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Home Archives for Accounting

What steps can business owners take to reduce accountancy fees?

Posted on July 25, 2019 Written by Administrator

If you own a small business it’s easy to get caught up in doing bookkeeping yourself to try and save costs. However, when you have lot to do this can eat into your free time, and it’s probably not your favourite way to spend your weekends.

So how do you strike a balance and prepare your books correctly in order to reduce your accountancy bills, without it eating into your weekends?

Here some way to save time and money:

  1. Talk to your accountant

Ask your accountant what you can do to lower your accountancy fees. The aim is not to take on more work at the expense of your weekends or family life. Most accountants do offer packages and it might be that you can get the year-end accounts and tax return work at half price. Or they could simply take over all your paperwork chores, produce regular management accounts and handle your VAT and payroll requirements. In return you get your end of year accounts done and filed for FREE. If the bulk of the work is completed and there are no additional complications or work at the year end, I see no reason why the accounts cannot be filed at no cost to you. 

  • Get a format agreed

If you’re happy to do the books, then agree the format with your accountant. For example, should you to simply keep record of income and expenses on excel? Do they want you to use a particular software? Do they want you to reconcile the books by applying “Double Entry” bookkeeping? Unless you are a professional bookkeeper or a member of the Institute of Certified Bookkeepers, please do not attempt double entry bookkeeping. You may end up paying for the accountant to rectify errors. You may even end up with some tax issues.

  • Use bookkeeping services

You can use a professional bookkeeper to prepare the books. Fees will be lower than an accountant’s. Shortlist a few and involve your accountant in the process if possible. You want to avoid a situation where you pay for the same work twice because the format and quality of the bookkeeping is not at a level to enable the accountant to produce the accounts at a cheaper rate. Or the bookkeeper and the accountants use different systems.

  • Make records as simple and streamlined as you can

Whether you use an accountant, a bookkeeper or do it yourself, avoid complicated record keeping and streamline your transactions. Things you can do include having a dedicated business account, using the bank for most transactions, avoid using the business bank account for personal expenses, avoid multiple bank accounts or credit cards and have all your records in once place (preferably in a digital format).

  • Use Receipt Capture System

There are some good apps including Auto Entry and Receipt Bank that allow you to capture these receipts on the go and send them directly to your accountant. You can even ask your suppliers to send their invoices to the app to free up your inbox a bit.

  • Use Cloud Bookkeeping

FreeAgent, QuickBooks, Xero and the like, have transformed how bookkeeping is done. If you do it yourself use one of these platforms to save time and accountancy fees. Some accountancy firms may even cover the cost within their packaged services. Again, agree with your accountant where your bookkeeping duties would end.

  • Use automation where you can

You can now authorise your bank to send bank transaction to a cloud bookkeeping platform. You can also set a rule to say that if a direct debit payment goes to, say Aviva, then this should be analysed as insurance. Imagine how much time and fees you can save by doing this.  However, don’t assume everything will be correct. It will need checking.

  • Pick a good time to send in your records

Did you know you can ask for a lower accountancy fee if you prepare your books for your accountants at their quietest times? Accountants have peak times as many businesses have December & March year-ends, plus the Tax Return deadline in January. Avoid these times and ask your accountant if you’ll get a discount if you send in your books before the rush.

  • EPOS integration

If you run a retail or restaurant business and you’re using a cloud bookkeeping platform, then why not go a step further and get an EPOS (Electronic Point of Sale) and inventory system that integrates with your chosen cloud platform and helps you keep track of stock? Platforms such us Vend, Izettle and others should be considered. A key area that often causes issues with the accounting process is the value of your stock. Where you or your accountant spends less time on this area, you can both save time and costs.

Conclusion

Make use of workshops from HMRC and the free videos from reputable accounting firms to enhance your knowledge. 

Always try to get the best deal from your accountants but also remember they can add value to your business so do your part well and get them to spend more time on business advice/tax planning.

