Mark Wordley of ASUK Accountants and Intuit UK ProAdvisor explains how accountants can help small businesses with their pain points.
It’s clear that accountants need to adopt a more hands on approach when helping small businesses in the current climate. More than ever before, businesses need regular advice on how to manage their cash flow and minimise tax liabilities. Competition for work is fierce, so it is essential that clients are ultimately satisfied and continue to invest in their accountant’s time. There are a number of proactive measures accountants can take to help clients through the tough times and ultimately prove their worth.
Relationships with banks
Unfavourable bank charges are a primary concern for small businesses right now, with 50% highlighting it as a major pain point in a recent survey by Intuit. Adverse bank charges may not be new, but the scale of aggressive tactics from banks is unprecedented and unchartered territory for many.
In particular, access to funding is proving really problematic as lenders are being choosier and demanding more information before providing finance. Some banks are going as far as insisting on regular monthly statements which was previously unheard of.
With this in mind, accountants can help their clients to initiate and maintain an effective dialogue with their banks by advising and assisting with the preparation and presentation of financial statements. By providing clear and transparent information, clients are more likely to see an improvement in their relationship with banks.
Credit terms
Late payments are also proving a major hindrance, with 40% of small business owners affected by it. While this has worsened with the downturn, poor payment practices have always caused problems for SMEs, as they fall victim to larger companies enforcing their might and extending credit terms.
A general lack of credit control among small business owners exacerbates the issue, particularly in cases where the enterprise has expanded rapidly. In these cases, accountants should explain the basic tenets of credit control, such as ensuring invoices are sent out promptly and paid on time. It may also be necessary to offer advice on installing practical systems to manage invoices and monitoring debtor days.
Tax and financial forecasting
Tax continues to be a taxing issue for SMEs, with two thirds of respondents saying that respite on indirect taxes such as VAT would be most beneficial to them at the moment. Frequent changes in the tax regime (the most recent being evident in this year’s Budget), means each quarter looks different to the next. Accountants need to stay abreast of these evolving issues in order to provide the best advice and service to clients.
Sound financial management comes down to simple cash flow forecasting, to ensure there is enough money in the bank to pay the bills and make tax returns. While seemingly straightforward, maintaining a health cash flow is the number one pain point for small businesses.
What many small businesses tend to do is put aside money each month to pay their employees’ wages but forget to do the same for PAYE tax and VAT. As a result, they fall short and accountants increasingly have to deal with clients unable to pay their taxes. This can be avoided if tax payments are automatically transferred into a ring-fenced bank account to prevent the likelihood of that money being spent on other costs. Accountants should advise clients on this practice and recommend systems that will enable them to predict monthly outgoings including PAYE tax and VAT, as well as explaining how to factor that into how they manage their cash flow.
Corporation tax is another area where SMEs run into trouble. Many business owners do not pay attention to this until the end of the year, once they are faced with a huge bill, by which time it is often too late to source the cash. This is where accountants can be more than end-of-year auditors and take a more active role in helping their clients by meeting with them on a regular basis to assist in forecasting how much corporate tax will need to be paid.
While accountants can meet with clients more regularly, the truth is they cannot be present at all times. To bridge this gap, accountants can recommend simple financial software for clients to use on a daily basis.
A robust and effective accounting system can help small businesses address all of the pain points above by tracking how a company’s finances are doing, ensuring invoices are managed properly and that debtor days are monitored, and predicting how much cash needs to be set aside for tax payments.
Above all, an accounting package can help small businesses adhere to good financial disciplines such as budgetary control and general forecasting and business planning.