Do Small Businesses Need Accounting
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- Do Small Businesses Need Accounting, Small Businesses, Accounts for small businesses, When you should hire an accountant, Accounting
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If you run your business and find yourself overwhelmed with the small business accounting involved, perhaps it's time to hire an accountant.
Accountants may seem expensive and something for the future, but as your company thrives, the income and expenses will only grow, which is where professional help can benefit you.
Let's look at some pros of hiring an accountant and if your business requires one just yet.
Does every business need an accountant?
Many small business owners and sole traders can benefit from hiring an accountant, especially as their business grows.
If you manage your own accounts and business finances to calculate your company's assets, you may believe you are saving money.
Establishing price points for services and goods and managing cash flow is challenging for small businesses, and losing control of your business goals amidst a sea of financial information is very common.
While every company does not need an accountant to manage taxes and annual accounts, you can save money and improve your tax efficiency by collaborating with a chartered accountant. Any good accountant will work alongside small business clients, using industry accounting software and improving their business planning.
Growing small businesses attempting to raise a profit already have enough time-consuming tasks on their hands, which is why many outsource accountants to help with bookkeeping and establish an automated filing system.
One of the other ways an accountant will help you as a business owner is to give you more hours in the day, removing your need to complete all financial paperwork yourself.
With that said, there is no legal requirement for you to hire an accountant. The only legal structure you must follow is you complete your tax returns. This is a self-assessment tax return form in the case of sole traders and self-employed.
You should also note that company accounts are due every year, regardless of if your company is active. The Companies House must receive word of your registration within nine months of the ARD (accounting reference date). An accountant can support with such applications, ensuring you aren't left behind.
Which accountant is right for you?
Finding chartered accountants to look after your company's accounts and financial records can be challenging, especially finding the right one.
If you have been completing your own books and financial reporting since establishing the company, handing this responsibility over to another person is a great idea but won't be easy.
A qualified accountant is half of the solution, as most small businesses tend to forget to match on personality.
This is the most important part of a professional relationship between accountants and business owners. Ensuring you are working with the right type of accountant is the difference between having a successful business and if your business fails.
Some accountants are used to working with smaller companies and startups, being from a smaller firms themselves.
The larger and more niche your company becomes, you should ensure you are working with an established team that can perform the best for your company accounts. If you are establishing your business now, accountants can use accounting software to show projections and reports.
Accounts for small businesses
If you need an accountant but have never hired one as a small business, it's not too late to start familiarising yourself with more tax-efficient ways to run your business.
Doing so can be good practice and improve your business relations with providers, shareholders and employees.
Get The Accounting Basics
Regardless of your prior experience with financial information and numbers, any business idea requires good structure and organisation from the beginning.
You should be keeping track of all financial transactions and cash flow, registering your business with HMRC or company through the Companies House Register.
Establishing a business bank account is also something you must not forget. All purchase invoices, late payments, receipts and other certain tasks must be recorded regularly and on a quarterly basis as a legal requirement.
Control Of Your Costs
If you ever find yourself losing control, it'll be over maximising and managing your cash flow. You should ensure an easy invoicing system is in place, giving you instant availability to access incoming and outgoing payments.
You are putting yourself at financial risk if you do not manage who you owe money to and who owes you money.
If you are extending credit to anyone, don't let this be forgotten, and an accountant can help with that. This is a common example of how small businesses lose profits and potentially fail over time. Your data must be stored and organised, which can become too much when you are running the company in the first place.
Understand Your Compliance Responsibilities
Business legislation regularly changes, meaning you must be aware of all tax laws, payroll, VAT and other government mandates at any one time.
Most small businesses complete the minimum financial responsibilities on their business premises, forgetting the cyclical nature of the accounting period and the ever-changing regulations.
Doing so will not only mean you are complying with such regulations but receiving regular business insights for future growth. When you keep records of funding and document every decision you make, you are securing yourself for the future.
Understand The Right Vat Scheme
Limited companies can register for VAT whether they have met the threshold or not. If you are wanting to become VAT registered, you can apply to the scheme and begin reclaiming VAT on any purchases you make via the business.
Any business can apply for Standard VAT, VAT Cash Accounting or Flat Rate Schemes.
For Cash Accounting, the limited company in question must have an annual turnover of taxable supplies below the current threshold.
Unlike other schemes, the VAT is not calculated until an invoice is paid, significantly improving your business's cash flow. You will not pay VAT on sales you are yet to receive payment from the customer for.
Flat Rate Schemes are generally used by freelancers and sole traders for low-cost purchases. This scheme was established to simplify the VAT paying process for small businesses, with the VAT rate remaining at 20%, but it is paid directly to HM Revenue and Customs at a lower rate.
Set Your Targets
All business owners should understand their Key Performance Indicators (KPIs) and how to improve them. To identify business improvements, you should set regular targets and attempt to meet them.
Regardless of your circumstances, this will be unique to you and your business, so spend some time setting realistic goals. If you succeed at your goals, move them.
Effectively understanding how you are operating and the complex inner workings of your company will make sure you decide right on the important things and keep a close eye on any anomalies that arise.
Understand Your Customers
The relationship you hold with customers is a professional partnership, and you should begin working on that as a minimum.
The better you can concentrate on your customers, their needs will affect all the discussions and work you complete. If you know how you benefit one another, your moves can be more calculated, and you can employ stronger working ethics.
Staying organised as a business is more than good practice and is now a legal requirement. RTI Legislation outlines you must submit all tax returns on time or face a fine, which most businesses will not want.
The sooner your tax optimisations are implemented at your business, the better. Even if you have an internal financial team, an external accountant can help cover other aspects of your business and alleviate pressure from team members.
When you should hire an accountant
You may be deterred by the extra cost of an accountant, which is why most small businesses do not hire one in their early days.
Startups can significantly benefit from one, but when you hire an accountant is for the business owner to decide.
If you find yourself stretched for time and unable to complete your financial records and bookkeeping as you would ideally like, perhaps it's time to hire some assistance from a chartered accountant.
Many professionals can provide business advice on top of their bookkeeping services, meaning the next step is always planned out for your company. Accountants can complete employee payroll, VAT tax returns and other crucial services.
Do you understand income tax and the correct methods to file HMRC returns? Tax evasion is serious, and the government doesn't accept ignorance as an excuse for late payments and self-assessment forms.
Late filing of paperwork and missing the due date may start off not looking like an issue, but it can quickly spiral into something much worse.
If you cannot complete or have time for the following, it's perhaps time to hire an accountant.
Prepare statutory accounts
Maintain records of administrative personnel
Keep the company updated
File legal and compliance documents
Organise stock allocation
Handle employee payroll each month
Sort day-to-day bookkeeping
On top of this, most accounting systems are cloud-based, removing the need for piles of paperwork in your office. Gaining access to your account from wherever you are can change how you view your business finances.
Online security is of the utmost importance, and HMRC recognised software helps ensure all is secure and you feel comfortable. An accountant's knowledge is what you are paying for, giving you time to focus on your company's important and creative decisions.
If you want to improve your business structure and discuss it with a chartered accountant today, get in touch with our experienced team.
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