Blog posts in Financing a business

Are past mistakes holding your business back?

I have a theory that each of us makes at least one big mistake when they start their businesses. The trick is to not let that mistake overshadow your entire business but learn from your mistakes and move on.

I’ve spoken to too many business owners recently who have spent scary amounts of money on ineffective websites or logos only to be too afraid to create something that is going to work because they’ve “had their fingers burnt” in the past and are worried about the same happening again.

Let me tell you about my fingers burning story.

When I started my business in 2005 I did my own books because I was advised that I should. I was told not to waste money on a book keeper, that I needed to know what was going on in my business and that it was easy. Well it might be for some, but it crippled me. I do not have a logical mind and it absolutely knocked me sideways. In fact, I got into such a mess that by October (four months into my business) my accountant advised me to get some professional help. To be fair, he did suggest that I get myself a book keeper who would be cheaper, but for some reason I persevered with him. I paid an accountant £80 an hour to sort out four months of bad book keeping.

£4,500 later (I seem to remember it was £4,500 + VAT?), as I handed over the last cheque he told me it “probably would have been cheaper to have just started again”. Clearly this was just what I needed to hear, money well spent

I couldn’t let my mistake hold me back

I had made a huge mistake, and I needed to take responsibility for it. A good book keeper probably would have charged me a fraction of what this accountant did and I’d certainly had my fingers very badly burnt.

But did this mean I would never use an accountant again? Absolutely not! Accountancy and book keeping isn’t strength of mine and I knew I needed to use a professional to help me in my business. If I’d buried my head in the sand and sworn never to use an accountant again I probably wouldn’t have a business left. I have always used a book keeper to do the detail in my business and I review the monthly (as well as daily and weekly) figures but I don’t ever put myself through the torturous process of doing the books because I know it’s not helpful.

Are you letting a similar mistake hold you back?

Fortunately I’ve never met anyone who has spent quite such an eye-watering amount of money on 4 months’ worth of trading history books. But I do meet business owners time and again who realise they are losing opportunities through an ineffective website. They spend days and hours debating what they might do if they had the chance to change their website but they feel paralysed to do anything about it because they’ve already spent so much on something that clearly doesn’t work.

Hanging on to something ineffective for the sake of “getting value out of your mistake” just doesn’t make sense. For many of us, our websites are our shop windows: they have to be right. And if that means facing up to the fact you’ve made a mistake, perhaps that’s what needs to happen for the sake of growing your business?

If past mistakes are holding your business back, ask yourself: What can I learn from this and how can I move on?

Fiona Humberstone, Managing Director of Flourish studios

Read more of Fiona’s advice and thoughts about running a small business on her blog site.

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A new bank set up to lend to small businesses - do you think it will have an impact?

What impact do you feel new bank, Shawbrook, will have on your business? In case you missed the news, Shawbrook Bank launched this October amidst a fanfare of publicity. One of their niches is in lending to small businesses. They claim to have the funding and desire to lend to businesses that have the confidence to grow.

My hope is that this can only be a good thing.

Week in, week out, I meet with business owners who have big ideas for their businesses, and a good chunk of them have the confidence and investment available to see through the big thinking. The investment pays off in spades and it’s wonderful to see their businesses grow.

But at the same time I think back to the retailer I met in January, desperate to launch an online shop presence, who simply couldn’t get the funding to make her dream happen. And it’s not about dreams; it’s about good business sense. As markets change and consumer and client habits change, you need to have the money and confidence to invest your time, money and energy in your business. And you can only do this through investment.

There are things you simply can’t do well yourself – and whether that’s having an ecommerce site developed, investing in a new logo or website or buying a new piece of machinery or taking on staff. To really grow your business you need to think big, be bold and have the guts to go for it.

In my experience there are numerous examples of businesses that need to make the investment, but don’t. Now it may be about a physical lack of money, but I suspect in many cases it’s more about fear. Fear of not seeing a return instantly, fear of needing that money for something else. And perhaps we’re all a little more sober about what we do with our money these days?

So tell me, if you could get your hands on some funding, would you use it? Do you think it would make a difference to your business? And do you think there’s any likelihood that the bank will live up to their claims and lend, or is it just a marketing ploy?

