I’ll hazard a guess that this is not a headline that will make your pulse race with excitement.
No doubt you’ll have seen the TV ads for software, such as Quickbooks, Xero, Sage, and others. They make running a business seem effortless and cool, but surely it can’t be as easy as it appears?
In reality, if you sign up for online accounting software, setting it up to do what you require takes time and commitment. But it is worth it, and here’s why.
Know Your Numbers
Online accounting software can provide you with information about all aspects of your business finances, to help you recognise which bits are doing well, which bits need attention, and which decisions and plans you will need to deal with the future, whatever it holds.
The challenges of 2020 have highlighted the importance of really understanding your business finances – the key aspects of which are:
1. Cashflow – Online accounting software can project future receipts and payments weeks or months ahead. It will help you identify if there may be a cash shortfall coming up, which can help you make decisions about reducing expenditure, seeking additional funding, or investing further in your business.
2. Managing Customer Credit – no matter how successful you are at selling to customers, if they don’t pay you, you don’t have a business.
Online accounting software can give you a snapshot at any time of who owes you money, and how long the funds have been outstanding. This gives you the actionable information you require to get your money more quickly.
At times like this, when cashflow may be tight, that’s a really valuable tool to have at your fingertips.
3. Profitability – you need to know how much profit your business earns, which means understanding your costs, and knowing how a change in income will affect these costs.
If you have more than one product, or premises, accounting software can help you identify the profit generated by each. This helps you know which areas are costing you too much money, and allows you to focus your efforts on the most profitable parts of your business.
4. Costs – it is generally much easier to manage costs than income, but many businesses have no idea how much they spend. If you allow your costs to run away with you, it is easy to turn a business that should be profitable, into a loss-maker.
Having up-to-date information about costs will help you decide where cutbacks can be made to improve profit and free up cashflow.
The biggest advantage of all, is that all this information is current, up-to-date, and instantly available.
You don’t have to wait until after your accountant has finished your year-end accounts before you know how much profit the business has made. As long as your online records are well-maintained and regularly updated, all of this information will be right in front of you.
Making Tax Digital (MTD)
MTD is the HM Revenue & Customs (HMRC) project to modernise the tax system. The crux is that most businesses will submit quarterly income and expenditure reports directly to HMRC from digital records, instead of submitting an annual tax return.
Currently, MTD applies just to VAT returns, but from 2023, the project will expand to include self-assessment, and therefore will have an impact on most businesses in the UK.
Online accounting software is already compliant with MTD, so if you have mastered it by 2023, you will be able to meet your filing obligations more readily.
Accounts On The Go
Online accounting software allows you to update your records, and check your business performance from anywhere.
Most software has a browser version which you run on your laptop or PC, and a mobile version which you can download via an app onto your phone or tablet.
Furthermore, your accountant will also be able to access your records directly, and see the same information you do. You can continue posting to your accounting records – keeping them up to date – while your accountant does their work.
This makes the whole process of completing your accounts and tax returns much more efficient.
Estimating Your Tax Liabilities
The number one question most clients ask their accountant is ‘How much tax/ VAT do I have to pay?’
Traditionally, you would have had to wait until your accountant has completed their work before you know.
Using online accounting software, you can get a profit figure, and therefore a good indication of your tax bill, at any time. If your accountant can access your software, they too will be able to advise you.
Getting The Most From Your Accountant
Accountancy fees are generally a significant cost for businesses.
The majority of the cost can be for the preparation of the accounts; finding missing bank statements, unfolding tiny till receipts, putting paperwork into some sort of order, and then posting it all into a book-keeping program or spreadsheet.
If a business uses online accounting software, much of that work will have been done before the accountant starts the job. This enables your accountant to spend more of their time giving really valuable advice to your business.
The more you can do to produce good quality records for your accountant, the better the service that you should get from them. The biggest caveat to all of the above, is that the figures produced by the software need to be as accurate as possible, otherwise the information you are relying on will be meaningless, and the potential efficiencies will be lost.
Once you have taken the plunge, it is worth investing some time and money in getting the software properly set up for your business, and learning how to use it well.
That’s where I come in!