ABOUT THE AUTHOR

Jonathan Amponsah CTA FCCA is an award-winning chartered tax adviser and accountant who has advises business owners on entrepreneurial tax reliefs. Jonathan is the founder and CEO of The Tax Guys.  www.thetaxguys.co.uk

Filed Under: Accounting

Expenses pitfalls to avoid when completing your businesses taxes

Posted on July 18, 2019 Written by Administrator

The general rule that says you can claim all expenses incurred wholly and exclusively for the purpose of your business looks as if it should be simple apply, but the reality is more complicated.

Let me share a sample of the surprising things your business cannot tax deduct.

Sponsorship

Sponsoring an event is an area that might surprise you. HMRC will disallow the cost if they can show that perhaps the sporting field you are sponsoring is a director’s, partner’s or proprietor’s regular hobby or if the party being sponsored is a relative of the business owner, or if there is no proposed or actual return on investment from the sponsorship.

So, the trick here is to ensure that the sponsorship deal is structured correctly and there is a clear commercial benefit for your business.

Travel

Let’s assume that you operate as a self-employed doctor or sole trader rather than limited company. You have a home-based office. You travel to see different patients or clients on a regular basis. Your journey starts from your office (at home) and includes a few itinerant travels from one client to the other client. Can you claim the full travel expenses? Logic will tell us that yes. However, the rules deem the travel from your home office to patients / clients as ordinary commuting and therefore not tax deductible.

Client Entertainment

As part of your sales and marketing, you decide to take clients to a relaxed restaurant to discuss new business. The purpose is to negotiate and generate new business. The income will be taxed so the expenses should be ok to put through the business, right? Unfortunately, the rules specifically disallow these expenses to be claimed against tax. Part of the reason behind this is that you could have had the same conversation over a cup of tea in the office, plus there is an element of personal benefit in the entertainment.

Promotional Gifts

It’s true that nothing ever happens in business until a product or a service is promoted and sold. And when it’s sold at a profit, tax gets collected accordingly. However, if you promote your business by spending too much money on promotional gifts to customers and the gifts cost more than £50 per customer, you won’t be able to deduct these costs against your income. Even where the gift cost £50 or less, make sure it carries a conspicuous advert for your business.

Clothes for Work

Imagine you’re a barrister and you’ve purchase your gown to be worn in court. You don’t wear this gown in public. Can you go ahead and claim the cost of the gown against your tax? Not according to the famous tax case of Mallalieu v Drummond which established that “no deduction is available from trading profits for the costs of clothing which forms part of an ‘everyday’ wardrobe. This remains so even where the taxpayer can show that they only wear such clothing in the course of their profession.”

However, some protective and work clothing with logos and other business branding are claimable. If in doubt, speak with a tax accountant.

Staff Reward via Trust

Your staff are well engaged within your business and you want to reward them. You decide to make payment into a Trust to demonstrate that the money has been earmarked for them and waiting to be paid when they hit their targets.

As the money has been paid out of your bank account to the Trust, can you claim it as a legitimate business or staff expenses? Unfortunately, not. Because of a specific tax avoidance rule, this legitimate expense cannot be claimed. 

Parking Fines

Your business is delivering some items to a customer. The driver parks for a few minutes and get a parking ticket. Surely the reason for the fine is because of business activity so it should fall under the wholly and exclusive for the purpose of business rule? Not quite. Fines incurred for breaking the rules are disallowed.

Legal Expenses

Not all legal costs are tax deductible. For example, fees in connection with the purchase of a business premises or investing in shares are disallowed.

In addition, fees that have both personal and business elements may fail the wholly and exclusive test. And legal costs associated with breaking the law are also disallowed. For example, where you’ve got a parking fine and you decide to call your lawyer to defend the case and you lose, you won’t be able to claim the legal fees.

Wages to Spouse or Kids

A great way to keep more of your cash within the family is to employ your spouse and kids. And there is nothing wrong with this plan. However, where you pay family members over and above the market rate, where they don’t actually perform any task for the business or where you’ve structured this working arrangement incorrectly with no evidence or paperwork to back up your plan, HMRC will not allow their salaries to be put through the business. Do take care with this as it’s currently a hot spot for HMRC enquiries.

