an accountant's perspective

cashflow


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The Basics of Bookkeeping and Accounting

The new tax year is well underway so now is a good time to check your approach to your record keeping and make sure you are making the right decisions for you and your business. It is not always easy to know what those decisions are and sometimes your self-belief will dip a little. Don’t let the natural peaks and trough of business pull your dramatically in either direction – learn to keep a even path and keep tethering yourself back to it.

For that to be possible you need a sound financial core at the heart of your business. That does not mean you have to make masses of profit or cannot survive those fairly inevitable tough times, but it does mean that you need up-to-date financial records to draw conclusions from. The more information you have about your cashflow and how your business operates the more chance you have of predicting moments of affluence and hardship and put in place preventative measures or request extra support to capitalise on them.

Ultimately, business comes down to bookkeeping and accounting – the numbers have to add up! These are familiar terms that we may understand and often try to avoid at all cost. The moment you gain a little of enthusiasm towards them and open a book, or scan a website to learn more, you retract in horror at what it can involve. And yet, if you have a methodical system, maintain some legible records then you can survive that initial terrifying moment of realisation. Bookkeeping and Accounting all boils down to detailing your business income and expenditure.

Simple bookkeeping

For the most simple set of accounts you need:

  • a cash book to record money entering and leaving the business
  • a sales ledger, which details money received and owed
  • a purchase ledger, which logs outgoings
  • a wages book, which details salary payments and National

Insurance contributions

These books will most likely exist within a spreadsheet in some computer software these days so you will be able to see everything on a single screen.

It is also a good idea to start as you mean to go on. So get a box file and divide it into months so you can keep cash purchase receipts. Then get a couple of files and store unpaid purchases in one and paid purchases in the other.

For cash, cheque and card payments, till rolls are an ideal means of updating your sales ledger. If your company will be issuing invoices then sales paid and sales unpaid need to be separated into files electronically or with another couple of ring files manually.

You need to keep just about every piece of paperwork that you receive, no spam though, that can be shredded. Keep bank and card statements, fill out paying-in books and cheque book stubs meticulously, maintain payroll records (if you employ people) and VAT records (if you’re registered). For help in any of these areas go to the PAYE or VAT sections.

Electronic bookkeeping systems

The software for basic accounting may not be as expensive as you think. A budget of £100-£180 would get you basic accounting software and you can choose one that comes with free support. The most popular software for electronic records (spreadsheets) is Microsoft Excel.

There are also dedicated accounting packages which are easy to use. See the Mother website (www.managewithmother.com/about/cashbook) for the bookkeeping software that ABC backs. It is a great tool and we can recommend it because we have several clients that are very happy with it.

Software is ideal because any errors can be corrected quickly; you can get financial reports with the click of a button. Any money you owe or is owed will be brought to your attention. You can also see sales patterns and costs, which helps with forecasting and budgeting for your business.

If you cannot afford a full-time bookkeeper then you will have to do much of it yourself. As your business expands the role of a bookkeeper can be combined with other duties, such as office or HR manager. A part-time bookkeeper may be more viable for small to medium businesses.

It is possible to do it yourself and then get an accountant to take care of the complex bits that quite frankly would give you sleepless nights and a nasty tension headache. A small business will be faced with the chore of doing the books after hours, or at weekends. Once your business expands then the quality of the accountant you choose could have a great impact on your company.

The best advice when choosing an accountant is to follow your gut feeling, see how up front they are about their fees and test their knowledge before signing up with them. Don’t go for the one up the road before getting a feel for whether they are right for your business.

Hopefully, you have the knowledge you need to build an effective accounting and bookkeeping core at the heart of your business now. If done right you will never regret the extra effort and organisation you put into it from the start. Stress in these areas tends to come when records have been neglected and a years worth of transactions are only known to have taken place because of the bank deposits made. Do it the smart way and get on top of the basics early – you won’t regret it!


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Is your Accounting ready for Christmas?

If you are a retailer then you know exactly what I am talking about. September is in many ways the last month before the seasonal storm begins and that is for retailers and accountants alike.

Accountants are hoping to get as many tax returns done as possible before the Christmas break and the January mania that follows it. Retailer are preparing for heavy footfall, massive online traffic and hoping their stock levels have been gauged perfectly. Autumn long nights represent the perfect opportunity for you to get your books ready for the seasonal peaks.

There are many challenges placed on businesses and polished accounting records could be the difference between succeeding and failing when the shopping frenzy begins. Now is the time to give your business a much needed winter service.

CASHFLOW

cashflow

 

Cash flow management has to be meticulous. From careful bookkeeping accurate cash flow forecasts can be made. Seasonal businesses can anticipate when heavier inflows will come in and make sure that outflows are scheduled to occur at the same times. It is also a good opportunity in many cases to create a reserve for the off-season ebbs in cash flow.

INVENTORY

The challenge of managing inventory will also rely on accounting transparency. The yearly cash flow forecasts will take into account the stock bought and shifted in the last seasonal periods but they cannot predict fluctuations. Detailed sales and inventory plans need making before the season begins and are often done months in advance to ensure timely delivery. You have bought the stock, anticipated the seasonal shopping habits – have you brought your bookkeeping up to date.

It is September, another month and you will be in the thick of it give or take a few days/weeks. Your business will be stronger next year when inventories are being created if you do not have to project back information and make everything balance after the fact. Do it now while it is fresh in your mind and you are not worn out from the Christmas rush.  

