News and Blog

Common bookkeeping mistakes (and how to fix them)

  • Posted on: 30 December 2019
  • By: ali

Online bookkeeping software such as Xero, Sage One and QuickBooks have absolutely revolutionised bookkeeping for so many businesses. There is a danger though, that in making a lot of the traditional bookkeeping tasks so simple, they lead business owners to overlooking some parts of bookkeeping and accounting which are superficially similar but can have a huge effect on the ultimate profitability of the business.

It is absolutely vital to understand how everything should be recorded, and to ensure that everything is recorded correctly. Over the years I’ve been assisting business owners with their bookkeeping and accounts, I’ve come across some very common, and potentially damaging, bookkeeping mistakes, and have listed some of them below.

1. Revenue and capital expenditure will influence your profit and loss and balance sheet, if incorrectly treated your tax liability will be affected.
1.1. A revenue expenditure is assumed to be consumed within a very short period. An expenditure in the ordinary conduct and administration of your business. Example: rent,
salaries and wages, carriage on salable goods, office day to day costs etc.
1.2. A capital expenditure is assumed to be consumed over the useful life of the related fixed asset. Items that are bought to assist in the running of the business and will remain in
the business for a long time – generally for more than a year. Example: property, plant or machinery, office equipment, furniture and fixtures or motor vehicles etc.
1.3. A capital expenditure (Fixed Asset) will generate a revenue expenditure transaction in the accounts known as depreciation. You reduce the value of the fixed asset over an
agreed period

2. Paying yourself will influence your tax liability if treated incorrectly, and accounting laws and procedures must be adhered to.
2.1. A Limited Company is a separate entity and all finances belong to the company. You must follow certain procedures
2.1.1. Pay yourself a director’s salary through PAYE, you must register your company with HMRC
2.1.2. Pay yourself a dividend payment from available profits, you must be a shareholder. Available profits after Corporation Tax. You must hold a board meeting to ‘declare’ a
dividend, minutes must be taken and keep a dividend voucher to show details of the payment.
2.1.3. Take money out of a limited company as a director’s loan, either by lending money to your company or borrowing money from your company. If you owe your company less than
£10,000 you may have tax consequences if not repaid within 9 months and 1 day from the company’s accounting year end date. Your company will be liable to Section 455 Tax
at 25%. If you owe your company more than £10,000 you will have to declare the loan on your Self-Assessment tax return. The company will then have to pay additional
Section 455 Tax at 25%.
2.1.4. Take money out of a Limited Company as expenses. There may be times when you have paid for a business expense out of your own pocket, but you can reclaim this money
from your company by keeping the receipt and completing claim forms. These expenses can be reimbursed to you every month or at any other interval that is convenient. Every
year you should complete a form P11D to show how much you claimed in expenses and you must include the expenses in your Self-assessment tax return, otherwise, you will
be taxed on this money.
2.1.5. A Sole Trader and Partnerships will not be eligible to pay themselves through PAYE, when they take money out of their business it is accounted for in the Profit and Loss
(Revenue less expenses).

3. Underutilising your systems and reporting can be detrimental to your business; you may not be able to predict where your business is heading, and bad decisions are often made.
There are good online accounting systems, time and effort to understand what financial information is crucial for you to know about your business, you can set up your accounting
system to record the information useful to you. You may wish to ask to advise on what is available from your existing system, or maybe it is time to look at something new.
3.1. Different revenue groups for your goods or services
3.2. Costs incurred against each of your revenue groups
3.3. How much profit and money are you making on each of your revenue groups
3.4. No key performance indicators

4. Inaccurate and late accounts can have a catastrophic effect on your business, I have seen too many businesses either making incorrect decisions or no decisions quick enough, too
much money has been taken out of the business which they cannot afford or could have made capital expenditure decisions within a Company Tax Year that would have been more
tax efficient. Late account filing will incur additional costs in penalty fines. Know when your accounting filing deadlines are and ensure you keep accurate and timely records.

5. Leakages commonly happen when businesses continue to have one, many or all the following: -
5.1. Direct debit or Standing order payments paying for services you no longer need or have.
5.2. Not reviewing your costs and prices, not all suppliers will notify you of price increases, they just happen and not on your radar
5.3. Stock held for products to re sale, there is a danger of holding too much stock that is not moving quick enough to generate cash for you. Lead times for selling products can be
tricky to get the right balance.
5.4. Manufacturing raw materials wastage can be higher than you would like. Reviewing your order book and getting good prices on your raw materials to meet your gross profit
margins you require. How much off cuts will you be left with; can they be used on other jobs?
5.4.1 Work in progress (WIP) refers to partially completed goods that are still in the production process. The value of the WIP is typically measured at the end of an accounting period.
To assign a valuation to the amount that is on the production floor. Raw materials, labour and overhead costs incurred for products that are being manufactured.