ABOUT THE AUTHOR

Jonathan Amponsah CTA FCCA is an award-winning chartered tax adviser and accountant who has advises business owners on entrepreneurial tax reliefs. Jonathan is the founder and CEO of The Tax Guys.  www.thetaxguys.co.uk

Filed Under: Accounting

How to understand your business numbers and learn to love them

Posted on May 31, 2019 Written by Administrator

Numbers are the language of business so if you tend to shy away from them it’s time to face your fear and learn to love your accounts.  Here are some tips for understanding your business numbers and using them for your decision making.

1. Are You Making Money?

You can check if your business is profitable by looking at the profit and loss account. scroll down to the bottom figure which will show a profit (positive figure) or a loss (negative figure).

Then look at the top figure (the sales) and quickly glance through the list of expenses.

Take the bottom figure (let’s assume its £15,000 profit) and divide it by the top figure (assume £100,000 sales). This will give you 0.15 which means for every £1 of income, you are generating 15p in net profit.

How does the £15,000 profit compare with what you had in mind? And does the 15% net profit margin deliver the right return for you?  

2. What state is the business in?

Does the business have a positive balance sheet value? You find out by looking at the balance sheet statement which shows what your business has and what it owes. Scroll down and make a note of the last number. It’s normally called capital and reserves. Is that figure positive or negative? A positive figure means your business has some value.

A negative figure is a red flag. Start by taking action to improve profits!

When looking at your balance sheet ask simple questions like; is this how much I owe my creditors? is this how much my customers owe me? If the amount your customers owe you is higher, get the debtors list, review and start making calls.

3. Where is the cash?

Say your profit figure shows £15,000 but your bank balance is only £3,000. Where did the £12,000 go? Another financial statement, the cashflow statement reconciles your cash to your profit. But if you don’t get this here’s what to check:

Have your customers paid you late?

Have you drawn more money or dividends out?

Have you paid your suppliers early?

Have you purchased some equipment?

If you answer yes to any of these, that may be where the £12,000 is sitting.

4. What do the trends reveal?

Compare the current year or the current month’s figures to the previous year or month to make sure you are progressing towards your milestones and to spot any anomalies.

Nearly every business decision you make turns into a number. If your phone costs have gone down by 30%, compared to last year, ask yourself why. What’s the story behind this number? Is this because of the cost cutting decision you made a year ago? Or the change in tariff decision? Trends are your friends.

5. What’s your gross margin?

Gross profit margin is an important number to calculate. The next time you get your accounts, take the direct costs of sales or direct expenses (variable costs) from the revenue. Then divide that number by the revenue. That is your gross profit margin.

If your revenue is £100,000 and your materials or direct labour or direct expenses are £70,000: the difference of £30,000 divided by £100,000 revenue gives you a margin of 30%. So, for every £1 of sale, you’re making 30p in gross profit. This tells you how profitable you are at the gross margin level and whether your business model works.

Here are two red flags. If you’re making £30,000 in gross profit but your fixed costs are £35,000, something needs to change. If your margin is far below the industry average, you need to understand why and take corrective action.

6. What Is Your Breakeven Point?

The reason you need an idea of your breakeven number is so that you know how much income to make to cover all your costs.

How do you get this number from your accounts? You will need your total fixed costs. These are the costs that do not change regardless of the amount of sales you make e.g. rent, admin team costs, rates. In your profit and loss account, it should be most items listed under admin expenses (do watch out for any variable costs that find their way under admin costs).

You then need the gross profit margin. You divide the total fixed costs by the gross profit margin and this tells you the amount of sales you need to make at any given period to cover all your costs.

7. How Much Is Your Business Worth?

You now know how to get and make sense of your profit figure. You also know what to look out for when you review your balance sheet and the meaning of the balance sheet value. And how to look out for the cash drain in your business. Did you know that these give you a starting point in measuring the value of your business?

Healthy profits, good cashflow and positive balance sheet values are all good signs of a valuable business. Of course, there are many other factors to consider when valuing your business and other key drivers of business value. However knowing how to read your accounts and what the numbers mean certainly puts you in a pole position. It also helps you make the right decision with regards to building the value of your business.

