Businesses of all sizes must “balance the books”. Although keeping up to date financial records may be the task business owners dislike the most, it’s not something you can or should avoid.
If you want your company to run efficiently, not to mention legally when it comes to the tax office; balanced books are crucial for providing business owners with the information they need to make sound forecasting decisions.
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Benefits of balancing the books
Expanding your business, purchasing large items and taking on new employees are all dependent on whether your bookkeeping is giving an accurate picture of your company’s finances.
Keeping your books balanced can help you to make educated financial forecasts months into the future. It can also alert you if there are any problems on the horizon in the shape of potential financial gaps.
Having an accurate accounting insight can help you to save your business in the event of things getting tough. It can alert you to your most profitable products or services, where you can make cost-savings and where you should be making changes to your business practices.
Why do businesses dislike accounting?
One reason balancing the books is often put on the back burner by small businesses is that owners find it “intimidating” and “tedious”. According to surveys, 40% of respondents claim financial management is the toughest part of operating their business.
However, when accounting errors occur, it can prevent your small business’s growth, leaving you on shaky ground. If errors occur when it comes to tax returns to HMRC, in the worst-case scenario, it can leave you subject to financial penalties if they are submitted late, or contain inaccurate information.
According to research, around one-third of small businesses hire the services of an accountant to make sure their bookkeeping is done correctly. The business owners who try to do their own bookkeeping say they can’t afford the services of an external accountant.
Pitfalls of doing your own accounting
It could be a false economy thinking it’s cheaper to do your own accounting. It might save some money in the short term, but you must weigh up the pros and cons of keeping your books up to date.
While each business is different, it’s a fact that you will spend a lot of time balancing the books if you do it yourself. It will detract from your job of running and growing your business. You may think of plenty of other things you can be doing in the time it takes you to complete your paperwork.
Research shows 48% of sole traders are looking to grow, so with this in mind, you need as much time as possible to work on this. In addition, your paperwork will need to be correct to enable you to assess progress.
Surveys reveal 27% of companies have admitted to making accounting errors when it’s handled in-house. The most common errors include manually inputting incorrect data, deleting customised Excel formulas by mistake and inadvertently overriding crucial system data.
Benefits of an outside accountant
Businesses of all sizes who employ an outside accountant see them as a trusted business adviser. Appreciation for their accountant is something all businesses share, with 72% of small and medium-sized businesses indicating the “strong importance” of their role in running the company.
A poll of the most popular services obtained by SMEs from external accountants reveals 65% view accounts preparation as the most important service. This is followed by tax services (62%), bookkeeping (32%) and audits (28%).
Sole traders are the most unlikely to use external accountants – only one-fifth employ the services of an accountant. In contrast, 50% of all medium-sized businesses in the UK have had assistance from an accountant.
As the business grows, it is more likely to call in the services of an accountant, especially when it comes to audits. More than two-thirds of medium businesses have employed external accountants to carry out an audit.
Reaping the rewards
Once your business is operating with accurate books, you’ll reap the rewards that come with it. If the language of accounting seems intimidating and complex, or you’re the sort of person whose financial records consist of a box of receipts, you’re likely to benefit from hiring an external professional accountant.
Company accounts are going to be even more of a challenge as furlough finishes at the end of September. It’s vital to ensure your business is on a sound footing financially in readiness for life after furlough.
Preparing now for the return of employees is important to ensure a smooth transition. You should be reviewing your sales and revenue figures, as you need to forecast what will be coming in from 1st October. Work out how it will affect your financial position to pay your increased salaries when the government assistance ends.
Get in control of your cashflow, as this is critical as the end of furlough approaches. Here at DL Accounts, we can help you to balance the books, both now and when business gets back to normal. Please contact us for further information about our professional services.