The Captain of Accountancy

Carl Ford from Carl Ford Accountancy, has such a deep knowledge and understanding of accountancy that other accountants come to him for training

[thecarlford]

7 Most Common Money Mistakes for Start-ups to Avoid

Smart financial management is essential for any business, no matter how big or small. However, it can be difficult to get things right, especially during the start-up stage. Poor financial planning is one of the most common reasons that startups fail, so the sooner you take ownership of your business’ financial health, the better. Dealing with your finances head-on from the get-go is the best way to set yourself up for lasting success. Careful planning can help you to avoid common money mistakes and shows potential investors that you’re serious. Here are the most common financial mistakes that start-ups make and how to avoid them.

1. Prioritising Instinct Over Information

Whilst following your gut is generally a good principle, it’s a dangerous game to make assumptions about your finances. It’s vital that you meticulously track your revenue and expenses and closely monitor your cash flow. If a small mistake goes unnoticed for too long, it could prove very damaging for your business. During the start-up stage, using an Excel spreadsheet will suffice but be prepared to upgrade to bookkeeping software later on.

2. DIY Accounting

Managing your accounts by yourself will suffice for the initial setup of your business, but it’s wise to hire a professional accountant as early as possible. Juggling self-taught accounting with running a small business will eventually result in a backlog of errors, which can prove costly. Professional accounting services save time, money and stress, allowing you to focus on growth. You don’t need to hire a whole team. Start by outsourcing your taxes or setting up quarterly meetings with a financial consultant for help and advice.

3. Failing to Assign Project Budgets

Assigning a budget to a project prevents it from draining your finances should something go wrong. A clear budget will allow you to reassess your finances should the project require more money and make smart decisions that won’t damage your business.

4. Disorganised Files

The importance of balancing bank statements and keeping receipts in order cannot be overstated. Patchy bookkeeping can cause chaos for your business and result in a lot of trouble, not to mention wasted man hours trying to resolve the problem. Keeping all of your receipts and cross-referencing your accounts with your bank statements is vital for transparency and future success.

5.  Misunderstanding Your Target Market

In order for your business to be successful, you need to understand what your customers need. Knowing your target market helps you to reach them, as well as how to appropriately price your products and services. Here are some questions to consider:

What is your market position?

What need do you fulfil for your customers?

How much value do your products or services provide?

Who is your competition – and what makes you stand out?

Miscalculating prices can prove to be a grave error for a small business, but knowing your market well will help you to figure things out.

6.  Hiring Quantity Over Quality

Over-hiring is an expensive mistake to make. Hiring employees is one of the most costly parts of running a business, so going overboard is a huge waste of money. It can also damage staff morale and productivity, and lay-offs further down the line will only amplify the problem.

Bad hires are another threat to a small business. Hiring the wrong employee can create an imbalance within the company culture. In turn, this can negatively impact other staff and even damage your business’ reputation. Don’t rush the hiring process. Taking extra care to avoid mistakes can save a lot of trouble in the long run.

7. Miscalculating Expenses

In order to keep your business afloat, you need to know exactly how much cash your business burns each month. Keeping a meticulous record of your expenses allows you to understand where your money is going, and how much you’ll need to survive. Underestimating your cash burn can land your business in hot water, so create a projection of your monthly expenditure and be sure to monitor it closely, making adjustments whenever necessary.

A successful business needs a strong financial foundation, so keep these mistakes in mind. No business is invincible and it really does pay to be cautious and always stay one step ahead.

Carl Ford

Founder & Accountant Carl Ford Accountancy Tamworth [email protected]

[thecarlford]

How to Finance Your Business: 5 Ways to Consider

Every business owner needs money to get their start-up off the ground. You can’t very well open a shop or restaurant without premises and equipment, and even the most capital light of companies need to pay staff and cover IT costs. Financing your business allows you to start off on the right foot, but you need to be smart about it. It’s important to weigh up your options and make the right choice for your company. Here are the best financing options to consider for your business.

1. Business Loans

Business loans are a very popular finance option for start-ups. Most often, this takes the form of an instalment loan whereby the lender pays out a lump sum and the business owner makes regular repayments. It’s worth doing your research or even hiring an accountant to find the best rates possible. In addition to a bank, it’s also thinking about applying to credit unions, non-profits and microlenders for a business loan.

