Under company law, all businesses must prepare annual accounts, as well as annual tax returns, to file with HMRC and Companies House. Many start-ups and small businesses hire an accountant to write these reports and leave it there, but when a company begins to expand, they tend to hire a management accountant to not only generate quarterly or monthly management accounts, but also to make the accounts more meaningful for the future success of the organisation. Below is a management accounting guide for small business owners: 

Management accounting

With management accounting, the more frequent production of reports enables managers and directors to use the up-to-date financial information to help them make better-informed business decisions and maintain effective control over corporate resources.

After the production of each report, the accountant will help clients to analyse the figures in order to work out how well, or otherwise, the company is doing. The frequency of analysis can help flag up the products and services that bring in the greatest amount of money, and those that aren’t living up to expectations, as well as help, identify and control wastage, improve cash flow and reduce expenses.

The regularity with which management accounts are generated depends on the individual company. Most will only want quarterly figures, but larger companies tend to do theirs on a monthly basis.

Outsourcing

On the whole, a large number of companies outsource management accounting to specialist companies like HB Accountants. One of our directors, Keith Grover, explains the advantages of outsourcing your management accounting.

“On a quarterly or monthly basis, we will prepare a set of accounts, then sit down with you and discuss the findings. We’ll tell you what we think the important points arising from the analysis are, and advise on the best course of action. We are also happy to attend Board meetings.

“An additional advantage of doing the accounts on a more regular basis comes with making better tax planning decisions at the best time.

“In taking the role of a virtual accounts director, a management accountant can make a significant difference to a company’s success. ”

For more information about management accounting or to make an appointment to discuss it with one of our qualified team members, call us on 01992 444466 or email directors@hbaccountants.co.uk.

Knowing what your gross profit and net profit are is a fundamental part of running a business. In the simplest terms:

Gross profit – you calculate what your gross profit is by taking your total turnover, minus the costs of the goods sold.

Net profit – this is what’s also known as your bottom line. It’s what’s left after you’ve deducted all your costs from your total turnover, i.e. the costs to you of the goods as well as all your business overheads, staff costs, interest on any business loans etc.

How to use gross profit to help you increase net profit

If you are taking steps to increase turnover, it will obviously have a knock-on effect on your net profit – ideally a very positive one.

You may want to offer discounts in order to get more business – “pile them high and sell them cheap” as the idiom goes. If your overheads stay the same, this is all well and good, but if your strategy to sell discounted products is successful, you may well need to increase your overheads in order to cope with the extra demand, and this will impact your net profit.

As soon as you understand your gross profit margin, you can use it to calculate whether any extra overhead costs involved in getting those extra sales are a justifiable business expense.

We find that, as a general rule of thumb, if you are looking after your overheads properly, the net profit should take care of itself. There’s a great phrase, “turnover is vanity, profit is sanity but cash is reality”, which means you need to get your profit right before taking care of your working capital.

If your small business is based in Hertfordshire and you would like to know more about our services and find out how our local Hertfordshire Accountants can help your business succeed, contact us to book an appointment.

At Budget 2016, the Government announced two new £1,000 allowances for property and trading income to take effect for income arising from 6 April 2017.

The Government also announced at Autumn Statement 2016 that the trading allowance may also apply to certain miscellaneous income to the extent that the £1,000 trading allowance is not otherwise used.

Further detail has now been released:

• Where the allowances cover all of an individual’s relevant income (before expenses) then they will no longer have to declare or pay tax on this income. Those with higher amounts of income will have the choice, when calculating their taxable profits, of deducting the allowance from their receipts, instead of deducting the actual allowable expenses. The trading allowance will also apply for Class 4 NIC;
• The new allowances will not apply to income on which rent a room relief is given; and
• The new allowances will not apply to partnership income from carrying on a trade, profession or property business in partnership.

From 6 April 2018 Class 2 NIC will be abolished and Class 4 NIC reformed to include a new threshold (to be called the Small Profits Limit).

