Welcome
We pride ourselves on being a leading independent firm of Chartered Accountants and Tax Advisors, providing clients with practical and realistic business advice. Not only are we committed to a high standard of service in accounting and taxation matters, we aim to provide our clients with information that may be important to the running and development of their businesses through advice on a wider basis, helping them to achieve greater efficiency, profitability and cost reductions.
With specialised consultants and professional staff, our clients are located in and around the Southampton, UK area. Our aim is to provide comprehensive, Fixed Fee accounts and taxation services to small and medium sized businesses; this includes family owned companies, contractors, partnerships and sole traders.
A Few Tips on How to Manage Your Working Capital
Working capital is the cash-on-hand available to a business for day to day operations. A retail grocery store may need cash on hand to pay vendors that require payment on delivery. A clothing boutique may need funds to pay for buyers to go to various fashion events to determine what to buy for the coming season and an auto mechanic needs money to purchase parts and supplies to complete car repairs. Manufacturers need working capital to purchase raw materials to make their products. Every type of business needs working capital. Effectively managing working capital is one of the strongest skills a small business owner should harness.
In terms of finding a few tips on how to manage your working capital, there are three objectives to consider. The objectives include having enough cash to make necessary payments when due, making sure the money does not cost more due to interest on a loan or overdraft protection policy, and planning for increase cash flow needs in the future. To meet these three objectives, you must skilfully manage how money is managed in other areas of your business such as debtors, creditors, and tangible assets.
- Debtors. Customers who buy from you on credit, even moderate credit terms like 30 days, have your company’s working capital health in their hands. If they do not pay on time, your cash flow can be seriously dented. Therefore, do not let poor paying customers go too long before taking action. Problem accounts could be moved to a cash-only basis before they put too much strain on your funds.
- Creditors. Just as you should not overload your household with more debt than your income can support, your business’s creditors should be kept to a minimum both in number and accrued balances. When possible, take advantage of early payment discounts or pay cash to avoid interest. However, there may be times when financing is a better option than using working capital. This is generally true for large purchases such as facilities, transportation, or expensive equipment.
- Inventory. Carrying high levels of inventory when it is in demand is good for business as well as revenues. However, carrying a lot of inventory when demand is low hurts your cash on hand. When cash is tied up in inventory, sales must increase in order to rebuild cash levels. Similarly, a shiny new facility may be nice, but if it leaves you cash strapped, you won’t have the working capital you need for day to day expenses.
Management Accounting – The Basics
Accountants Southampton – Business Bookkeeping Advice
If you have been running your own business for longer than five minutes you will no doubt have enlisted the services of a professional accountant; hopefully you have chosen to use a qualified one who is a member of one of the accredited professional bodies and with luck you’ll have also found one that is personable and easy to talk to.
So, you understand a little about the importance of accountancy to your business, you know that your records must be kept accurately and information provided to you accountant when he asks for it; you know that accounts need to be prepared and submitted on time; you are in fact quite confident that you have the area of accounting completely sewn-up for you business, and then someone starts to talk about ‘management accounting’ and you are back on the learning curve again. You assume that it is something to do with accounting for managers, and just hope that your accountant has it covered.
In actual fact it is something that as a business owner you should be using yourself; it is an important tool for the running of a business, regardless of type or size. “I am not an accountant!” I hear you cry, and indeed you may at this point be squirming in your seat thinking about how much you prefer not to get involved with anything to do with the accountancy side of the business, it is after all what you hired an accountant for.
‘Management Accounting’ is actually the term applied to the gathering and use of accounting information in a business, when that information is to be used by those managing the business e.g. you the business owner, and so although it does have something to do with accountancy, it is much more concerned with helping you to make informed business decisions than it is in keeping your accountant happy.
Management accounts differ from financial accounts in several ways, they are most usually confidential for a start; the information they contain will be very specifically geared to what the person running the firm will need to know and is most commonly forward-looking and will include projections and forecasts rather than historical information.
A good set will usually focus on ‘strategy’, ‘performance’ and ‘risk management’ and will include budgetary calculations as well as sales figures. In fact it is highly likely that you are already using this sort of information regularly in your business life without actually giving it a label.
So, when someone tells you that they have just engaged a ‘management accountant’, they are simply talking about an accountant who specialises in this field; they may provide more in the way of business analysis and will almost certainly provide regular reports, probably on a monthly basis; many qualified accountants will be able to provide this service for your business and it is certainly worth looking into, because as a tool for aiding the smooth running of your company it is incredibly useful.
However, whether you choose to get your accountant to prepare monthly accounts for you, or you simply gather all of the relevant information together for yourself, ‘management accounting’ can help you spot problems well in advance of their arrival, so it is probably a tool that you can’t afford not to use.
Profit and Loss Accounts – Accounting Basics Every Business Owner Should Know
There is absolutely no doubt that business owners, especially those with small businesses should have a firm understanding of the basics of accountancy and bookkeeping. This is not to suggest of course, that they should be able to set themselves up as accountants in their own right, or indeed that they should be attempting to take the place that should rightly be filled by an accountant in their own business, but far too many business owners totally abdicate all responsibility for their business finances and hand it all over to their accountant, without the slightest idea what he will do with it.
This state of affairs is a very dangerous way to run a business of any size; a good business owner should be able to sit down with his accountant and discuss things, and understand what he is being told. The same goes for bookkeeping; there is nothing wrong with hiring a professional to keep your books, but there is no excuse for not knowing how they are kept.
Take for instance P&L or ‘Profit and Loss’, for some business owners the very thought of looking at something that sounds so accountanty is terrifying, and yet this particular job is so incredibly simple as to be almost child’s play. It is also an incredibly important tool in business, as it allows the business owner to check how well or otherwise their business is doing.
