Accounting Focus: Setting up your Financial Accounts

However successful your business is in terms of marketing and sales you can still run into problems if the financial structure isn’t sound.

Even if you intend to outsource your accounts and payroll, ultimately the responsibility rests with you to ensure that the business complies with all regulations concerning record keeping and taxation. Therefore, a clear understanding of key financial areas within your business is vital.

Legal Structure

The first choice for any start-up is how they are going to structure the business. The choices are varied and include setting up as a sole trader, establishing a partnership or founding a limited company. The legal entity you settle on will have repercussions in terms of the accounts you will need to keep and the personal financial risk you are exposing yourself to. So make sure you fully understand all the choices available.

Taxation

The legal structure of your business will also have a bearing on taxation requirements and here it is worth seeking professional advice. As chartered accountants Mercer & Hole outline, the taxation landscape is a complex one, regardless of the legal entity of your business. Therefore, getting sound advice at the outset can save you many financial headaches later on.

Business Expenses

HMRC rules are complex and it is often difficult to ascertain what expenses can be legally claimed in the process of running a business. The Futurelink Group provides a guide to allowed expenses for limited companies, which can help sort fact from fiction. Knowing what claims are permitted can save you a substantial amount of money.

Bookkeeping

If you are a limited company you will need to submit a set of accounts to Companies House on a yearly basis. All businesses, regardless of their legal structure, need to keep financial records to complete their yearly tax return. In addition if your business is above the VAT threshold there will be further records to keep and again a yearly return to complete.

It is important that you as a business owner understand all these regulations as there are severe penalties in place for anyone who doesn’t comply. You also need to keep up to date with the rules concerning how long you need to keep records for, before they can be destroyed.

If you employ staff and run a payroll, even if it is outsourced, there are further requirements regarding PAYE and the documents you need to provide staff with, including P45s and yearly P60s.

Business Bank Account

To make record keeping much easier, ensure you don’t muddy the waters by mixing up your personal finances with those of your business. Establish a separate business bank account so that all invoice payments can be received here and you pay creditors from the same account. This will make it much easier for you, or your accountant, to keep track of the business cash flow and where the business is in terms of profit and loss.

The importance of cash flow cannot be underestimated, particularly in a new business. Even if you are bringing clients on board consistently it can often take time for invoices to be paid. Therefore, you need to monitor the expenses you accrue on a weekly basis so you can at least cover the basics including paying the rent, accruing for taxes and covering payroll.

Keeping Data Secure

Lastly, your financial records are only as secure as the systems they are stored on. Making sure you are protected from malware and that all your data is backed up on a daily basis is essential. This is reassuring for you, as it will allow you to continue to run your business even if there is a systems failure, and it is reassuring for clients who will know that their personal details, including financial information, are safe in your hands.