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Start-ups: Why your business needs an accountant

As a start-up or SME, you may not think that your business is big enough to need an accountant just yet. Or, you may feel like you could simply do without the added expense of hiring an accountant to do a job you think you can do on your own. But unless you happen to be a finance expert yourself, you could be missing out on the essential business support an accountant provides.

You may not necessarily need to hire an accountant full time or on an expensive retainer. A couple of hours here and there on a project by project basis could suffice. But a qualified accountant can help you at every stage of your business from forming your company to developing strategies to help you grow it, supporting you with tax issues to helping you manage your finances on a day to day basis. In this blog, we discuss the reasons all businesses need professional accountancy support, no matter their size.

Make the best use of your time

For those doubting whether their business can afford to outsource tasks to an accountant, or for those who think they can do it all themselves, it’s very important to understand the value of your own time.

If you place a value on an hour of your time and then multiply that by the number of hours you spend looking after financial matters, you’ll quickly see that accountancy support is less expensive than you think. You may be spending just a few hours a month looking after finance tasks such as recording expenses and invoicing. But what are those hours’ worth to you? Say for example you act as a self-employed consultant and charge an hourly rate of £75. If you spend 10 hours a month working on finance tasks, this is effectively costing you £750. You could be using that time to do billable work for clients or on growing the business.

Consider how much an accountant would charge to undertake these tasks. It is very likely that it would be considerably less than what it is currently costing you, plus you would have the added reassurance that everything is being done properly, so there will no nasty surprises when it comes to submitting your tax return. When you also take into account that in the long run, a good accountant can help save you money, or make you money, through effective finance strategy, their day rate suddenly seems pretty reasonable.

Poor planning leads to poor performance

Like all business owners, you will have a clear view of where you want your business to be in five years’ time. But do you know exactly how you’re going to get there? Do you know if you will need investment to help you grow your business or how pension contributions, financial regulations or tax implications will affect your revenue growth?

An accountant can help you create a thorough and detailed business plan that will take into account these issues and more. They can forecast your revenue growth in line with the added costs your business is likely to incur and help you understand, if and when, your business will need more funding for it to continue to grow. This will help you develop a business plan that is realistic and leaves no stone unturned. A strategic plan that will result in a better chance of you achieving your objectives. They will also work with you to develop the KPIs (Key Performance Indicators) needed for you to measure whether you are actually achieving them.

You’ll need advice, to help you choose the right legal entity

In our recent blog post, ‘How to select the right legal entity for your business’ we discussed the pros and cons of a variety of business entities. Choosing the right entity for your business can be complicated, especially when your needs may change over time.

An accountant can provide professional advice to help you choose a legal entity that fits you, that protects your interests and make the most of the tax regulations. Did you know for example that sole traders could be held liable for business-related obligations, such as failing to pay a supplier or losing a lawsuit? In cases like these, your assets, such as your property could be at risk. An accountant can help explain all the various legal obligations of different business entities to you so you are fully informed to make the right decision for your business. They are also on hand to help you register your business properly and keep you abreast of changes to legislation so you always have peace of mind.

Delegate finance tasks to help you manage your business more efficiently

In the early stages of a business, it is often quite easy to keep a track on the finances. You may only be receiving a few bills from suppliers and sending out a small number of invoices. This can quickly change, however. If you take your eye off the ball, because you are focussing on a new contract or day to day business activities, you can quickly lose sight of the financial responsibilities of being a business owner. Have you paid your supplier on time? Did you send that invoice? Do you have enough cash in the bank to cover your tax bill? It can very quickly become overwhelming.

You should look to hire an accountant to support you with day to day activities before it gets to the point where you are overwhelmed. They can help you keep track of who owes you money and what bills need to be paid. They can help you prioritise supplier invoices so your cash flow remains fluid. They can help you plan ahead for tax bills so you are not sprung with a nasty surprise you hadn’t budgeted for or manage payroll activities so your employees are always paid on time.

Accountants can help you grow your business safely

An accountant is there to help give you strategic advice, not just manage your day to day book-keeping. For example, they can help you understand how business costs are affecting your profit margins, and help you develop strategies to boost your profits. How do you know when it’s a good time to expand your business? How far can you stretch finances without putting your business at risk? Take all the guess work out by taking the professional advice of an accountant who will study your business performance and market trends to help you come to the right decision.

