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Understanding your small business accounts

Understanding Your Small Business Accounts

If you are a small business owner and you’ve hired an accountant to look after your finances, you may think that you don’t have to worry about looking at your accounts at all. However, for an accountant to manage your accounts well, they do need the business owner to understand the process and what is needed from them.

Here are a few tips that small business owners can do to help their accountant.

Look at your company bank statements

How often do you actually take a look at your bank statements, or do you assume that your accountant has it under control? Do you look to see if there are any abnormal bank charges or payments that you don’t recognise?

If you’re not regularly looking at your statements, you could allow yourself to fall into a trap of potential fraud, and sometimes this can come from people who you trust or least expect. Are you checking that your credit card bills are being paid? Are you sure that your balance is correct?

It is your responsibility to know and what’s going on with your bank account.

Look and understand your balance sheet

As a small business owner, you should know what’s going on with your balance sheet. Are there fixed asset items that could be expensed instead? Are there changes that are happening on a regular basis that you’re not sure about? Ask your accountant to clarify what specifics mean if you’re not sure – understanding your balance sheet is good business practice and gives you authority over what’s happening.

Keep track of expenses and receipts

An accountant will reconcile your books and keep track of what money is going in or out but it’s a good habit to keep track of your own expenses and hold on to receipts to be prepared for the end of year tax forms. If you’re using an online accounting system like Xero, it’s super simple to manage your receipts, however making note of what everything is for will also help your accountant so they can allocate funds to particular parts of the business.

You could segregate your expenses into five categories:

Meals and entertainment – meeting a client for lunch or in a cafe is great, but remember to hold on to the receipt, and record who the meeting was with and the purpose of the meeting on the back of the receipt.

Business travel – sometimes it can be hard to distinguish between personal and business travel but if you document and keep hold of receipts when out on business travel, it’s easier for HMRC to see what you’ve been up to.

Vehicle-related expenses – when you are driving for business, keep a note of mileage and where you have been. If you use the vehicle for personal use as well, you’ll be able to work out the percentage of expenses available to claim on behalf of business use.

Receipts for gifts – ensure that any gifts purchased for clients or staff are noted. You will not have to pay tax on the gift for a member of staff if:

  • the gift was under £50,
  • the gift was not a reward for their work or performance,
  • the gift was not given in cash,
  • the gift wasn’t in their terms of contract.

Home office supplies – similar to the vehicle expenses, you will need to make note of personal/business use of home office supplies and purchases. If the item in question is used for both personal and business use, you will need to work out a percentage of what was used for business use, which can be claimed back for tax purposes.

In order to stay on top of all the above, it’s good to keep all receipts, whether you think they are relevant or not and let your accountant make the final decision.

Check the payroll reports

Although this is a job usually performed by the accountant, just as the balance sheet, take time to check the payroll reports. Make sure you are aware who is receiving wages, bonuses and that no one has been added in to receive extra money (it has been known for untrusted staff to add family members or other sources in to a company’s payroll) – just be vigilant!

Know your numbers

Starting a business or watching your business grow can be a daunting process but understanding the figures behind everything will help know what’s happening from start to finish. Be involved as much as possible and be accessible when your accountant needs information, it all contributes to the success of your business.

Small business owners hire accountants, trusting that they will do a good job with their accounts and everything will run smoothly. This is 99% the case, but there are occasions where this may not be the case. It is your responsibility and liability to be aware of all that is going on within your business. By understanding your accounts processes and doing your part, you are helping your accountant to smoothly fulfil their job, leaving no room for error or mistakes.

As an accountancy firm that works with many small businesses, we believe it important to educate all our clients on best practice for their finances. With Kara Accountants you can be assured that you are our priority and your finances are in great hands! If you’d like to know more about working with an accountant as your business grows, feel free to get in touch, we’d be happy to help.

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