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Championing real-life entrepreneurs

It was depressing to see Business Secretary Vince Cable quoted as saying that the economy was in worse shape than under the previous administration and that a double-dip recession was a distinct possibility.

While the opposition immediately seized upon his comments, it could be argued that this was rather hypocritical as the current debt crisis and poor bank regulation were a direct result of their own policies.

The feeling of most entrepreneurs is that government is essentially powerless to influence the economy at the grass-roots level. Rather than decreasing regulation as they always promise, any intervention on their part, however well meaning, always seems to create even more obstacles to enterprise.

The solution to our economic challenges is clear. Rather than sit on our hands and complain, now is the time for entrepreneurs to get out there and sell our way out of the recession, bringing the rest of the UK's economy along in our wake.

But this will need to be the UK's real-life entrepreneurs, not the get-rich-quick chancers we see in the media, an image actively fostered by offensive and unrepresentative programmes such as Dragons’ Den and The Apprentice.

And while it is always a joy to inspire young people into a path of entrepreneurship, this is a long-term policy rather than the immediate help that the UK's economy needs.

Real-life entrepreneurs first felt the effects of the recession in 2008. Those that have survived followed the best practice that all businesses should follow. This includes the banks, which are always quick to criticise small businesses for their lack of planning.

Successful entrepreneurship involves reducing risk wherever possible by concentrating on the core business of the organisation and, wherever possible, finding the most profitable niche or vertical market. While cost-savings are important, the main focus should be on generating revenue and reducing the length of the sales cycle.

Rather than chasing brand new customers who promise big orders from exotic locations, the place to find immediate revenue is always your existing customers. They may be equally affected by the recession but willing to discuss mutually beneficial outcomes with people they trust.

It is also a myth that there is no money out there. This is the strong message I have received across the spectrum of industry, from private equity and venture capital companies, angel investors and those companies who have managed to grow successfully in the last few years.

You only need to scan the regularly published lists of fast-growth companies to see which industries have thrived in a recession; all of these companies and others like them have money to spend with the right suppliers.

I am also determined to do my bit to help the UK's entrepreneurs. Starting on November 1st in Essex, I will be presenting at twelve branches of the Federation For Small Businesses (FSB), events that are open to everyone.

The FSB recently launched a new initiative “Championing The UK's Real Life Entrepreneurs”, which focuses on the key issues facing its members. These include increasing the routes to finance, improving cash flow, adopting a new approach to regulation, reducing and simplifying business tax, incentivising job creation and opening up export markets.

The FSB's Head of Policy and Public Affairs, Andrew Cave explained to me that the campaign is designed to galvanise the small businesses in the UK to take a forward-looking and positive attitude towards the economy by increasing their revenue and taking on staff, especially the increasing number of unemployed young people.

He argues strongly that the opportunities and skilled, hard-working people are out there; all it needs is a positive attitude.

Originally published in The Financial Times. Copyright ©Mike Southon 2011. All Rights Reserved. Not to be reproduced without permission in writing. Mike Southon is the co-author of The Beermat Entrepreneur and a business speaker.

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Will your new business make any money?

All successful business owners can work out very early on whether an idea is likely to make them any money. The skill prevents you from making poor decisions, stops you fooling yourself about likely success and is invaluable when you introduce new ideas post-launch. Here are some money-related points to consider.

Concentrate on the money – but don’t become obsessed with it

Wandering round with a spreadsheet all day won’t get your business underway. If the idea is sound, the money will follow. Don’t just go for cash as an objective – it will prove unsatisfactory in the long run.

Weigh up the service v product distinction

Are you offering a service, product or both? It is important to look at the distinction between the two. A product is tangible. A service involves interaction that often goes beyond the moment of purchase. A combination is acceptable so long as you know what percentage comes from each.

Work out how to have a high margin

Can you offer something that relies purely on your skill or experience? If so, you may be able to keep your costs down to near zero. This gives you great flexibility in pricing, and the amount of time you spend working each year.

