The business journey can be exciting, exhilarating and eventful. The buzz of growing a business, developing a product and aspiring to be the next Richard Branson is the exhilaration you won’t find in a standard 9-5 job.
Despite the fact you’re probably working 18 hours per day to ensure that your business idea grows, sales numbers increase and the company prospers; it’s important to consider the back office functions of your business and its processes and operation. These are too often forgotten about in the interim stages of a business but by considering them at the start, more time can be devoted later to the overall growth and development of the business.
Getting to grips with the books
In today’s world with everyday life becoming more digital and interactive, managing your accounts and tax is no different. The online cloud accounting environment is growing exponentially with the range of programs, add-on’s and applications available to assist you in streamlining your business and its operations. The flexibility of use, ease of information available and all round slicker systems puts the cloud software miles ahead of the more traditional desktop versions. The cloud accounting systems can be accessed anywhere (the office, at home, a motorway service station or even on the beach if you can’t switch off…) and simple tasks like creating and sending invoices, matching payments and reconciling your bank can be done by a few clicks on your smartphone.
The era of manual records is diminishing rapidly due to advances in technology but also due to HMRC’s Making Tax Digital initiative meaning the large majority of businesses will be required to prepare and submit information on a regular basis through a digital platform in the not too distant future. Time to tuck the red Cathedral cash book into a drawer…
Your accountant (covered in more detail shortly) should be able to advise regarding the best practice for your business and which software is most suitable. Depending on the package you take with an accountant, they may even train you on the relevant software at no extra cost. Even if there is a small fee, this will pay for itself when you have management information you can rely on throughout the year rather than it being out of date and incomplete. The completion of regular management information, either quarterly or monthly, can be very important for a business in the growth phase as this information will be relied upon by potential investors, lenders or grant bodies.
Ensuring that you have the bookkeeping in hand is often overlooked when some are setting up and growing a business (especially if the individual has little financial knowledge) but this is one of the key controls that should be implemented from the outset – either completed internally or outsourced to an external bookkeeper.
Running a business brings with it a certain amount of compliance in terms of the accounts and tax. Company accounts require to be submitted to Companies House generally 9 months after each financial year end. HMRC also require payment of the company Corporation Tax in the same 9 month period. Your accountant will generally prepare and submit both of these documents on our behalf.
Further compliance to HMRC is also required in relation to PAYE/NI and VAT on a regular basis. The government’s directive that all companies offer workplace pensions also places an additional compliance burden upon businesses both from a financial and admin perspective. This is an ongoing directive with businesses currently going through the staging process of being legally required to provide pensions to employees.
Hiring an accountant
Choosing an accountant can be very a difficult decision especially when starting up and progressing through the early stages of your business journey. It’s important to make sure that your decision is not solely around the best price you can obtain. Too much quote searching will blind your view of the service you will actually receive and you should remember it is more about the additional service you will receive rather than the regular compliance work for accounts and tax. One key point to make is that you should always be working with a Chartered Accountant’s firm; this will give you assurance that you are working with a qualified individual who is regulated by their professional body. They will have a broader range of knowledge and be in a better position to assist you and your business.
Additional service was mentioned previously and in reference to an accountant, you want to be hiring a firm who are pro-active and interested in more than just completing the regular compliance work. They should be looking to advise you whenever possible and suggest new ways to improve and progress your business. Yes there may be additional fees but the additional service and advice could be the difference on whether you meet your targets in the early stages – they will become a de-facto business advisor.
Managing cash flow and controlling costs
Cash flow will be the biggest challenge in the early part of business journey. Unless you have been in the fortunate situation of using crowdfunding, or have a significant amount of investment at the outset, managing the cash position of the business will prove to be the biggest task as you grow the business.
Suppliers may not offer you favourable credit terms in the early stages but with the vicious circle as it is in life, trade customers will expect regular payment terms meaning working capital will be stretched. It is important that cash movements are forecasted as much as possible to ensure that the business is operating within its means and dealing with the various pitfalls of debtors and creditors.
Using loans to support the early stages of the business comes with its own challenges. Lenders will require financial projections and will seek reassurance that the business will be able to service the debt and this will need to be factored into your cash flow along with the general operations of the business. Lenders may also look for some form of security depending on levels of borrowing and personal guarantees may be required which you should bear in mind.
Review costs on a regular basis to ensure that you are not overspending and look for areas where you can actively reduce costs – all this will go towards effective cash management.
Ideally, you should be thinking at least 3 months ahead in terms of business activity and planning to ensure that all cash commitments can be met in line with expected sales etc. It is also worth considering a ‘safe’ balance in your business i.e. what is the level of cash you want to retain at any one time. This safe balance should be enough to cover short term commitments like wages should activity not go as planned.
Effective cash management will go a long way to assisting you in the general operation and growth of your business not to mention delay the grey hairs for another few years…
It’s also important to note that businesses in the growth phase can be eligible for a great deal of support. It is becoming more common that local authorities have business development and support programs which can be accessed by businesses in their respective areas providing things such as business support and advice; shared office space and funding to name a few.
There are also larger national organisations, both in the private and public sector, offering business ‘incubator’ schemes to new and growing businesses with the sole aim of promoting and developing home-grown businesses. These schemes generally have a multitude of support types (accountancy, legal, marketing etc) and will run seminars where you can integrate with other businesses at the same stage.
Some of these types of schemes will also provide shared office space if eligibility criteria are met meaning rent and rates is one thing you can remove from your cash flow.
Gavin Curr ACCA, is audits and accounts manager at Martin Aitken & Co Limited, a Glasgow-based firm of chartered accountants and business advisors. It provides clients with access to a range of audit and accounting, tax, business advisory, corporate finance and financial services. Further details can be found at www.maco.co.uk
Gavin Curr ACCA is audits and accounts manager at Martin Aitken & Co Limited