2. Business Credit Cards

There are several advantages to using a business credit card. Even if you’re a sole trader, it’s advisable to separate your personal and business accounts as soon as possible for transparency purposes. Moreover, a business credit card provides a clear picture of your spending habits, highlighting areas where you may be able to cut costs.

On top of this, business credit cards can really help with cash flow. The interest-free period allows you to delay payments for a limited amount of time at no extra cost to you; the exact length of time varies by provider.

Many credit cards also come with attractive rewards and benefits, such as cashback and air miles which can save you money later on.

A business credit card is certainly an appealing option so long as you carefully manage it. Late payments can result in a hefty amount of debt. If you want to borrow a significant amount of money in the long-term, a bank loan will likely serve you better. That being said, a credit card can be very helpful in terms of convenience and cash flow.

3. Lines of Credit

If you’re looking for something between a credit card and a business loan, it’s worth considering a line of credit. A line of credit is a pre-set borrowing limit that you can use at any time, like a credit card, but you pay it off in instalments, similar to a loan. Lines of credit tend to have lower rates than credit cards, but there’s no interest-free period so it may not prove as beneficial for short-term cash flow problems. However, this option is a great financial safety net for your business and can prove very valuable in emergencies.

4. Equipment Financing

You’ll need the right equipment to run your business, but buying it all outright can create serious cash flow problems. Remember that the expenses don’t end with purchasing equipment; you’ll also have to maintain, upgrade and repair it regularly to keep things running smoothly. Therefore, if you require a lot of equipment it’s worth looking into equipment financing. There are two main options available to you:

Loans: An equipment loan helps you to buy equipment, since you’ll own it in full once the loan is paid off. This is lower-risk than a bank loan but functions in much the same way.

Equipment lease: This type of arrangement allows you to rent equipment for an agreed-upon period. There may be an option to purchase the equipment at the end of the lease if you wish, or you can choose to upgrade. This is a particularly advantageous option for when you need equipment for a short amount of time or find yourself constantly having to fork out for upgrades.

5. Crowdfunding

Last but not least, the past decade has seen an explosion in the popularity of crowdfunding. The most obvious advantage of crowdfunding is that the money doesn’t have to be repaid, but this means you’ll need to put forward a very convincing case in order to secure donations. Crowdfunding requires a lot of time and effort, which could otherwise be dedicated to your business, so a business loan may actually be more cost-effective overall.

Summary

It’s worth carefully weighing up your options to consider which method of financing best suits your business. Financing might seem daunting, but the right option will put your business in a strong position and help to pave a smooth path towards future success.

Carl Ford

Founder & Accountant Carl Ford Accountancy Tamworth [email protected]

[thecarlford]

Four Tax Preparation Tips to Follow

If you want to avoid the stress of the tax period, follow these four simple steps to prepare your business in advance.

Tax season is one of the most stressful periods of the year for a business owner. With proper planning, however, you can change that.

It’s essential to start preparing for the filing of your business tax return in advance so you have time to gather all relevant records.

Take a look at the following tax preparation tips that can make the upcoming tax season less stressful for both business owners and their accountants.

1 – Organise Your Tax Paperwork

Before anything else, it may be a good idea to sort out any past years’ documents, if you haven’t already. Start organising your books to make sure that you’re prepared when the paperwork starts to come in.

Tax paperwork should be organised by category and you may want to make copies of important documents received by post.

2 – Categorise Your Business Expenses

Another time-saving tip is to start organising and categorising your business expenses weeks before the tax return due date.

You can claim most of your business expenses as tax deductions. But if you’re not sure which expenses you can claim, check out the official guide on HMRC’s website.

All business expenses must be sorted out and explained in detail. Finally, don’t forget to itemise your expenses.

Alternatively, if you outsource your tax preparation, you will want to hold on to all your documents for when it’s time for your accountant or accounting firm to prepare the tax return.

3 – Check Whether You Can Get Deductions and Credits

Small businesses may qualify for a number of tax credits. However, don’t wait till the last minute. Check in advance whether you’re qualified for these credits.

