

• Automation: Tasks like recording transactions and reconciling bank statements are handled automatically, saving time and reducing mistakes.
• Accuracy: Automated calculations are more reliable than manual ones, ensuring your financial data is always accurate.
• Organisation: Easily access invoices, receipts, and other records, without the hassle of sifting through paperwork.
• Financial reporting: Generate key reports like income statements and balance sheets with just a few clicks.
• Tax preparation: Simplify tax season with software that produces necessary reports and even helps with HMRC filings, including VAT.

By using accounting software, you’ll have more time to focus on growing your business while staying on top of your finances. However, it needs to be the right software for you! One that provides what you need now AND one that you can grow into and still be able to use.

Mastering these accounting basics will give you the confidence to manage your business’s finances effectively. Even when you bring an accountant on board - having this foundational knowledge will help you work together to make the best financial decisions for your business’s success.



Need help with your finances now?

We can help ease the pressure in many areas, from keeping your books up to date to filing your taxes and giving essential advice. Get in touch with us today.