Over the next several weeks we will be publishing extracts from:
Take The Plunge – 101 things you need to know before starting your own business
by Michael Carter
This week: Us and them
We imagine most people reading this book have at one stage or another been employed within another business. Further, that within that business you were aware of the concept of ‘employee expenses’ or at least that old fall-back ‘the petty cash tin’.
Even if you haven’t been – you will remember that at school you did homework which was turned in and subsequently marked?
Employee expenses typically are about you telling the employer what you’ve paid out over the previous month – in some analysed way with receipts attached – which, after reimbursing you, goes off to form part of the company’s accounting record.
Petty cash is typically used for single transactions like ‘buying stamps’, ‘getting coffee’ etc. but someone will still analyse and summarise these to allow the company to account for the cash it has disbursed.
Even simple homework means your effort is turned into a mark and cumulatively aggregated for your termly report. By others.
So when you start your own business, try to regard it as separate from you. It also needs to keep records of its activities between it and you. So elsewhere in this book, while you will be encouraged always to get receipts and pay yourself for using a car etc., you must always remember that the business needs to keep separate records of all this.
Suppose you run a market stall. You could buy yourself a cash box and lend the box say £500. Then everything for the business is paid out from, or received in to that box. In simplest terms, when you’ve finished all your trading, whatever’s in the box – after deducting the £500 you lent it, is your profit. It can’t be much simpler.
But most people starting up use their own money and their credit cards and often receive cash (which they pocket) and cheques (which they bank). It doesn’t physically matter where the money goes as long as on paper or computer spreadsheet, you are keeping track of all the comings and goings of the money which belongs to (or is paid out by) your business. The same applies even if you are owed money by the business – keep a record and at the right time include it in the reckoning.
Good discipline is to empty pocket or purse each evening and record how much you’ve spent for the business.
Top tip: Something recorded today isn’t something forgotten tomorrow.
Useful website: www.hmrc.gov.uk/startingup/keeprecs.htm