Deductions reduce your taxable income and credits are even better, as they directly reduce the amount of tax owed. Your accountant or tax preparation software will have a list of tax deductions that apply to your business.

4 – Get Help

Tax season is very stressful for your bookkeepers and accounting team, assuming that you have them on the payroll. Even if they’ve been doing great the whole year, they may need some extra help now.

A smart business owner won’t let his or her accounting staff burn out during the tax period. Ask them if they need help and if so, make sure to relieve the burden.

It’s essential to get your tax done correctly and on time, which is less likely to happen if you try to save money on accounting staff during this hectic period.

Advance Prep Wins Out

For most business owners, tax season is far from the favourite time of the year. However, it’s not an excuse for you to wait until the last moment to start preparing your tax return.

To avoid unnecessary stress, the best course of action is to prepare in advance.

It won’t trouble you nearly as much if you’re to find that something is missing, but that’s only possible if you leave enough time to sort things out.

Carl Ford

Founder & Accountant Carl Ford Accountancy Tamworth [email protected]

[thecarlford]

Top Seven Tips for Accurate Cash Flow Forecasting

Do you want to know how your business will fare in the future? Apply the following methods to improve your forecasting.

Forecasting your company’s cash flow helps minimise potential risks and can indicate if the company is in a position to grow.

Proper cash flow management is a given. But monitoring all the money coming and going doesn’t always provide all the vital information you need to make accurate predictions.

The following tips and areas of focus should contribute to a better strategy for your forecasting.

Tip #1 – Estimate Future Sales

The accuracy of cash flow forecasting relies on multiple variables, of which arguably none is as important as the sales forecasts.

To improve accuracy, the estimate should depend on the following series of factors:

Market share

Resources

Competition

Pricing

Tip #2 – Estimate Profit and Loss

After your sales projections, you need to factor in the projected costs, too. This gives you more information about your profitability.

Of course, you have to know both the expected revenue and the cost of sales to estimate projected gross and net profits.

Tip #3 – Perform Monthly Sales Estimates

Some businesses don’t turn out enough data in a single week to make accurate projections. This happens because customers sometimes delay payments. Or, the money simply doesn’t come through in time to match the daily revenue on the books.

For that reason, it’s important to stick to monthly estimates with consideration to any known delays.

Tip #4 – Include Payments Due

Sometimes a business might have to pay for expenses, services, or purchases. And those types of payments usually find their way on P&L statements.

In some cases, however, a registered payment does not mean that the money is to leave right now. That money could leave the account only in the next month, for example.

Hence, you have to include projected payments in the cash flow forecast to further improve its accuracy.

The following are examples of payments due worth considering:

VAT taxes

Interest rates on loans

Utilities

PAYE taxes

Tip #5 – Compare with Current Cash Flow

One of the causes of inaccurate forecasting is unrealistic expectations.

It’s always important to check the forecast versus the current cash flow statement. Large discrepancies that no one can back up with facts may signal missing variables in the equation.

Tip #6 – Make Consistent Predictions

Doing a cash flow forecast once may not give you a degree of accuracy that small business owners hope to achieve.

One of the best ways to improve the accuracy of cash flow forecasts is to make it a habit. Updating your forecast as often as possible with new information can drastically improve its accuracy.

Furthermore, forecasting over long periods of time helps uncover certain trends. Again, it’s all data that can help improve future predictions.

Tip #7 – Account for Variable Costs

VAT taxes and interest rates are unlikely to change from month to month. But other costs may change depending on the weather, season, and other exterior factors.

So when calculating costs, it’s critical to allow some wiggle room for the variable costs. Those are costs that may vary from month to month – utility costs, for one, and perhaps the phone bill.

Accuracy Comes from Good Data

It’s nearly impossible to create a realistic forecast without using all the right information. This is especially true when many things can happen in the future that will be out of your control.

But, using as much data as possible can only lead to more accurate forecasts. So keep collecting the right data and use it well.