Try to sell what you do, not materials with a mark-up

Products have price points that are easier for the customer to guess. Services can be priceless. Even the most inexperienced customer has a rough working knowledge of what something should cost. They will understand you have to make a mark-up, but there will be an upper limit that could hinder your profitability.

The price-quality equation: If you cost a lot, you must be good

People like paying for high quality goods and services. Don’t sell yourself cheap. Most people starting a business undervalue what they do. This is a mistake. Think carefully about your true value and make your prices match that.

Aim for 50 per cent repeat business within three years

It costs a lot less to gain repeat business than to start from scratch, so aspire to the high standards that generate it. 50 per cent is, of course, an arbitrary figure, but try to design something that encourages repeat purchase. This will save you reinventing your business every year, and all the cost and effort that goes with it.

Don’t be small-minded about money

Speculate and you will accumulate. Invest upfront, within reason. Be generous and put something in before you expect something back. Treat your customers well and pay your bills on time. Develop a reputation for generosity and fair dealing.

Be canny about requests for free or ‘win-only’ work

If you spend your first year behaving like a charity, you’ll go bust. It’s okay to provide a judicious amount of trial product or service as a taster for what you offer, but only to a certain level. Then you need to be paid.

Consider flexible pricing

If you achieve a certain (non-discounted) price for something, consider charging more next time. This point is specifically for service businesses. Start with a fair price and review it periodically to see if your market can tolerate higher prices based on the quality of what you provide.

This extract is taken from Kevin’s recently published book – What You Need to Know About Starting a Business

Kevin Duncan – business adviser, marketing expert and author

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Understanding private equity

If you are a successful company that has survived the recession with a healthy order book, there is some excellent news: there has rarely been a better time to raise private equity investment, as there is plenty of money available for the right opportunities.

Private equity is the term used for investments in private companies, so includes venture capital firms, which look for high-risk, high reward opportunities, the next Autonomy or eBay. It also includes more traditional private equity firms, which provide development or replacement capital to more established companies to enhance their product ranges and improve their management teams while facilitating growth and succession.

The relationship between entrepreneurs and their investors can be an unhappy one, due to mistrust on both sides. Entrepreneurs are convinced of their own rectitude and the industry-changing nature of their companies.  They often view private equity companies as aloof and only focused on driving their “baby” towards a lucrative but morally suspect exit, such as a trade sale or public flotation.

When the going gets tough and the private equity company starts talking about replacing the original founders with professional managers, the early euphoria around mutually advantageous exit strategies is long forgotten.

Guy Rigby has seen the world of private equity from several different angles. He qualified as an accountant before building and selling his own practice. Later, he moved into sales and marketing for a professional services company, which itself had a successful trade sale.

He now runs the entrepreneur group at Smith & Williamson, a top ten accounting firm who provide all the usual finance, tax and wealth management services. Most of Rigby’s own time is spent with successful owner-managers, often helping them navigate the mysterious world of private equity investment.

He recently ran an event, “Investing for Success”, which was attended by entrepreneurs, private equity companies and the press. He was struck by the lack of community and deep suspicion in the room.

The entrepreneurs had heard the stories of unscrupulous private equity companies exiting with substantial personal gains from companies that collapsed soon thereafter. The press had understandably leapt on this as an example of capitalism at its worst, leaving the reputable private equity companies wondering how they had acquired such a bad reputation.

Rigby feels that there is a significant communications gap between entrepreneurs struggling to find the right private equity partner, and investors who seem distant and remote to those who will create the next round of wealth.

Much of this problem emanates from a lack of understanding. From the outside, private equity investors inhabit a rarefied and secretive world. They pop up and grab an opportunity from time to time, but few understand how they operate and what they really do.

But above all, Rigby believes that private equity is essential to help rebuild the UK economy. He feels strongly that private equity firms must work harder to improve their image in the marketplace; they should engage better with the media, particularly the entrepreneurial press, providing success stories of growth companies, not tales of woe and asset stripping.

Once entrepreneurs see examples of private equity backed companies grown successfully and ethically for the mutual benefit of employees, customers and shareholders, they will be more inclined to see this important form of funding as a way to realise their ambitions.

