Bookkeeping 101 for self-employed hairdressers

As a small business owner, it can be tough to balance seeing your clients and managing the administration tasks necessary to keep your business running smoothly. This is where this guide comes in. 

Being a self-employed hairdresser and doing your own bookkeeping doesn’t have to be difficult. In this article, we’ll look at the following areas to get you started with successful accounting:

• Why good bookkeeping is important for hairdressers
• Bookkeeping terms you should know
• Bookkeeping reports for hairdressers
• How to start bookkeeping properly
• Understanding hairdressing expenses

First, let’s define the difference between bookkeeping and accounting. Bookkeeping is the practice of recording and tracking all transactions, both in and out of your business. Accounting is the analysis of the records you’ve kept, to understand your business financial health. Both go hand in hand when you are self-employed. It’s important to keep your books tidy for several reasons:

• Making bookkeeping a habit ensures that you have good visibility of the finances in the business. Some salon owners and self-employed hairstylists ignore the details of their finances, which is when the business can suffer from financial struggles. 

• It helps you create a good budget. In order to run the business smoothly, you need to make sound financial decisions about supplies, events to attend, how to market yourself, or how many clients you need to bring in. When you understand the numbers you have to work with, you can make smart choices to grow the business.

• Good bookkeeping skills can help if you are looking to secure funding. Investors or banks will want to have a look at your finances before lending any money, so organised financial records could work in your favour.

• One of the most important reasons for organised books as a hairdresser is for tax preparation. When you have to fill in your Self Assessment, you’ll be thankful that you kept all receipts, records and information that you need in order to save you scrambling before the deadline.

• Bookkeeping can help with your business operations. By monitoring your daily, weekly or monthly transactions you can understand what is doing well or not working, and take steps to ensure your business runs more efficiently and stays financially stable.

There are a lot of words and terms that you will come across in doing your business finances. We’ve listed a few below to ensure that you can talk the talk when it comes to effective bookkeeping.

• Revenue, or income, refers to the money you’ve made after providing services, or selling products.

• Expenses, often called expenditure too, refers to the amount of money you spend in order to run your business. This can include rent, utility bills, supplies, or transport if you visit client homes. Learn more about how to keep track of business expenses.

• Assets are the valuables the business owns, such as the premises (if you own it), your chairs, sinks, tools, and stock. Learn more about assets in business.

• Liabilities are what your business owes. This could be for bank loans, contracts you have not yet paid to suppliers or any other debts.

• Equity is the total money you’d be left with if all your assets were sold and all liabilities (debts) were paid.

• Accounts payable is the record of all payments that you owe to other parties.

• Accounts receivable is the record of the money you are owed for your services by customers or businesses that you work with.

Learn more about the accounts payable and receivable process.

There are a few reports that you will need to pull together, that you will need to show HMRC when it comes to tax season. These are:

This is a table where you compare your assets against your liabilities and equity, to make sure your business finances are balanced, and therefore stable. 

To do this, put the total of your assets on one side of a spreadsheet. On the other side, add up your liabilities and your equity. Use the following formula to work the equity out:

Owners Equity = Assets – Liabilities

Then add up each side of the spreadsheet. It should fit this formula:

Assets = liabilities + owner’s equity

As the title suggests, the totals should balance. If they don’t, then check your figures or understand where extra debt/assets have snuck in.

This statement (also called an income statement) shows your total revenue, minus your expenses, to show how much money you made or lost in a specific time period. You can find a detailed article on how to pull this together here.

Cash flow is the movement of money in and out of your business, whether physically or virtually, in a chosen period. Inflow is the money you bring into your business, and outflow is the money that leaves it, and you can find a more detailed guide on how to create this statement here.

We’ve listed some actions that you can take to manage your bookkeeping effectively.

Using a separate bank account from your personal one will not only give a more professional look to your business operation but makes things more straightforward for your bookkeeping. It ensures you don’t spend your business money for personal purposes, and saves you identifying the business purchases from the personal ones.

If you have a limited company to run your hairdressing business or salon, then it is a legal requirement to set up a business current account, but if you are a self-employed hairdresser as a sole trader, we would still recommend it.

It’s easy to sign up online for a Countingup business current account for free and in minutes, and receive free built-in accounting software that will automate the time-consuming aspects of your bookkeeping and tax admin. 