In conclusion

I hope the information above will help you make sense of your numbers. There are other key numbers to review so it is important to have regular sessions with your accountant and ask plenty of questions.  That way not only will you understand your numbers you’ll learn to love them as they help you with your business decision-making.

ABOUT THE AUTHOR

Jonathan Amponsah CTA FCCA is an award winning chartered accountant and tax adviser who advises entrepreneurs on business improvement and tax optimisation. Jonathan is the founder and CEO of The Tax Guys.

www.thetaxguys.co.uk

Filed Under: Accounting, Business Finance

Act now to reduce the tax you have to pay

Posted on March 27, 2019 Written by Administrator

If you are a sole trader or have a company with a March year end, there are actions you can take to reduce your tax bill as the end of tax year approaches Let’s look at some them here:

Review your pensions

Whilst pensions might seem like a rather dull and dry subject, they do provide one of the most tax efficient ways to save.

Pension contributions currently receive up to 45% tax relief. For example, a £1,000 investment into a self-invested personal pension (SIPP) benefits from 20% basic rate tax relief (£250) added automatically. Higher-rate taxpayers can claim up to a further £250 in tax relief, while 45% rate taxpayers can claim back up to £312.50.

Contributions in excess of the annual allowance (currently £40,000 for most people) will be subject to a tax charge. Remember you can’t normally take money out of a pension until you’re 55 (57 from 2028).

But if you’re a director of your own company, it is possible for the company to pay into your pension pot (say SIPP or SSAS) for you as part of your remuneration. Then instead of merely leaving the funds in there until you’re say 55, you can leverage the funds and get a second bite of the tax cherry.  How? These pension schemes (say a SIPP) subject to certain rules can be used to buy, say, a commercial property and the rental income gets additional tax benefits. No bad is it? But as with all the guidance and tips given in this article, please do speak with a qualified professional before proceeding with any tax or investment decisions.

Check your income recognition policy

If you normally receive money before carrying out work, the income should be shown in your accounts when you’ve performed the work. And this should be matched with the costs and expenses of doing the work. By not reviewing this, you could be paying more tax earlier than you should do. So let’s say you’ve received £5,000 in March for training courses or website development work to be delivered in say April, make sure this is not shown as income (hence profits) in your March accounts to avoid overpaying your taxes early.  

Review these areas of expense

Where you’ve incurred expenses wholly and exclusively for the purpose of your trade or business and you some evidence to back this up, these should be claimed first. Then review and claim the following 7 areas which are often overlooked in practice:

  1. Provision for directors remuneration to be paid up to nine months your accounting year
  2. Bad debt provision (make sure you have taken steps to recover the money)
  3. Interest paid, including on loans you have made to the business
  4. Use of home as office (reasonable amounts only to avoid more tax later)
  5. Lease premiums
  6. Warranty provisions
  7. Stock provisions, especially in cases where items of costs are worth less than they cost

Claim R&D tax relief

Normally when you incur a legitimate business expense wholly and exclusively for the purpose of your trade, you get to claim 100% of these expenses against your business income to reduce your tax bill. But what if the tax rules allow you to claim a lot more than 100%? Say you get to claim £230 even though you’ve only physically spent £100?

Well that’s exactly what the Research and Development (R&D) tax relief allows you to do. So if you have a company in the creative, engineering, software or any innovative industry where you’re solving difficult problems for customers and raising the bar in your industry, please speak to your accountant or a specialist tax adviser about R&D tax relief before 31 March.

Many companies miss out of this valuable relief due to lack of awareness as well as the misconception that R&D is only available to big Laboratories and pharmaceutical industries.

Use your gift allowance

No one likes to talk about death. But it’s a reality. And very often people pay unnecessary inheritance tax by not claiming the right reliefs. Gifts of up to £3,000 per year can be made free of Inheritance Tax. Unlike most of the tax allowances, the limit increases to £6,000 if the previous year’s annual exemption was not used. So you get to use last year’s allowance of £3,000. A married couple can therefore make Inheritance Tax exempt gifts including cash totalling £12,000 per tax year. This simple planning can save a possible tax bill of £4,800 in the event of your demise.