They will work with you throughout your relationship to help you manage the business effectively and help you put in place plans to help you grow your business in the future. This could involve helping you attract funding from investors or creating a solid business plan to secure funding from loans or grants. Whether you are looking for a bank loan or approaching a business angel for investment, you’ll need more than just a good pitch to secure what you need. They want cold hard facts. You’ll need accurate figures and detailed growth projections. An accountant is on hand to help you create thorough financial forecasts so you can demonstrate your company’s solvency and prospects for the future.

Support whenever you need it

Poor financial planning is one of the biggest reasons for business failure. By taking on an accountant you can sleep easy knowing that your finances are in safe hands and you have the professional advice you need to take your business forward. The right accountant is there to help you concentrate on the thing you love doing most, running your business.

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How to select the right legal entity for your business?

One of the most important decisions you make when starting a business is the type of legal structure you select for your company. This decision impacts your tax responsibilities, the amount of tax you pay, the paperwork your business is required to complete, your personal liability and your ability to raise money.

In this blog we explain the various legal entities as well as sharing the tax implications, benefits and disadvantages of each.

Sole Trader

What is it?

A sole trader is a business set up by an individual and is the most common form of business in the UK. There is no legal distinction between the individual and the business, meaning any debts incurred by the business must be borne by the owner.

How to set-up

In order to set-up as a sole trader, the individual must register as a sole trader with HMRC by the October of the second year of the business. This is fairly straightforward though, and can actually be completed online.

Tax

If the business is expected to make taxable supplies of more than £83,000 per year, then it must be registered for VAT.

After this, the profits of the business become available to the owner. They will be subject to Income Tax and Class 2 and 4 National Insurance Contributions. The return of the profits to HMRC will be completed via Self-Assessment.

Seek the assistance of an accountant to help you complete your Self-Assessment to ensure that all the information you provide is correct and transparent. Your Self-Assessment can be time consuming. By passing the responsibility to an accountant you can spend the time instead on activities that are vital to your business objectives like working on growth strategies or building relationships.

Advantages
– Ease – Setting up as a sole trader is extremely easy, and has little cost associated. Beyond the initial set-up, there are few regulations around the accounting requirements of the business, which means the owner can concentrate on running the business.
– Control – The owner can decide which direction their business goes in, how they specialise, and have ultimate executive control. Being your own boss is a major attraction for most sole traders.

Disadvantages
– Unlimited Liability – The owner and the business are one and the same, so if the business is liable to debt it passes to the owner without limit.
– Finance – Some sole traders may find it difficult to raise finance, as many lenders may find them too risky.
– Customer Trust – Customers may find it difficult to work with a sole trader, as there is (rightly or wrongly) a perception of security with other legal entities, such as a registered company.

Partnership

What is it?

Ordinary partnerships are similar to sole traders with the exception that there is more than one person at the helm. The partners are liable for the debts of the business, and will share the profits. How they decide to split these will be agreed by the partners beforehand.

Tax

The tax implications are similar to a sole trader. Partnerships expected to take more than £83k must register for VAT, and the individual partners are liable to Income Tax and Class 2 and 4 NICs on their respective shares of profit.

Advantages
– The advantages are similar to a sole trader, except everything is shared. This includes the debts of the business, which would spread the risk.

Disadvantages
– The profits and control are also shared.

Limited Liability Partnerships

What is it?

A Limited Liability Partnership (LLP) is a partnership that is treated as a separate legal entity from the partners themselves, so partners can only stand to lose what they have invested into the business.

How to setup

When compared to a sole trader or an ordinary partnership, a business faces more obstacles when setting up as an LLP. This is due to the limiting of liability. For example, the business requires a registered address, and be registered with both HMRC and at Companies House. Annual Accounts must then be filed at Companies House every year thereafter.

Members must also make an LLP agreement, which will detail how the partnership will be run, how the profits will be shared, what the decision making process is, the individual members’ responsibilities, as well as how to add or remove members in the future.

Tax

LLPs are not subject to Corporation Tax. Business profits are taxed in much the same way as a sole trader or ordinary partnership, in that the member takes their share of the profit, and pays Income Tax and Class 2 and 4 NICs. This is done through self-assessment.

Again, if revenues are expected to be above £83,000 per annum then the LLP must register for VAT and make an annual VAT return.

Advantages
– Limited Liability – There is less risk on the individual partners in an LLP. If the business runs up debts that it cannot pay, then the personal assets of the members cannot be used to meet them.
– No Corporation Tax – Tax is calculated at an individual level.
– Succession Planning – The business is separate from the owners, so if a founder member does not wish to continue (or dies) then the business will continue. This continuity can bring advantages to the running of the business.

Disadvantages
– Compliance – There are more legal obstacles for an LLP, including filing Annual Accounts, and in some cases even requiring an audit.
– Cost – The legalities and accounting requirements will bring an associated cost.

