Accountancy Tips For Small Businesses
As a small business owner you may decide to manage all of your financial affairs yourself, hand it all over to an accountant or do a bit of both, handling day to day tasks yourself or employing a book-keeper to help. The choice will depend on the nature of the business and, of course, your own inclination to be closely involved with the business finances. Whatever route you choose for your business here are some accountancy tips for all small business owners.
Our Top Accountancy Tips
Keep Accurate Records
This may sound obvious but if you are busy running a busy company it is easy to forget to record a payment; it’s easy to lose a receipt or invoice. How and where you record all payments and receipts is less important than finding a method that works for you and sticking to it. What works best will depend on the type of business you are running but for most small businesses a simple spreadsheet or one of the many basic software packages available should be adequate. Both have their advantages and disadvantages and both will require some investment in effort to make the most of them.
There is a wide range of accounting packages available that are suitable for small businesses including cloud-based solutions such as Wave Accounting (which is also free), well-known solutions such as Sage One and Quickbooks as well as packages such as Kashflow, SimpleTax or TurboCash (another freebie).
None of these are substitutes for the advice of a qualified accountant but can help you monitor income, expenditure and profits; help with stock control, generate invoices and produce reports.
Estimate Tax Liabilities
It is important to make an estimate of the amount of tax the business is liable to pay so that these funds can be set aside to cover your tax bill. You can use figures from the previous tax year and modify them to take into account any significant changes to the business in the current year, particularly if profits are rising. Alternatively an accountant can help you to generate an accurate estimate of your tax liability.
Seriously consider setting up a separate bank account to save an appropriate percentage of the profits for your tax bill throughout the year so that you make a clear distinction between the funds available for spending and those that are part of your tax liability.
Consider Setting Up A Limited Company
To be a sole-trader or limited company can seem like one of the biggest decisions you make at the outset. How you trade has legal, tax and financial implications for your business but there is often no easy answer if you cannot predict what the profits will be and how your business will develop over time.
It may seem easier when you are just starting out in business to set up as a sole trader rather than as a limited company but once your profits increase above a certain threshold (£25,000 in 2013) you will pay less tax if the business is set up as a limited company.
Other advantages of a limited company are that some larger companies will not do business with a sole trader so the business status may affect its ability to grow. Of course there are also disadvantages such as the amount of paperwork you will need to complete but this generally outweighs the benefits.
Choose Your Accountant Carefully
Any small business that is going to pay for the services of an accountant will expect advice regarding tax savings and running the business as well as preparation of the accounts and submitting returns to HMRC so make sure you choose a properly qualified accountant. In the UK the most well-known qualifications are from:
- Institute of Chartered Accountants (ICAEW)
- Association of Chartered Certified Accountants (ACCA)
- Institute of Financial Accountants (IFA)
Look out for these credentials.
It is also important to review your accountant’s fees every few years and assess whether your accountant’s experience and services still meet your business requirements, particularly if the business has grown rapidly.