Consider this £20K tax efficient investment allowance

If you’re considering making a tax efficient investment then before the tax year ends on 5 April, consider making full use of the stocks and shares ISA allowance.

If you’re over 18 and a UK resident, you can contribute up to £20,000 to a stocks and shares ISA this tax year and there’s no UK income or capital gains tax to pay on your investments. And although it’s designed for the long term, you can take money out if you really need to.

A word of caution here though. Please speak with an Independent Financial Adviser first about your investment requirements.

Make sure you are ready for Making Tax Digital

If you’re a VAT registered business, then you’re probably aware that from 1 April 2019 you will have to keep your records digitally and provide your VAT return information to HMRC through a Making Tax Digital (MTD) compatible software. If your system is not compatible you may not be able to submit your VAT returns and risk incurring VAT surcharges. To reduce the impact of MTD on your business and avoid unnecessary costs, start planning now and delegate this task to your accountant, book keeper or relevant in house personal. 

Use capital allowance or crystallise your losses

You are allowed tax free capital gains allowance of £11,700. Just like your muscle, if you don’t use this allowance, you lose it. If it makes financial sense to sell some of your investments, then doing so just before the tax year and just after the tax year will reduce your tax bill. Why? Because you get to use two allowances and defer the tax on the second sale until January 2021.

And depending on your level of gains, you may not pay a penny in tax.

Let’s say you have gains of £23,400 from your investments and you decide to sell all in one go. You’ll pay £2,340 in capital gains tax (£23,400 minus £11,700 taxed at 20%).

But if you spread the gains over two years and you sell £11,700 in March 2019 and another £11,700 after 6 April 2019, you will have no tax to pay. This is the power of planning. By failing to plan, you will pay £2,340 more tax than you should have.

Where your investments have not done well or have fallen in value, as the case may be for many crypto currency or bitcoin investors, then selling them before the tax year means that you get to crystallise any losses you’ve made which can then be used against any profits from your other investments or carried forward into future years. 

ABOUT THE AUTHOR

Jonathan Amponsah CTA FCCA is an award winning chartered tax adviser and accountant who advises business owners on entrepreneurial tax reliefs. Jonathan is the founder and CEO of The Tax Guys.

www.thetaxguys.co.uk

Filed Under: Accounting Tagged With: accounting advice, reduce tax

Are you making these mistakes and reducing your profit?

Posted on March 18, 2019 Written by Administrator

Everyone entrepreneur should be vigilant when it comes to managing profitability. However, many are not as clued up as they need to be when it comes to understanding profit and what factors impact profit both negatively and positively.

Let’s discuss some of the ways you may be unintentionally reducing your profit and how to avoid mistakes in future.

Bank balance accounting

As a business owner, you’ve heard the phrase “Cash Is King” so many times that it starts to feel like more cash means more profit. You then start to gauge the profitability of your business based on the bank balance. This is a common mistake I see so often. Here are 7 reasons why you might be making a loss in your business despite the cash in your bank account:

  • You have not paid your suppliers or other creditors
  • You have received advance cash from your customers
  • Payroll expenses have not been reflected in the accounts
  • You haven’t made adjustments for all expenses
  •  You have not taken any reasonable drawings or dividends
  • The cash is from last year’s profits
  • You are not paying yourself a reasonable salary

The above list is not exhaustive but covers the common areas where your cash will go. So, the next time your accountant presents you with accounts with less than expected profit figure, have a conversation and go through the above list together with other factors specific to your business.

Cost cutting in the wrong place

You realise the cash at bank is not yours and that you are not making profits. So panic sets in and you’re determined to cut costs to make profits. Here’s the thing though: Not all expenses will have a greater impact on your profits. A study by McKinsey and Co (global consulting firm) revealed that whilst a 1% reduction in fixed costs can have around 2% increase in profits, the same reduction in variable costs has a bigger 7% increase in profits. So instead of going for cost cutting at all cost (no pun intended here) conduct a cost benefit analysis and focus on variable or direct costs first.