I genuinely hope that this article is helpful. The list is by no means comprehensive, but in my experience, these are some of the most common mistakes. Importantly, if you are confused by any of the numbers in your business, or how you should account for them, it is vital that you seek guidance from your accountant or bookkeeper.

When should I send my invoice?

  • Posted on: 25 November 2019
  • By: ali
When to send my invoice - illustration

Over the years I’ve been assisting business owners with their bookkeeping and accounts, one of the most common questions I’ve been asked is “when should I send my invoice?”.

The people asking me usually to mean - should I send my invoice as soon as I’m contracted to do the work, once I’ve finished, or at some other point. The reality is, the answer often depends on what has been agreed between you and the client, but I’ve put together a best practice checklist of what you should do before you invoice, and what you should include on the invoice to ensure it gets paid quickly.

Firstly, if you invited to supply a quotation or estimate, you should always do the following:
Invitation to quote following discussions
1. Check their Company status – Sole Trader, Partnership, Limited Liability Partnership or Limited Company
2. Confirm their company name – e.g.: Blogs Limited or Blogs Limited Trading as Red kite Bathrooms
3. Ask for their Registered office address and company registered number if a Limited company or Limited Liability company. Company registered office number and if England or Wales
4. Do they have a separate trading and or invoice address?
5. What is the contact name, email and phone number of the person(s) wanting the quotation?
6. Understand your client’s invoice to payment process – who is responsible for authorising and making payment
7. Agree pricing and terms and conditions of trading. Short payment terms get you paid quicker

Any quotation itself should include the following:

Quotation
1. Ensure addressed to the correct company name and address and have an expiring date if appropriate
2. Credit check the company you are proposing to do business with
3. Follow up with the person receiving the quotation to ensure you have managed and understood their expectations of the pre quotation discussions
4. Use quotation and invoicing sooner rather than later

Invoicing
1. When the job is completed
2. Ensure you have the correct company name and address
3. If you are a Limited company or Limited Liability company show your registered number and address on your invoice
4. Show your VAT registration number if registered on your invoice
5. List a due date
6. Include payment types accepted and your bank details
7. Consider late payment fees to encourage your clients to pay on time
8. Send invoices electronically
9. Follow up with the person receiving the invoice to ensure they are happy with the invoice and the goods or service you have supplied. This gives you a chance to clarify when the invoice will be paid

What do many business owners underestimate?

  • Posted on: 14 November 2019
  • By: ali

I know that so many business owners under estimate just how powerful proper, intelligent bookkeeping and reporting can be. They record their revenue receipts and payments made, pay themselves and hope they have enough money to pay their taxes when due - this may be VAT if registered, corporation tax if a Limited Company payable at 9 months after their year end, or personal tax if self employed.

I hear too often business owners wondering why they are working very hard, making sales but still have no money. This can often lead to them becoming insolvent or at the very least causing them health and relationship issues due to the pressure they are under.

What would it mean to you.....
to truly understand your numbers, so that you can predict where your business is going?
not to worry about getting over any hurdles (because you know they're coming)?
to understand where to put your focus so your business makes the profit and income, you deserve?

I would like you to think about what financial reporting and information is important to you to enable you to make the right decisions?

The people I work with are trained to truly understand their numbers which help them make more profit and sleep better at night. If you would like to know more, or would like to book a review of what you currently have in place please contact me on 01793 915050, 07403 216682 or email alison@fiscalservices.co.uk

What is Cash Flow and why is it important to your business?

  • Posted on: 13 September 2019
  • By: ali

Cash flow is the money that moves within your business each month – into and out of your bank accounts. It includes the money paid to you by clients/customers and the expenditure that your business needs to pay out on and is very important to the future of your company.
When something stops that cash from moving it can have a negative impact on your business. This may not be your fault. For some companies, goods/services are paid for upfront such as restaurants or some retail shops, however, many small companies are paid after their work has taken place and if they miss out on a payment from a customer there could be serious knock on effects to the people that they have to pay.

Having a lack of cash is one of the biggest reasons that a business fails and must be shut down. Running out of money is the quickest way for a business to cease trading because there is not an adequate amount of financial reserves to turn to whenever there is a problem.
There are many steps that a business owner can take to ensure that cash flow never becomes a problem for them, or if it does become a problem that you can trace where it started and fix the issue.
The first step is to create a budget and cash flow forecast. The budget is a financial plan that shows you the income and expenditures of your business. This gives you an overall picture of the cash flow for the month that the budget is prepared for. A cash flow forecast goes into further detail and will show the business owner whether the business will need to borrow money further down the line as well as how much they will need and how long it will take to make the repayments.
The next step is to make a list of anyone that may owe your business money. This is particularly important if your business does not take payment straight away. If you find that you are having cash flow problems, creating this list will help you to find out who is late in paying you.

