A step-by-step guide to small business accounting

Small business account - Photo 1

A small business may not have the staff numbers or profit margins of its larger peers, but that doesn’t diminish the need for diligent accounts.

In fact, in some ways, smaller businesses need to take even more care to keep their finances neat and tidy.

Small business accounts, like many aspects of running a company smoothly, is best left in the hands of a professional. Yet, some small business owners might be completely in the dark when it comes to accounts. Is it needed, what does it entail, and how do I get an accountant for small business?

Do I need an accountant for my small business?

This strictly depends on the kind of small business in question and how it’s organised, but generally speaking, most small businesses will want an accountant’s help.

Small business accountants can handle a range of financial tasks from simple bookkeeping and payroll to taxes and annual returns.

These are requirements that can easily become overwhelming and costly to forget, so it’s hard to overstate the importance of having somebody dedicated to seeing these tasks completed in good time.

While having an accountant for small business isn’t a legal requirement, it is a sensible decision and highly recommended.

Of course, accountants don’t just handle the spreadsheets and numbers. An accountant can also be a valuable source of expert information and advice, helping to guide your business through various challenges and even helping you get your business off the ground to begin with.

This is because a chartered accountant is highly specialised in the various requirements of a business and the ways in which it needs to meet legal and financial obligations. This means that having an accountant can help prevent mistakes when setting up a small business and understanding the full breadth of your assets and liabilities.

For small business entities like tech start-ups, accountants can effectively open up new ways to frame and understand the assets of your business. Some assets are intangible, such as software or patents and copyrights—things you can’t weigh or hold in your hand, but are just as valuable as physical assets like equipment and cash.

Knowing the nitty-gritty of accounts like this helps your business look healthier on paper and gives your business leaders valuable knowledge and experience to take forwards.

As business starts to pick up from the early days, an accountant will help keep you in step. Diligently recording transactions and keeping up to date with invoices (both yours and customers’) ensures you’re not running to catch up as your customer base grows and profits rise. For small businesses with investors, this is especially important to consider.

If you do decide to take on an accountant for your small business, you could hire an in-house accountant who works directly for you. Alternatively, you may choose to use an accountancy business and attach their services to your own business. This can be more cost-effective for businesses that don’t need the constant help of an accountant.

How to do accounting for small business

These days, powerful and intelligent software makes the task of accounting much simpler and more streamlined.

These tools don’t lessen the demand for an accountant, but it does make the role more accessible and makes an accountant’s work and reports easier to generate and share.

Some of the core duties of an accountant for a small business include:

Planning

With the help of an accountant, laying the groundwork for your small business is much simpler. They can help you plan your budgets and write your business plan—a document that outlines your business, the market it occupies and what its operations are intended to be.

Starting with a strong plan keeps your business vision clear. It gives you the financial landmarks needed to understand when things are running over budget and keeps your business focused on its original goals. From here, you can build your business with intelligent choices.

Payroll

If your small business hires staff, you need to ensure that they can rely on their regular wages.

Before any of this can begin, you need to register as an employer with HMRC, which will give you a login for their PAYE Online service. Using appropriate payroll software, you (or your accountant) can calculate pay and relevant deductions, then log these with HMRC.

Payroll for employees involves keeping records of many details including sickness and other absences, taxable expenses, and any changes of tax code. HMRC needs accurate records of who you employ and how much money they’re earning, not least of all to calculate the contributions you owe towards National Insurance.

Given the training and education behind every chartered accountant, your accountant will ensure that appropriate data protection is in place for these records.

Assets and liabilities

Your assets are the things that mean value for your business, including:

  • Cash
  • Property
  • Investments
  • Equipment and machinery
  • Vehicles

Liabilities, conversely, are what draws value away from your business:

  • Debts
  • Accounts payable (money owed to suppliers)
  • Owed tax and wages

Properly recording all of these is essential, and will need to be updated and added to every time an asset is purchased, sold, or depreciates, and each time a liability is paid or a new one occurs.

Painting a full picture of your company’s financial health depends on balancing these factors, which can be complex and hard to track if you have various suppliers that demand regular payments or many employees to pay. An accountant ensures that every asset received and every liability taken is recorded and measured.

Invoices

Invoices can easily get buried in email inboxes, but properly tracking and recording invoices is essential.

Money owed to your small business can go unpaid and unnoticed if invoices are not properly tracked. Similarly, missing your invoices from suppliers can cause more hassle than necessary if your own payments are lagging behind. This can risk professional relationships as well as complicating finances.

Invoices need to simply be paid on time to the requested account, and your own invoices need chasing up in good time to ensure customers aren’t leaving you without your due payments.

How much does an accountant cost for a small business?

Accountant fees aren’t a hard and fast affair. They can vary depending on the scope of the business, the time they’ll need to invest in helping your finances, and the demands involved in the respective role.

If you only need an accountant for small business annual returns, you can expect to pay a one-off fee, likely falling between £150 and £500.

Bear in mind that, like many things, services in London will be more expensive than the help of a small business accountant in Manchester or Salford.

Gaining the help of an accountant can effectively pay for itself, especially when it allows you to claw back profits from unpaid invoices or recording previously undeclared assets.

Some accountants might choose to charge per hour for their services, whereas others opt to charge flat fees. When considering gaining the help of an accountant for small business it’s worth laying out the size of your business and seeing how this factors into your quoted cost.

Do you need accounting software for your small business?

If you’re electing to do your own accounts, then having a license for accounting software will be essential.

Much like a word processor simplifying the writing of documents, accounting software makes the process of doing your accounts much smoother. It gives you a centralised place to manage your invoices and payments, complete returns, track expenses, calculate taxes, and much more.

Note that using accounting software doesn’t negate the usefulness or need for an actual accountant. Although it will make certain tasks simple enough for you to handle yourself, it won’t be the same source of advice, guidance, and legislative knowledge as a chartered accountant.

It should instead be viewed as a tool rather than a source of accounting itself.

If you’re using an accountancy firm or a freelance accountant, they will most likely have their own software licenses and so you won’t need to worry about getting small business accounting software for them.

Small businesses accountants in Manchester

If you need the help of a qualified chartered accountant in the North West, look for MCC Accountants. We can offer the help of small business accountants in Walkden, Cheadle, Cheadle Hulme, Stockport, Altrincham, Monton, Swinton, and indeed anywhere across Manchester.

To find out more about how we give small businesses financial peace of mind, get in touch today.

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