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Accounting is a legal obligation. But from a business perspective, being able to balance the books is also fundamental to controlling your cash flow and keeping your business afloat.

Fortunately, counting the beans and making basic financial forecasts isn’t difficult. You just need to know what’s coming in and what’s going out, and be ready to make financial decisions when the need arises. From managing your business’ day-to-day accounts to budgeting and planning for the future, read on to learn how to keep your business on track.

Daily accounting

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Although your accountant can handle the larger aspect of your finances, you need to have a good idea of ​​the money coming in and the expenses going out. Small businesses often find basic bookkeeping convenient to do in-house.

Whether you do it yourself or have another team member handle it depends on your patience with accounting. Either way, as a business owner, you need to check accounts regularly. Accounting is keeping a record of what money comes in and from whom, what is due in and when, and your outgoing expenses.

The latter includes things like rent, salaries, software/hardware purchases, material costs, fancy tea bags… Anything and everything related to the business should be recorded.

TO DO: Make accounting a regular exercise. Monitor your turnover to see if you need to pay VAT or local tax, and keep documents in an organized system.

DON’T: Mix personal and business expenses in your accounts. Also, don’t take money from a limited liability company unless it’s for salaries.

The numbers game

Basically, bookkeeping can be done with a ledger, but that’s not ideal because mistakes can be made and it’s not particularly flexible. It’s best to use a spreadsheet in a program like Excel, which has templates that you can modify as needed.

Once you become familiar with a spreadsheet, you can start using the more sophisticated financial planning features. Or you can invest in dedicated financial software. You can use a cheaper and less complex online service, paid monthly, or invest in a full package, which tracks income, VAT, payroll, etc. The learning curve can be steep, but it’s time well invested.

Send invoices as soon as you complete a job and note when that money is due. If payment is delayed, contact the customer as soon as possible. Invoices can be lost or blocked for reasons that may not have been communicated to you.

As a UK limited liability company, you are required by law to keep all documents, such as invoices, receipts and financial records, for the past six years (five years for a partnership). If the Inland Revenue finds that these records are not available, you could face a hefty penalty. Back up and archive all electronic records and documents.

How to find the right accountant

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Taxes are an integral part of your budgeting process, but they can present a legal minefield. Unless you know exactly what you are responsible for, you will need a good accountant.

What is that ? : In short, UK sole proprietorships and partnerships are subject to income tax on their profits; corporations are subject to corporation tax on profits, while employees are subject to income tax on their earnings. In the UK, if your business has a turnover of more than £82,000 in a financial year, you must also register for VAT. It’s complicated, but a good accountant will make sure you’re doing it right and advise you on what can be claimed.

Request around you: Like good builders and plumbers (there are a few), accountants thrive on good word-of-mouth to win new business. Ask other similar businesses in your area for recommendations. Usually people are only too happy to share positive experiences with finance professionals, just as they are more than likely to warn you against the incompetent.

Search for official bodies: The Institute of Chartered Accountants of England and Wales, the Institute of Chartered Accountants of Scotland, the American Institute of Certified Public Accountants and the Association of International Accountants will provide advice on any matter relating to an accountant.

Do not choose the price: Always know how much – and when – an accountant will charge you. They normally charge by the hour, although some opt for annual billing – but many will be flexible on payment terms. Keep in mind that while a partner in a firm costs more than a junior member, it’s all about service. You need someone who will tell you the truth without being condescending or intimidating.

Get it in writing: Once you have appointed an accountant, make sure they send you their terms and conditions and specify exactly what they will do for you. A good one will be in touch regularly, not just at tax time. Likewise, you should contact them as soon as possible to let them know of any problems, questions or changes in circumstances. Don’t be afraid to ask seemingly silly financial questions.

Outsource or not? : As your business grows, you may prefer to entrust more of the day-to-day financial affairs to an accountant. Large companies will take care of everything from data entry and VAT to paying staff. Alternatively, services like Mazuma let you manage your accounts online — including billing, expenses, payments, and taxes — through a web-based application for a flat fee.

Clever invoicing tips

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Adrian Shaughnessy, graphic designer, states in his book “How to be a graphic designer without losing your soul”, that “it is a good practice to ask for installment payments. If they refuse, you can rightly be suspicious of their ability and willingness to honor their debts.

Don’t leave anything to chance – make sure your invoices contain all the relevant information. To help you, here are eight essential tips for improving your business billing.

To make easy: Each invoice must include a job reference, your postal address, an e-mail address and the amount, with a tax breakdown if applicable. If you run a limited liability company, you must provide the registered office – often that of your accountant – your company number and, in the UK, your VAT number.

Examine your customers: If you are concerned, research a client before undertaking any work. Check with allied or similar companies for late payment histories. In the UK, Companies House will provide their most recent accounts for a small fee and you can also check county court judgments against them online.

Conditions of agreement: Standard payment terms are 30 or 60 days from delivery; the same applies if the work is split into delivery stages. If you don’t get a contract, send an email with your terms and explain that late payments incur interest. If you don’t, legally speaking, you will have agreed to their terms.

How will they pay? : Find out how each new customer will pay. In the UK, BACS direct electronic payment is popular; include your account name, sort code and account number on your invoice. For cheques, your company name is sufficient. Small customers can offer PayPal, but you’ll lose about 5% of the fee.

Stay on top: Always keep track of who owes what and when money is due. At a minimum, you need a list of projects, amounts due, invoice dates, dates you sent invoices, and who paid. It’s important to keep control of your own finances, even if you employ an accountant.

Late Payment Chase: An extra month is cheeky, but not unusual. If the payment is a week late, call to find out why, then repeat this process every seven days. If payment is one month late, send a new invoice and account statement, along with a reminder that interest is payable on any late payment.

Very late payment: In the UK, small businesses are legally entitled to claim eight per cent interest on the base rate for late payment, plus lump sum compensation and debt collection costs. You can find calculators online that calculate this for you. Check your state laws in the United States if you are considering this option.

Take legal action: After three months, send the company a new statement or invoice, with interest included, and threaten to sue the local small claims court. Call again immediately afterwards. Wait a few weeks, call and email them one last time, then take legal action.