3. A CHARTERED ACCOUNTANT FOR YOUR EXPANDING BUSINESS
It is not only businesses which contract that fail. A business that expands too fast may run into serious problems, from which it never recovers.
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3.1 Controlling costs
If you don't have a budget, you can't keep to it. And if you don't control your costs by checking performance against a budget it is unlikely that you will make a profit.
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Your chartered accountant can help you to draw up a realistic budget and show you how to get the necessary information from your management systems to see whether you are sticking to it.
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One of the keys to a successful business is an understanding of fixed and variable costs. Your fixed costs are those which will not change if your turnover goes up or down. Taking the lease of business premises is one example; it is an expense which will stay the same whether your turnover doubles or halves. Variable costs are the opposite; they change according to the level of production. A typical example would be raw materials.
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Generally speaking variable costs are safer than fixed costs. If your turnover falls, your variable costs will fall with it, and you may make a lower profit. However, if you have significant fixed costs, these could turn your low profit into a substantial loss.
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Conversely, if you manage to reduce your variable costs by a sensible investment in machinery, which is a fixed cost, you have the possibility of making significant profits if you can increase turnover. So there is no simple answer to the problem of how fixed and variable costs should be balanced within a business - you need individual advice for your situation from a chartered accountant.
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3.2 Internal controls
As a business gets larger, it is impossible for one person to keep the same level of personal control over it. You can’t be everywhere at once. But if you don’t replace that personal presence with good internal controls, you are going to have problems.
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A chartered accountant can make sure that your day to day business activities are designed to prevent errors and provide checks. The errors you need to guard against may be accidental – or they may be deliberate fraud. Either way, good internal control systems can help to prevent them.
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- Chartered accountants can help you balance your fixed and variable costs. That may sound like technical jargon, but it might be the difference between staying solvent and going bust
- They can also make sure that, when your business grows too big for you to watch every move your staff make, there are still ways to ensure that they are not making mistakes - or stealing from you
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3.3 Information Technology
Computers have made tremendous changes to the way businesses are run. Activities which used to take days can now be completed in hours. Businesses which used to need a room-full of staff with mechanical calculating machines can now be run by one person and a computer.
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But does information technology simply lead to wrong decisions being made with greater speed...? And who can you trust to give you independent advice on computers?
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Increasingly businesses are turning to chartered accountants. Not all chartered accountants are experts in information technology, although most have a good working knowledge of accounting software.
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Accounting software
The most obvious type of software on which to get advice from your chartered accountant is the package that you will use to keep your accounting records. Indeed, you would be very unwise to buy this without talking to your accountant first - after all, he or she has got to work with the output from it!
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Chartered accountants see businesses at all stages of development, from one person working off their dining-room table to public companies operating from multiple premises. Obviously the software package which is right for one business will not necessarily be right for another.
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That is why it can be such a mistake to buy a system based purely on the recommendation of another user, however honest that recommendation is. Even if their business is the same as yours, they may not be as familiar with computers as you are - or they may be computer experts. Their business may be much larger or much smaller than yours, or they may need a completely different level of information from their accounting system.
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Because chartered accountants see so many different combinations of businesses and accountancy software they know what works for different types of business at each stage of their development.
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The electronic office
A computer system is more than just a collection of different software packages nowadays. Whilst the paperless office has still not arrived, it is important to choose software packages which will interact easily. For example, you may need to pick up information from your accounting package and drop it into a spreadsheet for further analysis. You may want to take information from a spreadsheet, convert it into a chart or graph, and drop it into a word processed report so that even non-financial experts can understand it.
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After all, if you are going to use e-mail for most of your communications, it makes little difference whether the person you are communicating with is in the next office or the next county! But your computer systems need to be capable of handling the necessary software, and the computers and software used by your workers needs to be compatible.
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Ten years ago the internet was used only by governments and academics. Now it is a business tool. You will almost certainly find that Internet access is desirable, and in many businesses it is essential. Increasingly, small businesses are also finding that a website is a marketing tool that they cannot do without. Again, your computer systems have to be powerful enough to cope with these demands.
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Your chartered accountant may not be sufficiently expert in information technology to give you direct advice. However, he or she will have access to the information provided by the IT Faculty, and will be able to ensure that you do not get bad advice from commission driven sales staff.
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- Information technology is a key part of most businesses
- Don't buy accounting software without consulting your chartered accountant
- The paperless office may not be here yet, but it is nearer than you think
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3.4 Taxation
No-one likes paying taxes. But effective planning to reduce your tax bill requires professional advice. Don’t make decisions based on half-understood newspaper articles, or advice from a friend - they can be so wrong that they cost you money rather than saving it.
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Running a business does offer some opportunities to legally save tax. But to make the best of them, you need to talk to your chartered accountant before entering into any major transactions, so that he or she has a chance to advise you on the best approach.
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You also have to worry about the tax you deduct from your employees’ wages. On the whole, they are interested in their take-home pay. However, if you, with your chartered accountant’s help, find a tax-efficient way to get cash or benefits into their hands, that can reduce your overall costs.
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- Don’t rely on unqualified advice when it comes to tax planning. Chartered accountants know what they’re doing
- Don’t rush into important decisions without talking to your chartered accountant about the tax implications
- Do ask your chartered accountant how to save tax when paying employees
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