The best way to keep on top of your bookkeeping is to make it a habit. Spend a little bit of time every day managing the ins and outs of your business account, instead of spending hours pulling it together at the end of the month. Using an app such as Countingup can help save your hours of accounting admin as it automatically creates profit and loss reports for you.

You can use the Countingup app, or a spreadsheet to manage your transaction records. The app makes it easy to record your receipts, sending you reminders to snap photos of them when you’re on the go. You will need these records when it comes to tax assessments.

Now that you know how to manage your transactions, another aspect of bookkeeping is the expenses you can claim off your tax bill. Though anything you buy will still come off your profit, claiming back means you won’t pay tax on these purchases. You can find out more about what expenses you can claim as a self-employed hairdresser from HMRC.

You can claim back on the tools of your trade, such as the cost of buying scissors, shampoo, colouring and styling equipment, and electrical tools. These are valid business expenses as they are a requirement to run the practice. The cost of acquiring a full kit for yourself or your salon can really add up, so this can be a considerable chunk of tax you could save.

You are also able to claim back the cost of repairing any equipment you need to run the business, or replacing/upgrading any items that have broken, too. Always keep the receipts, as you’ll need them for your Self Assessment submission.

Industries are ever-changing and hairdressing is no exception. There are always new trends and methods popping up. In order to give your clients the best service, you might want to attend training courses or events that help you stay up to date. Luckily, you can claim the expense of relevant training courses on your tax bill.

Hairdressers are exposed to a number of risks in their daily work due to the chemicals, electricals and sharp objects they work with. This means that you might need different types of insurance to protect both your business and your customers. Keep your insurance documents as proof and you can deduct this from your tax bill, too.

A common practice within hairdressing is to rent a chair in another salon, where you can operate your own business by using their facilities. If this is something you do, you can claim the rental costs as a business expense. 

If you do this, you’ll likely have a contract with the salon where you rent the chair. In some cases, they might take a percentage of your earnings from their salon, instead of a flat rental charge. Make sure you read the small print and keep your accounts organised, so that you can prove any costs to HMRC when needed.

If you’re a self-employed hairdresser travelling from place to place, you can claim certain travel expenses on your tax return. This includes public transport, driving your own car or if you have been a passenger in another person’s car. However, you can only claim it if the journey is for work –– meaning you can’t claim petrol for your journey from your home to the salon. However, you can claim for any journeys from salon to salon, or between clients homes.

If you mix personal and work journeys often, it’s important to know that you can only claim for the miles travelled for work purposes. The simplest way to keep track of this is to write down the business-related mile total on your phone or notepad when you finish the journey. 

Always keep accurate mileage totals as HMRC lets you claim per mile, and so be sure to check the rates they offer when claiming.

If you wear a uniform while working, you can claim back the cost as a business expense, as well as the cost of laundering the clothing. This doesn’t count if you wear your own clothes to work, but HMRC allows laundering of uniforms and other items (such as towels and hairdressing capes) as a business expense, which you can check the costs of here.

If you choose to be a member of professional societies like the National Hairdressers’ Federation or the Hairdressing Council, you can also claim these are business costs. HMRC has to approve the organisation, but a good rule of thumb is if they use a ‘.org’ address, then it should be fine with the taxman.

Established businesses and start-ups both often invest in marketing activity in order to drum up business. In hairdressing, a lot of your business might be word of mouth, but if you want to move into the digital world and create a website to start marketing your business, you can also claim these costs against your tax bill. Claimable items include: 

• Website hosting fees
• Buying a domain name
• Website registration cost
• Website maintenance
• Email advertising costs
• Newspaper or magazine advertising 
• Paying for listings in directories 

Many self-employed hairdressers might choose to hire an accountant to help manage their finances if they don’t have much financial experience. You can include the accountancy fees as a business expense, and often accountants can offer much more than just financial advice, and may even help you plan how you can grow your business. 

Though accountancy fees might feel like an extra expense, it could pay you back in the long run with their support on your money matters. Countingup makes it easy for your accountant to link to your account, so they can help manage your finances without delays.

If you’re self-employed, you’ll know how much time financial tasks take out of your busy day. Countingup makes it simple. 

With the Countingup app, you can get instant insights into your profit and loss, as well as the ability to create and send invoices in instants and a handy receipt capture tool. The app’s useful features mean that you can spend less time focusing on time-consuming financial admin and focus on what you do best.

Find out more here and sign up free today.