There are many things for you to think about when running your own business. You probably spend quite a good deal of your time making sure that you do not make a costly mistake in your line of work. One area that you want to avoid making any errors in is your accounts.
Let’s take a look at this issue and see what mistakes you can avoid. After all, who wants a fine from HMRC?
You should understand that it is your responsibility to get your accounts right. You can have the greatest accountant in the world but they are not legally responsible for your tax returns.
Only you are responsible.
Please remember this because accountants can only work on the information that you provide. Take a moment to make sure that you’re doing as your accountant has asked and that your record-keeping is accurate so that the books can be made up correctly.
You should also know what your responsibilities are if you run a limited company and you are a director. There are annual returns to be made to Companies House, for instance, so make sure that you know what you are obliged to do. It is not difficult, you just need to get these things organised.
Back to the accounts. You should at least understand the basics of profit and loss. Be confident enough to ask your accountant to show you a set of accounts similar to your own and get him or her to explain how it works. It will only take a few minutes and you will have a much greater understanding of how it all works.
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Turning up to your accountant’s office with over a year’s worth of paper receipts and expecting them to sort through and put it all into some sort of sensible order is not a great idea. You might be opening yourself to all kinds of errors, not least from not claiming everything that you can.
So, be ordered. Get a system up and running to organise your receipts. You can buy all types of software that will do this for you or you could just use a spreadsheet on your computer. Discuss this with your accountant who will be able to advise you on how to proceed. It does not need to be anything too grand, just a system that you and your accountant can understand.
It is also a great idea to agree on how often you will send the spreadsheet and receipts to your accountant. How about once a month? That will encourage you to stay on top of things and not let that box of paperwork build up.
You will also avoid a huge job at the end of the financial year because you will have done it as you have gone along.
It might be that HMRC is insisting that you do everything online, anyway, so ask your accountant about this.
There are other, non-tax reasons for completing your books regularly and understanding your accountants. The main one is knowing if and how much profit you are really making.
I used to work for a bank and I dealt with numerous small business owners of all shapes and sizes. They were busy people. Some of them were so busy that they just concentrated on doing the work, looking after the customers, and making the sale.
This was how they saw success. They would think “I’m doing well if I’m really busy. I’ll just take ones much work as I can get.”
Unfortunately, this was the downfall for some of them because they missed what was actually going on in their business. They did not realise how much they were paying for stock or staff, or that they had to allow for National Insurance or Pension Contributions. Worse still, some of them did not know that customers were paying too slowly, especially the big customers who gave them big orders.
And that hit their cashflow. And you know that cash flow is everything in a business.
Unfortunately, some of these bank customers went out of business. it happened to both big and small businesses and they were really busy, trading apparently well, right up top the moment that someone somewhere pulled the plug and their business collapsed like a house of cards.
Do not let that happen to you. Remember the point of your business – to make a profit and a good one at that. Take a breath and sit down and look at the figures on a regular basis. How’s it all looking? Look at your costs, your outgoings, staffing costs, who is paying you and how long is it taking. Would you be better with a few large customers or do they constantly make you wait for payment? Might you be better concentrating on smaller clients that pay you on time?
Or is it the other way around? Are the small customers nice to deal with but only give you a small profit?
You might want to think about whether you have too many eggs in one basket when you look at the split of income from your customer base. What would happen if XYZ company went out of business or a new purchase manager joined and preferred to use their old firm instead of you?
You will only be able to ask these questions if you know your figures. They can be very revealing. Check them often.
Every business only survives because it can pay its way. Make sure that you have a cashflow forecast (not as difficult as it sounds) and plan for unforeseen circumstances. Any firm can have something happen that affects them negatively and a nice buffer of cash can be a big help to see you through an unexpected period of reduced income.
There is another reason to keep up to date with the books, too. You will sleep better if you know the accounts are in order, on time, and that you do not have an enormous end of year job sorting it all out. You have enough stress to deal with in business. Let the accounts be one of the things that help you stay calm and relaxed.