Not understanding margins

This is an important indicator to profitability, but it’s vastly ignored or misunderstood among most entrepreneurs. The next time you get your accounts, take the direct costs of sales or direct expenses out from the revenue. Then divide that number by the revenue. That is your gross profit margin. Let’s say your revenue is £1,000 and your materials or direct labour or direct expenses cost you £700. The difference of £300 divided by £1,000 revenue gives you a margin of 30%. This means that for every £1 of sale, you are making 30p in gross profit. This tells you how profitable you are at the gross margin level. You can also compare this 30% to the industry average to gauge where you are at. If this margin is so low, then you’re unlikely to be making net profit because there won’t be enough to cover your overheads.

Losing profit margin

Having ascertained your profit margins of 30%, a common and huge mistake I see is as follows. You go to see a new project. You take your costs. Let’s say 1,000. What do you do next? You apply 30% to the costs. You then quote £1,300 for the job. Sounds familiar? And it makes sense, right? Well not quite. If you take your £1,000 costs from the £1300 revenue (price) you get £300. Now divide that by £1,300. You now get 23%. You’ve just lost 7% profit margin without even blinking.

And this mistake will make its way down to the net profit figure causing you to be less profitable year after year.

Fearing prices increases

Having realised that you’ve been under quoting for jobs or that your costs have gone up, another classic mistake is to put off price increases for fear of losing customers. Yes, you will lose some customers but let’s do some maths. Let’s say you have 20 customers and your price is £1,300 per customer. (£26,000 revenue) If you put prices up by 10%, your new revenue will £28,600. If you lose 10% of your customers (2 customers x 1,300 = £2,600), your revenue will revert to £26,000 but with two fewer customers and less resources needed to service the remaining 18 customers. And depending on how you approach the price increase and how you communicate it, you might be pleasantly surprised that less than 10% of your customers will leave.   

Avoiding even small increases

McKinsey studies also revealed that increasing pricing has a bigger influence over your profits than reducing costs or increasing sales volumes.

But here is what most entrepreneurs do not consider doing: Assessing the power of a mere 1% increase in price, 1% increase in sales, 1% decrease in variable costs and 1% decrease in fixed costs.

Next time you sit down with your accountant, ask him or her to run these numbers and show you the impact it will have on your profits. Would you lose a lot of customers due to a mere 1% increase in price?

Miscalculating the effect of discounting

You’ve quoted a price for the job. The customer says, “what can you do about the price” Do you get a knee jerk reaction and offer a price discounts to win the work? Let’s return to the above example (on margins) where you were making 30% margin on sales of 1000. Let’s then assume you offer a 10% discount. Your revenue drops to £900 but you’ve kept your costs the same. Your margins drop to 22% (£900 less £700 divided by £900) The 10% discount now means a 26.6% drop in your margins (the original 30% less the current 22% dividend by the original 30%. This is just the beginning because it gets worse if we look at the impact this will have on the bottom line (net profit margin), assuming you keep all your overheads the same. Were you intending to have a 26.6% drop in your margins by offering a 10% discount?

The point here is to be aware of the profit effect of price discounts and use it to negotiate a better win-win deal for all.

Lack of familiarity with key figures

One of the biggest mistakes is not knowing the profit numbers that matter in your business. Your gross profit margin, profit per staff, profit per client or project, net profit margin, breakeven number, your monthly costs and your prices are all important numbers to track and focus on. If you currently speak to your accountant once a year only to be told how much tax to pay with no access to your key numbers, then it is unlikely you will be able to improve on your results.

The good news is that with so many online accounting apps on the market, (FreeAgent, QuickBooks and Xero), entrepreneurs should no longer be flying blind in their businesses.

A final tip

In his book Profit First, Mike Michalowicz makes the case for opening another bank account and transferring your profits before you make payments to anyone. So, if you’ve worked out that your net profit on every sale is 10%, then a safe way to see and secure those profits is to transfer it straight away to your “profit bank account”. That way you are forced to make do with the remaining 90%.

To summarise

Profit is as essential to business as oxygen is to human being. Your business cannot hold its breath for long without it! Make sure you understand how profit is generated and impacted in your particular business. You can do what is needed to make your business as profitable as possible. 