Carl Ford

Founder & Accountant Carl Ford Accountancy Tamworth [email protected]

[thecarlford]

How to Use Smart Budgeting to Accelerate Business Growth

Creating a realistic budget is one of the best ways to protect your business during periods of difficulty and keep it running smoothly in spite of setbacks. A budget gives you more control over the financial health of your business, allowing you to manage cash flow, create spending caps and set realistic targets. The businesses that succeed are the ones that prepare and adapt when necessary, so smart budgeting is really non-negotiable. Here are five useful budgeting tactics that you can use to help your business survive, grow and flourish.

1. Calculate Your Costs

The first step towards creating a realistic budget is calculating your expenditure. This step forms the basis for the rest of your budget, so it’s important to be as accurate as possible. Meticulous bookkeeping is enormously helpful for this, but if your business is new, you’ll need to do in-depth research. If in doubt, overestimate. It pays to be cautious.

Your costs fall into two categories: fixed and variable. Fixed costs account for things like rent, which stay the same every month. Meanwhile, variable costs fluctuate along with your volume of work. Raw materials, supplies are power usage are examples of variable costs.

You’ll also have to factor in marketing, advertising and legal expenses; these can quickly grow out of control so it’s wise to double or even triple your estimate, just to be on the safe side.

If possible, have your business partner or accountant look over your estimation. A second pair of eyes is always helpful and they may be able to point out things you’ve missed, or costs you may be able to reduce.

2. Estimate Your Revenue

Estimating your revenue is notoriously difficult and requires extensive research or even professional advice. However, don’t skip this step. It’s worth putting time and effort into creating a realistic estimate because it allows you to plan expenses and manage cash flow. You should make both an aggressive and conservative projection. The former will boost morale within your company and motivate staff to work harder, whilst the latter will allow you to make safe decisions about your finances.

3. Work Out Your Gross Profit Margin

Your gross profit margin is a measure of how much money you’re actually making. It’s important to calculate this figure regularly and keep track of your progress so that you can understand whether or not your business is growing, and at what rate.

To work out your gross profit margin, subtract your costs from your revenue. Then, divide this figure by your net sales to find the percentage of your margin. If this number is increasing each month, that’s a great sign. If it’s decreasing, it may be time to reduce your spending.  

4. Plan for Cash Flow

Gross profit margin is important, but cash flow is equally vital to the health of your business. Expansion, seasonal trends and economic conditions can all impact your cash flow. It’s important to have an idea of how much money you’ll have available to you at different points during the year so that you can plan accordingly. Bear in mind that fluctuations in your sales volume will directly impact your variable expenses.

If you’ve been in business for a year or more, you can use past data to predict what your cash flow will look like each month. However, if your business is still in the fledgling stages then it’s time to do yet more research and look into trends within your particular industry. This should be able to tell you when your high and low seasons will be and alert you to other factors that may affect your volume of sales. The advice of a financial advisor or accountant is likely to come in handy here.

5. Prepare for Emergencies

Even the most successful businesses experience difficulties, particularly during economic downturns. It pays to have a contingency fund set aside to keep your business safe should disaster strike.

Your contingency funds might take the form of savings, at least in part, but it’s also worth knowing about finance options available to you:

Business credit cards are suitable for short term difficulties and can help you to manage cash flow when issues such as late payments arise.

Lines of credit provide your business with a safety net for longer-term problems. They combine the on-demand convenience of a credit card with the attractive rates and repayment style of a bank loan.

Summary

When done right, budgeting can accelerate the growth of your business by helping you to avoid roadblocks and potential disasters. A careful budget puts you in the driver’s seat and allows you to remain in control of your finances as you work on your business.

Bear in mind that not everything will work out exactly as you expect and it’s worth taking the time to review and adjust your budget on a regular basis. Think of your initial budget as a rough draft: necessary, but not yet perfect.

Carl Ford

Founder & Accountant Carl Ford Accountancy Tamworth [email protected]

[thecarlford]

Should You Outsource Your Accounting?

It might be tempting to try and do the accounting yourself. But getting a team of experts could save you precious time and resources.

Some businesses have internal solutions for financial management. And in smaller companies, even the owners themselves can weigh in and tackle the task.

Such an approach could work for the business for a while. But it might not be the best option, especially once the company starts growing.

To answer the titular question, it’s more ideal to outsource your accounting, or at least consider doing so. Here are the essential reasons why outsourcing might be a good idea.

