How to start doing your own bookkeeping?

Reviewd and updated 08/11/2025

Bookkeeping is vital for businesses, ensuring accurate financial records and informed decision-making. By doing your own bookkeeping, you gain benefits such as cost savings and a deeper understanding of your financial health. In this blog post, we will share valuable insights into the world of bookkeeping and provide you with a step-by-step guide on effectively managing your own bookkeeping independently, empowering you to take control of your finances.

Understanding Bookkeeping Basics:

Bookkeeping serves as the backbone of financial management, enabling businesses to track and monitor their financial activities. It involves recording, classifying, and organizing financial transactions to provide a clear and accurate picture of your financial health. Key terms and concepts such as assets, liabilities, income, and expenses form the foundation of bookkeeping. Assets represent what you own, while liabilities indicate your financial obligations. Income reflects the money coming into your business, and expenses represent the costs incurred. By understanding these terms and their interplay, you can make informed decisions based on your financial data. Maintaining accurate and organized financial records is crucial for tracking income, monitoring expenses, and ensuring compliance with tax regulations. These records provide insights into your cash flow, profitability, and financial stability, enabling you to identify trends, make adjustments, and plan for the future.

Setting Up Your Bookkeeping System:

From April 2026, if you're a sole trader or landlord with qualifying income over £50,000 (based on your 2024/25 tax return), you'll need to maintain digital records and submit quarterly updates to HMRC using MTD-compatible software. This threshold drops to £30,000 in April 2027 and £20,000 in April 2028. Understanding these requirements now is crucial for your business planning.

Setting up an efficient bookkeeping system is crucial for the smooth financial management of your business, but it is no longer just about good practice—it's becoming a legal requirement for many UK businesses. Let's explore your options in light of MTD requirements.

There are several bookkeeping methods available, each with its own advantages and considerations. The first method is manual bookkeeping, where you record transactions by hand in physical ledgers or journals. While this method may be suitable for small businesses with minimal transactions, it can become time-consuming and prone to errors as your business grows.

Another option is using spreadsheets like Microsoft Excel or Google Sheets. Spreadsheets offer more flexibility and can be customized to suit your specific needs. They allow you to organize and track your financial data effectively. However, maintaining complex spreadsheets can be challenging, especially when it comes to generating financial reports or managing larger volumes of transactions.

Manual bookkeeping and basic spreadsheets like Excel, while previously acceptable, will no longer meet MTD requirements if your turnover is over the MTD threshold. Under the new regulations, Excel or paper records alone won't be sufficient—you'll need HMRC-approved software that can handle digital record-keeping, quarterly updates, and tax return submissions.

Accounting and bookkeeping software provides a comprehensive solution for bookkeeping. These software packages automate many tasks, streamline processes, and offer features like invoicing, expense tracking, and financial reporting. They provide a centralized platform for all your financial data, making it easier to generate accurate reports and analyze your business's financial health. Accounting software offers scalability, allowing you to adapt to the changing needs of your business as it grows.

Choosing MTD-Compatible Software

Evaluate your business's specific requirements and determine the level of complexity you can handle comfortably. Consider your budget and the long-term scalability of the chosen system. While manual methods may seem more affordable initially, they can become time-consuming and less efficient as your business grows. Accounting software, although it may come with a cost, offers streamlined processes and reporting capabilities that can save you time and help you make informed financial decisions.

For those considering accounting software, there are various popular options available in the market. Some well-known accounting software include QuickBooks, Xero, and Sage. These platforms provide comprehensive bookkeeping features, customizable chart of accounts, transaction recording, financial statement generation, and even integration with other business tools like payment processors or inventory management systems. Take the time to research and compare different software options to find the one that best aligns with your business needs and budget.

