Why is Bookkeeping Important for Fashion Businesses?
Bookkeeping isn’t just about compliance; it helps you:
- • Understand Your Profitability: Tracking income and expenses lets you see which products perform well.
- • Manage Cash Flow: Avoid running out of funds by keeping a close eye on your revenue and outgoing costs.
- • Stay Tax Compliant: Accurate bookkeeping ensures you pay the correct VAT and corporation tax, avoiding penalties.
- • Attract Investors & Lenders: A well-kept set of accounts gives confidence to potential investors and banks.
Step 1: Choose the Right Accounting Software
Modern bookkeeping doesn’t mean piles of paper receipts. Cloud-based accounting software can help you automate tasks, track inventory, and manage sales seamlessly. Popular options include:
- • Xero – Great for small fashion businesses, with easy integrations for online stores.
- • QuickBooks – Ideal for tracking expenses, invoices, and VAT in one place.
- • Sage – A powerful tool with inventory management features for growing brands.
Step 2: Set Up a Business Account
Separating your personal and business finances is crucial. A dedicated business bank account:
- Makes it easier to track income and expenses
- Helps with tax reporting and VAT returns
- Creates a more professional image for your brand
Step 3: Track Your Income & Sales
- Whether you sell through Shopify, Etsy, eBay, Amazon, or a physical store, you need to track every sale. Your accounting software can integrate with e-commerce platforms to automate revenue tracking, ensuring all transactions are recorded accurately.
Step 4: Record Business Expenses Properly
Fashion businesses have a variety of expenses, including:
- • Raw materials & fabrics
- • Manufacturing & production costs
- • Marketing & advertising (social media ads, website costs)
- • Shipping & packaging
- • Studio rent & equipment.
Keep all receipts and invoices, ideally in a digital format, using accounting software or apps like Hubdoc to scan and organise them.
Step 5: Stay on Top of VAT & Tax Obligations
If your fashion business exceeds £90,000 in annual revenue (as of 2024), you must register for VAT. Common VAT schemes for fashion businesses include:
- • Standard VAT Scheme: Pay VAT on all sales and reclaim on purchases.
- • Flat Rate Scheme: A simplified option for businesses with lower expenses.
Filing VAT returns on time is crucial to avoid penalties. If unsure, seek advice from a chartered accountant.
Step 6: Monitor Inventory & Cost of Goods Sold(COGS)
Fashion businesses must track inventory carefully to manage cash flow and profitability. Calculate your Cost of Goods Sold (COGS) using:
- COGS = (Opening Inventory + Purchases) – Closing Inventory
- This helps determine profit margins and pricing strategies.
Step 7: Reconcile Bank Statements Monthly
Check your business bank transactions against your bookkeeping records at least once a month. This ensures:
- No missing or duplicated transactions
- No fraudulent activity
- Accurate financial reporting
Step 8: Prepare for Tax Season
Stay organised throughout the year to make tax filing easier. Key tax deadlines for UK fashion businesses include:
- • Self-Assessment Tax Return (for sole traders): Due 31st January
- • Corporation Tax (for limited companies): Due 9 months after year-end
- • VAT Returns: Quarterly deadlines depending on registration
Missing deadlines can result in fines, so set reminders or work with an accountant to stay compliant.
Bonus Tip: Work with a Chartered Accountant
While bookkeeping can be managed in-house, an accountant can:
- Ensure compliance with HMRC regulations
- Provide tax-saving strategies
- Help scale your business financially
At Pennyhills, we support fashion entrepreneurs with expert bookkeeping, tax planning, and business advisory services.
Need Help Managing Your Fashion Brand’s Finances?
Reach out to our team on WhatsApp today for a complimentary consultation. Let’s discuss how we can enhance your bookkeeping processes and support the growth of your brand.