Your Helping Business

Records & Accounts

To understand and monitor how your business is performing you need to keep records. This is vital and an area where, by not doing so properly, you could lose a lot of money.

How so? Well it’s all to do with tax, how much tax you pay either as a Sole Trader or a Limited Company because everything you spend in order to operate your business, market your offering, deliver it, and comply with any regulations is chargeable against tax.

What this means is that all these ‘expenses’ are deducted from your income before the amount of tax you have to pay is calculated.

Rule No. 1 is to keep all your receipts and all your invoices and print records of all your online purchases for anything that has anything to do with the business.

You have the paper records, and ‘back in the day’ all of that information would have been entered, by hand, into a ledger, added up, balanced out and the amount of profit – excess of income over expenditure – calculated for submission to the tax authorities.

Now of course it is simpler. We use computing power instead and there are three approaches to how you might do this.

Some people will collect and keep all the paperwork and then at the end of the year hand it all over to an accountant or bookkeeper to get it all into shape and prepare a tax return. This is course is a very expensive way of doing things and not recommended at all!

Second, you can subscribe to one of the popular on-line accounting systems that are regularly advertised. Some of these allow you just to scan in your paper receipts and so forth maybe using your phone and have other simple ways of entering the data.

There are some drawbacks to this, one being that there is a monthly subscription which according to the size of your business can be quite high and if you fail to pay for any reason you lose access to your data!

I’ve tried several of these systems and found them to be rather inflexible. First, if you make a mistake it’s very difficult to correct it – you usually have to ‘delete’ or ‘void’ the transaction and do it again. (the ‘deleted’ entry doesn’t actually go away).

Also most of these systems seem to be designed for a ‘standard’ or ‘typical’ business but of course there is no such thing. They are certainly not designed to cope with coaching or therapy businesses!

You will have to make compromises about how you classify your income and expenditure to conform with the ‘chart of accounts’ that they specify.

The third way is to ‘do it yourself’. Now this isn’t difficult, but it is more time consuming than using an automated system – but you can tailor it to exactly what you want.

The Personal Business Creation System gives you all the necessary templates and shows you how to use them and these feed into an HMRC compliant spreadsheet suite that is updated each year in accordance with any tax changes

Whether you use an automated or a ‘diy’ system and do all the data entry in this way it can save you around £1000 or more a year in accountancy fees and gives you a clear idea on a regular basis of how your business is doing.

It is possible to use the diy system without going to an accountant, but it is nevertheless essential for you to use a professionally qualified Chartered Accountant to review your figures before they are submitted to the taxman.
Your accountant’s job is not to ‘do your accounts’ (enter all the data and so on), but to save you tax! When you use an online system, it can be linked to your accountant, so they can see what is going on regularly and advise you on what you need to do or not do to become tax efficient.

Working Capital

All your operational expenses and costs require a fund of money flowing through the business that is not part of the set up cost or original investment.

It’s called ‘working capital’.

Basically this means that you must have enough money in your bank account to ‘keep the business going’ in the potential absence of any sales income coming in. This is particularly important in ‘seasonal’ businesses.
And it’s not just the costs of running the business, it’s your personal income as well. If you do pay yourself a salary, then you need to factor this in. It may be that you don’t take any money out as income but charge it to the DL account (see below) as money reinvested – but it all depends on your personal circumstances.

Lack of sufficient working capital is one of the key reasons why businesses fail. They, and their owners just run out of money.

Plan to avoid this happening.

Fixed Assets

There are some ‘things’ that your business needs that you purchase once and are used for some years before they need replacing, and some of course might not.

Relevant ‘Fixed Assets’ would include:

• Computer equipment including mobile phones used exclusively for the business
• Uniforms, workwear, safety clothing etc.
• Fixtures and fittings including office furniture and the like

And so on – anything used on a continuing basis; and this includes things like reference books bought for training and development purposes or needed in the delivery of any service.

Fixed Assets are treated in a special way.

First, the cost of purchase is deducted from your profit figure and then there is what is called a ‘depreciation’ expense, and different types of assets have different standard rates of depreciation allowed by the tax authorities.
Computer equipment for example is depreciated at 33% each year so if you buy a computer in year 1 that costs £1000, in year 2 £333 is charged as an expense in your accounts as its ‘value’ depreciates.

It’s a false economy to buy ‘cheap’ poorer quality equipment, it still depreciates at the same rate, but you’ll probably have to replace it sooner before you get the full benefit of depreciation.

When you purchase your business equipment you need to be mindful as well of the workload that the kit is likely to need to endure. What is appropriate now at the beginning may not be able to cope as your business grows.
Work out early on what you need in terms of ‘kit’ because you don’t want to find yourself in a position where you don’t have the equipment to do the job.

Expenses & Costs

One of the things you need to do with your business accounts is to separate out ‘expenses’ and ‘costs’ because these are not the same thing.

It’s quite simple though.

Costs are what you spend that is directly attributable to delivering a specific product or service. It may be items like course materials if you are providing them as part of a training or coaching programme or any supplies that are ‘used up’ as you deliver a service and without which you could not deliver the service. Costs also include all products that you buy for direct resale and these are referred to in the accounts as ‘Stock’.

Expenses are everything else, including things like fees, training and education (or ‘CPD’), insurance, heating and lighting, telephony, IT, and anything that cannot be directly attributed to a specific sale.

This topic is covered in detail in the Personal Business Creation System.

Consumables

As well as equipment you may need to invest up front in stock if you sell or resell a product and also if you’re providing a service that has product content.

Like the Cash Flow Forecast it’s a good idea to generate a similar stock rotation forecast predicting how much you will need to fulfil your expected orders, especially if your business in in any way ‘seasonal’.

Similarly, with supplies – these are consumables like paper and printer ink, advertising materials such as flyers and so forth, and business cards.

So many times, I encounter business owners who have “run out of cards” and have to put their details on a scrap of paper – what does that do to their professional credibility?

As opposed to stock, supplies are materials that may be consumed in delivery of a service or product but cannot be directly attributed to any single delivery – cleaning materials for example.