Archive for the ‘Accounting Advice’ Category
Using Your Accountant for Business Advice
Your accountant knows a lot about running a business from a financial aspect. From income to expenses, taxes to VAT, from trading structure to accounting software, using your accountant for business advice is a smart move. They can help you determine projected costs of expansions and show you how to spread the cost out over time to maintain adequate working capital. They can even advise you how to re-invest profits to further grow your business. If you are considering changing your trading structure, they can advise you of the tax and financial liability aspects of the new structure you are considering.
The goal of any business is to make money, no matter the business model or industry. As the highest form of professional money manager, your accountant can offer a great deal of helpful advice on matters than impact your ability to make money with your business. For example, a retailer contemplating adding a second location should talk to their accountant about projected costs, how long before the second location starts making money, and how to effectively manage cash flow for two locations. They can also help you determine projected income and expenses for the new location.
If your business routinely finds cash flow or working capital a problem, your accountant can offer helpful advice in better capital management. They can assess inventory levels, underused assets, record keeping, and better uses of cash to help put an end to negative cash flow problems. They can also help you determine if a loan or overdraft account would be advisable to help with temporary cash flow problems. In looking at loans and other funding sources, your accountant can also warn you of potential problems with increased interest or loan payments. With their help, you may determine the interest on a loan is more expensive than the additional funds are worth. Likewise, they may also help you determine a better funding source, such as selling unused assets or liquidating property.
As your business grows and increases in value, your accountant can also help determine when is the best time to take your business public or expand into international trade. Many accountants are familiar with international trade expenses and procedures. Additionally, your accountant will be instrumental in drafting the appropriate financial records necessary to take a company public. They can also help find legal representation for complex business transactions. In short, your accountant can provide a wealth of assistance with general business advice.
Financial Statement -Who Needs It?
Accountants Reading – Business Financial Reports
The Financial Statement for your business is probably the single most referred to report that your company will produce. It comprises several other documents including the Balance Sheet and the profit and loss statement and provides all of those looking for a complete financial picture of your business with a detailed account.
So, who actually uses the information in a financial statement? Which groups of people find such things essential and why?
Owners & Managers
First and foremost you will need the information yourself as the owner of the business without the information in a financial statement it would be very difficult to make any important business decision. Anyone that you may have put in charge of your company will also need to access the financial statement not only in order to run things on a day to day basis but to allow them to provide more detailed reports to shareholders.
Shareholders
If someone has a vested interest in the success or failure of your business they will often require seeing regular and up-to-date financial statements to check on their investment; if they need to withdraw funds the financial statement lets them know what if anything is available.
Lenders
Anybody who is considering extending finance to your business has to have access to your business’ financial statement; whether a high street bank or an independent investor, they will be looking to ensure that you are a safe bet to pay the money back with interest.
Investors
Before any potential investor makes a decision to put money into your venture, they will want to view your business’ financial health, the way that they will do this is by looking at your financial report; investors, like lenders, will want to judge your company sound, so that they can guarantee a return on their investment.
Staff
Employees may need to see the firm’s financial statement at one time or another, to work out anything from compensation, to their prospects for promotion.
Suppliers
Anyone selling anything to your business that may be looking to extend credit terms will want to assure themselves that you can pay and that you are not going to end up on their bad debtor list.
HMRC
The Government will need to see your business’ financial statement regularly, as assessing your tax requirements and checking that you are paying your dues is probably one of the most important reasons for the statement’s existence.
Media
Believe it or not there are many reasons why the media and/or the public at large may be interested in the financial statement your business produces, especially if you are a firm in the public eye or with whom they feel a special connection; also large employers in certain areas will be of interest as their success or failure is often tied in with that of the community as a whole.
Never has one business report meant so much to so many; it really is the ‘go to’ report for anyone who needs to make a decision based on the financial health of your company and as such is probably one of the most important things your business will ever have to say.
The Single Entry Bookkeeping System for Self Employed
The most used accounting technique for businesses is the double entry bookkeeping, a system where all the transactions are entered two times, as equal and opposite transactions. This type of accounting is required for all the businesses that need to produce a balance sheet as well as a profit and loss account.
These rules are not necessary for the self-employed businesses in the UK, since they are not required to maintain a financial control system or to produce a statement for their liabilities and assets for the financial accounting. Currently the balance sheet is optional for self employed businesses in the UK.
There are some advantages as well as disadvantages when it comes to preparing the financial accounts with the single entry bookkeeping system for self-employed businesses. The simplicity of the operation is the main advantage, because it requires a lower level of knowledge regarding the accounting systems. The absence of financial control is the most significant disadvantage, because of the limited detail of the records.
By using the single entry bookkeeping for your self-employed business, you will prepare the accounts by recording the financial transactions only once. These transactions include the purchase expenses, the sales income as well as the bank and cash transactions. You will not be required to produce a balance sheet or a trial balance, but it would be advisable to record your bank and cash transactions in order to have additional financial control over the business. Even if the bank and cash transactions are not a part of the income and expenditure account, as they are movements of assets or liabilities, it is still recommended to have accurate records of them.
The ‘faulty management’ of small businesses is a common factor that can help drive them into bankruptcy and liquidation sometimes. The first thing you need to know regarding the financial control and the accounting of your business, is that your business will always need to have enough cash resources for trading to continue without any interruptions. Keeping a positive cash flow and bank records is of utmost importance, since no business can trade without liquidity.
Thus, single entry bookkeeping is a feasible option for self-employed persons who only need to produce a profit and loss account or an income and expenditure account. However, if you want more financial control when it comes to your business, you should use bookkeeping software. Your bookkeeping software should have an option for a simple expenditure analysis report, in addition to many other types of useful reports, which will give you a clearer picture of all the expenses for the business and hopefully some control over them.