Limited Company

What is it?

A Limited Company is a separate legal entity, so owners, or shareholders, are only liable for the money they have invested in the business.

Although there are many forms of Limited Company, the two most common are Private Limited (Ltd.) and Public Limited Companies (plc.). The main difference between the two relates to how the equity in the business is traded. In a Private Limited Company, equity can only be purchased by invitation of the existing shareholder(s), whereas shares in a Public Limited Company will be floated on the Stock Exchange, and can be purchased by anyone.

How to set-up

Limited Companies must be registered with Companies House – this is the process of incorporation. This must include the Memorandum of Association – an agreement made by the initial shareholders to create the company, and the Articles of Association, which details how the business will be run.

Tax

Limited Companies must be registered for Corporation Tax, which is due on all trading profit, investment profit, and chargeable gains on the sale of assets. Seeking the assistance of an accountant is likely to be helpful for any Limited Company to ensure the information provided to HMRC is accurate and transparent.

Individual Tax depends on how the individual is paid. Directors who are managing the company will be paid a salary, in which case they will be charged income tax and NICs through a PAYE system. Shareholders, however, will receive dividends from the profits of the business. These will be subject to Income Tax at the Dividend Rates, which are different to the rates for regular income.

Advantages
– Limited Liability – Like with LLPs, the company is a separate legal entity to the owners, so creditors cannot chase the business owners for debts the company cannot meet.
– Tax efficiency – Companies have access to a wider range of allowances and reliefs, as well as the owners being taxed on dividends rather than or in addition to pay. This can make the tax outcome different for the shareholder owners. However recent changes to the rates of tax on dividend income are closing the gap on the potential tax benefits of running a business through a company in comparison with other legal entities.
– Finance – – It can be easier for a company to raise finance. Not only will lenders potentially see the business as separate from the owners, there is also the option to sell equity in the business in order to raise funds.
– PR – Customers may be more willing to work with a Limited Company as opposed to a sole trader.

Disadvantages
– Cost – There are legal, accounting, and administrative requirements and regulations associated with a company, all of which add cost into the business.
– Dilution of Control – The sale of equity to raise finance will dilute the control of the ownership over the business. In the case of a public traded company, this would mean that the business could be exposed to a takeover bid.

Considerations to make when choosing a legal entity

Cost – Some entities are not only cheaper to set up, but cheaper to administer also. The individual must decide whether this is something that will be worthwhile.

Liability – The individual must also decide whether they wish to limit their liability in the business. High-risk businesses will need to consider this point in particular.

Control – Sole Traders have ultimate control over the direction of their business and are under no risk of it being diluted. At the other extreme, a plc must answer to a much larger share ownership.

Continuity – The continuity of the business should be considered. What will happen to the business when the founder cannot continue?

If you need further advice on selecting the right business entity for your enterprise, we’re always here to help. Get in touch by calling 020 7317 0040 or by emailing us at contactus@sandersgroup.co.uk.

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Estate Agents: How to remain compliant and achieve growth

Estate agency is a specialised profession and whatever the size of your practice, there are both challenges and opportunities facing the sector.

Accounting for estate agencies can be complicated as estate agents deal with vast sums of money on a regular basis. The situation becomes even more complex if you handle the accounts of a housing association or manage an investment trust. Simply managing payroll is a challenge due to the commission structure of most sales employees’ contracts. Add tight financial regulations into the mix and you can see that managing your accounts can be tricky, to say the least.

Mistakes could quickly cost you, or you clients, money, and the latter could have a drastic effect on your reputation. That’s why it is important to have your accounts professionally managed by an accountant who is experienced in the nuances of the real estate sector and the regulations you must adhere to. In this blog post, we explain some of the accounting issues estate agents experience every day, and how effective accounting can provide solutions.

Real estate is a heavily regulated industry

The mistakes leading up to the economic crash in 2007 have resulted in a further tightening of regulations and there are now tougher rules when it comes to financial transactions, particularly in relation to managing and accounting for client funds, offsetting expenses and money laundering.

The Estate Agents Act 1979 regulates the work of an estate agent to make sure they act in the best interests of their clients and that both buyers and sellers are treated honestly and fairly. Under the act, failure to comply with regulations can result in a number of penalties, from formal warnings to being banned from trading.

To ensure you remain fully compliant with the plethora of regulations, it is important to seek the advice of a qualified accountant who specialises in the real estate sector. They will ensure your books are professionally maintained and are fully up to date and accessible should you be audited by a government official.

