AD| Keeping your business accounts up to date might not be your favourite part of enterprise, but it’s vital you do it, and do it right.
It’s a legal requirement, but it’s far more than an exercise in recording expenses and income. The insight you can get from a good set of business accounts can help your company survive and thrive in a competitive market.
If you’re on the fence about how important accounting is, here are some of the key benefits:
What’s the Point of Accounting?
This is a question often asked by small business owners. Maybe you’re just starting out, running a micro business from home; maybe it’s a really part-time or side hustle that runs alongside your main employment, or maybe you think your accounts are so simple you can keep it all in your head.
Whatever stage you’re at in business, up-to-date records are a comprehensive history of what’s gone before, and armed with this you can glean insights about the future:
- Better decision making: is now a good time to expand or are you about to enter a period when there’s normally a downturn in profits? Should you raise prices, hire more paid help or find a more convenient office location? All these decisions can impact your margins, so you need to know how much wiggle room you’ve got to get over any initial problems.
- Understanding your business performance: Your accounts contain all the information you need to draw up reports that can help with performance analysis. Do you need to be more efficient with either time or resources? If the business seems stagnant, why is that and what can you do to turn it around?
- Setting a realistic budget: Unless you know exactly where you stand with money or available finance options and their affordability, it’s hard to create a working budget you know you can stick to. If you’re planning upgrades, maybe to equipment or machinery, you must know your budget can support the additional costs.
Practical Daily Safeguarding with Accounting
If you’re not managing your money effectively, you’re running a big risk of your business failing. No business owner wants to have to close their doors for good, so here are some ways good accounts can help with regular ongoing practicalities:
- Managing cash flow: There’s nothing worse than having a wonderful business opportunity in front of you and having to turn it down because poor cash flow means you can’t fund it. Cash flow can fluctuate for various reasons, from delays in getting paid for work completed to unavoidable business stoppages such as we’ve all seen in recent years.
- Detecting fraud: From employees ‘borrowing’ office supplies or petty cash to fraudulent use of banking facilities, fraud and theft can be hard to spot. Accurate accounting helps because you’ll know exactly what money or resources should be available, and if they’re not you can set about detecting where they’ve gone.
- More accessible banking: Your bank is far more likely to grant a business loan if you can provide an up to date set of accounts and demonstrate how well you understand your business finances.
- Costing your projects: Projects have a nasty habit of taking far longer than you estimated. From scope creep to inefficiencies or unexpected difficulties, keeping track of time and money is more accurate when you have an accounting history to back up your costings.
- Reporting to HMRC: All businesses must do it, regardless of their size. From a self-assessment tax return to VAT accounting or claiming expenses and allowances, the annual reports are less of a headache when you know your accounts.
Do You Have to Keep Your Own Accounts?
Sole traders often do and have no problem with it. You can hire hourly help from a bookkeeper with daily accounting or do it all on your own. Overall, there are three different ways of keeping books up to date:
- Keeping your own books: When you do this, you’ll know exactly what’s going on and pay fewer fees for accounting help. If it interests you or you want to know exactly how business accounting works, you can take a professional course – even study accounting online if you prefer.
- Bookkeepers: Often bookkeepers are also self-employed and will work with you as often as you need them to. You’ll have the peace of mind that your records are accurate and formatted correctly for an accountant.
- Accountants: Offering the highest tier of financial and accounting assistance, accountants will compile your end-of-year reports for HMRC. They can also use their expertise to advise on business problems or strategies, helping you avoid foreseeable future problems.
When your business develops, accounts continue to play an even more important role in managing ever more complex finances. You may have a growing accounts department that needs extra help. An accounting apprentice may help you move forward, bringing in that extra pair of hands but also with the promise of greater expertise in the future.
Business accounting is so important – but there’s a hidden benefit too. If ever you decide to come out of business or change the direction of your professional services, you’ll have accounting expertise that could launch a successful second career or business.