According to a recent study, 40% of small business owners said that bookkeeping and taxes are the worst part of running a business. This is completely understandable. Not only is bookkeeping and accounting outside the comfort zone of many a successful entrepreneur, but the reporting requirements and need to interact with government agencies and external advisers can be overwhelming.
When you start a business, your focus will initially be on the product or service that you are providing, not on the record-keeping requirements that go with it. Sadly, whilst it would be nice to just ignore them, not only are they essential to make sure that you business operates successfully, but also you can get into serious trouble with government and financial authorities if you ignore your legal responsibilities in this area.
Keeping good records not only enables you to keep track, at a glance, of the financial health of your business, but provides you with the data you will need to supply to the government in terms of annual returns and, if you are registered, VAT returns. There may also be a requirement for your business to be audited annually by an external firm. Having good records will not only make the audit process less painful, it could also save you money in audit fees.
Whilst teaching yourself bookkeeping and accounting can be a very good way of making sure that you are always in close contact with the health of your business, it can also take up a lot of valuable time and increase your stress and workload.
Consider instead outsourcing the accounting and bookkeeping to a professional accountant. Not only will this free up your time so you can concentrate on running the business, but it will relieve your stress knowing that you have delegated this important function to somebody that understands the rules and requirements associated with it. For example, there are rules about when you can recognise revenue or account for expenses, differences between balance sheet and profit and loss items and how they should be treated, and other accounting conventions which a novice may find hard to grasp.
There is also the reporting side. Depending on which country you are in, the legal structure you have chosen, whether you employ staff or not, or are required to register for VAT, there may be a host of local statutory reporting requirements, returns, declarations and payments to be made. You may be required to register with the local tax, VAT, Social Security and municipal government departments, who may require monthly, quarterly or annual returns from you. Do you feel comfortable handling these, and are you confident that you can produce easily the information required? Better perhaps to delegate this to somebody with more familiarity as to what is required than you.
Remember that local government and/or state employees do not care if you are unfamiliar with the rules, have accounted for something incorrectly or are so overburdened by work that you miss their deadlines. They expect returns to be made on time and in full, and any payments due to be paid promptly. Missing a deadline, paying late, or failing to complete a declaration correctly may result in fines or other penalties, including criminal sanctions in some jurisdictions.
Outsourcing your accounting to a suitable professional can also help you get a better grip on your expenses, and accounts receivable which is one area where many small businesses have problems. The preparation and issue of invoices can be a time-consuming problem, but is hugely important if the business is to generate the cash it needs to survive. But that is only half the battle. It is a sad fact that many businesses struggle, or fail altogether, because clients are either late paying their invoices or simply do not pay at all. If you are a large enough business, you can probably absorb a few days’ late payment or the occasional bad debt. Not so for a small business where every cent may be vital, and where late payments could mean that payroll and supplier obligations cannot be met. An experienced accountant can not only help with the issue of invoices but will use credit control procedures and other ways of ensuring that those invoices are paid, and on time.
In addition to the need to keep accurate and up to date records for monitoring the state of your business and meeting statutory reporting requirements, you may also want, at some stage, to try and grow your business by applying for a bank loan or overdraft, or by seeking investment from a venture capitalist or business angel. In such circumstances, you will need, without fail, to create a business plan – nobody is going to advance you any money without one.
A successful business plan needs to be a professionally produced document, which contains enough business and financial information to convince a potential lender or investor that you are a safe enough bet to lend money to, and that your business is viable. It would be very hard for you to produce such a document without the help of an accountant, especially when it should be borne in mind that banks and investors are far more demanding than they used to be, and more risk averse when it comes to lending money. There may also be a due diligence process whilst the loan or investment is being considered, during which the bank’s or investor’s accountants or loan officers may ask a series of technical questions about the business and its finances, or need additional information before they will proceed with the application. Not only can an accountant handle such matters for you but also help give comfort to the bank or investor that their financial investment will be in good hands if the funding is provided.
Delegating the accounting and bookkeeping to an accountant does not mean you have to hire a full-time employee, with all the financial and legal obligations that imposes. Hiring a consultant for a few hours support a week or month can be a much cheaper alternative, giving you immediate access to their knowledge and skills, whilst retaining the flexibility of only paying for the time they spend and work they do for you.
Accounting, bookkeeping and the statutory and financial reporting that goes along with it can undoubtedly be a strain for many small business owners. Yet maintaining accurate records is an important component of any successful business, enabling owners/managers to make the right decisions based on the right information.
Hiring an accountant, even for a few hours’ support a week or month allows small business owners to delegate a time-consuming and complex part of the business to an expert who can maintain the accounting records accurately, handle the internal and external reporting, and assist with key tasks such as invoicing clients, collecting receivables and Business Plan preparation. Whilst there is an argument to be made for small business owners learning accounting and bookkeeping for themselves, for many it is better they delegate this, leaving them free to concentrate on what they are good at – running the business.