Access to contributory benefits for the self-employed is currently gained through Class 2 NIC. After abolition, those with profits between the Small Profits Limit and Lower Profits Limit will not be liable to pay Class 4 NIC but will be treated as if they had for the purposes of gaining access to contributory benefits. All those with profits at or above the Class 4 Small Profits Limit will gain access to the new State Pension, contributory Employment and Support Allowance and Bereavement Benefit.

Those with profits above the Lower Profit limit will continue to pay Class 4 NIC.

From 6 April 2018 Class 3 NIC, which can be paid voluntarily to protect entitlement to the State Pension and Bereavement Benefit, will be expanded to give access to the standard rate of Maternity Allowance and contributory Employment and Support Allowance for the self-employed.

Changes from 6 April 2018 will align the rules for tax and employer NIC by making an employer liable to pay NIC on any part of a termination payment that exceeds the £30,000 threshold. It is anticipated that this will be collected in ‘real-time’.

In addition, all payments in lieu of notice (PILONs) will be both taxable and subject to Class 1 NIC. This will be done by requiring the employer to identify the amount of basic pay that the employee would have received if they had worked their notice period, even if the employee leaves the employment part way through their notice period. This amount will be treated as earnings and will not be subject to the £30,000 exemption.

Finally, the exemption known as Foreign Service relief will be removed and a clarification made to ensure that the exemption for injury does not apply in cases of injured feelings.

Legislation will limit the income tax and employer NIC advantages where:

• Benefits-in-kind are offered through salary sacrifice; or
• Where the employee can choose between cash allowances and benefits-in-kind

The taxable value of benefits in kind where cash has been forgone will be fixed at the higher rate of the current taxable value or the value of the cash forgone.

The new rules will not affect employer-provided pension saving, employer-provided pensions advice, childcare vouchers, workplace nurseries, or cycle to work. Following consultation, the Government has also decided to exempt Ultra-Low Emission Vehicles which have emissions under 75 grams of CO2 per kilometre.

This change will take effect from 6 April 2017. Those already in salary sacrifice contracts at the date will become subject to new rules in respect of those contracts at the earlier of:

• An end, change, modification or renewal of the contract; or
• 6 April 2018, except for cars, accommodation and school fees when the last date is 6 April 2021.

Small business planning is very important as SMEs that fail to plan are certainly planning to fail. You’ve probably heard that phrase many times but don’t dismiss it as a cliché, learn to live by its rules. Small businesses are often so busy treading water, they spend all their energy and attention on staying afloat. Learning how to write or make a business plan is quite essential and it’s a key step for most SMEs.  But if you want to do better than ‘just about managing’, you really need to plan for the future – after all, if you don’t know where you’re heading, how do you know which direction you need to go in?

There is a myth that a huge percentage of new start-ups don’t survive the first year, but this has recently been debunked – in fact, it appears that in the UK, more than 8 out of 10 companies succeed in the first 12 months, and between a third and a half are still trading after five years.

Plan to succeed

These success rates could be down to the support that’s now available for new entrepreneurs. There are a lot of organisations that help start-ups and small businesses succeed. In Hertfordshire, the organisation Wenta has been providing advice and support – a lot of which is free of charge – for entrepreneurs across the county for over 30 years.

Writing your business plan isn’t just a good idea when it comes to applying for loans and support, it will also help you focus your ideas about your company and clarify the direction you need to take it in. Online, the government has published advice about writing a good business plan, along with links to templates and examples to help you draw up your own plans.

Planning the accounts

Our director Keith Grover pointed out that when it comes to planning your accounts, it’s always useful to have a discussion with a qualified accountant as early as possible.

“If you’re borrowing a start-up loan from the bank, for instance, you will need to plan ahead to make sure your accounts system is in place to provide them with the documentation they’ll need in the future, e.g. Profit & Loss accounts, balance sheets, quarterly accounts etc.

“You will also benefit from advice about your business structure – limited company, sole trader etc – and the tax implications that might arise.