ABOUT THE AUTHOR

Jonathan Amponsah CTA FCCA is an award winning chartered accountant and tax adviser who advises entrepreneurs on business and profit improvement. Jonathan is the founder and CEO of The Tax Guys.

www.thetaxguys.co.uk

Filed Under: Accounting

The risk of late payment for small businesses, by region, shown by new research

Posted on March 1, 2019 Written by Administrator

New research shows which regions are the highest and lowest risk for freelancers and small businesses when it comes to getting paid on time. The data of over 3million SMEs up and down the country has been analysed to provide this valuable information. In total 121 areas of the UK were scored and ranked based on how quickly businesses pay their invoices.

According to the Federation of Small Businesses, 58% of their members are owed up to £10,000 in late payments from their clients. 15% are owed between £10,000 and £20,000, and an incredible 27% are owed over £20,000 from their late paying clients.

Invoicing platform Solna, which undertook the new research on late payments, scored businesses from 1 to 5, based on their creditworthiness and ability to pay invoices on time. Businesses scoring 5 have the best credit rating and consistently pay on time, businesses scoring 1 have lower credit ratings and regularly pay late.

All scores were ranked to reveal the lowest and highest risk areas in the UK for late payments.

Late payments: Lowest risk areas in the UK

1. Lerwick
2. Aberdeen
3. Kirkwall
4. Hemel Hempstead
5. Redhill
6. Outer Hebrides
7. Swindon
8. Falkirk
9. Dorchester
10. Dumfries

Late payments: Highest risk areas in the UK

1. West Central London

2. Bolton

3. East Central London
4. Oldham
5. Luton

6. Birmingham

7. Darlington

8. Sunderland

9. North London

10. Romford

Remote Scottish islands home to most reliable payers

Some of the most northerly parts of Scotland come out on top, dominating the top 4 low risk positions. Towns in Surrey, Dumfries and Galloway, Hertfordshire, and Dorset make up the rest of the top 10.

Interestingly, the best freelance and business clients might be found off the mainland. Remote Scottish islands, including Orkney, the Outer Hebrides, and Shetland, are the most reliable for fast payments.

Late payment common across central London, the North, and the Midlands

Areas of central London, Greater Manchester, Yorkshire, and the Midlands made the list of least reliable areas. These towns and cities tend to be more densely populated with startups and SMEs, meaning more competition, more costly overheads, and possibly more reasons to delay payments to protect cash flow.

There is a combination of cultural, geographical, and economic reasons why people in more rural areas have better scores than businesses based in London and other urban areas. Businesses in a smaller community are more likely to pay their suppliers on time because they’re more likely to know them and becoming known for unreliability could be really damaging to their business in such a small world.

For small businesses and sole traders in the ten highest risk locations, dealing with late payers can be time-consuming and frustrating. Late payments can damage their cash flow and prevent growth, making it harder to win new business, and pay for essential resources. Financial stress can be emotionally draining for business owners and freelancers, affecting their ability to pay their business’ bills as well as their own. They also might be forced to let staff go, or even cease operations for good.

When a business delays payment because of cash flow issues, they create cash flow issues for their suppliers too. Those suppliers may in turn delay paying their own invoices and a downward spiral develops.  Given the uncertain climate created by Brexit, SME’s need to keep their eye on cashflow and preventing late payments. That way they’ll be in the best position to remain strong whatever happens after 29th March 2019.

ABOUT THE AUTHOR

Inna Kaushan is co-founder of Solna, a smart invoicing platform powered by credit score data. Solna speeds up the invoicing and payment process for freelancers and small businesses. Through leveraged credit data that is overlaid on the platform’s invoicing and reporting functionality, users get a clear picture of their customer’s financial health and their overall exposure to risk. The system’s automated credit control functionality automatically chases overdue invoices – freeing up time and ensuring faster payment.

