If you’ve built up your own small business from scratch, you probably know your sector inside-out: you will understand the industry, your customers and the products and services on offer like the back of your hand.
However, when it comes to taxes, accounting, bookkeeping and finances in general, it’s a whole different ball game. Handling the accounting side of the business can turn into the bane of your life. If you feel this way, you’re not alone, as plenty of small businesses struggle with managing their finances.
The fact there are so many different aspects to be covered can make running your own business a bigger challenge than anticipated.
Failing to grasp accounting is the number one reason why many small businesses collapse. Unfortunately, 82% of failed small businesses cited not managing their finances properly as a key reason for closure.
This is why small business owners often turn to a professional for guidance – it never hurts to have an experienced accountant on board. They can take care of things such as tax returns, cashflow projections, invoicing and good financial practices in general.
According to research, 55% of small business owners say they employ an accountant or bookkeeper to help manage their finances. However, this means 45% of respondents are still trying to manage without help.
Of the companies that use the services of an accountant, 22% employ an outsourced accountant, either full-time or part-time.
Benefits of employing an accountant
When you’re starting out in business, you’re likely to be doing everything you can to save money. For many entrepreneurs, this means opting out of the expense of traditional office space in favour of coworking space. Working flexibly, when you need to, is a big advantage for small businesses. According to research, freelancers account for 41% of the workforce in coworking spaces.
For a lone worker setting up a new venture, it’s all about saving money – but it can actually be a false economy if you don’t let a professional accountant handle your financial affairs.
An accountant can understand the true value of your business and help it to grow. You need this knowledge so you can plan for the future. An accountant can also identify tax savings; identify potential issues; ensure you practice good financial habits; provide strategic guidance; and obtain any additional funding for your business.
If you’re contemplating a company restructure to create a more efficient model, including improved tax efficiency, an accountant will be able to advise you on exactly how to proceed to achieve the most profitable option. They will also assess whether any plans you have are financially viable.
If you decide to go ahead with changes, your accountant can help you every step of the way, dealing with everything from payroll to taxes. You don’t even need to meet with them that often. Build up a relationship that enables you to meet in person once a month, or once every quarter, to keep up to speed.
Consequences of inaccurate accounts
Keeping good accounts is vital for a small business. If they are poorly managed, the consequences can be far-reaching. Studies show doing the accounts is one of the most time-consuming tasks a company owner has to tackle. It also has the biggest potential for errors.
Research among small business owners who do their own accounting shows many of them describe “dreading it”, or “putting it off”. Balancing the books can detract from the important task of running and expanding your business.
If your accounts are inaccurate, not only will it give you a false picture of how your business is performing, but it can also lead to problems with HMRC. This in turn can lead to financial and other penalties if your tax returns are incorrect. In the worst case scenario, your business could end up going under.
Common financial problems
Among the most common errors with tax returns are failing to claim back overpaid tax, not checking your tax code and missing the deadline for tax returns.
More than one-third of small businesses describe “unforeseen expenses” as their top financial headache. Employing an accountant can actually help the growth of your business – the added expense can be offset by the savings they can make for you.
According to statistics from the Small Business and Finance Report, 87% of small businesses who employ an accountant describe them as a “trusted advisor” whom they can call on for many different aspects of business advice.
You will be better prepared to take your business forward with the assistance of an accountant, while avoiding the stress that doing your own bookkeeping can cause.
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