Rigby has scheduled an event, ‘Inside Private Equity’ in November for entrepreneurs and investors. Market recoveries are always fuelled by wise investors looking for the best opportunities, so now is the time to repair the image of private equity and start a sensible dialogue with the best entrepreneurs.

See Smith & Williamson’s Event “Inside Private Equity”.

Originally published in The Financial Times. Copyright © Mike Southon 2011. All Rights Reserved. Not to be reproduced without permission in writing. Mike Southon is the co-author of The Beermat Entrepreneur and a business speaker.

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Where to find business funding post credit crunch

Finding funding for your business is difficult in these post credit-crunch times. At BusinessFunding.co.uk, we recently discovered that the number of public sector-backed funding sources available to UK businesses has shrunk by at least a quarter in the past year alone, while the number of grant schemes has shrunk by a similarly large amount.

Bank lending has also been a cause for concern recently. The Government keeps putting pressure on the banks to lend more to small and medium-sized enterprises (SMEs), but many businesses are still finding themselves unable to secure finance.

Businesses in the regions may be finding it particularly hard to find funding and finance at the moment, with the North West and the Midlands faring particularly badly as a result of recent fund closures. And with spending cuts progressing apace across a wide variety of UK business funding sources, this trend looks set to continue.

However, all is not lost. The good news is that a wide variety of less-well-known funding sources do exist, from specialists such as asset-backed lenders and business cash advancers to crowd funding websites. Plus, it is reasonable to expect that further sources of funding will emerge as the recently established Local Enterprise Partnerships and Enterprise Zones begin to take shape.

For those seeking loans, the Community Development Finance Institutions (CDFIs) may be a good alternative to the banks. CDFIs lend money to businesses, social enterprises and individuals who struggle to get finance from high street banks and loan companies. Some are even approved to lend under the Enterprise Finance Guarantee, a scheme in which the Government provides a guarantee to the lender, enabling SMEs with insufficient or no security to secure a business loan.

Of course, the more traditional equity investors will continue to play an important role. Indeed, equity investors are particularly active and have provided funding of more than £500m into UK businesses so far this year. From venture capital funds to angel investors, there are plenty of options for those seeking equity investment for their business.

Applying for equity investment can seem daunting and businesses must ensure their proposal genuinely has the potential to offer a good return to investors. However, provided it ticks this box and is presented well, investors will be interested and equity investors are often willing to support the business through its growth stages in order to ensure a good return.

However, it is worth keeping in mind other sources of funding, particularly in these troubled times when the competition for equity funding is high. Looking beyond traditional sources of grants and government-backed funds towards more novel sources could increase your chances of receiving funding.

BusinessFunding.co.uk is a central resource for UK businesses seeking business funding or finance to start up, expand or fund working capital. Find more than 1,000 sources of business funding and finance, including investors, loans, invoice factoring and discounting, asset finance and more.

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Clear invoices

The fundamentals of business are very simple. The main reason businesses go broke is that they run out of money, and one of the biggest contributing factor is the value of their unpaid invoices.

The sales process always starts with the very best of intentions, often a technical conversation between two people about a particular problem and how the supplier might solve it. In the euphoria of the early stage of the relationship, the boring details, such as invoicing and payment are glossed over, something to be discussed later.

When they are finally called in, bookkeepers and accountants always despair of the unstructured mess that they are asked to sort out under impossible time pressure. In the background there is a bank manager rapidly running out of patience, while at the customer end there is a vague indifference to the problem, especially if the original person who made the original, verbal promises on payment has moved on.

In retrospect, everyone should have spent more time writing everything down and clear payment terms should have been agreed in advance. Every first-time entrepreneur needs to apply the same discipline to their invoicing, as they will have to do in their project management and quality assurance; this is not something they can afford to delegate to someone else later.

There are many accounting packages that include invoicing tools, but most products are designed for accountants, so are too complex and unwieldy for a sole trader or small business. Fortunately, there is a simple, cloud-based solution for invoicing, designed specifically for small businesses: Clear Invoices.

The company is run by Peter Whent, a former army officer and computer industry veteran with many years’ expertise in electronic document distribution, starting with fax broadcasting. He was involved in several start-ups, acquisitions and management buy-outs, finally approaching private equity companies to find an opportunity of his own.