Reason #1. Time Efficiency

Your team already has a list of responsibilities. If you don’t have a dedicated accounting team, your team will probably spend their precious work hours taking care of the financials as well.

The time your team spends on accounting tasks means you get less time to focus on your company’s vital operations, such as improving sales or bringing in new leads.

Additionally, if neither you nor your employees are trained or experienced, dedicating company resources to such tasks can be considered wasteful. You’re diminishing your business capacity and distracting your team with a job outside their skill set instead of focusing on your strong points.

Outsourcing will save you time and get your financials in order sooner. Simply put, leave the accounting to the professionals.

Reason #2. Decreased Costs

If you consider hiring an employee solely for accounting, or you’ve already done that, notice that outsourcing could save you a significant amount of money.

There are indications that companies hiring accountant agencies save around 40% of the costs compared to those that have in-house accounting.

The calculation is very straightforward — by outsourcing your accounting, the only cost you have is the service price. On the other hand, keeping a full or part-time employee comes with additional expenses, not to mention taking away various resources better spent elsewhere.

Reason #3. Lesser Risk of Fraud

Small and medium-sized companies suffer significant losses due to employee fraud.

Larger businesses have better control over their metrics, with dedicated departments that monitor all transactions. A small business will usually lack this kind of control, which results in a higher risk of fraud.

When you decide to outsource your accounting, your company gains access to an affordable CFO service that will have no problems detecting fraud signs. You can get an objective analysis of the financials as the accountant is entirely independent of your company.

Reason #4. Professional Service

Professional accountants have an obvious advantage in financial dealings — they know accounting. Your business will be in safe hands with using a service that’s well-familiar with all relevant codes and laws.

From a technical standpoint, an accounting agency will have every resource necessary to perform the job — from expert employees to the best accounting software. These resources won’t be available to your company without additional expenses and hefty time investment.

Finally, a professional accountant could offer you some useful, impartial advice that you couldn’t get from anyone other than an expert.

Focus on Business, Not on Accounting

Once the burden of accounting is lifted from your shoulders, you can expect work efficiency to improve in several ways.

Outsourcing your accounting is cost-effective, saves time, and lets you focus on the more important matters where you and your team can be the most productive.

Carl Ford

Founder & Accountant Carl Ford Accountancy Tamworth [email protected]

[thecarlford]

The Most Dangerous Accounting Mistakes For Your Small Business

Starting your own business is an amazing thing to do but it’s also notoriously risky. There’s a lot to think about when you first start out on your own and it can be tempting to put accounting on the back burner, but that would be a huge mistake. Good accounting is crucial to the financial health of your business and mistakes can be devastating, especially in the early days. It’s important to know which mistakes to avoid to ensure that your small business is around for years to come.

1. Bad Bookkeeping

New business owners are often overwhelmed and tend to neglect bookkeeping. However, it’s essential that you keep the books up to date and record all of your earnings and expenses. Without this data, you won’t have a clear picture of how you’re faring financially, which can lead to a myriad of nasty problems.

Meticulous bookkeeping allows you to spot trends, understand your spending and examine which practices generate the largest ROI. You can then leverage this data to improve the financial health of your business, maximise your profits and manage your cash flow. Staying on top of the books allows you to stay one step ahead and put out fires before they start.

2. Confusing Cash Flow and Income

The money you take isn’t the money you make.

£100,000 in revenue sounds great, but if you had to spend £30,000 on equipment, insurance and employees to make that money, you’re actually left with £70,000 profit. You’ll then have to pay tax on your gross profit, so the net amount will be smaller again.

It’s vital to know not only how much money is coming into your business, but how much is going out. Getting carried away with gross numbers is a common mistake that new business owners make, and it quickly lands them in hot water. It’s important to stay grounded in reality and know how much you’re really making so that you don’t overspend.

3. Using Outdated Practices

You’re a 21st century business and your accounting practices should reflect that. Online accounting and bookkeeping softwares are faster, easier and dramatically more efficient than ledgers and Excel spreadsheets.

Online accounting software is easy to learn and significantly reduces the margin of human error by automating processes and calculations for you. This means that you’re much less likely to make mistakes on your tax return. It also reduces the risk of making the wrong financial decisions due to inaccurate information.

