Investing in an accountant can bring peace of mind and leave you free to do the ‘day job’ of running your salon. But it doesn’t mean you can switch off from learning about your finances, quite the opposite in fact, argues Brian Palmer, a tax policy adviser at the Association of Accounting Technicians.
HM Revenue & Customs
(HMRC) is taking an increasingly vigorous approach to pursuing small companies that fail to pay their taxes, whether deliberately or inadvertently, as witnessed by its announcement last year that it will be stepping up the "naming and shaming" of persistent offenders.
In fact, HMRC estimated back in 2012 that as many as 36 per cent of small and medium-sized businesses have issues with their record keeping, and may not as a result be paying the correct amount of tax. If you’re not keeping accurate records, you can incur penalties of up to 30 per cent for careless mistakes, and much higher if HMRC thinks they may be deliberate.
This all highlights why being on top of your accounting and book-keeping is such an essential part of keeping the taxman happy.
Seek professional help
The first step is to seek help from the professionals, especially an accountant.
Given that it is possible to do your books yourself, this may feel like an unnecessary cost, particularly if you are just starting out and cash is tight. But using a reputable book-keeper, accounting technician or accountant from day one could save you thousands of pounds in the long run as well as help to provide peace of mind.
So what’s the difference between a chartered or certified accountant, an accounting technician and a bookkeeper?
The first thing to point out is all these roles come under the broad category of “accountant”.
The main difference is in their level of qualification, with bookkeepers generally focusing on managing the day-to-day paperwork, doing the books (as the name suggests), creating and sending out client invoices, managing supplier bills and receipts, helping with VAT returns and payroll and so on.
The next level of qualified accountant, such as a member of the Association of Accounting Technicians, for example, is a fully qualified and regulated professional, who can offer accountancy, taxation, bookkeeping or related consultancy services. They will also be able to act more widely, for example preparing year-end statutory accounts if you are a limited company, advising on tax and VAT and offering general business advice.
Chartered or certified accountants, by comparison, are often regulated to undertake audits on companies’ accounts. Whatever level of support you choose, the most important thing is to ensure they are full member of a reputable professional membership body, such as the AAT or the Institute of Chartered Accountants in England and Wales (or its equivalent in Scotland) and the Association of Chartered Certified Accountants. This is important because it means you can be sure they are keeping their professional knowledge and expertise up to date.
Invest in your own learning
But there’s another vital point to make here. Don’t fall into the trap of thinking that, once you have a person looking after your finances you can “switch off” from understanding this part of your business.
Gaining basic financial knowledge not only allows you to have a better relationship with the person looking after your finances but, importantly, will give you a deeper understanding of your accounting system and the data going into it. This is increasingly helpful as more businesses use bespoke accounting software, whether independently or in conjunction with accounting support.
More widely, financial knowledge can help you to gain a better understanding of your competitors and how you are faring in comparison, for example by allowing you to digest and read any published accounts or annual reports.
Finally, you never know where such knowledge will lead you. A hairdresser since 1971, Gisele Falltrick runs hairXchange in Rayleigh and Hornchurch, Essex, comprising two salons and an online shop.
Learning about finance, in her case by doing an AAT qualification, has been a key part of helping to grow her business, she argues.
"When I was a hairdresser with one salon it quickly became apparent I was going to need to up-skill and learn about the financial side of my business if I wanted to grow. Of course I had an accountant but, if I’m honest, I struggled to understand him and that naturally worried me.
I began studying with AAT to understand the basics of accounting so I could have a better relationship with my accountant and, since I enjoyed it so much, I now focus entirely on the financial management side of my business and no longer work as a hairdresser.
I have two salons and employ 14 hairdressers. If I hadn’t learnt about finance and basic accountancy I wouldn’t have been able to grow my business structure. Financial management sits at the heart of every business and can mean the difference between success and failure,” says Gisele.
If you read nothing else read this…
- HMRC enforcement and inspections means it is vital to keep on top of your accounting
- Using an accountant may feel like an upfront cost, but it can lead to long-term savings
- But don’t assume you can as a result ‘switch off’ from your accounts
Brian Palmer - Association of Accounting Technicians