Small business accounting made simple…Every week we get calls from business people who are working through their paperwork to get everything up to date. They are months and sometimes years behind in their accounting records.
Often they are drowning in paper, or worse, they have an email inbox full of correspondence which they have to sort through to get their accounts information like purchases invoices, receipts and so on. The whole situation can become a mountain where a molehill should exist. So what to do?
First things first
Assuming you are keeping records to track your taxes and so forth, you need to go through everything systematically. As accountants we only need supplier invoices, sales invoices ( what you send your customer ), and bank statements for your business.
You can get rid of all other documents from your accounts files, because we won’t be using them. Next put the documents in to order.
Bank statements all have numbers so put them in to numerical sequence. Invoices – sales and purchases – can be put in to date order, months is specific enough, so all April invoices together and so on.
Break it down
So you have some order put on the paperwork that you have. Buy a paper punch and a few lever arch files and you can file everything away in to a format that you can handle. Longer term that means you can hand it to someone else to look after if that is the way you are going.
As accountants, these are the sort of tasks we do on a daily basis. However we have injected an amount of automation in to the process where we get all the data from the invoices and get it in to an accounts system quickly, which ( if you want to ) you can view online and get reports on your business. But that last bit is not compulsory, and if you don’t want to log in to look at it then you can leave that to us. You can see a list of our services here: https://www.osamcquillan.ie/about-us/register-with-us/
What’s the point?
Most businesses fly blind as far as accounts are concerned. Once there is money in the bank to meet ongoing expenses, nobody gets too worried. But here is a bigger game to play, one that the larger corporates can do because they have the resources and the expertise to do it.
Small businesses should have accounts information available to them much quicker than every 2 months when they prepare a VAT return, or annually when their accountants prepare their annual accounts for the Companies Office. Monthly figures are useful to compare and see how the business is performing, and if your accountant is experience in your sector he or she should be able to tell you where improvement can be made in the business.
Performance indicators like gross profit, net profit and sales per employee are all vital to know, and to get improvements in them. But if you don’t know what your figures are for your business how can you improve?
The whole point of managing a business, not just working in it is to get continuous improvement in the performance of the business. ‘’What’s measured get managed’’ is an old saying in business, and its true – if you haven’t measured something, how can you improve it?
Using all information available to you
Often a business has information that is not incorporated in to the accounts. Typically this involves wages costs. Because the business owners don’t know how to calculate the total costs to the business of staff ( including the owners own wages ) and put that cost in to the accounts, it gets left out, or the wrong numbers gets put in to the accounts. At this point most business owners give up, realising that whatever they produce is slightly wrong.
But there is another way. We can put in the cost of wages each period we are reporting on, so that the business owner has accurate information for the business.
Are there changes coming to the way I have to calculate wages?
Yes there are
And another thing
Depreciation is a measure of the wearing out of business assets. Cars, vans, computers are all assets of a business. They are things that are bought that have a large value relative to other costs in the business, but more importantly are expected to last longer than one year. You can’t write them off in one year so you need to spread the cost out over the lifetime of the asset. For a car or van that could be 10 years.
We can split that cost over the 10 years and make sure it is allocated correctly over that lifetime by doing the adjustments in your accounts.
So why else should I do accounts more often than once a year?
Ideally you the business owner would prepare accounts more regularly so that you can monitor the important measures in your business: Sales for the period, Gross Profit for the period, a list of Overheads, Profit or loss for the period, Bank account, Customer balances, Supplier balances – these are all figure you could do with knowing regularly, maybe not all of them every month or quarter, but certainly three would be a good number to look at regularly.
Sounds very worthy but what difference will small business accounting make to my life?
We all have a wish list – the ‘what would you do if you won the lottery’ list. Typically that list has some things that can be sorted out with money – new house, new car, holidays, and pay for education and so on. The rest of the list contains things that you need more time to do – the holidays are one, travel more, take up a new hobby like painting or surfing, spend more time with family and friends.
Everything on your wish list can be accessed easier if you have a successful business – you can pay someone else to manage the business or do more of the work that you presently do. Another old saying is ‘If work is so good, why don’t the rich keep more of it for themselves’ seems relevant here. So if you had a profitable business you could spin off some of the easier tasks to others who work in your business.
And needless to say you can achieve your other wish list goals with more money than you have now.
So how does small business accounting work?
The best way to prepare accounts is using a recognised small business accounts package. We use a package that is cloud-based and which automates data entry so there is no more keying in of transactions.
We can get the data in to the accounting package using up to date processing through optical character recognition software. It works away in the background doing the work, it's what banks use now to process cheques – when the bank clerk zips the cheque through the machine at the counter, and a machine reads the strip of number at the bottom of the cheque. And when you use the lodgement machine in the bank, that machine is able to read the numbers on the cheque in approximately 8 out of 10 cases.
When you have a cloud based package, you will have a log in and password and you can look at the report from a computer wherever you are. You will never need to worry about back ups either because that is all taken care because cloud-based packages are automatically backed up.