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Accounting & Bookkeeping Cash Flow & Forecasting Finance General

What are the accounting options for SMEs?

woman doing her accounting I have talked previously about the importance of having up to date and regular Management Accounts where there are fundamentally two options for producing them: either doing the data entry, bookkeeping and accounts in-house, or outsourcing all or part of the work to a specialist firm.
Related to this is whether certain services are outsourced, such as Year End accounts, tax returns, payroll and pension administration.
Hybrid options should also be considered such as data being entered into the accounts by in-house staff with external bookkeepers or accountants doing more advanced work such as bank reconciliations, producing VAT returns and producing management reports.
If any of the work is done in-house, then suitably trained staff will be needed as will having access to the right accounting packages.

Considerations when looking for an accounting package

There are several accounting packages that might be considered where the main factors are choosing one are whether it produces the reports you want, does it have the functionality you need, is it appropriate for your business, its ease of use and cost.
Most packages are now cloud-based so you are likely to pay a monthly fee. Most also provide scope for upgrade and adding functionality depending on the size and complexity of the business and its requirements but for smaller businesses it makes sense to start with a basic package.
Among the best-known for SMEs are Sage, Quickbooks and Xero and all of these are flexible with scope for adding more functionality and reports.
The basic requirements will be to produce standard reports including: profit & loss, balance sheet, trial balance, aged debtors and aged creditors. These should also allow for reporting by period such as last month and year-to-date figures and the ability to compare them with the same period last year.
They should also make it easy to produce and file VAT returns, do invoicing and produce account statements for reconciling accounts and chasing payments. Additional functionality could include daily reports of key figures, monitoring dashboards, links to bank accounts, managing and online filing of payroll, pension auto-enrolment and, if relevant, the tracking of stock and order processing.
A package that offers all these options can be used for monitoring efficiency and business processes, for monitoring cash flow as well as producing Management and Year End Accounts, but remember, the more sophisticated the package, the greater complexity and higher the monthly fee. Do remember when producing reports based on data, “rubbish in, rubbish out”.
Backup, security, reliability and update of the software are also factors.
Related to the package decision are controls which might be done through the package such as of purchasing decisions to issue and approve prices and orders, and cash flow management to make and authorise payments. I advocate that these should be separate from those administering accounts and done by different people.
If all of the above are outsourced, then a business doesn’t need its own accounting package as the outsource supplier will use their own. However, if any of the work is done in-house then one will be required. Some outsource suppliers use several packages and can be flexible, however most use a preferred brand so you won’t have a choice and you should check it can be tailored to suit your business. You will also need to check if you need your own version for them to access and work on or if you can have access to theirs.
If you do decide to do all or any of the work in-house, then in addition to choosing a package you will need to consider the cost and overheads associated with both employing staff to carry out the work and training them on how to use the software.
There is no doubt that a comprehensive and detailed accounting system is needed to monitor productivity and cash flow, and the right one can save time and cost, but clearly considerable research and thought is needed before choosing the appropriate accounting package for your business.
Your accountant, providing they know and understand your business, ought to be able to help you choose the right one.

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Cash Flow & Forecasting Finance General Turnaround

Why do you need regular Management Accounts?

regular management accounts reviews are your business map and compassWhen setting out on a car journey you need a destination, map, and ought to check the traffic and weather reports, so you can choose the optimal route. You also need to have enough fuel and money to buy more if needed. Indeed, there are many aspects of the planning that are taken for granted for regular trips that you will think about for a holiday or long journey.
Along the way, you will check where you are on the map, monitor traffic and weather conditions and make changes accordingly. You will also monitor your fuel and refuel as necessary. You might even monitor fuel efficiency and adjust your speed to reduce consumption.
This analogy can be applied to running a business. It can be difficult enough to keep a business on track to meet its goals and forecasts, even without the external effects of ups and downs in the economy and, currently, the uncertainty being caused by the ongoing Brexit negotiations.
Therefore, a business needs to be able to assess at regular intervals how it is performing as well as being able to spot early warning signs that something may be going wrong or veering off track. This is where monthly Management Accounts are so useful.
The components of monthly Management Accounts, as outlined in our blog of February 13, 2018, would ideally include an up to date Balance Sheet, a detailed Profit and Loss statement, a Trial Balance and summaries of Aged Debtors and Creditors.
These are the business equivalents that allow you to check where you are on your route map. They provide an indication of the state of your business, its continued health and its ability to reach its destination as defined by the goals you set and forecasts you prepared as part of your planning.
The Balance Sheet, for example, shows the company’s assets and liabilities and more importantly how much money is has in the bank, how much is due and how much is owed to suppliers and others such as HMRC. These are key to monitoring short-term cashflow, which needs to be well-managed if the company is to avoid running out of funds.

