Accounts are essential to any business, but many small business owners struggle with them. In the early days of a new business, the main focus is always on tackling the day to day issues. Every day brings new challenges, and keeping accounts will hardly be the top priority. Over time, business accounts can be ignored or forgotten. While this is understandable, it is also a mistake. Good business accounting relies on keeping good records. If you fail to keep a track of income and business expenditure right from the beginning, things can easily spiral out of control.
Without decent records, tasks such as filling in your tax return will be difficult and time-consuming. Fail to pay the right amount of tax, and the tax man is allowed to beat down your door to recover the balance. Once you reach the level of turnover where VAT becomes involved, the complications multiply.
There are a number of accounts-related areas that you need to be aware of in order to run your small business effectively. Here is a brief overview of just a few of them:
An invoice is a formal record of a transaction between two parties. When you deliver goods, or provide services to a customer, an invoice is provided in order for them to pay you.
Invoices need to contain certain pieces of information for VAT or tax purposes, and to ensure the customer is able to pay you without delays. These include a unique identification number, issue date and name and address of your business. You also need the customer’s name and address, a description of the goods or services, the price and the payment terms.
An integrated accounts system can simplify invoicing, reduce your accounts workload, and improve your financial record-keeping. QuickBooks by Intuit is rated the foremost cloud-based accounting software for small businesses.
This is an account of the money coming into and going out of your business. Cash flow can be a complicated calculation. The problem is that you may be selling something one month, and being paid for it in one or two months’ time. Similarly, you may obtain materials for your business one month, and pay for them next month and so on. Without tracking your cash flow, it will be hard to see whether your business is being profitable or not.
Profit and Loss Account
Otherwise known as a P&L, this is a statement of your income, expenditure and profit. A P&L usually covers a single period of time, and is therefore a snapshot view of the state of the business at the time it was prepared. Most businesses have peaks and troughs of profitability throughout the year – a good example is retail businesses at Christmas. Looking at a single P&L can never give you a full picture of the state of the business. It is usual to compare several P&Ls to give a wider view.
A balance sheet is an overview of the book value of a business. It compares the value of liabilities with the value of assets at a single point in time. There are many complexities in preparing a balance sheet. Decisions such as; are assets are ‘fixed’ or ‘current’, and whether there are hidden assets such as goodwill or valuable brands within the business, make the job difficult.
Accounts – don’t leave anything to chance
Proper business accounts are too important to be left to chance, and everything relies on record-keeping. Don’t struggle with accounts on your own; professional advice is readily available, and affordable, and really can keep you out of trouble.
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