Feature - #Startups : How to set up your accounts
It may not help you sell a product to any great extent, but accounting is very much the pulse of any business. Expenses, income, budgeting and cash flow all need to be taken care of; regardless of how big or small the company is.
Unless you're actually an accountant, the word 'accounting' probably brings up images of tables covered with spreadsheets, snapped pencils and long nights ahead. If you're just starting out, this feeling is probably amplified, but you must be aware that poor bookkeeping at the gate could not only delay your project in the short-term - it could come back to haunt you over the long haul.
This is why the importance of proper accounting methods cannot be stressed enough. All start-ups must know where they stand financially in order to survive and alter their service according to the times ahead. So if you're preparing to launch your business, don't be awed by accounting or its baffling terminology. Try reviewing the starting blocks below.
Separate personal from business
Creating a clear divide between your personal and business expenditure will eliminate a range of complications that are sure to arise at a later date; the idea being that everything you buy under the company banner has to be accounted for. By using separate bank and credit card accounts, you'll save yourself hours of time each week and make it easy to keep track of any deductible expenses.
You may even wish to make things official by establishing your business as a limited company. This will put your personal finances on a new level of liability protection, which may come in handy if ever your business is sued.
Learn of your taxes
If you're self-employed, you are responsible for paying your own tax and National Insurance contributions. Start by letting HM Revenue & Customs know of your intention to become self-employed; providing it with information about yourself and your business through its online sign-up form. This will set up tax records based on the type of business you run, including Self-Assessment, National Insurance and PAYE if you have employees.
The process will also give you a Self Assessment tax return for you to fill out each year. By entering details of your earnings and other income between the tax year (6 April to 5 April) you can find out how much Income Tax you're required to pay. You may also have to pay Value-Added Tax (VAT) if you turn over more than £77,000 per year, which again can be sorted through HM Revenue & Customs. If you have a more specific query to field, it might be best to try their website.
It is common for start-ups to outsource as little as possible and go for the cheapest option on offer. In this case, the business owner will tend to take the DIY approach and organise their own accounts. While these companies may feel like they're saving themselves a fair bit of money by doing so, there's every chance they couldn't be further from the truth.
A professional accountant earns their worth by taking care of tax returns; ensuring financial records are up to date as well as generating detailed financial documents and reports. They can also assist in opening new bank accounts and setting up direct deposit systems for payroll or supplier payment. Not only this, but they're good for the odd gem of wisdom when it comes to operations and growth. So before you decide the extra labour isn't worth your while, do at least consider what you're getting for the service.
Look for additional services
Accounting is much more than just filing for taxes and financial planning, though. If you're required to have large amounts of currency on site, you might also require a transit service to deliver your finance or money processing technology to ensure that all of your notes and coins are genuine. In this case, setting up a partnership with a cash management service would be the best way of creating an efficient flow of currency.
Getting the cash from sales out of your headquarters and into a safer environment might be a bit trickier, but there's a service for that too. You can use the same cash management firm to have your currency collected, counted, deposited in a safe for transportation then added to a bank account. The professional transit service saves you the task of having to transfer the funds in an unsafe manner, while the firm will often insure your money from the point it's placed in their safe - giving you two layers of protection.
There are lots of similar services that can ease the burden on yourself, giving you more time to focus on the things that concern your role at the company. Try looking for areas of your accounting that could do with a professional pair of hands and hire accordingly.
Without professional help, the standard advice for accounting is 15 minutes per week. With an accountant there's less pressure on you to organise detailed reports of your financial activity, although you'll still need to file for your expenses. Aside from this, one calculation per month of the profitability of your business through an income statement should allow you to adjust expenditures and sales efforts in order to keep you on top. That's without forgetting your annual Self Assessment.
Finally, make a habit of communicating with whatever professional help you have at your disposal every couple of months to discuss your financial performance. This will allow you to be proactive rather than reactive when it comes to contending with pitfalls, giving you the best possible chance of coming away with your finances intact.