WORKERS

seasonal worker

The last thing has very little to do with accounting but is essential for retail businesses at exactly this time of year. Seasonal workers usually get taken on in September or October. There are increasing commercial pressures which can lead to corners being cut. Make sure you spend the right amount of time interviewing and training staff that will fit in with your team’s ethos and work ethic.

Seasonal workers represent your business alongside permanent workers. Christmas represents a huge opportunity and it is potentially the only time a customer visits a store. Your customer service needs to be at its best so those newest to the team need the right incentives, training and motivation to deliver just that. Spend time training seasonal workers to the right standard otherwise the cost to the business could irreparable.

 

It is time to get the Christmas stock out but before you do make sure your accounting is top notch. Your will impress your accountants when you take your books in at the beginning of January and you will impress yourself to boot! Good business is built upon good accounting – there is just no way around it and yes we are bias but you know it makes sense.

Put the long nights to good use – crack open a bottle of wine or pour out a can of Fosters and catch up with your record keeping so you do not have a mountain to climb in three months’ time. Do it at the end of the month until the end of the year and you will be laughing come January. Best of luck – great bookkeeping is what we accountants dream about!

 

 


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Managing your cash flow

This is a great article found on the newbusiness.co.uk site that I felt I had to share. Go and check it out online @:

http://www.newbusiness.co.uk/articles/banking-finance/managing-your-cash-flow-0

 …or carry on reading: 

A recent ICAEW survey revealed that 58% of micro businesses (less than 10 employees) and 35% of small and medium businesses (between 10 and 250 employees) had no debt.

 

Good cashflow management is key

A recent ICAEW survey revealed that 58% of micro businesses (less than 10 employees) and 35% of small and medium businesses (between 10 and 250 employees) had no debt. Many businesspeople must wonder how they can manage without borrowing. The answer is largely to do with good cash flow management.

Why is cashflow important?

Having cash allows a business to operate. So managing your cash resources and making sure you have enough to meet your needs, e.g. paying wages, buying supplies, meeting your personal financial requirements, is absolutely critical. 

Starting up – things soon get complicated

Most businesses start with a small amount of cash from the proprietor. As they build up the business they leave sufficient funds in the business to cover the bills. Problems often start when they offer credit to customers or buy on credit. Or they take on an employee or a sub-contractor who requires regular payment.  Suddenly cashflow – payment from customers and payment of supplies bought on credit – becomes an issue.

Get a grip – keep accurate, up-to-date records

New businesses need to establish some good habits. These start by making sure that the business accurately and regularly records details of trading transactions. This might be in a manual cashbook, on a computer using a spreadsheet or accounting software or using a simple ‘paid’ / ‘unpaid’ system for bills. Accounting records must allow the business to instantly find out what monies are owed from customers and the amounts unpaid to suppliers. 

Preparing a cashflow forecast.

But running a business requires more. A cashflow forecast is essential to be confident about the business being able to meet its commitments. The forecast will detail when receipts are expected and payments are required .Forecast receipts and payments are usually analysed into months but can be weekly or even daily if the cash position is tight.

You start with what bills are already owed or owing and known commitments such as the weekly or monthly expenses such as payroll, rent and leasing or hire purchase payments. You then build in predictions of receipts and payments from future sales and purchases over the forecast period – usually up to a year ahead, although a bank will require longer if you are seeking a loan or overdraft.

Cashflow forecasts should be a key tool in the management toolkit. They can highlight when the business might run low on cash and can be the basis for an action plan to remedy the situation before it happens. 

Receipts from Customers -vital steps to maximise receipts:

For big value sales on credit, check the customer’s credit rating. Agree the terms of payment with the customer before starting work. Invoice as soon as the goods have reached the customer or service rendered. Regularly progress payment with the customer starting a few days after invoicing.. If payment is not received within the agreed period, progress payment higher up the customers management and consider how quickly you stop supplies or services. If still unpaid, use solicitors’ letters and threaten court proceedings. If still not paid, consider whether to go to court, or are you throwing good money after bad?

Payments to Suppliers

Agree payments terns with suppliers at the start of trading with them and always try to stick to themIf you think it may not be possible to pay, contact the suppliers concerned and ask for more time. Provided you consistently pay on time, and requests to defer payment are rare, they will probably agree, to delay payment. Letting suppliers down will reflect in your credit rating which may come back to affect future supplies. 

Working Capital Control

Managing cashflow is in part a mirror image of the businesses investment in working capital.  Generally, the higher the value of stock or work-in-progress, or monies owed by debtors the greater the difficulty in keeping control of cashflow. So maintaining a tight grip on stocks and debtors should free up cash for use elsewhere in the business.

Capital Expenditure

Decisions to invest in capital equipment such as computers, equipment or motor cars should be scrutinised carefully. The acid test is can the money be more profitably used elsewhere?

If the new asset is essential to the business, think about deferring payment by hire purchase, leasing, or hiring. Also consider the tax perspective. If you have been making losses, leasing or hiring might be preferably.

Summary

  • A business should have a continuous focus on cash flow
  • Good practices and clear lines of responsibility are important.
  • Have clear payment terms with customers and suppliers
  • Have a system for following up late receipts from customers
  • Knowing your current bank balance and how you expect it to change over next 3 months is vital
  • Good financial management not only helps manage cash it will reassure finance providers if you are seeking finance.
  • A growing business can mean increased working capital. Arrange your finances to meet any increased need. 

You may also find this video useful:

http://www.youtube.com/watch?v=3CjRpolbjy0