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Do I need an accountant?

We hear this question quite a lot these days, so in todays blog we’ll look at whether you really do need an accountant or bookkeeper.

There are some businesses which legally need to have the services of an accountant or auditor, these would normally be turning over millions of pounds; there are also some charitable organisations who also need accountants to review their accounts, known as an Independent Examination so for this article we don’t include these.

So, you’ve started your business and now wondering how you’ll ‘do your books’, traditionally many small business owners would hear down to a stationary shop and purchase a double entry ledger book; but in the mid-80’s an electronic ledger came on to the scene called Excel prior to this we had Lotus 1-2-3 which many will remember. Both had the ability to automate any spreadsheet as long as you knew the formulas and took the time and care to enter them.

Fast forward a few years and as computer prices fell more and more small offices and home office business would purchase machines with a view automating many office processes, one of which was the accounts. During the early 1990’s account software become readily available and many will remember Sage Software as dominating the market. Plenty of other titles also existed and fed into both the commercial and home sectors, so better than others.

We fast forward to today and the question we have asked, do you need an accountant? Indeed, for many small businesses the answer is simply – NO.

Now I bet that’s something you didn’t expect an accountancy practice to say, so why are we telling you this? Mainly because it is a question which we hear time and again and answer in the same way every time. There is so much software out in the market now which automates so much of the bookkeeping processes and most of this is available to businesses to operate themselves, so for a monthly or annual fee you can produce your own accounts without the need of a professional.

Accountancy software relies on having some knowledge of how financial transactions, ledgers and taxation work; the big players in accountancy software provide help guides and videos on how to do it, even HMRC have got a whole host of information on their website which can be referred to. Bank reconciliations are not difficult, you make sure that your income and expenditure which goes in and out of your bank matches exactly with your books. Even if you fall within a VAT threshold your software can help account for this and submit the relevant totals to HMRC, even the payments or refunds can be automated.

Why have we not mentioned written ledgers or Excel? Quite simply as many businesses will need to submit electronic returns for income tax and / or VAT either now or in the next year or two, this system is known as ‘Making Tax Digital’ or MTD for short. Previously HMRC had provided web portals to allow anyone to register and update their tax figures using these online portals, many of these have been withdrawn and those that are left have are likely to go by 2020.

Much of the accountancy software available now is suitable for MTD, although if you are about to jump in and purchase some then we would suggest making MTD the top of your wish list. If you’re running a Limited Company then you also need to ensure you can submit accounts electronically to both HMRC and Companies House, not all software can do these two tasks in the same package.

Okay, so you have got the software you want now it’s time to get started by listing opening balances, registering all you clients and suppliers on the system and enabling your bank feeds; this is the part you need to get right first time, mistakes here are incredibly difficult to undo further down the line. You’ll then need to spend a few hours each week on keeping your accounts up to date, this will be more important for many firms next year as MTD returns will be required monthly.

The part which most businesses owners struggle with is taxation and what can or can’t be claimed, that piece of the jigsaw is the hardest and even a professional will have to rely on their training and judgement.

More recently we have noticed that financial institutions are asking for annual accounts which have been collated by a qualified bookkeeper or accountant, in some cases they have wanted a letter from that accountant regarding the viability business. Even for lending that has no direct impact on the business such as a remortgage on your own house these questions are being asked; that’s not to say they won’t consider your application, they want that third party view of your accounts.

In these circumstances you could obtain the services of a professional to act on your behalf and review your workings and accounts, in most cases this would take quite some time and many accountants would simply turn this work away; it’s simply to risky to sign off accounts which have been produced by someone else for the purpose of lending when it is your professional license and potentially your career on the line.

Where does that leave you now? It is still possible for the small business to operate their own accounts although they will have to use some form of software to submit MTD returns, long gone are the days when an Excel spreadsheet can be used; the price of software does vary quite a bit and whether you pay monthly or annually you must keep it up to date.

Before you choose a bookkeeper or accountant you should check their qualifications and whether they hold a current practicing license from there approval body and professional indemnity insurance, ask to see their certificates or contact their professional body directly. Surprisingly anyone can call themselves a bookkeeper or accountant without any formal qualifications or insurance; however should you use the services of an unlicensed and uninsured professional you will have no comeback at all should their advice or work be wrong.

Like anything you purchase you should shop around but not just on price, firstly consider if you can do the bookkeeping yourself; do you know enough and have the confidence and time to keep things up to date. Next, decide what you want from an accountant, this can be anything from monthly bookkeeping to simply compiling your annual accounts; do you need payroll or Directors payroll completing? One major consideration is what contact you want with your professional, are you happy using email or electronic messaging, maybe phone contact or face to face; all these options come at a price in both time and money.

Above all you should trust your professional, you should feel that you ‘fit’ with them and that your business is a good ‘fit’ with theirs. Don’t be scared to ask questions, in fact take time to write them down before any meeting or phone call so you don’t forget.