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As a start-up, it can be a challenge knowing where to even begin when it comes to accounting. However, it’s an important skill to know when you set up a business. But you don’t have to tackle it all by yourself. As accountants for contractors, we offer small business accountancy services tailored to those who are just starting out.

We were once start-ups too, so we understand what it takes to launch a business from the ground up – and the support you need at this time. Take a look below at some accounting basics every new business owner should know and get in touch to learn more about our services.

Why Start-Ups Need Accounting from the Get-Go

You might think you don’t need to keep on top of your accounts immediately, especially when you’ve just started your business and are busy running it day-to-day. However, being organised from the start will prevent a lot of issues down the line – including when it’s tax season.

You won’t be able to submit your tax returns without knowing your expenses and incomings. And, if you don’t know how much money you have in your business account, how will you know if it’s close to being overdrafted, for example? You may not even be aware that a client hasn’t paid yet if you don’t check your accounts.

So, by setting up a system from the beginning, you can rest easy knowing that submitting your returns won’t be stressful or too time-consuming, and that you always know what’s going on with your business at all times.

Should You Hire an Accountant from the Start?

Another thing to consider is whether you need to outsource your accounting and bookkeeping from the start. It can be tempting to save money and do everything yourself, but it’s also crucial to remember that managing accounts can take up precious time better spent on growing your small business.

Additionally, many small business owners don’t have a deep understanding of accounting, so learning it all from scratch can be frustrating, not to mention how errors may be more common in this case.

An accountant will take the stress out of the equation and free you up to manage your small business, mainly because they know everything there is to know about accounting, including the latest legislation, helping you to more easily maximise the tax-efficiency of your business.

Having an accountant from the beginning will help you during the early stages of your business, which includes business incorporation with Companies House, financial planning, payroll and end-of-month accounting.

How to Do Accounting for Small Businesses

As far as accounting 101 goes, we believe you should be aware of a few basics in order to lay the groundwork to both maintain your small business and to prepare for when it starts to grow.

Here are a few things to take into account (while the list is, by no means, comprehensive, it’s a good starting point):

Finance Your SME

Do you know what you need to do in order to secure financing for your business? There are many options to choose from, from the more traditional bank loans to crowdfunding your business, you should be aware of all of them to pick the right one – and avoid touching your savings.

Some of the options include:

  • Asking family or friends for a loan
  • Going to the bank for the loan (check out different types of loan as well as the interest rates, so that you make the right decision for your SME)
  • Opt for a venture capitalist in return for equity in your business
  • Apply for the government’s R&D grants
  • Use the government’s Enterprise Investment Scheme to get funds backed by HMRC

No matter what option you go for, you’ll want to keep strict records of everything, as you may have to pay back the loan with interest. It’s also important that you stay up to date with your accounts when it comes to these outgoings to avoid issues to your cash flow.

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Invoicing Clients

As a start-up, knowing how to invoice clients and get your payment on time is crucial, especially because every little counts when you’ve just set up a business. After all, being paid on time can be the difference between success or folding early on, as 20% of businesses fail in their first year.

You can use invoicing templates to make it easy or create invoices from scratch with details like your name and address, the amount due, the payment terms, the deadline for payment, the number of the invoice, the description of the service provided, and more.

You should also establish terms ahead of time, which includes the project deadline, what’s included in the service you’re offering, whether you charge daily or hourly, the penalties for late payments and when the client should pay the bill. This way, your clients know what’s expected of them without the need for a lot of back-and-forth messages, boosting your chances of getting paid on time.

You can also decide if you’re receiving all the money upfront, after the project is completed, or half before and half after, for instance. Receiving part of the payment in advance ensures that you’re not scrambling to get paid or struggling to pay your business’ bills that month.

If you want to make your life a lot easier, you can get accounting software for small businesses that helps you create and send invoices and keep on top of all payments. Our clients use the FreeAgent bookkeeping software, a tool trusted by thousands of SMEs, contractors and freelancers. It also automates processes, saving you time and effort.

What do Start-Up Costs Include?

There are many costs associated with starting a business. The most obvious one is the initial investment, but many SMEs require a lot of research that can be costly, such as market research and consultation frees. You may also have to invest in marketing, whether traditional or digital, since you have a new business that no one knows about.

And, if you employ staff, you will need to account for salaries and training. Another cost can be the premises themselves, whether you’re renting or buying, as well as its contents, including furnishings. The equipment you need to run a business, such as computers or machinery, is also part of these start-up costs.

There are, therefore, many things to consider before you even start to run the business. The good news is that you can claim a lot of your expenses back. As sole trader accountants and limited company accountants, we can help you figure out exactly what you’re entitled to claim back.

Choose the Right VAT Scheme

There are different types of VAT, such as standard rate and flat rate scheme, so you need to opt for the right one for your business. The standard rate VAT, for example, means you can reclaim VAT on all eligible items that you purchase or sell, while the flat rate refers to businesses that have an expected turnover or less than £150,000 in the upcoming twelve months. It makes it easier for the self-employed and small business owners to use the VAT system.

Take Your Annual Accounts into Consideration

As a small business owner, you’ll need to submit the annual accounts of the business, which are also called ‘statutory accounts’. You have to send copies of these documents to Companies House, HMRC and the shareholders of your company. These statements include any sales you’ve made, the assets you purchased, any debts you have, the stock that the company owns, etc.Man on laptop working out taxes

Consider IR35

If you opted to set up a limited company as your business structure, you must take IR35 into consideration. The April 2021 reform in the private sector changed the rules a little, as the responsibility for determining the IR35 status now lies with the client or agency.

The new changes apply only to PSCs working with medium and large companies. However, IR35 may still impact you, so it’s important that you’re compliant with the legislation. We offer advice on our ‘What is IR35?’ page, so be sure to check it out. Contact us for more information.

The Records You Need to Keep

You must keep records about the company as well as financial records. It’s crucial you keep all information about the directors and shareholders of your company, all transactions, any loans secured against the company’s assets, who you bought from and sold to, and details of debts and assets, just to mention a few.

Sole traders should keep records for five years after January 31 of the relevant tax year, while limited company owners have to retain records for about six years. Some documentation, however, must be kept for 10 years, instead, such as the minutes of board meetings.

If you don’t keep these records, you risk being penalised by HMRC when they request the information. This may include paying fines to the tune of thousands of pounds, which is always a lot of money, but especially when you’re a new business.

With Making Tax Digital, these records have to be kept digitally, which will save you space and make it easier to organise all documentation. It also means you’re unlikely to lose any important paperwork, since Making Tax Digital-compliant accounting tools tend to save the records on the cloud. Of course, make sure you have backups of anything just in case.

Find Out Your Tax Obligations

Apart from having to keep records for several years, there are other tax obligations that small business owners need to comply with.

For example, you must submit your returns by specific deadlines to avoid getting fined, you must register for VAT and pay this tax when your business’ turnover exceeds the threshold (which is £85,000 for the current tax year of 2021/22), you must pay corporation tax if you own a limited company, and more.

You have many business and tax requirements to keep on top of, so let us help you.Portrait of smiling senior woman with documents looking at camera

With so much admin and paperwork to handle when setting up and running a business, managing your accounts and taxes has become more complex over the past few years. Getting an accountant that specialises in small businesses can give you the edge, especially when you’re just starting out, so speak to us and we’ll be happy to help with your business.