Regular Management Accounts are your early warning system

Ideally Management Accounts should be reviewed monthly, or at the very least quarterly.
They will tell you how well sales and margins are doing and how they compare with forecasts and targets. Organising them to provide detail can allow you to see performance by product line or by market segment, even by customer if you have some large accounts. You can also monitor costs which can also be reported in detail so in turn margins and profit contribution by product line or market segment can be monitored.
The information will allow you to adjust the business goals and forecasts as appropriate. If costs are rising, it may be time to review which suppliers you use, perhaps also staff overheads.
You might also monitor the cost of repairing and maintaining machinery or equipment and use this to assess when it should be replaced,
If there are financial anomalies, they may indicate fraud or other malpractices that need to be investigated and dealt with.
Above all, a regular review of Management Accounts will allow you to stay in control of your business and provide you with the information to make early decisions that move it forward in the best way possible.

Categories
Accounting & Bookkeeping Cash Flow & Forecasting Finance General

What are the main ingredients to include in monthly Management Accounts?

Ingredients in Management AccountsRegularly reviewing your Management Accounts is one of the most helpful ways for you to monitor the performance of your business.
It is essential to monitor the right metrics so you know how the business is doing and can make adjustments as appropriate.
There is no legal requirement for a company to produce Management Accounts on a regular basis but waiting for the Annual Accounts is too late if you want to make the ongoing adjustments necessary to improve productivity.
The frequency, quality and type of information they contain is therefore crucial.
Ideally, Management Accounts should be produced monthly and should contain an up to date Balance Sheet, a detailed Profit and Loss statement, a Trial Balance and summaries of Aged Debtors and Creditors.
The Balance Sheet shows the company’s assets and liabilities and how much money the business owes to suppliers at any one point in time as well as how much money it has in the bank. Central to this is the cashflow, which needs to be well-managed.
The Profit and Loss (P&L) statement ought to report both monthly and year to date figures. Overall it is a measure of the business’ health although some companies make profits but poor cash flow by not getting paid. The P&L can also be used for much more by reporting sales by market or product sector and their associated cost of those sales and direct costs to monitor margins. It might also group overheads into logical cost areas. so you can monitor the fixed cost elements of your business.
Maintaining a spreadsheet of the monthly P&L is also useful to show trends and monitor the success of marketing initiatives. This spreadsheet in particular is a key tool for establishing a culture of continuous productivity improvement.
The Trial Balance is a useful reference for looking behind the numbers. Essentially all entries in the accounts are allocated to a Nominal Code where the Trial Balance is a list of all the Nominal Codes with a value of all entries against that code. The Balance Sheet and P&L consolidated the values for a number of codes to produce a meaningful report. As an example there may be several different sales codes where the P&L may report only one. I use this example as I have suggested earlier that the P&L report several sales codes since it is easier to monitor the P&L than the Trial Balance.
Another aspect of the Trial Balance is to monitor errors in the accounts since it relies on the double-entry accounting system. If the total debits equal the total credits, the Trial Balance is considered to be balanced.
The Aged Debtors and Aged Creditors are also useful. While I suggest a summary schedule is used to avoid having too many pages of information, the detail reports by customer/ supplier show the individual sales and purchase invoices so you can monitor which ones are outstanding.
The Management Accounts can be a great source of management information but need engagement with your accountant or accounts controller to set up the reports in the first place. If you have the right information you can make the right decisions, it’s all about having the right ingredients.

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Business Development & Marketing Cash Flow & Forecasting Debt Collection & Credit Management Finance General Rescue, Restructuring & Recovery Turnaround

Pre-election honeymoon period for businesses?

With an election looming it is unlikely that there will be any controversial legislation between now and May that will upset SME voters.
There may, on the other hand, be promises made in party manifestos, though we’re not commenting on whether they will be kept!
The pre-election honeymoon period is, however, a good time for businesses to get their finances and their operations in order.
Personal tax returns should have already been submitted (by 31 January) and firms ought to be ahead of the curve with their RTI (Real Time Information) systems in place (the deadline for SMEs is 6 March). It is also time for SMEs to make sure they have a planning time frame for pensions auto-enrolment as the various deadlines are looming (depending on the number of employees and whether an application for deferral has been agreed).
So this period provides a small breathing space for businesses to do some housekeeping and make sure their affairs are in order before the next onslaught of initiatives from a new government, which may be one that philosophically doesn’t like businesses.
A close look at the monthly management accounts may identify adjustments that can be made to operations that improve efficiency, cut costs or reduce risk. It may also identify scope for reducing debt or building up a war chest for investment. It may identify finance facilities that are due for renewal in the near future that might better be renewed early.
It could also be a good time to assess how well the marketing has been performing and tweak it if necessary.
How will you use this time to create a sharper, more efficient and more competitive business for the next financial year and be ready for whatever the election brings?