A P&L account, although only needed on a formal basis if you are a Limited Company, in which case a full account will need to be submitted to HMRC each year to enable them to assess for Corporation Tax, is essentially, as the name suggests, a report of the profit and any losses made by your firm usually over a 12 month period. To prepare a P&L account, simply take a summary of all your business’ expenditure and sales and deduct your expenditure from your sales and you will have your profit (or loss).
If you are looking for any sort of future funding for your business, an accurate P&L will be vital, as most lenders won’t move without one, but it will also help you to know whether or not your business is moving in the right direction; making a continually loss will set alarm bells ringing.
In order to make your P&L as accurate as it should be, your records will need to be properly kept, without omissions or missing information. The figure that comes out at the end will only be as accurate as the figures you have used to produce it, so ensure that you are careful.
Like so much of the rest of the rather complex sounding business terminology P&L is actually very simple, and nothing more or less than the answer to a subtraction sum.
So, the next time that an accountant wants to talk profit and loss over tea and crumpets, tell them you’d be happy to and perhaps take a little more control over other aspects of your business’ finance; the rewards you reap may be more than simply financial.
Managing Business Growth – The Problems With Overtrading
Accountants Southampton – Growth Management
Overtrading and the problems it can create can be quite difficult to comprehend. Surely, if a business is selling many of their products and their customer base and profit are growing rapidly, how can this be a problem? Indeed, not only can it be a problem but in some extreme cases, it can lead to a business having to cease trading.
The fundamental reason why overtrading is a problem is that it can put a huge strain on the resources of a business, particularly cash flow. If turnover is increasing too quickly, then you may need to acquire more machinery or equipment to service the increase in customer numbers. It may even be the case that you need to move to bigger premises or a larger office with more storage space. Therefore, growth in sales will likely to be matched by an increase in the need for capital investment and other working capital. If the business does not retained profit to fund this rapid expansion then they attempt to borrow it. These borrowing facilities can be very costly. However, many new businesses which experience overtrading find themselves unable to obtain additional funds due to a lack of trading history and are forced to reduce the size of their operations or possibly ‘throw in the towel’ altogether.
Other costs that can cause huge drain on working capital when growth is too rapid are staff costs. With any expansion comes the need for increased numbers of employees. This can be extremely expensive for a business to fund, especially when combined with any increases in connected payroll taxes. In addition, if your sales are increasing quickly it may mean that you need to carry larger quantities of stock and thus more of your capital will be tied up in that inventory. Again, stock is like many other asset, if you own too much of it, it can starve other areas of the business which urgently need funds.
There are a number of precautions which one can take to prevent the potentially damaging effects of overtrading. Firstly, growth should be managed properly and with a sound understanding of how it will affect the working capital of the business. By producing sound monthly budgets, cash flow projections and monthly management accounts, you will be in a far better position to control the potentially damaging effects of rapid growth. Secondly, before you grow too quickly, look to secure increased funding. In other words, it would be a prudent idea to approach your bank and get the ‘green light’ for future finance to fund expansion, should you need it. Having this contingency finance at the ready will mean that working capital can be maintained and growth can be managed properly. Lastly, to avoid the effects of overtrading, it might be a good idea to take the ‘only what I need’ standpoint. For example, rather than hold larger and larger sums of stock when you are growing, consider ordering your stock ‘just in time’ (JIT). This can reduce your stock holding costs considerably and again free up all that working capital held up in stock. Alternatively, only buy equipment which you really need or see if you can buy any second-hand equipment which will be cheaper but still do the job. Again, with everything you buy for you business, ask yourself the question: is this something I really need or just want?
The End of Year Chat: Important Discussions to Have with your Accountant
If you are the sort of business person who prefers almost anything other than sitting down with your accountant and talking about your business, the chances are that you will probably be under using their talents. If you are lucky enough to have a ‘fixed fee’ service that allows you to get in touch and ask them questions all for a fixed price, then you would be mad not to take advantage of this seriously useful resource. If however you are still paying your accountant by the hour, you could perhaps be forgiven for not wanting to run-up your bill with question and answer sessions.
There is one time of year however when even the most reluctant of accountancy clients will find themselves sitting opposite their accountant and that is at their end-of-year review, and to miss the opportunity of getting some valuable business advice from them would be criminal.
So, what should you be asking them?
It is probably a good idea to ask your accountant to review your expenses, to ensure that you are not missing out on things that you could be claiming for; a good, creative accountant will know exactly what can and can’t be claimed against tax and having this information will allow you to plan your business’ future expenditure.
Although your accountant is so much more than a glorified bookkeeper, they will know exactly how best to keep your records, so, ask them for advice about your business’ record keeping systems, can they be improved upon, is there a recommended system that you should be using?
Having your accountant’s full attention is an opportunity to discuss your future business plans; if you are planning to sell up, you will need to produce an exit strategy with his help; if you are looking to expand, you will need advice on everything from financing the expansion to buying a new premises, so use the opportunity to mine him for advice.
Most accountants are a valuable source of all tax advice, so when you have the chance, ask about taxes that are not just within the scope of those you pay as a business owner; taxes such as ‘Inheritance Tax’ and ‘Capital Gains Tax’ could affect you, so talk to your accountant about how, and what can be done to mitigate their impact.
Especially if your business is small, your accountant should be used as an important business advisor, or almost as your financial director, so don’t ever be concerned that you are asking too much, most accountants are happy to advice.
So, even if the only time you even remember your accountant exists is the day that you have to take in your records at your end-of-year don’t fall in to the trap of thinking that your end-of-year accounts are all he is good for; you should be using your accountant to provide information that is biased in your business’ favour, this is what you are paying for; the difference after all, between an average accountant, and a good accountant, is that a good one will save you money.