We tend to try and get out and see our customers as regularly as possible, so that we become engrained in their business, and demonstrate our understanding of the way they work. On the back of one such visit, I received an email from one of our category managers. Accounting. The customer he visited, who owns a couple of small businesses, had bowled him over with the following statement; “I can buy businesses and make them perform better; because I know my accounting software”.
This got me thinking. Now, of course, the accounting software was Sage, otherwise, I wouldn’t have included it in this article. But it’s not a shameless plug (well, not entirely) – what is important is the understanding that if you get the accounting right, it can form the basis of your business model and help you manage change in a growing business – by empowering you to make the right decisions at the right time.
Picture it this way; every year, half a million people set out to start a business of their own. Up to a third are believed to fail in their first year. Put bluntly, getting to grips with finances can help avoid this happening, whether it’s law firm bookkeeping or retail shop bookkeeping you need to stay on top of it. Accounting for small businesses is a critical area to dominate in being successful.
Setting the Accounting Foundation
As an ex-accountant, I tend to put the control aspects of a business’ management first. Unfortunately, I have seen a lot of new businesses fail, not through lack of ideas, creativity and entrepreneurial spirit, but from lack of control and insight into the financials.
Even if you’re not from a financial background, have a fear of numbers or failed maths at school – you need to understand the financials. Keep records from the start, no matter how basic. Register your business with HMRC or your company with Companies House; open a business bank account; and set up your financial record-keeping system. This is necessary by law.
Be Compliant
This is no mean feat, and it takes time to understand your compliance responsibilities and act accordingly – that’s everything to do with payroll, tax, VAT and any changes in business legislation, such as RTI which came into force in 2014.
It can be daunting to think about the wealth of legislative changes that can occur in just 12 months, and so it’s worth looking for accounting data that automatically updates, not just to comply with regulations, but to categorise income and expenditure to provide business insight.
Remember Cash is King
You need money to pay your bills. Businesses that don’t pay their bills may end up out of business. Mitigate this risk by making sure you know and understand who you are extending credit to, that your VAT return is up to date and you are in control of your costs.
Closely manage your cash flow and keep track on who owes you money and who you owe money to. Always prepare for what money you have coming in and going out – account for the non-financial as well as the financial, i.e. usage of assets and stock. Take credit when you can, but ensure you are able to pay when it becomes due. I would recommend never giving credit unless you understand the risks and built in the cost of credit in your pricing, and whatever you do, don’t spend VAT that belongs to the government.
Set Targets and Stick to Them
Setting realistic and measurable goals to aim for is an essential aspect of setting up a successful business. Without measurable goals, a business can end up sitting still or worse, spiralling out of control. Understand your KPI’s – that’s key performance indicators – and how you can measure them. Set yourself targets and budgets and then track them to identify improvements or declines over time. Always make sure you work within your limits and only set targets that you can realistically achieve.
Understand Your (Profitable) Customers
It’s something that we are proud of at Sage – knowing our customers inside out. I believe it should be an essential part of any business. Without your customers, you wouldn’t have a reason to exist so make an effort to get to know them, and the macro/micro issues at their level.
Understand what customers deliver you the best returns and how you benefit them. And the only way you can drill deep into this understanding is through using your accounting data. Remember – the customer information in your accounting system is valuable data – use it wisely.
Get organised and Stay that Way
Do not put off accounting work. I’ll repeat that – DO NOT put off accounting work. It’s easy to keep on top of when you have the right tools, and with RTI legislation coming into effect, you either submit returns on time or face a fine. Keep on top of your invoices (both in and out) and keep the required records in line with tax schemes you are using. Keep separate accounts for what are truly separate businesses.
Keeping accurate up to date accounting information gives you back control of your business so that you can grow it on a solid footing. Doing it from the start could help you save money and avoid the worry later down the line for needing additional accountancy fees, possible bank charges from late payments or unexpected tax payments.
Get the Right Accounting Software
It’s essential for small business owners to choose the right accounting software. This can be done taking into consideration the usability factors, including the following:
- Multi-user Access – Find accounting software that allows you to invite your employees or other users, giving them powers to control data and access certain tasks. Also, multi-user accounting software allows you to invite your accountant or business partner and grant full access. It’s essential for small business owners to choose the right accounting software. While doing so, ensure you also consider utilising tools that convert PDF bank statements to Excel to streamline your financial operations. This not only saves time but also enhances accuracy in data management.
- Multi-Business Support – Owning more than one small business warrants the use of accounting software that can provide robust support, so you don’t have to pay extra cost to set up separate accounts.
- Cloud-Based Software – Most top accounting systems for all types of businesses are cloud-based. This means you can access and manage your account anywhere and anytime from any internet-connected computer. This feature allows you to remotely manage your small business.
- Mobile Access – Mobile apps present in accounting software can help you monitor and achieve core tasks. Choose accounting software that’s compatible with your devices.
Here are the basic accounting features recommended for small businesses:
- Time Saving Automation – It’s recommended to choose accounting software that you can set up to automatically send past-due notifications and invoices to your customers, saving your time on invoicing and handling accounts receivable tasks. If your small business regularly provides customers with estimates or quotes, look for an accounting program that easily converts documents to invoices in a few clicks.
- Tax Preparation – An accounting software helps you manage taxes through automatic tax calculations, tax reporting, and multiple tax rates features.
- Add-on Services – You might also want to get some add-on services, including payroll and payment processing services. This way, it’s easier to accept invoice payments and pay employees.
Summary
I am constantly amazed by the passion and determination demonstrated by our small business customers. They truly are the lifeblood of the UK economy, but it is not an easy path to follow.
It stands to reason that if two heads are better than one, then entrepreneurs have a better chance of survival if they utilise those that know better; and this couldn’t be truer when it comes to accountancy.
Very few entrepreneurs make the decision to go it alone because they just love accounting. But it’s an essential part of business nonetheless so finding a way to do it well with the least amount of time is essential too, and can mean the difference between success and failure in a challenging economic environment.