With this type of software, you won’t have to spend hours updating and organising your financial information. Another benefit is that it allows you to locate and cross-reference information quickly and easily, without having to spend hours searching for the right files. It may be more expensive than the DIY approach initially, but using online software will save you many man hours.

4. DIY Accounting

Accounting is complicated; there’s a reason it takes accountants years to fully qualify. Trying to manage your accounts all by yourself is a surefire way to waste time and stress yourself out. Besides, without extensive financial knowledge it’s unlikely that you’ll be able to save a significant amount of money on your tax return. Furthermore, you’ll be heavily penalised for making even a minor mistake on your return which could cause financial problems for your business.

Trying to manage on your own is a drain on your resources so the sooner you seek professional help, the better. Investing in the services of a qualified and chartered accountant is one of the best decisions you can make regarding the financial health of your small business.

Summary

It’s important to avoid the above accounting mistakes in order to set your business up for success. Neglecting or mismanaging your accounts can have serious consequences, so it’s best not to take any risks. Whilst it’s tempting to put accounting off until later, you need to make it a priority right from the very start. Good businesses and bad accounting just don’t go together.

[thecarlford]

The Five Traits of Successful Entrepreneurs

We’ve all got business heroes we look up to, Richard Branson, Lord Sugar, etc, etc but have you ever considered what makes them successful? What 5 Traits of successful entrepreneurs can we learn from them?

About 20% of businesses fail during their first year. So which traits should an entrepreneur have to become successful in a highly competitive environment?

Starting a business isn’t easy, especially in the modern environment that favours sound, long-lasting practices and a severe loss-aversion mentality.

While not everyone is born to be an entrepreneur, there are skills one can learn to jumpstart a business venture in a competitive industry. And even be successful at it.

It’s important to note that some traits can’t be learned and are what separates a good entrepreneur from the best. The list of traits found here includes both intrinsic and trainable skills.

So, without further ado… The 5 Traits of successful entrepreneurs are…

1. Inventiveness

One of the key features of successful entrepreneurs is their ability to come up with new ideas and expand on existing features. That’s why most entrepreneurs start their business with an idea that deviates from and improves upon the current norm.

While it’s almost impossible to teach someone how to be inventive, all people possess virtually unlimited imagination and potential. Tapping into that can lead to exciting results.

2. Confidence

One of the crucial parts of a successful start-up is the pitch. A good entrepreneur needs to have confidence both in themselves and their idea. That confidence is what will sell the start-up to potential investors and allow the business to begin operations.

Entrepreneurs will face rejection along the way, and only those who remain confident enough to keep going will bounce back and thrive among the competition.

3. Work Ethic

The term ‘passion’ is often thrown around as a desirable trait, but it would be more proper to call it work ethic.

While an entrepreneur will enjoy doing what they created, a proper work ethic is what truly matters.

An entrepreneur needs to put long hours into their business to take it off the ground. That won’t be possible if they don’t love their work or have a developed work ethic to sustain it.

4. Money Management

One of the critical reasons start-ups fail over their first few years is the futile acquisition of capital. This isn’t so surprising, seeing as banks are unlikely to provide large loans.

Other methods of raising capital, such as crowdfunding or investing, often depend on tangential skills like the ability to persuade people about the idea.

While having a good idea is the key for a start-up, obtaining and managing the capital required to make it into a reality is what separates a successful start-up from a failed one.

5. Knowing Market Needs

While not a trait per se, knowing that an idea for a start-up has real market value and need is what gets a start-up off the ground.

The ability to develop and market an idea into an attractive product relies on more skills than one, but they all need to combine to deliver to the masses.

According to Forbes, most start-ups fail due to a lack of market need. Therefore, identifying whether a novel idea is useful and adjusting it to cater to the audience should be one of the top priorities.

Learning What It Takes to Succeed

Thankfully, most of the traits of a successful entrepreneur are learnable. For all others, there are always people who can help out and make up for personal shortcomings.

Teamwork makes the dream work, etc, etc…

Carl Ford

Founder & Accountant Carl Ford Accountancy Tamworth [email protected]