If you are starting a small business, or working as a sole trader, it might be worth looking into hiring an accountant instead of trying to handle your accounts yourself. When you are first getting started, it might be fairly easy to stay on top of your accounts. You’ll only really need to keep simple accounts and fill out a tax return at the end of the financial year at first. However, finances can get more complicated once your business gets going.
What does an accountant do?
In the simplest terms, an accountant is someone that works specifically with your accounts and general finances. They will prepare and review accounts reports and statements, making sure that there aren’t any inconsistencies and that they are accurate. An accountant can also complete and submit your taxes for you. Accountants may also be hired to analyse the financial side of your business and offer advice and assistance, lending their expertise to help boost your profits.
Why do businesses use accountants?
Specialism
You wouldn’t try to build your own office with your bare hands so why try to handle your finances on your own when there are trained professionals available to do it for you? An accountant is professionally trained to work with finances and has a much better idea of how to handle your money successfully. If you try to handle your finances on your own, you’ll have to take the extra time to learn about taxes, profits, cash flow and projections. Whereas an accountant already has all of this knowledge and can dedicate themselves to getting your accounts in order. For important things such as filing a tax return, an accountant is also less likely to make simple mistakes.
Avoid an audit
Most businesses dread an audit. Mistakes and irregularities in your accounts can trigger an audit, which is when a company has its finances formally investigated by an official body such as HMRC. If problems are found there may be penalties, which include anything from fines right up to prison time, making an audit a very bad prospect for business. Many businesses will only think about hiring an accountant when they are already being audited, but the truth is if you hire an accountant from the outset you are much less likely to have to suffer one in the first place.
Audits don’t happen at random. They will usually be triggered by one of the following:
- Earning a lot of money, or very little. Companies who have huge profits are more likely to have made mistakes, whilst a company that claims to have made very little raises red flags to the authorities.
- Inaccuracies or mistakes on tax forms. If you don’t know what you are doing with taxes, it is far too easy to make mistakes. Make a few of these and you can expect the government to want to know why.
- Being too charitable. The government expects charity pay-outs (which are tax deductible) to be a tiny fraction of the overall outgoings of the company. If it looks as though your business is giving away a large amount of profit to charity, they will want to investigate to make sure that this is legitimate.
- Excessive deductions and credits. Creative accounting can lead to things being written off as expenses when they are actually not able to be claimed in this way. A good accountant will know the lines that you don’t want to cross and keep your business in line, financially.
Saves time and energy
Trying to run a business is difficult enough when you have to focus on the day to day minutiae of your operations. Financial matters are time-consuming and quite difficult to get to grips with in the beginning. An accountant is able to take this on as their entire job, and dedicate the right amount of time to it so that you can maintain your focus on your business goals.
When is a good time to hire an accountant
When you write your business plan
In the early stages when you are putting together your business plan and looking for funding, an accountant can help to create a plan that looks more professional and believable. Accountants use accounting software which can create cash flow projections and reports, and this shows that you have put real thought into your plan. This should help to convince lenders that you are serious and will be able to pay them back and funding you receive.
When you need to file your returns
An accountant can help you with your first tax return as a sole trader or limited company. They will be able to help you to get your accounts in order and show you what you need to do to file an accurate tax return. You may find, having worked with an accountant on the first tax return, that you would like to delegate this job to them forever going forward. But you may also decide to handle your own taxes for a few years until the business has grown. Either way, getting real advice from a professional accountant will help you in the early days.
When your business is growing fast
Delegation is key to success in a growing business. An accountant can help you to keep track of who owes you what and when, who you owe money to and what money is coming in and going out. These issues will become more pressing over time, and require more time and energy to keep on top of.
Accountants can also measure key business metrics such as employee salaries and other benefits compared to total revenue so that you can make informed decisions about what you are spending and on what. Graphs produced by your accountant can help you to see how your business is doing much better than words on a page, giving you a better idea of how your company is going and plan your next move.
Further information and help
Here at Accounting we recognise that hiring an accountant may seem like an unnecessary expense – especially in the early days. However we would encourage you to speak to other business owners and we believe the consensus you would hear is it that it is worth every penny, and generally pays for itself over time.
Talk to an advisor about appointing Accounting Gem as your accountant. We have packages to suit all budgets and would lover to discuss them with you on on 01473 744 700 or via email at contactus@aag-accountants.co.uk
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