Our Small Biz, Small Bitez are a collection of posts on specific topics designed to deliver easy to read info which may not be so easy, but are essential that every entrepreneur knows when it comes to starting a business.
In Accounting 101 we demystify all that accountancy jargon so you can take control of your small business finances.
Steven Marsh of Marsdens Chartered Accountants works closely with us at London Small Business Centre providing pro-bono work to our entrepreneurs. We asked Steven to flag up the absolute key essentials you need to know when it comes to the numbers game but without you having to plough through all the plethora of information that’s out there.
What can I expect from the services of an accountant?
I am often asked by small business owners questions such as “Do I need an accountant?”, “Can I deal with my tax and accounts myself?”, “What can an accountant do for me?” and “Where can I find a good accountant?”. I will address all of these questions and more in the following paragraphs.
What is the role of an accountant?
The very least that an accountant will do is to prepare your annual accounts and Tax Return for you and provide you with advice about your bookkeeping obligations and how to maintain your books. But in practice, the role of an accountant is much greater than this. A good accountant will be on hand in a proactive manner to offer you advice relating to your business and your tax obligations. He or she will be up to date with tax law and provide information specifically for your business to ensure that you comply with tax and accounting rules and regulations and arrange your affairs in such a manner that will ensure that you pay the minimum amount of tax that you legally have to. Additionally a good accountant will assist with exercises such as negotiating with your bank if your business requires finance or other bank facilities, meeting and liaising with any investors who want to buy into your business and dealing with HM Revenue & Customs (HMRC) not simply on the day to day routine matters, but on technical and detailed matters, for example if your business is unfortunate enough to be selected for a tax investigation – this is where HMRC take a much closer look at your business to see if your submitted figures and Returns are accurate. This can result in your books and records and you in person, being called into the tax office for a detailed interview.
Do I need an accountant?
If you run your own small business, then legally, in most circumstances, you are permitted to deal with your affairs yourself, without using the services of an accountant. In practice, most small businesses either appoint an accountant from the outset to assist them or do so after the first couple of years as their business starts to grown and their financial needs become more demanding. If you choose not to use the services of an accountant, not only will you need to prepare your own figures and usually have to lodge them yourself on line with HMRC, but you will also be left wondering if you have completed them correctly and if you have claimed all the expenses and allowances that you are entitled to.
What sort of accountant should I look for?
The short answer is one that knows their stuff and one that you feel comfortable with.
Anybody can set up in business as an accountant – in my opinion, it is important to choose an accountant with a recognised qualification. The two leading accountancy qualifications in the UK are Chartered Accountants (who in England have the letters FCA or ACA after their name) or Chartered Certified Accountants (who have the letters FCCA or ACCA after their name). You can check if accountants have such qualifications by looking at their firm’s website and seeing how they describe themselves, or by going onto the website of The Institute of Chartered Accountants in England & Wales or the Association of Chartered Certified Accountants and keying in the accountant’s name to see if they show up as a member.
But having such a qualification is not, in itself, enough. It does not guarantee that you have found the accountant who is right for you.
So what else should I be looking for in a good accountant?
Like many things in life, a successful outcome is built by having a good working relationship. This is a two-way scenario. You have to feel comfortable and have faith in your chosen accountant and likewise your accountant should do so in you and your business.
I strongly suggest that you meet with at least three accountants before you select one. You should listen to what they say they can do for you. Also, take a short list of questions to ask and maybe include a handful of slightly offbeat or technical questions to see how they respond. You will soon be able to determine how well they know their subject and if they can think on their feet. If they flounder, hesitate or look uncertain, that is not a good sign!
And finally, ask the accountant specifically what they can do to help you. Why should you appoint them rather than the next accountant down the road? See if they give you a credible answer or a bland and non-convincing answer.
How do you suggest I find a good accountant?
A good starting point is a personal recommendation. If you have a friend or family member in business who uses the services of a qualified accountant, Ask them if they would recommend them and if so, you should consider putting them on your shortlist. Additionally you could check the websites of the Institute of Chartered Accountants in England & Wales (www.icaew.com) or The Association of Chartered Certified Accountants (www.accaglobal.com) and key in your local postcode to search for a firm in your area.
What should I ask a prospective accountant when I meet them?
Firstly, you should listen to what they say they can do to help you then ask questions such as:
•How long have you been in practice?
•Will you personally be looking after my affairs or will it be various other staff members?
•Do you deal with many other clients in my trade category?
•What areas of tax and accounting do you specialise in?
•How do you keep up to date with the latest tax and accounting changes?
Then you may want to ask a few slightly more technical questions such as:
•Can you explain the advantages and disadvantages of me being a Sole Trader or a Limited Company?
•If there is more than one of you going into business consider asking: What are the pro’s and con’s of a traditional Partnership over a Limited Liability Partnership (LLP)?
•Is there any advantage in registering for VAT voluntarily before I am obliged to do so and can you tell me about the various VAT schemes available to small businesses?
•I have heard of IR35. Does it affect my business? And regardless of the answer, out of interest ask, if it does affect a business, how can one protect themselves against it?
You will be able to gauge from the nature, flow and content of the accountant’s replies, whether they know the basics or are struggling.
And finally, how do I decide which accountant to appoint?
Any reputable accountant should give you an initial consultation free of charge and without obligation. If they do not, move onto the next one.
Having met with at least three prospects, as suggested, listened to what each one says they can offer you and asked your various questions such as those referred to above, you will then have gone a long way to forming an opinion as to whom is the best one for you. Accountancy fees are also an important factor to take into account and you should always ask each accountant to give you a fee quote and for them to put it in writing to you on their letterhead in order to avoid any future misunderstandings. But one word of invaluable advice here and I say this from over 35 years of experience in the accountancy profession. Please heed these words. It may be tempting to go for the cheapest fee quote, but please do not base your decision on fees alone. The accountant’s attitude, knowledge and ability and willingness to help you in a friendly, guiding manner is by far a more important set of factors to take into account. There is an old adage that “A good accountant will save you money, not cost you money”, so take time to choose the right accountant for you and your business. It really can make all the difference. Good luck!
I hope you have enjoyed reading and learned some interesting facts from the articles I have been asked to write on this blog and as always, if there are any questions, please feel free to contact me through the Marsdens website.
Steven is known amongst his many clients and family and friends, as being the accountant who “eats, sleeps and breathes tax and enjoys explaining to clients little known and easy to implement tax gems of advice that are not always publicised or much known about”. Aside from helping entrepreneurs with their businesses, he’s a serious collector of old comics, cigarette cards, autographs, original artwork, but mainly of rare British Queen Victoria and Queen Elizabeth postage stamps and related items.
Remember: Always seek specific advice for your business and your circumstances before you proceed in order to avoid any costly mistakes!