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How to master business accounting and invoicing

Leave nothing to chance

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Bookkeeping is a legal requirement. But from a business perspective, being able to balance the books is also fundamental for controlling your cash flow and keeping your business afloat. 

Fortunately, bread-and-butter bean-counting and basic financial forecasting aren’t difficult – you simply need to know what’s coming in and what’s going out, and be prepared to make financial decisions as soon as the need arises. From managing your company’s daily accounts to budgeting and planning for the future, read on for how to keep your business on track. 

Everyday accounting

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While your accountant can handle the broader side of your finances, you need to have a good grasp of exactly what money is coming in and what expenses are going out. Smaller companies often find that basic bookkeeping is practical to do in-house. 

Whether you do this yourself or another member of the team handles it depends on your patience with accounting. Regardless, as a company director, you should check the accounts regularly. Bookkeeping involves keeping a record of what money is coming in and from whom, what is due to come in and when, and your outgoing expenses. 

The latter includes things such as rent, wages,  software/hardware purchases, materials costs, fancy herbal tea bags... Anything and everything related to the business should be recorded. 

DO: Make accounting a regular exercise. Monitor your turnover to see whether you need to pay VAT or local tax, and keep paperwork in an organized system.

DON’T: Mix personal and business expenditure in your accounts. Also, don’t take money from a limited company unless it’s wages.

The numbers game

At the most basic, bookkeeping can be done with an accounts book, but this isn’t ideal as mistakes can be made and it’s not particularly flexible. A better bet is to use a spreadsheet in a program such as Excel, which has templates that you can alter if necessary. 

Once you get more familiar with a spreadsheet, you can start using the more sophisticated functions for financial planning. Or you could invest in dedicated financial software. You can use a cheaper and less complex online service, paid for monthly, or invest in a full package, which keeps track of income, VAT, payroll and so on. The learning curve can be steep, but it’s time well spent.

Send out invoices as soon as you’ve completed a job, and keep a record of when that money is due. If payment is delayed, contact the client as soon as possible. Invoices can get lost, or held up for reasons that might not have been passed back to you.

As a limited company in the UK, you’re required by law to keep all paperwork, such as invoices, receipts and financial records, for the past six years (five years for a partnership). If the Inland Revenue finds these records aren’t available, you could be in for a stiff penalty. Back up and archive all electronic records and paperwork. 

How to find the right accountant

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Taxes are an integral part of your budget process but they can present a legal minefield. Unless you have an excellent grip on exactly what you’re liable for, you’ll need a good accountant.

What's what?: In short, UK sole traders and partnerships are charged income tax on their profits; limited companies are charged corporation tax on profits, with employees charged income tax on their income. In the UK, if your firm turns over more than £82k in a financial year, you also have to register for VAT. It’s complicated but a good accountant will ensure you get it right and advise on what can be claimed.  

Asks around: Like good builders and plumbers (there are a few), accountants thrive on good word-of-mouth to gain new business. Ask other similar businesses in your local area for recommendations. Usually, people are only too pleased to share positive experiences with financial pros, just as they are more than likely to warn you off incompetent ones. 

Seek official bodies: The Institute of Chartered Accountants in England and Wales , the Institute of Chartered Accountants of Scotland , the American Institute of Certified Public Accountants  and the Association of International Accountants will advise on any accountant-based queries. 

Don't choose on price:  Always find out how much – and when – an accountant will charge. They normally bill by the hour, although some opt for annually – but many will be flexible about payment terms. Bear in mind that while a partner in a firm will cost more than a junior member, it’s all about service. You need someone who will tell you the truth without being patronizing or intimidating. 

Get it in writing: Once you’ve appointed an accountant, make sure they send you their terms and conditions, and specify precisely what they will do for you. A good one will be in touch regularly, not just at tax time. Similarly, you should contact them as soon as possible to let them know of any problems, queries or changes of circumstances. Don’t be afraid to ask seemingly stupid financial questions. 

Outsource or not?:  As your business grows, you might prefer to hand over more of the daily financial affairs to an accountant. Larger firms will handle everything from data input and VAT to staff payment. Alternatively, services such as Mazuma let you do your accounts online – including invoicing, expenses, payments and tax – through a web-based app for a fixed fee.  

Clever invoicing tips

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Adrian Shaughnessy, graphic designer, states in his book 'How to be a Graphic Designer Without Losing Your Soul', that “It’s good practice to ask for staged payments. If they refuse, you can be justifiably wary of their ability and willingness to honor their debts.” 

Leave nothing to chance – make sure your invoices include every last bit of relevant information. To help, here are eight essential tips to improve your business invoicing.

Make it easy: Every invoice should have a job reference, your postal address, an email address and the amount, with a tax breakdown if appropriate. If you run a limited company, you need to list the registered office – often that of your accountant – your company number and, in the UK, your VAT number. 

Vet your clients: If you’re concerned, research a client before taking on a job. Check with allied or similar businesses for stories of late payment. In the UK, Companies House will supply its most recent accounts for a small fee and you can also check online for any county court judgments against them. 

Agree terms: Standard payment terms are 30 or 60 days from delivery; the same applies if work is broken up into delivery stages. If you don’t get a contract, send an email stating your terms and explain that late payment attracts interest. If you don’t, legally speaking you’ll have accepted their terms. 

How will they pay?:  Find out how every new client will pay. In the UK, direct electronic BACS payment is popular; include your account name, sort code and account number on your invoice. For cheques, your business name is enough. Smaller clients might offer PayPal, but you’ll lose about five percent of the fee. 

Stay on top: Always keep track of who owes what and when the money is due. At the very least, you need a list of projects, amounts due, invoice dates, the dates when you sent the invoices and those who’ve paid up. Keeping on top of your own finances is important, even if you employ an accountant. 

Chase late payment: An extra month is cheeky, but not unusual. If payment is a week late, make a call to find out why, then repeat this process every seven days. If payment is a month late, send a repeat invoice and statement of account, along with a reminder that interest is payable on any late settlements. 

Very late payment: In the UK, small companies are legally entitled to claim interest of eight percent over the base rate for late payment, plus a fixed compensation fee and debt-recovery costs. You can find calculators online that work this out for you. Check your state laws in the US if considering this option. 

Take legal action: After three months, send the company a repeat statement or invoice, with interest included, and threaten legal action in the local small claims court. Call again immediately afterward. Allow a couple of weeks, call and email them one last time, then start legal proceedings.