What exactly will an accountant do for me? How will a good accountant help my business? How do I find a reputable accountant and make sure this person is right for my specific company? What if I am unhappy and want to switch accountants? This series of articles answers the questions most asked by people starting in business and has links to other helpful websites and articles.
What exactly will a good accountant do for my company?
A good accountant is crucial for any small business. A reputable accountant will not just navigate the maze of tax laws and save you time and money, but will also provide sound advice to help nurture the business and help it blossom in years to come.
For some people finding an accountant is an afterthought; in reality you should choose your accountant before you even start in business. This enables you to develop a relationship with someone you feel comfortable with and are confident will consider your specific business needs. Once you have taken the initiative to start a business you will be full of enthusiasm, ideas and plans. Rules, regulation and paperwork may be low on the priority list, but must be addressed and an accountant will help ease the burden.
Even before you set up a new business you have to decide what format is should take – sole trader, partnership or limited company? Each choice has implications in respect of legal contracts, registering for VAT and the amount of credit suppliers will allow. An accountant can guide you through this and help you make the right choice.
Once in business there are certain legal obligations. These include keeping records, such as PAYE records if you have employees and VAT records if you are VAT registered. You may need help with payroll, National Insurance rules and basic information such as maternity and paternity pay.
Legally you must also submit an annual tax return to HM Revenue & Customs (HMRC) – this can be complex and involves the preparation of financial statements etc. Get this wrong and you can face hefty fines.
If you are a limited company you also have to file accounts with the Registrar of Companies at Companies House. If things go magnificently well and the business ever turns over more than £5.6million it will be subject to an annual audit, which has to be carried out by a registered auditor, such as a qualified accountant. Whatever the size of the business an accountant will know which records you must keep, help you keep them properly and ensure they are filed with the relevant authorities at the right time.
Decide how much you want from your accountant. If all you want is start-up business advice and preparation of financial statements for end of year tax returns, make sure you weigh up the time and cost implications of doing the rest of the work yourself. Consider who has the skills to do the work in-house and whether or not it would be more efficiently if effectively outsourced to an accountant. You will need a properly designed management information system which will help you identify and keep track of profits and losses. This information will need to be prepared regularly, maybe quarterly, monthly or even weekly.
Alternatively you may also decide to employ a separate book-keeper, who can handle invoicing, management accounts, VAT returns, PAYE and National Insurance. This way the book-keeper takes the strain and responsibility for the paperwork and produces spreadsheets, but you keep control and have instant access to financial information. There is a wide variety of cost-effective computers and accounting programmes which can produce most of the accounting and management information needed to run a business.
Minimising business tax is a top priority and most entrepreneurs expect their accountant to do this with finesse. The accountant can help ensure that all legally available tax allowances have been claimed and will also achieve maximum benefit from the timing of capital allowance claims. The dates chosen for starting or ending a business and for its accounting year can make an important difference to the tax position and cash flow. Timing of important transactions or purchases of capital equipment can also have an enormous effect on the amount of tax you pay. Again, take advice. And if there is a dispute over a tax liability the accountant can handle dealings with the Inland Revenue or HMRC, and appeal as necessary.
Advice on how to plan your profits, raise finance and manage growth can also be useful as well as help on break-even analysis, business ratios, budgets etc., which can be used to set realistic financial targets.
How your business is financed has an important effect on profitability. Should new capital equipment be leased or purchased? Should money be raised by share capital, loans or overdraft and what are the tax implications? Again these are questions for the professionals.
If turnover increases rapidly the business can, ironically, weaken, perhaps because its systems break down or it cannot finance the increased level of stock, or manage the work. Help understanding the importance of adequate working capital and good controls over stock, invoicing, credit to customers and cash collection might prove crucial to your business. These are among the most important aspects of good financial management in a growing business. Expanding business means more paperwork!
If you get help right from the start, it is much easier for an accountant to prepare the year-end accounts, cash flow projections etc. And if the accounts are in order and you are up-to-date with payments, you will be less stressed and can concentrate on building the business and make a fortune. After all, wasn’t that the original plan?