Web: https://solna.io/

Twitter: @solna_io 

Facebook:@Solna.io

LinkedIn: Solna

Filed Under: Accounting Tagged With: Bookkeeping, invoicing, late payments, Solna

Identifying your business bookkeeping and accounting needs

Posted on February 28, 2019 Written by Administrator

We’ve all experienced the constant pressure of running a business. It’s one thing after another and naturally the attention goes to delivering to our customers.  However, as the end of the tax year approaches the reality of what is needed to complete a tax return hits home. Without the right processes in place you may find yourself in a tricky situation.

Only two things can help you ensure you don’t get into this pickle again – accounting, and bookkeeping. These are important financial processes that’ll assist you with financial control and end-of-year tax affairs. But they’re not the same thing, and it’s important you understand the difference as your business grows.

Accurate records

Bookkeeping is the process of keeping accurate records of business transactions. All financial transactions are recorded and stored in your ‘books’. Additional activities include verifying and recording invoices, paying suppliers and keeping receipts.

The bookkeeper’s job

A bookkeeper is a data entry professional. A bookkeeper’s role is to maintain accurate business records. The ‘books’ a bookkeeper maintains are then used by an accountant to prepare finance reports and file tax returns. Some accounting practices offer bookkeeping as part of their service, so everything’s under one roof.

Bookkeeper or DIY?

You can practice good bookkeeping yourself with software. There are a variety of tools out there, such as Rydoo. If you’re already on top of your books but are struggling to keep tabs on your invoices, you can track invoices with Solna.

If you prefer not to complete the bookkeeping yourself, outsourcing to a bookkeeper is the only option. Bookkeepers typically charge £50 an hour. Most freelancers will need three to four hours a month, so the outlay will be around £200 per month. If you earn way more than this then it makes sense to outsource to free up your time.

Presenting financial information

Accounting is the process of presenting financial information in various reports. A relevant example is the end of year self-assessment. Simply put, accounting is the art of presenting information in different forms, such as balance sheets and income statements.

The accountant’s job

An accountant is a finance expert who manages your tax affairs on your behalf. Your accountant exists to provide up to date monetary business advice and help you run a tax efficient operation. Bookkeepers, by comparison, crunch data. They don’t provide advice or assist with the creation of financial reports or tax returns.

The benefit of using an accountant

You don’t need an accountant to file your self-assessment tax return. You can do this yourself online in a matter of minutes. However, in doing so you run the risk of paying more income tax than you should. For example, you might not make proper use of your allowable expenses or setup a tax efficient payment structure.

Accountants are worth their weight in gold because they can advise you on the most tax efficient structure for your business. For instance, they might set up a PAYE scheme for you and note some payments as dividends. This is all complicated stuff if you’re not familiar with accounting – which is why you need an accountant.

Coming together

Whether you choose to take on a bookkeeper or do it yourself, it’s important you bring bookkeeping and accounting together. Both jobs are separate but the relationship between them should be close. Good bookkeeping makes an accountant’s life easier (and reduces your bill in the process) and good accounting ensures all your hard work is put to proper use when any financial reports or returns are created.

Don’t forget that many day-to-day tasks you might assume are covered by bookkeeping aren’t. Bookkeeping doesn’t send out invoices for you nor does it automate payment reminders if they become past due. And, while bookkeeping will help you make informed business decisions, it won’t track your customer credit scores so that you stay in the loop about their risk profile. For these tasks, you will need to use an automated system that can generate invoices, chase them automatically and allow you to check current and potential customers’ credit scores. It is good to know your invoices are being managed efficiently and where the risks of late payment may be.

ABOUT THE AUTHOR

Inna Kaushan is co-founder of Solna, a smart invoicing platform powered by credit score data. Solna speeds up the invoicing and payment process for freelancers and small businesses. Through leveraged credit data that is overlaid on the platform’s invoicing and reporting functionality, users get a clear picture of their customer’s financial health and their overall exposure to risk. The system’s automated credit control functionality automatically chases overdue invoices – freeing up time and ensuring faster payment.

Web: https://solna.io/

Twitter: @solna_io 

Facebook:@Solna.io

LinkedIn: Solna

Filed Under: Accounting Tagged With: Accounting, Bookkeeping, Solna

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