Accounting and bookkeeping software is now essential for MTD compliance. These packages must be able to:

• Maintain digital records of all business transactions

• Record each individual transaction digitally (not just summaries)

• Submit quarterly updates to HMRC

• File your annual tax return digitally

In addition to bookkeeping software, another tool that can significantly streamline your bookkeeping process is automated data capturing software. This software uses advanced technology, such as optical character recognition (OCR), to extract data from receipts, invoices, and other financial documents automatically. By eliminating manual data entry, automated data capturing software reduces the chances of errors and saves you valuable time. Some popular options in this category include Receipt Bank, Hubdoc, and Expensify. Integrating automated data capturing software with your bookkeeping system can further enhance accuracy and efficiency, allowing you to focus on more strategic aspects of your business.

The Power of Automated Data Capture

By incorporating automated data capturing software into your bookkeeping process, you can significantly enhance your efficiency, reduce manual effort, and minimize the risk of errors. It allows you to spend less time on data entry and more time on analyzing financial insights, making informed decisions, and growing your business.

Remember, choosing the right automated data capturing software that aligns with your business needs is crucial. Evaluate factors such as the software's functionality, ease of use, compatibility with your existing systems, and cost-effectiveness. By leveraging the power of automated data capturing software, you can streamline your bookkeeping process and take your financial management to the next level.

Considering your options and the cost

By carefully selecting a bookkeeping system that suits your needs and leveraging the benefits of automated data capturing software, you can establish a robust and efficient bookkeeping process. In the next section, we will delve into the significance of a chart of accounts and guide you on how to design one tailored to your specific requirements.

When considering the cost of bookkeeping software and automated data capturing software, it's important to weigh the expenses against the potential benefits and time savings they offer. Accounting software typically comes with a price tag, ranging from affordable options for small businesses to more advanced and feature-rich solutions for larger enterprises. While the upfront cost may seem significant, it's essential to consider the long-term value and efficiency gained from automating your bookkeeping processes. The software can streamline tasks, provide accurate financial data, generate reports, and even integrate with other business tools, ultimately saving you time and enabling better financial decision-making.

Similarly, automated data capturing software also comes at a cost. The pricing structure for these tools varies, with some charging a monthly subscription fee based on the number of documents processed, while others may offer pricing tiers based on the level of functionality or the size of your business. Although there is an expense involved, the benefits are worth considering. Automated data capture software eliminates manual data entry by extracting information from receipts, invoices, and other documents, reducing the chances of errors and improving efficiency. This not only saves time but also frees up resources that can be directed towards more value-added activities for your business.

It's important to keep in mind that while there are costs associated with bookkeeping software and automated data capturing software, they are investments that can yield significant returns in terms of accuracy, time savings, and improved financial management. It's recommended to evaluate your business needs, compare the features and pricing of different software options, and consider the long-term benefits before making a decision. Many software providers offer free trials or demos, allowing you to assess their suitability and determine the best fit for your budget and requirements. Ultimately, the cost of these tools should be viewed as an investment in the growth and success of your business.

What is a Chart of Accounts and why do I need one:

In the world of bookkeeping, a chart of accounts is an essential tool that helps organize and categorize financial transactions within a business. It is a systematic list of all the accounts used to record various types of financial activities, such as assets, liabilities, income, and expenses. The chart of accounts provides a structured framework for recording and tracking financial data, allowing businesses to have a clear and comprehensive view of their financial health.

The significance of a chart of accounts in bookkeeping cannot be overstated. It serves as the foundation of your financial reporting system, enabling you to generate accurate and meaningful financial statements. By properly categorizing and organizing your accounts, you gain insights into the different aspects of your business's financial performance, making it easier to analyse trends, identify areas for improvement, and make informed financial decisions.

Designing a chart of accounts tailored to your specific needs requires careful consideration. Start by understanding the nature of your business and the financial information you need to track. Consider the specific accounts relevant to your industry, such as inventory, sales revenue, or operating expenses. Additionally, consider any industry standards that may impact your chart of accounts.

When designing your chart of accounts, keep it organized and logical. Create a hierarchical structure with broad categories at the top level and more detailed accounts within each category. This structure should align with your business operations and financial reporting needs. It's also essential to use consistent naming conventions and numbering systems to ensure clarity and ease of use.

