April 23, 2019

Business Advice from Berkshire – Are your Accounts in order ?

Earlier this year I wrote an article with the above title. Earlier this week, I was sent a copy. It had been reproduced in The Entrepreneur Magazine (November 2013 edition page 53).

The content is still true today. If you would like to get hold of a copy of the text, drop me a line and I can send it to you – or you could buy the magazine!

thumbsWhy do I mention this? Well, a client of mine, having signed the accounts emailed me and asked – what about the other £10,000 of dividends I took in March, where do they show in the accounts? I have looked at his bank statements, and can only see £2,500 taken during March. The answer is that it was June he actually withdrew the amount – his emails also confirm this. I do feel better now.

What this tells me is that he has looked at the accounts, he has understood them and although he leaves entering the transactions to me, he is aware of what has gone on. The only thing I would say is he could do with looking at them a little more often. How often do you look at yours? As we are nearing Christmas, he would like to know how large a dividend he can take. Although I can advise on the basis of profits to date and potential tax bill as a result, I do not know whether his main contracts are coming to an end, how much work he will be doing over Christmas? It is this sort of information that he, being closer to the business, knows which I don’t without quizzing him. What I can suggest is that he might consider not drawing some money now and waiting for his personal tax bill which will be due the end of January. Even as director of a company, his profits are high enough to potentially push him into higher rate tax when salary is added to dividends. Do you know how much you need to put aside for the end of January?

Book coverBy keeping your accounts up to date, you and your accountant can do tax planning. Another client asked how much he could back date in pension contributions to reduce his tax bill, having explained I was not an IFA and could not advise on pensions, I suggested he saw one soon rather than later. More opportunity for planning if you know where you are now.

I am looking forward to hearing what you have spotted in your accounts. Remember, if you want a copy of the printed article, let me know by dropping me an email or leave a message below.

Poor Planning leads to..

Have you ever worked late into the night? When did you last feel you could have done a better job if you had had more time? Have you ever missed a deadline? Its all about planning.

Recognising what needs to be done and by when allows you to prioritise your tasks. Your finances should be planned in the same way. You have limited time and know it is down to you how you spend it. Treat your business funds in the same way.

You should have two types of plans which are different views of the same thing. One is a budget which sets out your planned sales, costs of sales and expenses. This may be by month in the coming year and annually for the next couple of years. In addition, you also need a cash flow statement. As it says, this is cash flowing in and out from the business with dates. This type of plan will keep you within overdraft limits, or indicate when you can take a dividend from the business (remembering to leave the money for the tax bill in the business).

A simple example of the difference is sales in a budget may show as £50,000 per month for three months. If your terms are 30 days, the cash flow would show nothing coming in during month one, £60,000 in months two, three and four and cash out of £20,000 also in month four. Where do these figures come from?

The nil in month one is down to £50,000 of sales but no one has paid you yet. Months two, three and four are £60,000 per month being £50,000 of sales plus 20% VAT) paid by your customers for sales in months one, two and three. What about the £20,000 out. This is the VAT you have collected on behalf of the taxman and received in months two and three. That is what I mean by leaving some money in the bank. Don’t forget, you have another tax to save up for as well, being the tax on business profits. Although not due yet, this would be another £30,000 due to go out. (being say 20% corporation tax on £50,000 for 3 months).

With these chunks of money due out, it is important to know, not only what you current bank balance is, but what you need to keep money back for. Even if it is only a rough idea, planning is better than penalties.

Need any help? Contact me.