Insight Associates provide outsourced accounting and Finance Director services to ambitious and growing businesses. We work as your only resource or with existing staff to give you complete financial support including monthly management accounts, high level financial advice, robust controls and financial systems, funding and business planning, payroll & compliance, VAT returns and statutory compliance.

Successful business leaders have all the information they need to make good decisions…Do You?

Wednesday, March 22, 2017

Does the Government Care about Small Business Owners?

By now you’ll have heard the screeching tyres and smelled the burning rubber all the way from Downing Street, following Philip Hammond’s spectacular U-turn on plans to increase National Insurance contributions for the self-employed.

Half the media attention focused on the fact he broke a Conservative manifesto pledge.
I don’t know much about that; I’m not a political creature. The other half seemed to claim the U-turn as a victory for the small business owner.

Not if you look at the bigger picture.

If you ask me, the commentators have all missed a much bigger issue: What is the government actually doing for entrepreneurs?

Now, I know that this isn’t my usual blog topic, but please bear with me.

When I think of small business owners, one word comes to mind: Risk. These good people take on a huge personal risk financially, and even physically and mentally. Setting up and running a business involves huge amounts of work, and the stress can be debilitating.

Yet SMEs are the backbone of our economy.  We need entrepreneurs to create jobs and shoulder risks in order to create a productive and diverse financial ecosystem.

We’d be sunk without them.

So what does the Government offer as incentive to start a business? ...Very little.

The biggest tax incentive you get is Entrepreneurs Relief, a concession where the first £10 million of gains is taxed at only 10% (rather than the normal potential 28%). 

That’s all well and good when you’ve slogged for 20 or 30 years - possibly longer - and can look forward to giving the Government “only” 10%!

Day-to-day, however? You get very little.

A long-standing client of ours has run a successful business for many years. Thanks to some careful tax planning, he has now built up huge cash reserves. If he was to withdraw them, he’d be paying up to 50% in tax. If he waits and sells the business, he would only pay 10%. In the meantime, the cash is losing real value, gaining only a small amount of interest.

It makes no sense.

If you own a Limited company, on the other hand, you can pay yourself in dividends rather than salary. In effect, you’re compensating yourself as an investor. Quite above board if the circumstances are right, and you save yourself up to 25.8% on National Insurance.

Last year, everything changed. The Chancellor changed the whole structure of the tax on dividends from a system which actually gave you a reasonable advantage to one where only your first £5,000 of dividends is taxed at zero percent. After that, you pay more tax than you did before. From April 2018, this zero-percent band plummets to £2,000.

Isn’t it clear the Government is not rewarding the hard-working entrepreneur? Do they really care?

Entrepreneurs deserve a clear allowance, concession or benefit to compensate them for risking their all to build businesses which create jobs and benefit the economy.

In reality, Westminster pays lip service to our small business owners, but it needs to wake up to the very real challenges these stalwarts of our economy face on a daily basis. 

As for the media, they need to stop tallying all their petty political victories and losses, and focus on the bigger challenge here:

How do we encourage people to start businesses, instead of punishing them?

Rant over… But I’d love to hear your opinion too. Please do let me know whether or not you agree.

Wednesday, March 15, 2017

Don't Believe Everything You See

“We’re about to run out of money.”
I could hear the shock in this business owner’s voice. Not just fear – but shock…. because this horrible turn of events was entirely unexpected.

They had a good business, a good team, and a good product which was selling well.
They’d even tried to professionalise their accounting methods, buying the state-of-the-art Xero accounting platform.

The problem was, the numbers being fed into it just weren’t up-to-date. Their accountant hadn’t adjusted the system to reflect what they had done at the previous year-end, and so this year’s figures were wrong, too.
The business owners, however, had no idea this was going wrong – and trusted the numbers they were given blindly. They made decisions about their business based on inaccurate information.

The result: They woke up one day about to go bust – and didn’t have the slightest idea why.
In recent blogs, I've run through some of the biggest but yet most common accounting mistakes that can happen in your business. This includes you, the owner, not properly understanding the difference between profit and cash; and your bookkeeper failing to take into account information they are not given, such as expenses.

These are fairly different problems, but they have one theme in common.
Don’t believe everything your accounts seem to tell you.

Just because it’s down on paper does not make it true.
Mistakes happen all the time – bad mistakes!

And as business owner, it’s your responsibility to question what you see the whole time. If your gut instinct tells you something is wrong with your numbers, you need to investigate further. If you are not 100% sure that your accountant or bookkeeper is working by the book, you must challenge them.
At Insight Associates, we never give our clients any financial information until we are certain everything has been done correctly.

We work to checklists, have multiple people review each set of accounts, and check and re-check ad-nauseam to ensure everything has been accounted for. We compare figures to your budget and to last year’s figures, to make sure everything makes sense. We reconcile what your accounts say is happening with what your bank account says is happening.
You should hold your own accounting team to the same standards. Even if you hate dealing with numbers, you must ensure that there are systems in place, so that all accounts are up-to-date, complete, and verified. Ensure that whoever is dealing with your accounts understands the big picture of how your business operates, so that they can ask the right questions, notice what’s missing and when something doesn’t seem to make sense.

If you’re not absolutely certain your accounts are right, always err on the side of caution. It’s better to be pessimistic and pleasantly surprised than the other way around.
The truth is that larger companies have an advantage. They have the resources to put in place all the necessary systems to run their finances professionally. They rarely rely on one bookkeeper or accountant, but instead employ a variety of staff in their finance department with different skillsets, who can all double-check each other.

Smaller companies are more liable to make mistakes because they rely on one bookkeeper or accountant, who rarely work in tandem, do not have the insight into the business to spot mistakes easily, and do not have the resources to continually reconcile and double-check all figures.
If you are a smaller company (turning over £1m-£10m) but would like the same kind of smooth, professional financial management a larger company takes for granted, let’s talk. With our outsourced finance department, you can get those exact same systems, team and knowledge -right now!

Not only will you have complete confidence in your numbers and never have to worry again about whether they are right, we’ll show you how to use these numbers to make better business decisions – and grow much faster.

Insight Associates, Insight House, Riverside Business Park, Stoney Common Road, Stansted Mountfitchet, Essex, CM24 8PL, UK
Tel: +44 (0)1279 647447 Fax: +44 (0)1279 814512
Insight Associates is a trading name of Financial Catalysts Limited. Registered in England and Wales Number: 5670047. Registered Office as above. Disclaimer | Cookies