He eventually found a company that provided an end-to-end e-commerce platform which was trying to be all things to all people, with a CEO looking to make an exit. It is always difficult to find oneself parachuted into a hostile environment, but Whent’s army background had prepared him for the difficult task of getting people to do what is required for survival by persuasion rather than coercion.

Whent decided to focus on invoicing, which like all processes has a simple set of rules. He discovered that, contrary to most entrepreneurs’ assertions about intractable and unreasonable purchasing departments, most big companies would pay on time if their purchasing systems had all the information they need. He describes this as producing ‘process-friendly’ invoices.

Clear enables the user to generate professional-looking invoices and then automates the payment process. It provides automatic notification of outstanding invoices and even chases customers who do not pay on time. By invoicing in this way, Whent’s customers are typically paid fourteen days earlier than those who are using manual systems.

Clear is cloud-based, so everything is automatically backed-up and VAT inputs can be generated at the touch of a button. Best of all, it is completely free to small businesses. Clear make their money from the larger companies who also use it to streamline their own processes and save them money.

Not all the rules are designed to favour the larger companies. Whent explains that it is a little known and often-ignored fact that every company is entitled to charge interest of 8 per cent over base rate for overdue invoices.  All you need to do is invoice correctly as soon as the order is placed, and then to put in an automated system to chase your payments for you.

Clear Invoices can be found at http://www.clearinvoices.com

Originally published in The Financial Times. Copyright ©Mike Southon 2011. All Rights Reserved. Not to be reproduced without permission in writing. Mike Southon is the co-author of The Beermat Entrepreneur and a business speaker.

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Why changing utilities provider doesn't have to be a hassle

In a difficult economic climate, small businesses are understandably looking to make savings wherever possible to help ride out the recession. Savvy SMEs can make significant savings on their utilities bills where, on average, businesses can save more than a third on their current outlay – equating to an average saving of £1,121 per year on electricity and £1,230 on gas rates alone.

Each year, small businesses lose close to £2bn by unnecessarily paying over-inflated energy prices. Yet despite this, only a handful of businesses regularly monitor their energy outlay and switch suppliers to receive the best deals.

So why aren’t more companies switching on to the savings that regularly shopping around for the best energy deals can deliver?

Hassle you can do without?

If there’s one thing that puts small-business owners off switching utilities provider it’s hassle. Switching is generally perceived as a complicated, time-consuming process and owners are often too busy running their business to hunt for the best deal.

It’s easy to see where this idea has come from, as our energy providers certainly don’t make it easy for businesses to switch their supply. Unlike domestic users, SMEs are subject to assumptive renewal contracts that only offer a limited window of opportunity to switch suppliers before being rolled over onto a new contract at a higher rate. This means there is an incredibly narrow period (sometimes just 30 days) in which to act – something that’s easily missed by time-poor SMEs. In fact, industry regulator Ofgem has long called for action to enforce measures aimed at simplifying the switching process.

It’s a confusing process and one that’s made worse as each energy supplier has different, and often complex, rules about renewing your business electricity or gas contract with them.

There is another way

While businesses might think switching suppliers can be a hassle, the reality couldn’t be further from the truth – especially if you ask the experts. Specialist advisors can guide businesses through the utility minefield, comparing prices and helping to find the best deals.

We’ve tried to remove even more of the hassle by creating a free online tracking tool to help small firms check when their contracts are up for renewal, as well as an automated notice letter generator to make the process even easier.

Jonathan Elliott is managing director at Make It Cheaper

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Do you need professional indemnity insurance?

Business insurance can be a confusing field – and few insurance types are as misunderstood as professional indemnity.

Professional indemnity insurance helps to protect your business against expensive claims from clients or third parties and can be an important investment in your financial future.

What is professional indemnity insurance?

If you make a mistake in the course of your work and a client or third party suffers a loss or damage as a result, you are likely to be held liable. Professional indemnity insurance protects you against claims of this sort.

A simple mistake can potentially have expensive consequences. Indeed, a single claim can easily be enough to financially cripple a small business. Professional indemnity insurance can help you guard against this risk, by covering the costs of such a claim and footing any related legal bills.

