Bookkeeping

Recording what actually happened, accurately and on time. Everything else in your finances is built on it.

What it means

Bookkeeping is the day-to-day recording of transactions: sales invoices, purchase invoices, bank transactions, expenses, payroll postings, and reconciling all of it against the bank.

Accountancy is what happens on top — the year-end accounts, the tax returns, the advice. Rubbish bookkeeping makes all of that more expensive and less useful.

Why it matters

Every figure you make a decision on comes from here. It is also a legal requirement: companies must keep adequate accounting records, and "adequate" has a meaning that a shoebox of receipts does not meet.

Making Tax Digital has moved most of this into software regardless of preference.

What it looks like in practice

Reconcile the bank at least monthly. Photograph receipts as you get them — the apps built into the main packages do this in seconds. Keep business and personal spending in different accounts; mixing them is the single biggest driver of accountancy fees in small businesses.

What to watch out for

Falling behind. Three months of unreconciled transactions takes far longer to fix than three lots of one month, and in the meantime every report is wrong.

Records must be kept for six years for a company, and five after the filing deadline for a sole trader.

Where to get proper advice

A bookkeeper — usually much cheaper per hour than an accountant, and better at this specific job. Look for ICB or AAT membership.