Many small food businesses start with passion. Maybe as a maker you start out selling to friends and family and soon realise that there is a demand for what you make. Maybe you start out with a vision to make healthy food more accessible in your area. Keeping good accounts is crucial in your journey from passion project to flourishing enterprise. In this blog Lynne Davis speaks to our friend and small business bookkeeper Oliver Muller about how to make sure you have the right records as you grow.

Why is bookkeeping important?

If you don’t keep accounts properly, it’s really hard to know where your business is at. How do you track who owes you money and how much? If they say they accidentally overpaid you and ask you to refund the amount, do you just trust them? Maybe that’s okay at the start but it doesn’t take long for things to become a bit of a mess. Equally, if you chase someone over unpaid invoices, you’ll want to be confident they really owe you. Otherwise they will think you are unprofessional and they may even get annoyed. It’s certainly better to have records, even before you start thinking about tax returns and your legal obligation to keep records.

Simple bookkeeping helps you to be certain if you are actually making money and be confident in how much. Even if your bank balance is going up, it doesn’t always mean that the business is making money. For most businesses there are big on-off expenses that come along irregularly. Perhaps you pay your rent annually. Perhaps you’ll need to replace a piece of equipment once every few years. Your business will look highly profitable just up to the eve of that day when such a large expense comes along. Maybe you start out not drawing any income yourself and after some time you want to draw a wage. You need to know exactly the level of wages your business can handle.

That’s fine, I’ve got it all on a spreadsheet

If your business is very simple and you simply want to track incoming and outgoing expenses then spreadsheets can be fine. A spreadsheet with two sheets – one for money coming in and one for money going out – can be enough to keep your business records and allows for simple reporting of cash flow and balance. Even as a registered business with HMRC this can be enough. Maybe you don’t need to do VAT or Payroll, don’t have creditors and debtors, no assets, no liabilities, no loans etc. In such a case you don’t need complex software and your spreadsheet may be the best solution. It’s also easier to understand than bookkeeping software.

If you plan to grow, however, then it is a good idea to use accounting software from the early days. These tools come into their own once the business becomes more complex. One of the factors when considering if an accounting package is worthwhile for your business is volume. Accounting packages will create quick and simple invoices for you and generate clear reports to help you track your business which will save you loads of time once your enterprise starts to grow. Most accounting packages have great automation features like bank account integrations. These then automatically links your invoices (created in the accounting package) with payments in the bank account so that reconciliation is automated and simple.

Another feature of most accounting packages is the ability to record capital expenditure and assets correctly. Capital costs can be complicated. Some, like land, maintain their value on your balance sheet. Others, like vehicles and equipment, depreciate in value over time. By correctly accounting for these you can be sure that when the time comes to buy a new vehicle or submit your annual accounts you’ll neither find yourself unable to replace your equipment or facing an unexpected tax bill.

When your business grows to the point of managing VAT and payroll then you’ll struggle to survive without an accounting package. Most packages can automatically submit information to HMRC at the click of a button. If you have visions to grow to this point then getting your head around the simple features of accounting package early can smooth the learning curve as your business grows.

If you are using the OFN platform to sell through then you might find it helpful to know that OFN integrates with a number of accounting packages. These integrations save you time as every sale is OFN is automatically created as an invoice in your accounting package. This will enable you to automatically correlation bank transfers with the invoice meaning that you don’t need to reconcile manually. You can also link to Stripe payments and record when you receive cash payments so that all your payments are handled in one place.

Want to learn more?

Here are some useful resources to help:

  • Keeping Accounts using a spreadsheet – This is a clear video to show how to keep incoming and outgoing expenses and create a Profit and Loss report and Balance Sheet report in a spreadsheet software.
  • Linking OFN with Accounting Software – This blog lists some of the accounting packages that will integrate with OFN.
  • Many of the software packages have active communities and blogs that can help you with your accounting questions as you get started. Find the Quickbooks Community here. Xero have published a range of Xero small business guides here. A good series of blogs to help you from Wave here.
  • If you would like bespoke one-to-one support in getting started keeping your accounts please get in touch. The OFN team can point you in more directions and link you with people that can help.

Lynne Davis is CEO of the Open Food Network UK. Find her on twitter here.
Oliver Muller is a professional bookkeeper specialising in small and medium businesses. Visit his website here.