How a chartered accountant can help
Find out more about the type of help a chartered accountant can offer.
Setting up in business
Speak to a chartered accountant before you start your business - they can help you make the right decisions right from the start.
How are you going to set up your business - as a sole trader, a partnership, or a limited company?
You will need to consider many issues such as tax implications, personal liability, and capital. A chartered accountant will know the pros and cons of each of these and will be able to advise you on what will work best for you.
Complying with the law
There are many different records that have to be kept by a business - VAT, PAYE, accounting records of sales and purchases - to name but a few.
If your records are inadequate in any of these areas, you could fall foul of the law.
All businesses have to submit accounts to the tax authorities. All limited companies and limited liability partnerships also have to file annual accounts with the Registrar of Companies which follow specific guidelines.
Companies with a turnover of more than £5.6m (for companies with an accounting date after 30 March 2004) are required by law to undertake an annual audit, carried out by a registered auditor. However, even when it is not a legal requirement, most businesses choose to have this independent review because of the positive benefits it can provide.
A chartered accountant will know which records you are required to keep, help you to keep them properly and ensure that they are filed with the relevant authorities at the right time.
Keeping informed
It is important to have a properly designed management information system which will enable you to identify and keep track of profits and losses.
You will need to prepare this information more regularly than once a year in the annual accounts, probably quarterly, monthly or even weekly. There are a wide variety of cost-effective computers and accounting programs which can produce most of the accounting and management information needed to run a business.
Many chartered accountants are able to advise on the suitability of a system for your particular business and to ensure that proper audit controls are provided.
Planning for profit
A chartered accountant has the professional experience to examine your business ideas and evaluate profit potential. They can also help you work on break-even analysis, business ratios, budgets, etc, which can be used to set realistic financial targets. You will then be able to plan ahead and compare forecast figures with actual results.
The way your business is financed has an important effect on profitability, especially when interest rates are high.
- Should new capital equipment be leased or purchased?
- Should money be raised by share capital, loans or overdraft?
- What are the tax implications?
- Can any spare cash be invested temporarily?
All these considerations affect working capital requirements, the cost of financing the business and, of course, profits. They are not decisions that you should make without professional help.
Raising finance
An overdraft is usually the best way to finance a temporary or fluctuating cash shortage. Where a longer-term commitment is involved, a bank loan is often the easiest and most suitable form of finance.
The Government and the EC may provide financial assistance in some circumstances. This may take the form of things like cash grants, tax concessions, help with training or removal costs, subsidised rents and so on. Assistance schemes vary from year to year, from industry to industry, and from region to region.
There are many other possible sources of finance available, ranging from debenture loans to venture capital provided under, for example, the Enterprise Investment Scheme or Venture Capital Trusts. Alternatively, it may be possible to arrange finance from a merchant bank, a research foundation or some other financial institution.
When seeking a bank overdraft or loan, applying for certain types of government aid, or when you want to attract new investors or partners, you will need to present a convincing picture of your business' financial condition and future prospects.
A chartered accountant knows what information is required and how it should be presented to have the best chance of success.
Managing growth
Paradoxically, rapid increases in turnover can sometimes weaken or even destroy a business because its systems break down or because it cannot finance the increased levels of stock, work in progress and debtors which are required.
Adequate working capital and good controls over stock, invoicing, credit to customers and cash collection are among the most important aspects of good financial management in a growing business. Expansion of business activity increases the volume of transactions which have to be recorded.
Tasks such as payroll preparation, bookkeeping and accounts preparation may be better handled outside the business by an outsourced provider such as a chartered accountancy practice.
Eventually, you may wish to employ a chartered accountant full time, although there will still be an occasional need for specialist help from an independent firm. If an audit is required, it cannot be carried out by a chartered accountant in your own employ.
Buying, selling or merging
Buying:
The difficulty in purchasing a business is knowing how much to pay since there is rarely a market comparison available. Even when a public company is for sale, the quoted share price may not reflect the real worth of the business.
Thus, it is advisable to get expert advice on valuation and negotiation from a chartered accountant.
Selling:
You may wish to sell part or the whole of your own business. You will have to put a value on the business and, of course, find a suitable buyer.
Here again, a chartered accountant can help by assessing the value of goodwill and assets and, perhaps, by introducing potential purchasers.
Merging:
Merging with another business can involve complicated financial negotiation. There may be a transfer of shares or a cash adjustment between the parties and there will probably be a lengthy legal agreement which will need examination from a financial viewpoint.
The tax and accounting calculations can sometimes be extremely complex and usually require expert knowledge.
Management buyout:
The raising of finance for a management buyout may involve complicated loan arrangements between the company and the new shareholders.
The tax implications also need careful appraisal.
Minimising business tax
The dates chosen for starting or ending a business and for its accounting year end can make an important difference to the tax position and cash flow. Similarly, the timing of important transactions or purchases of capital equipment can have a significant effect.
It pays to consult a chartered accountant before committing yourself to a decision on timing, since you may be able to save tax or delay the payment of tax. Most expenses of running a business are tax deductible but there are exceptions.
A chartered accountant can help to ensure that all legally available tax allowances have been claimed and also to achieve maximum benefit from the timing of capital allowance claims. The tax implications should always be considered when investing in new equipment, buying a new car or undertaking any other major expenditure.
Depending on circumstances, the best approach might be outright purchase, loan finance, hire purchase or leasing contract.
Dividing a company's operations into subsidiary companies or branches may provide tax advantages, as may the formation of a company by a sole trader whose business is expanding rapidly.
Trading or setting up overseas brings its own problems which can sometimes be extremely complex. To assess the tax advantages and disadvantages of overseas operations, you need to get expert advice.
Agreeing tax liabilities
Filling in tax forms can be complicated. Whatever the tax assessment involved - income tax, corporation tax, VAT, etc, a chartered accountant can help to collate the necessary information and prepare the return on your behalf.
Where there is a dispute over a tax liability, a chartered accountant can handle the negotiations with the HMRC on your behalf, even to the extent of appealing to the commissioners if necessary.
Some businesses have trouble sorting out transactions which are VAT-able and those which are exempt or zero-rated. A chartered accountant can help you to understand the rules governing VAT and also advise on the type of invoicing and bookkeeping required for Customs & Excise purposes.
A tax liability may depend on the taxable value of a benefit received or an asset transferred. In such cases, the professional opinion of a chartered accountant can help you to agree a value with the tax authorities.
If too much tax has been paid in the past, it may be reclaimed in certain circumstances.
Typical examples of overpayments include a non-taxpayer's investment income being taxed at source, incorrect PAYE coding or the omission of allowable expenses from a tax return. Individuals must now make their own assessment regarding personal taxation.
A chartered accountant can help you to understand income tax rules and make sure you are fully aware of the implementation timetable.