You may not technically need an accountant from your small business. It is, however, very likely that your small business will benefit greatly from having access to accountancy services.
Here, Rogers Spencer, specialists accountants in Nottingham, shares four of the key points to consider when thinking about hiring an accountant or accountancy service.
How much work can a bookkeeper do?
Day-to-day record keeping is usually handled by bookkeepers rather than accountants. In fact, these days, software usually handles the bulk of it. Human bookkeepers just provide oversight and manual intervention as needed.
Staying on top of your regular bookkeeping has numerous benefits. One of them is that it will make it easier and hence quicker for an accountant to grasp the financial state of your business. They can therefore get straight to the point of giving you meaningful financial advice.
Many accountants and accountancy services will offer bookkeeping services as well. If they don’t, they can often give referrals to reliable bookkeepers. They can also help you get the most out of accountancy software. This is generally very straightforward to use. You will, however, probably encounter the occasional tricky situation and need support to deal with it.
How confident are you with tax returns?
On the one hand, accounts do a lot more than just ensure taxes are filed correctly. On the other hand, making sure that taxes are filed correctly is one of the most important jobs in accountancy.
If you’re small enough to use cash-basis accounting and are not VAT-registered, then you will have minimal scope for error if you file your taxes yourself. With that said, however, if you file your taxes yourself, you could miss out on ways to minimise your tax liability (entirely legally). Using an accountant can pay for itself in the savings you make.
If you’re either VAT-registered or using accruals accounting, then you have a lot more scope for making errors. This in itself means it’s hugely advisable to have an accountant file your taxes for you. On a similar note, you’re likely to have a significant tax liability no matter what. It does, however, make sense to have an accountant look for ways to minimise it.
As a final point, an accountant will also be able to advise you on what documents you need to supply to HMRC. They’ll also tell you what documents you need to keep, for how long, and in what format. Generally, HMRC is quite happy to take clear scans but sometimes they still want original paper documents.
Avoiding and managing audits
If you file your taxes incorrectly, even by accident, you may find yourself on the receiving end of an HMRC audit. If you do, then you need to cooperate fully with it. This includes providing them with any documentation they require.
Having an accountant file your taxes for you reduces the likelihood of errors. This means that you’re much less likely to be audited. What’s more, if you happen to be picked for a random audit, then you’ll be in a much better position to handle it.
Do you understand the implications of company structures?
You probably know the definition of a sole trader, limited company, and public limited company. Do you, however, really understand what they mean in real terms? More specifically, do you understand what they mean for you both now and as your business moves into the future? Even if you’re a solopreneur, it may be better for you to operate as a limited company.
There are three main reasons for this. Firstly, operating as a limited company means that the business’s financial affairs are kept entirely separate from yours. With a few exceptions, you cannot be held personally liable for any claims made against your business. For completeness, running a limited company is not a substitute for proper insurance but it can complement it.
Secondly, running a limited company may be more tax-efficient than operating as a sole trader. Thirdly, it can offer a lot more flexibility both in the present and in the future. Even if you’ve no plans to grow and go public, it may happen anyway. Alternatively, you may simply be looking for a straightforward way to keep the business running when you are ready to move on.
On the flip side, it can sometimes be worthwhile to move out of a limited company structure and work as a sole trader. For example, if you are moving into semi-retirement, you may benefit from the relative simplicity of this option. An accountant will be able to set out your alternatives and guide you through the pros and cons of each so you can make an informed decision on what’s right for you.
Are you comfortable making plans and forecasts?
At the end of the day, a lot of success in business essentially boils down to the ability to predict what will happen in the future. This is an area where two heads can be better than one. You will probably know your business sector and have an idea of what the future holds for it. Realistically, however, you are less likely to know overarching financial, business, and economic trends.
This is where an accountant can be extremely useful. It is literally an accountant’s job to deal with finance. Part of this means keeping on top of relevant trends and upcoming legal changes, for example, changes to taxation. The nature of their job means that they are also likely to have extensive knowledge of general business and economic trends.
Furthermore, accountants will also understand what people are likely to want to see when assessing your business. Even if you have no intention of seeking financing or investment, you might want to use your business’ financial documents as a reference point for the future. You might also want to use them to get advice from other people.
It’s also advisable to be prepared to seek investment and/or finance even if you’ve no current intention of doing so. Essentially, it’s another instance of being prepared for the unexpected. In other words, it’s better to have the records and not need them than vice versa. Similarly, having a credible record of your business’s finances can be useful if you need to make an insurance claim.
