We all love everything that being an entrepreneur stands for. Entrepreneurship depends on extreme dedication and passion toward a greater purpose. It means an undying commitment to learn and ask the right questions at the right time. The team at Business Crowd know that answers to these questions are extremely hard to find for growing businesses. Selecting the top accountancy questions from their communities they decided to take them to KPMG SBA for some expert insight. Here’s what happened.
1) At what stage should I start looking at accountancy services’ for my micro biz?
The ideal time is once you’re past the concept stage, as soon as the business starts trading and making sales. At this point, it’s worth thinking about what structure to operate under, whether as a sole trader or limited company, and the VAT implications.
Micro businesses may also want to consult with an accountant when they start thinking about taking on employees and need to run a PAYE scheme.
2) Accountancy services are quite expensive. How can I expect to save money?
Start by deciding what form of financial support you need, if any, whether it’s the basics of year end accounts and tax returns, or more in-depth help with bookkeeping and day-to-day finances.
Bear in mind that good financial information, such as pinpointing profitable work and highlighting losses, can enable business owners to make better decisions. Our recent study found small firms with up to date information grew twice as fast as those relying on old data in 2015. Wherever you get your information from, it pays to know your numbers!
When assessing the options consider the impact on your own time and in-house resources. It can be useful to look at comparisons such as how much it would cost to hire a bookkeeper versus how much time will be taken up managing it yourself.
Look out for all-inclusive options and weigh them up against traditional pay-by-the-hour accountancy services.
3) What services should micro businesses look for when comparing different accountancy options?
Micro businesses might find it useful to think of accountancy services on three levels. At the base level sit traditional services like tax returns and payroll, with the second incorporating bookkeeping, cashflow and consultancy on topics such as how to save your business money.
At the top, micro businesses can think about whether their financial provider could help with broader issues such as access to funding.
4) What would you say are the biggest financial pitfalls that micro businesses fall into?
One of the greatest problems for micro businesses is cashflow. Late payments, lack of financial diligence, and struggling to cope with a sudden surge or drop in demand can all lead to instability.
Funding is another area where many micro businesses struggle, as they face decisions over whether to grow the business organically or approach funders to secure a cash injection. Organic growth can provide greater autonomy over the pace of growth, but can limit resources for marketing and talent acquisition, leaving a business more vulnerable to competitors.
Equally, business owners need to work out exactly how much money they need from investors. Too little and the need to generate further rounds of funding can damage credibility. Too much and they can out-price future potential funders. On the plus side funders do usually contribute broader experience and business advice as well as capital.
5) Late payments are a growing concern for micro businesses in the UK. How do I safeguard my business?
We recently polled 1,000 UK small business leaders and late payments came up as their number one challenge. While larger businesses can absorb these costs to some extent, micro businesses may have to turn towards cost reductions, overdrafts and other short-term finance to bridge the gap. Some even have to rely on personal finances like credit cards.
Chasing late invoices is also a real drain on time, which micro businesses could be using for income-generating work.
Payments can be difficult to discuss, but all work should be underpinned by a contract signed by both parties stating payment terms, and penalties if they are not met.
Businesses can also look at the appropriateness of different options including offering discounts for prompt payment to regular clients, and taking a higher percentage of payment up-front.
6) The government has plans to introduce quarterly tax returns in 2020. How do you see it affecting micro businesses and startups?
The idea behind these plans is to provide certainty about what needs to be paid and when, with the pay-as-you-go option meant to alleviate cashflow pressures.
A lot of people are worried about the idea of having to do four returns rather than one, although if the digital system works as well as HMRC promises it should be less laborious.
Similarly to online banking, the new system is intended to be accessible, but the government needs to acknowledge that small businesses owners have varying digital knowledge and many will need support.
Lastly, any change in tax returns is bound to make people wary – micro business owners have so little time that being told they have to learn a new system is pretty unappealing. This is where both accountants and the government need to help make the transition as easy as possible. Good guidance and well-staffed helplines will be essential.
7) As a micro business would I be worried about interest rates raising?
Increased interest rates would affect both micro businesses and the clients they rely on, but the extent to which a business would be vulnerable is determined by several factors.
A micro business that has a higher cash reserve, and lower levels of borrowing, will be in a more resilient position than a firm with overdrafts that needs to pay more interest. Equally, consumer confidence tends to dip when rates increase, so certain businesses may find themselves with less demand.
Higher interest rates can make it easier for startups to receive capital from banks, but those that use alternative finance for borrowing may find the rate increase has little impact on their loan.
What makes KPMG a good service for my small business compared to independent accountants?
For a fixed monthly fee (from just £125 a month) you get unlimited access to your own UK-based dedicated KPMG accountant, as well as a great range of digital services. We cover bookkeeping, tax, pension and payroll, and we can help small businesses by acting as an outsourced FD.
Accounts are calculated in real-time, online, so you can see them whenever you need. You don’t even have to collect receipts – just take a picture on your phone. We also help facilitate introductions to all sorts of useful contacts and networks, so ambitious small firms can access everything from investment to new markets.