Who needs professional indemnity insurance?

Professional indemnity insurance is a wise investment for businesses in a wide range of fields. If you provide advice, skills, or knowledge in the course of your work, you should seriously consider getting cover. It is a sad but inevitable fact of life that accidents do happen and you need to make sure you are protected against them.

Some businesses also have a regulatory requirement to take out professional indemnity insurance at a certain level. This is particularly common in professions such as accountancy, where practitioners may have to prove they have sufficient cover. Additionally, you may find that prospective clients expect you to have professional indemnity insurance before they will do business with you.

What if I don’t have professional indemnity insurance?

If you do not have professional indemnity insurance, you place your business at risk from potentially expensive claims. These claims could come from clients or third parties and can arise from the smallest of mistakes.

It is worth noting that the total cost of a mistake or negligent action is not necessarily limited to a settlement with the client or third party. Legal fees can significantly inflate the total cost – but a good professional indemnity policy will also cover these expenses.

Is professional indemnity insurance expensive?

The cost of your professional indemnity cover will depend on a range of factors, including the nature of your business and its legal history. But cover of this sort can be very affordable – and, crucially, it should be seen as an investment in the future financial stability of your business.

It is also important to see professional indemnity insurance in the context of the suite of covers your business might require. Depending on the nature of your activities, this might include product liability, public liability and employers’ liability insurance. It is often more cost effective to buy a combined business insurance policy that incorporates all of these covers.

Deborah Reid, underwriting manager at Simply Business

Find out more:

• Insurance for your business
• How Simply Business works with small businesses
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How your business could slash its fuel bills

With many businesses still suffering from the harsh economic climate, the rising cost of fuel is unwelcome. Thankfully, there are ways to save on light and heating - many are very simple and even free.

1 Open your eyes

As a starting point, assess your workplace. Are lights left on in empty rooms or equipment left on when not in use? Are employees wearing T-shirts in January? Has the air-conditioning been turned on because people are too hot? All these things can be rectified at no cost, simply turning off lights or equipment when not in use or turning down heating can make a big difference.

2 Understand your energy performance

To truly understand how much energy your workplace is leaking, invest in a Commercial Energy Performance Certificate (EPC). These cost £200 and will highlight problems – and tell you how to rectify them. If you rent an office or manufacturing facility, this is down to your landlord. They should have presented you with a Commercial EPC when you moved in.

3 Get employees involved

An energy-efficiency drive needs the support of the whole business, so get everyone involved. Incentivise energy-saving acts with rewards for cutting costs. You can ask your utility provider to help out here, too, by providing details of energy used before and after you made the changes. Beyond energy used within the workplace, you could also encourage your staff to walk or cycle to work and do simple things such as cut down paper use and recycle more.

4 Monitor electricity use

Smart meters monitor electricity used and equate this into pounds and pence. They are a great way to get people to understand the true cost of boiling a kettle. Currently being rolled out across the UK over the next 10 years or so, some electricity providers already offer them for free.

When it comes to lighting, apart from energy saving bulbs, there are low-energy options available and, if you can’t trust employees to switch things off, motion-sensor lighting can provide a great solution.

A single computer and monitor left on 24 hours a day will cost a business more than £50 a year. Switching it off out of hours and enabling standby features could cut this to £15 per annum, according to the Carbon Trust.

5 Keep warm for less

Get to grips with the timer and thermostat on your heating system, but don’t switch it off completely – warming up a freezing cold room wastes more energy than keeping a low-base temperature. Switching your thermostat down by one degree could save 8 per cent on your heating bill.

If you haven’t got a condensing boiler – consider making the investment. Heating controls can further optimise efficiency, taking into account things such as computers and lighting that give out a lot of heat. Talk to a Gas Safe Registered engineer to find out more.

Make sure all radiators are free of obstruction from furniture; invest in draught proofing and some thick curtains.

Next year, the Green Deal will provide insulation for ‘free’, paid back through utility bills, more information can be found on the Department of Energy and Climate Change website. The Carbon Trust also offers interest-free loans for energy saving measures.