Handle client’s money carefully

There are a number of regulations under the act that an Estate Agent must comply with but one of the most important elements are the rules around handling clients’ money. You should have robust controls and systems in place to protect client monies. It’s paramount to implement thorough processes to ensure you comply with the strict regulations. You must keep intricate records of all transactions relating to a client account and give detailed receipts for all the money you receive. It is actually an offence not to do so. If you are a RICS regulated firm, you have access to the their free ‘Client’s Money Protection Scheme’ which is a valuable tool to help you stay compliant.

Ensure you have a transparent audit trail

The regulations require your accounts to be examined and reported on by a qualified auditor within six months of the end of your accounting period. You must also keep your accounts and all financial records for at least six years after the end of each accounting period, in case there is an inspection by an authorised officer, such as a representative from Trading Standards.

A good accountant can help you stay compliant with these regulations. By managing your accounts through cloud-based accounting software they will ensure your records are always safe and accessible which will make the process much less stressful. They will conduct a review of your firm’s accounts to identify any areas of risk and give you training and guidance on the implications of accounting regulations and bye-laws. They may also create for you a full compliance plan to monitor and prevent potential breaches.

Managing payroll can be complicated

Commission structured remuneration is standard in the real estate sector. In some scenarios, sales people will be paid purely on the commission they earn from property sales or rental income. In others, the salesperson could be paid through a combination of fixed salary plus commission. This can make payroll complex as payments can fluctuate throughout the year.

Accounting software such as Xero, can make recording transactions easy. But as far as commission calculations are concerned, there need to be rigorous systems in place governing the calculation of the amounts due and when those sums become payable. The whole process must be underpinned by a well-organised office ensuring all the key records are saved in appropriate places so that they can be accessed by the right people, in a timely manner. This also ensures you have thorough records of all your payments, which is vital for your tax obligations as commission is subject to income tax.

Protect yourselves from money launderers

Money laundering is an area of increasing concern globally. Estate agents are included in the list of professionals deemed at high risk in the UK Money Laundering Regulations Act 2007. As such you are required to put in place systems to avoid money laundering and report suspicious activity to the National Crime Agency.

There are a number of scenarios that may indicate money laundering when dealing with a client. Perhaps the client is secretive or evasive about their background, where the money is coming from or the bigger picture of the transaction. Perhaps they have provided false information or are known to have been involved in financial crime in the past, or you have doubts about the legitimacy of the parties involved in the transaction. You should be extra vigilant to ensure your firm is protected from money launderers. You can find out more about the precautions you should take at the RICS website.

The importance of accurate accounting

Accurate accounting is vital for the success of your business. So is the software you choose to account with. It needs to be simple to use, yet capable of handling all your transactions. Many businesses are electing to be cloud based to ensure that their information can be accessed at any time and is completely safe. We choose Xero. It’s simply the best cloud accountancy software for our clients.

With Xero, clients can record all their transactions in real time and therefore reduce the likelihood of out of date information. We can seamlessly access our clients’ accounts and can provide access for anyone who requires the information, such as the client’s team, a book keeper, or auditor. Information can be viewed anywhere, at any time, so there’s no need to send files back and forth. We can review our clients operating results and generate excellent reports to help them understand how their business is performing. We can also provide proactive and timely advice on issues impacting the business to help our clients keep the business on track and comply with their tax obligations.

Avoid nasty tax surprises

Where there is property there will always be taxation. From Capital Gains Tax to Inheritance Tax and Stamp Duty Tax, dealing with taxation can be a minefield for those without experience. An accountant experienced in the sector will have extensive knowledge of tax legislation and will help you structure your business in the most tax-efficient way. They should support you with tax planning advice and provide comprehensive tax health checks to ensure you are not paying a penny more than you absolutely have to and you don’t get any nasty surprises.

Businesses in the property sector are sometimes targeted by government tax inspectors. It is vital that your accounts are always in order as they will be examined in fine detail by inspectors looking for anomalies. Using quality accounting software such as Xero will help you through this process. Xero provides a full audit trail for any transaction so you are fully transparent with your financial records, making the auditor’s job much easier.

Seek professional growth advice

When developing a strategy to grow your business it is important to seek the advice of an accountant. They can help you access corporate finance and give you specialist advice on merger and acquisition opportunities. They can help you conduct due diligence and support you with post-acquisition integration. If you are looking to sell your business, an accountant is also there to help you prepare your proposition and guide you through the process.

For more information about how Sanders support a range of Estate Agency clients, get in touch by calling 020 7317 0040 or emailing us at contactus@sandersgroup.co.uk.

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