Remember that your chart of accounts is not set in stone. As your business evolves and grows, you may need to make adjustments or add new accounts to accommodate changes in your financial activities. Regularly review and update your chart of accounts to maintain its relevance and accuracy.

By designing a well-structured and tailored chart of accounts, you lay the foundation for effective bookkeeping and financial management. It enables you to organize your financial data in a way that aligns with your business needs, making it easier to track and analyse your financial performance. Take the time to carefully design your chart of accounts, and you'll have a powerful tool that supports your bookkeeping efforts and facilitates informed decision-making.

Reconciling Bank Statements:

Bank reconciliation is a crucial process that helps identify discrepancies between your bank statements and your bookkeeping records. It ensures the accuracy and reliability of your financial information by verifying that all transactions are properly recorded and accounted for.

The importance of bank reconciliation lies in its ability to detect errors, such as missing transactions, duplicate entries, or bank fees, which can affect the accuracy of your financial records. By comparing your bank statement with your bookkeeping records, you can identify and resolve any discrepancies promptly.

To reconcile your bank statements with your bookkeeping records, follow these guidance steps:

1. Gather the necessary documents: Obtain your bank statements for the given period and gather any supporting documentation, such as deposit slips or cancelled checks.

2. Compare transactions: Compare each transaction listed on your bank statement with the corresponding entry in your bookkeeping records. Ensure that the amounts match and that there are no missing or duplicated transactions.

3. Reconcile the ending balance: Calculate the adjusted balance by accounting for any outstanding checks, deposits in transit, or bank fees. Compare this adjusted balance with the ending balance on your bank statement.

4. Investigate discrepancies: If you encounter discrepancies between your bank statement and bookkeeping records, investigate the causes. This may involve reaching out to your bank for clarification or reviewing your own records for errors.

5. Make necessary adjustments: Once you've identified the discrepancies, make the appropriate adjustments in your bookkeeping records. This may involve adding missing transactions, correcting errors, or updating balances.

Efficient bank reconciliation can be challenging due to factors such as timing differences, transaction categorization, or bank statement complexities. To streamline the process, consider these tips:

- Maintain accurate and up-to-date records: Regularly update your bookkeeping records to reflect the most recent transactions. This reduces the likelihood of errors and discrepancies.

- Use bank reconciliation tools: Utilize accounting software or dedicated bank reconciliation tools that can automate the process and help identify discrepancies more efficiently.

- Reconcile regularly: Perform bank reconciliation on a monthly basis to catch any discrepancies early and ensure the accuracy of your financial records.

By reconciling your bank statements with your bookkeeping records, you can maintain financial accuracy, identify errors or fraudulent activities, and have a clear understanding of your business's financial position. It may require time and attention to detail, but the benefits of efficient bank reconciliation far outweigh the challenges.

To sum it up

By taking charge of your bookkeeping, you can experience the benefits of improved financial management, better decision-making, and a clearer view of your business's financial health. While it may require some effort and learning, the rewards of doing your own bookkeeping are significant. So, seize the opportunity and empower yourself to navigate the financial aspects of your personal or business life with confidence and accuracy.

Remember, if you need additional assistance or resources, there are numerous bookkeeping software, tools, and educational materials available to support you on your journey to mastering bookkeeping. Feel free to contact us to book your free consultation today, in which we will help you set up a bookkeeping system that will work for you.

By taking charge of your bookkeeping, you can enjoy improved financial management, make better decisions, and have a clearer view of your business's financial health. While it may require some effort and learning, the rewards of handling your own bookkeeping are significant. So, seize the opportunity and empower yourself to navigate the financial aspects of your business life confidently and accurately.

Remember, if you need additional assistance or resources, there are plenty of bookkeeping software, tools, and educational materials available to support you in mastering bookkeeping. Feel free to contact us to book your free consultation today, where we can help you set up a bookkeeping system that suits your needs.