Business Monitor Keep your accounts in order
Every small business owner knows that they should keep their accounts in apple-pie order, but a lot don’t. They don’t because it’s boring and they have far more interesting things to do: developing new products; developing new markets and so on.
Marketing expert Paul Clapham explains why you should keep your accounts in order. W
hy should I spend my time on this, thatʼs why I have an accountant, isnʼt it? The simple answer is that if you donʼt have a tight grip on your books, your business is running you, not the other way round. Moreover if you rely on your accountant to put your books to rights, you are throwing money away.
Consider the positives. While you may plan to go on running your business until the day before they nail you into your box, most people donʼt. They want to turn the business into a saleable asset, one that helps fund retirement or another business. If you plan to sell the business, the first requirement is having your books in perfect order. Thereʼs another good reason to be on top of your books: stress. Everyone knows it can be a killer and not knowing where you are with your business finances is hugely stressful. So get it sorted and save your life.
Little and often
Putting this right is straightforward. Start by setting aside 30 minutes once a week to do it. Yes, just that. It wonʼt take more once you are in the groove or until growth demands you get it done by an expert. (See below).
Get expertise on your side. For most people that means an accountant. Accountancy practices often sell themselves on the basis that, “we save you more than we invoice you”. If your books are in a mess that could well be true. Otherwise, I question it for most small businesses. Choose your accountant with care and be ready to dump them if dissatisfied.
Equally look for a qualified bookkeeper, someone who will turn up once a month pick up all your paperwork and bring it back in perfect order with all the numbers in the right columns whether you are using physical books or a computer system. Their fees are far lower than accountantsʼ fees, too.
Look for someone with experience, ideally expertise, in your business sector. That has far more value than a low price. It will make the hunt slower but jumping into bed with the first person who waves a low fee structure at you is a sure route to disappointment.
| 22 | September 2017
Pick a practice of the right size. For a small business that means a small practice. A sole trader could be the right solution. Success may mean that you outgrow your accountant, which is a good reason to move, but ambition is not a good reason to saddle yourself with higher costs earlier than you need wider service.
Collect everything that applies to keeping your books in one place – classically a lever arch file. Keep it in date order for bank statements, invoices, payments and general receipts for claimable expenses. If youʼre not sure what you can claim, ask HMRC – they are actually helpful. If you keep computer files, scan the lot in, again in date order. Once you have that basic discipline in place you will be able to see pretty much at a glance how you are progressing – are sales rising falling or steady; which clients are spending more and which less; which products are producing the best margin.
Some small business owners are entirely comfortable with computer-based systems, whilst others are far less so. If you are in the former group, itʼs definitely a good idea to look at the options for dedicated accounting software. If you are in the second group it is still worth considering if you can be easily trained on using the software.
The benefits of having a computerised
system are several: it has a lot of capabilities that you can grow into, e.g. emailing invoices and automatic reminders to clients who havenʼt paid; it does all the sums for you automatically; it saves time once you are used to it; it makes your business look more modern and efficient. Again that matters when you are negotiating with the bank or a potential purchaser.
Practical advice
If your business is set up as a limited company, a key discipline in keeping your books clean is to separate business and personal expenses. This is especially true if you have previously operated as a sole trader and are therefore used to treating the contents of the businessʼs bank account the same as your personal account. As a director, even if you own 100% of the company, you canʼt do that. You may only spend the companyʼs money on legitimate business expenses. This can come as a nasty shock to some people. Speak to your accountant and get some practical advice on this issue. Paying yourself a monthly salary is a good start. Having a corporate credit or charge card and the discipline to use it exclusively for allowable business expenses is another. Do not fall into the trap of convincing yourself that you will pay it back. You almost certainly wonʼt.
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