December 12, 2015
I'm doing a series of videos about how to improve your business online and social media strategies. This is the third in the series of the business strategy section and it's all about how to keep the numbers in order for your business.
The article emphasises the importance of good accounting practices, understanding financial basics, leveraging modern cloud-based tools for efficiency, and maintaining disciplined paperwork habits for small business owners.
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Finding a competent accounting can be crucial to keeping your books in order and they will be able to give you great advice and will deliver efficiency and tax savings.
There's nothing wrong with you doing your bookkeeping on a regular basis. For your year-end, however, it's helpful to have a good accountant who is going to save you time because they know what they're doing. They're going to save you money, because they know the tax system inside-out and they will give you very good advice.
There's nothing wrong with you doing your bookkeeping on a daily basis. My best piece of advice is to do it on a regular basis; little and often, rather than waiting for the end of the year to kind of compile all of your accounts. Otherwise you'll end up with a mad rush trying to find your receipts and tally everything up;it will be be really chaotic.
Try and do 5-10 minutes bookkeeping per day. This will save you time and money when it comes to the end of the year.
Read up on the basics of accounting such as profit and loss accounts, balance sheets and cash flow forecasts.
If you've ever watched Dragon's Den, they'll always ask about what turnover the business owner is expecting, what their gross profit margin is and what their expected net profit going to be over 3 or 5 years' time.
You don't have to understand how to do complicated forecasts, but understanding the basics in terms of your profit and loss accounts and what constitutes revenue i.e. total income, is really important. Gross profit is total revenue minus your direct costs, or direct expenses.
Net profit is your revenue, minus your direct costs, but then also minus your overheads. Your overheads are the day to day cost associated with your business, such as paying salary, expenses and traveling costs.
There's a couple of other things that you might want to get to grips with. This includes the balance sheets and the cash flow forecast. The balance sheet includes your assets, such as premises and machinery, as well as liabilities such as loans, overdrafts and how much you owe creditors These assets and liabilities don't show up in the profit and loss accounts.
A cash flow forecast is about trying to prepare yourself for the future. If you understand when your business is liquid and when it's not, and you can see how much cash is coming in and out of your business, it allows you to prepare for any potential problems which might crop up in the future.
And finally, I would recommend learning about your business' key performance indicators. If you sell products, for example, you should know on a monthly, weekly and annual basis what targets you should be aiming to achieve, and how many products you should be selling on a regular basis in order for your business to maintain profitability. Work those KPIs out – key performance indicators – for yourself, and then make sure you measure it on a regular basis.
There are some really great cloud-based tools for doing bookkeeping. These include Xero, Quick Books and Sage One. The benefits are that you can access them anytime, anywhere via the internet and have a really quick snapshot and overview of how your business is performing in real-time.
We switched from a traditional method of doing our bookkeeping into a cloud-based solution. That saved us about 80% of the time that we were taking to do it previously; we were doing it 80% more efficiently through using cloud-based tools compared to a desktop application.
Xero has some great features such as being able to deliver recurring invoices automatically. If you bill your customers on a monthly basis, it sends those invoices out automatically. It can automatically connect up to your bank statement feed, so you can do bank reconciliations very quickly and efficiently.
You can deliver statements on a regular basis to your customers who've got outstanding debts with you. Furthermore, you can also do your VAT return automatically through a platform like Xero, which connects up to HMRC automatically and stores the reports for you.
Using cloud based tools for Payroll can make the process much more efficient and save time that can be better spent on other areas of your business.
Again, Xero and other cloud-based tools mostly now have payroll solutions built into them. They do all of the tax calculations for you automatically. You can print out pay slips and email them to your employees automatically.
This saves a huge amount of time and money and if you're not confident about doing something like payroll, then it doesn't really cost that much, once it's set up, to be done by an accountant or bookkeeper.
The key is to do paperwork in small bursts; do it a little and often. File paperwork year-round and be regimental. I will re-iterate; the key here is to be regimental. Do it regularly, do a small amount and do it very often.
There are things that you do need to keep, such as a paper-based version of your accounts. Those include sales, invoices, purchase receipts, expenses, VAT return reports, payroll reports, bank statements and any notifications that you get from Company's House or HMRC. All of this paperwork is very useful for your accountant at the end of the year. If you've got well-documented records neatly stored in files, you can just hand over a box to your accountant and he's up and running.
You need to keep, as a statutory requirement, paperwork for up to 7 years to satisfy Company's House. If you get investigated, they will likely ask for paper copies of certain documents. So it's worthwhile just being aware of which documents those are.
Do bookkeeping little and often; complete 5-10 minute worth of bookkeeping/paperwork tasks per day. This works really well for smaller businesses. Iif you don't have a dedicated admin person looking after your books and you're either a one-man band or maybe you've got 4-5 employees and you're going to still be doing a lot of it yourself, just do little and often. It just makes it that much more manageable and remove the stress and worry at the end of your fnancial year end.