You then need to make another list. This one is who you owe money to and whether you are behind on any of your payments. Not only does this have an impact on your cash flow, it will impact the cash flow of those you owe money to.
Creating these lists each month will help you work out who your slow payers are. Slow paying customers can cause a business significant financial strain and if it is happening every month it is best to find out why. Do your payment terms need to change? Do you need to give them a reason to pay early? This could be a small discount. On the other hand, do you have late payment fees in your terms, or do you need to add them? By working with your slow payers, you are improving your monthly cash flow. The slightest change can make things easier for them and you.

Cash flow problems do not necessarily mean that there is a problem with your finances, just that you may need to change the way you are approaching your finances may need to change and this is where your accountant can help you:
1. Take a fresh look at your accounts
Your accountant can identify any financial areas that need to be changed within your business. These could be areas that you missed when looking the first-time round. They will be able to point out where you are wasting money and where to make changes that will increase your finances.

2. Create better financial forecasts
One of the reasons that businesses suffer with cash flow issues is due to bad financial planning. The accountant will be able to create you a more in-depth forecast than you can create for yourself. This forecast will give you more accurate data to work with on where you need to spend or save money next in your business.

3. Plan for the Tax Year
By forward planning and having the help of your accountant, you can ensure that your VAT and Tax returns are completed on time and correctly. They can then make sure that your payments are accounted for throughout the year to ensure that your business cash flow isn’t negatively impacted at the end of the financial year.

4. Encourage you to keep your books updated
Whilst it seems like a pretty obvious statement, working with an accountant will help you to keep your accounts up to date, therefore making it easier to see where any cash is coming from and where it will need to go.

5. They are the professional with the new perspective
When you own your own business, keeping your books can be really overwhelming especially if it is not something that you are used to doing. Bringing in a professional like an accountant will help you to view things with a new perspective that can help you to turn any cash flow problems around.

Cash flow is very important for your business and whilst there are some ways that you can keep on top of it yourself, the better route to take would be to ensure that you have an accountant on board that can prevent any financial issues by creating you detailed documents to keep track of your money.
If you want any more advice on how an accountant can help you with your cash flow and forecasting, get in touch with Ali on alison@fiscalservices.co.uk

Why do you need a Management Accountant?

  • Posted on: 22 March 2019
  • By: ali

Many businesses already have an Accountant and often wonder what a Management Accountant is and how working with one can help their business finances stay secure.
Every business no matter how small or how big, will have a financial story to tell but will not know how to ensure that their business is on the right track to keep their business on the right road. 


 So, what can a Management Accountant do for you? 

There are many differences between an Accountant and a Management Accountant, but the biggest difference is how they work. A Management Accountant will sit with you and work through:
 • Profit and Loss Accounts
 • Balance Sheets
 • Budgets and Forecasts. 

 They will tell you about your business to help you make those decisions that may seem scary but that will allow your business to grow in Profit.
A Tax Accountant will tell everyone else about your business rather than talking to you, so they will talk to the banks, the credit agencies and HMRC. 

 Why should I choose a Management Accountant? 

Having monthly discussions with your Management Accountant will allow you to see any issues straight away within your business, allowing you to choose the right route that your business needs to take. 
With the Management Accounts updated regularly you will have the accurate information that you need which allows you to plan for your future, put any money for your VAT and any other tax liabilities meaning that you can avoid those nasty surprises that pop up in business. 

Having the correct data is critical for any company that wants to be successful. Without the correct accounts that you need your business will not grow to the level that you want it or to be able to plan for the future. Management Accountants can help you to plan for any surprises and hiring one will be the best thing you have done for your business in a long time!

Kick Start your Finances to Improve Profitability

  • Posted on: 2 December 2013
  • By: zenno

WHY? For Financial Stability to allow you to Pursue Opportunities and Take Appropriate Action


Wheel of Profitability - From Budgets and Cash Flow Forecasts to Greater Profitability


Steps to Improve Profitability - Review your Accounting/Finance Department processes, Your Clients and Credit Control procedures


Top Tips on Profitability - Looking at your Costs, Pricing and Customer Invoicing


Review - Cost Reduction, training and Financial Risk Assessment


Accounting Options - Outsource, Training and Software packages


ACCURATE ACCOUNTS REDUCES ACCOUNTANCY BILLS AND HELP YOU TO AVOID NASTY SURPRISES


Management Accounts - HOW PROFITABLE WERE YOU LAST MONTH?