6 Switch utility providers

Shop around for a better deal and negotiate – they all want your business so you might get a special offer. If you really want to ‘go green’ look at where your energy comes from, too.

7 Cut down your reliance on fossil fuels

To reduce your carbon footprint you could invest in renewable technologies. Feed in Tariffs give cash back for electricity generating technologies. Next year a similar scheme is being launched for heat generating renewables. Make sure you employ Micro-generation Certification Scheme (MCS) accredited engineers, because you won’t have access to these initiatives unless qualified trades people install your equipment.

Mark Krull, Logic4training

• Whatever changes you decide to make, always choose qualified trades people to carry out the work. For more information about Logic4training’s courses, visit: www.logic4training.co.uk

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How to minimise your accountancy costs

Every business has different needs when it comes to using an accountant. Indeed, some may decide not to use one at all.

Only a limited company with a turnover of more than £6.5m and a balance sheet total exceeding £3.26m needs an audit – which would require an accountant. Most other businesses can do their own accounts and tax returns, if they so choose. However, running a business is hard enough without having to learn every accounting and tax rule, regulation and law.

But what exactly do you need your accountant to do?

Most businesses need their accountant to complete what we accountants call “compliance work” – basically, filing your accounts and tax returns (eg statutory accounts, annual return, VAT, Self Assessment, Corporation Tax, PAYE, etc) in correct format, ahead of deadline.

Most small businesses have very simple accounting and tax needs. Accounts usually consist of:

• sales invoices each week/month 
• costs for stock, advertising, web hosting, etc
• daily/weekly travel expenses 
• mobile and other phone charges 
• monthly salary/wages 
• use of home as office 
• insurances and/or professional subscriptions 
• bank interest/charges 
• sundries such as stationery, postage, laptop, etc 
• dividends (if your business is a company) 
• and, of course – accountants fees!

So how many individual transactions would this be a year? 100? 200? 500? Not too many, really. Add a free or inexpensive accounting system to your PC to record these transactions and you won’t have to face the nightmare of bags overflowing with receipts, invoices, statements, etc.

You can save a lot of money simply by doing your own bookkeeping, of course. Modern PC-based systems also grant better control of the financial side of running a business. Thanks to accounting software (or even just a basic Excel spreadsheet system), you no longer have to wait several months after the year-end to find out how your business has performed.

Keeping your accounts up to date in this way allows you to make better decisions based upon current financial data. It also allows your accountant to provide appropriate advice based upon your current trading rather than on previous accounts, which could be two years or so out of date.

What more do you need?

Occasionally, you might need clarification on a financial or tax matter – so being able to quickly pick up the phone to ask your accountant questions can be hugely beneficial.

Accountants like to give this advice the grand title of “tax planning”. For some businesses (ie those with a high turnover or value), it’s important to have a clear and documented tax strategy. But in most cases, a tax planning strategy can be quite simple.

Your accountant should also make sure you claim all allowable costs – those that are “wholly and exclusively for business”. Many myths exist about what you can claim (eg clothes, all lunches, etc). Some seem to think that unless you hire an ‘expensive’ accountant, you won’t get the right advice on allowable costs. Utter nonsense! The advice you get depends on the accountant – there are good and bad ones – whatever price you pay!

Changes in your circumstances

Planning for the long term may give you a different tax plan, for example, if you intend to build up and sell your business. In addition, your circumstances could change and it may be necessary to discuss your tax plan with your accountant if, for example, you separate from your spouse, want to retire or buy property, etc.

Trying to account for “ifs, buts and maybes” in a tax strategy can make it unnecessarily complex. Taking into account events that may never happened can lead to a flawed plan, so keep things simple, based on what you know and what is likely to happen. Make sure you keep your accountant informed of any likely or forthcoming changes in your circumstances. This will help them ensure your tax plan remains valid.

Pay for the advice you need – when you need it

There’s no need to pay fancy fees for specialist services you’d rarely, if ever, use. You can get the best of both words by making sure your accountant provides the service you need as and when you need it – at a fair price. An accountant with core trained and qualified staff, plus access to specialist services, should easily be able to do this for you.

Elaine Clark, www.cheapaccounting.co.uk

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