Some business people also find it useful to put in place a business agreements at this point, detailing the arrangements to extricate themselves from any trouble that might happen in the future.”

So, failing to plan could have disastrous implications for your new business – planning to succeed will put your company on the right road.

Keeping your accounts in order will help you make better business decisions. We can help you plan for the future when it comes to account management and your tax returns. If you would like to talk to us to see how we can help you, call us on 01992 444466.

It doesn’t matter how many members of staff you have working for you, getting the payroll right is crucial to your business.

The main reasons companies outsource payroll services are to save time and to make sure they’re fully compliant with legislation. If you’re not a payroll specialist, then you’ll have to spend time trying to get to grips with the process when you could be more productively working on your core business instead. Payroll can be straightforward to implement if your employee/s have no issues. But most of the time there are other things to be taken into account such as statutory sick pay, maternity pay, student loans, deductions earnings orders etc.

Keeping in line with legislation is hugely important, so if you’re not outsourcing, you will need to be pro-active to make sure you don’t risk having to pay fines for not getting it right. Legislation about tax, NI and pensions is changing all the time and you could be spending precious time away from your core business researching changes in the rules.

At the moment, companies are getting to grips with the new rules about workplace pensions. Your payroll company can help you implement this and will assist with enrolment of team members and uploading the correct data direct to the pension provider, saving you a lot of time in the process.

Cost-effectiveness

If you weigh up the amount of time you would need to spend every month making sure you complete the payroll correctly and on time, at the same time as continually researching the legislation to make sure you are up-to-date with the laws, it becomes obvious that outsourcing payroll is a cost-effective exercise. And there’s always the worry that if you are not concentrating your time and energy on your core business, you could actually be losing business as a result. And if you make mistakes in the payroll, your business could be subject to fines.

Also, if you run a smaller company, outsourcing will be much more cost-effective than having dedicated team members to run your payroll. Outsourcing also solves the potential problems caused by staff sickness and holidays.

HB Accountants have a dedicated department of payroll professionals who will take care of all your payroll needs. We use HMRC-compliant software and deal with companies of all sizes, from sole traders to limited companies with over 100 employees. If you would like to find out how we can help your company payroll, contact us for more information.

There has been a lot of uncertainty in the world this year, with political events sending the stock marketing yo-yo-ing and the continued drawing out of Brexit making the markets increasingly nervous. What’s going to happen to investments in 2017 is almost anyone’s guess, and in some quarters appears to be more influenced by psychics rather than solid facts. One woman in America, for instance, is predicting a stock market crash because there have been crashes in and 1987, 1997 and 2007.

What to consider when deciding on investments

You don’t have to have a lot of money to make an investment. A simple savings account with a bank or building society counts as an investment. Other types of investment are:

• Fixed interest securities, which are also known as bonds, in which you invest in a government scheme or a company
• Shares, when you buy a stake in a company
• Property, such as buying a residential or commercial building
• Commodities, such as oil, steel, gold etc

• Foreign currency
• Contract For Difference, which are a kind of financial derivative
• Collectibles, such as art, antiques or even wine

Taking risks

You will always be taking a risk on any investment you make, even if you’re just putting your money into a savings account because the interest rate doesn’t always keep up with inflation.

If you’re investing in the stock market, although the rewards could be high, the risk is that you end up selling at a lower price than you bought them for, giving you poor returns.

How much you invest, how many risks you’re willing to take, and how long you’re willing to wait for a return on your investment is very much up to you. The perceived wisdom is that you never invest more than you can afford to lose, and to spread your investment over a number of companies – diversifying.

Getting the right advice

What you do need to do is talk to a good financial or investment adviser who will find out more about your circumstances and wishes, and then discuss the options to consider. Whoever you choose, make sure they are regulated by the Financial Conduct Authority (and not Mystic Meg!).

If you would like impartial advice on investment and wealth management, contact us to make an appointment with one of our experienced advisers.