Before we continue, a real-life example, in most simple terms, would give you some sort of an idea to grasp the concept of an accountant. We will illustrate this by giving you an idea of how you have been doing accounting all along in your everyday lives.
When you’re planning your grocery trip, you may budget roughly how much you want to spend for the week and decide which grocery store would be best to get the most value for your money. You may also decide which items require a high-quality brand and which can do with a lower quality one. You will also do a quick stock check to see what things are needed and if you will stick to the bare essentials this week or spend a little bit more lavishly.
Another example can be when you are planning on purchasing a vehicle. You would question yourself if it would be good for you to buy it in cash or to get it on finance. Which bank is providing the best interest rates. You may also look around for deals that could save you money.
Whatever the situation, we are all exposed to basic accounting principles throughout our lives. These decisions may not be as intricate as a business owner might need to take, but none the less they are important and fall under the remits of accounting.
What are the basic principles of accounting?
– Collating financial information from various sources;
– Making decisions based on all known factors;
– Planning, analysing, and making informed decisions for the best possible outcomes;
What is Accounting?
Accounting is the language of business. That’s pretty straightforward. Wait a minute, what is business then? Well, business is when you invest some money into an idea. That idea then turns into a product or service, and then you sell it for profit. You would then tell your story to 3 people.
1) To a Bank or an investor, who will invest in return to create more profit. This will be in the form of financial information, regulated by the international financial reporting standards (IFRS).
3) To the people who are helping you inside the company. This will take the form of management accounts. These can be in whichever format, as they are not regulated and are for internal use only.
Therefore, accounting is:
The recording of financial transactions and storing, sorting, retrieving, summarizing, and presenting the results in various reports and analyses. Accounting is also a field of study and profession dedicated to carrying out those tasks.
Do accountants play an important role?
In short, ‘YES.’ Would you sail a boat without a captain? Accountants act as captains to your ship. They will help provide a detailed picture of your business. They will account for all the transactions and sort them into correct categories according to the IFRS regulations. They will ensure you comply with the tax and government regulations and ensure all stakeholders receive accurate information to make informed decisions.
They will especially be important to you if you are a small business owner. As you would have lots going on already, and cash flow is tight, you wouldn’t want any mistakes in your tax return which could end up twice the amount you already owed.
Most small businesses take on an accountant is due to the following reasons:
- Missing out on tax reliefs by failing to claim allowable expenses.
- Unchased invoices can seriously affect cash flow.
- Do not plan properly in saving enough taxes and can get into trouble with HMRC.
- Forget filing tax returns, which can end up in huge penalties.
- Huge errors in bookkeeping, which can end up costing a lot in rectifying them.
- No accurate financial/non-financial information to make strategic business decisions.
- It is common to see small business owners neglecting to take on an accountant, as they think they can do everything themselves.
What can an accountant do for your small business?
- Maintaining sales records
- Tracking expenses
- Business Funding
- Ensuring payments are received from customers
- Reconciling accounts
- Planning and Analysis
- Strategies to improve profitability
- Strategies to help reduce taxes
This is what you are missing out on if you do not have an accountant:
- Bookkeeping is squeaky clean and up to date at all times, with no errors.
- Tax returns will be done efficiently, ensuring you pay minimum tax and avoid penalties as everything will be done methodologically and on time.
- Make sure invoices are sent out in time and are chased up rigorously. This ensures cash flow is kept optimal at all times.
- Making better decisions in being more profitable through regular management accounts without jargon.
- Make sure you are compliant with the new MTD (Making tax digital) system.
- Keeping your costs in control by ensuring KPIs (Key performance indicators) are met.
- Ensuring funding is available through your business journey.
If you are still unsure of what an accountant can do for your business, we would be happy to jump on a call with you to answer any questions for you. Contact us now for a free consultation.