"I didn’t start the business in order to do the VAT return.”
It’s a sentiment that will resonate with many people in the early stages of setting up a business. For Nick Kelly, who started Piko London to sell bespoke project management services to the public sector three years ago, the realisation that the company’s finances were taking up too much of his time led him to take on an accountant.
“We were wasting time,” he says. “We used to spend hours working for clients and we wouldn’t invoice. We may not have had a signed contract in place and hadn’t agreed on the price, and we’d then spend hours working on it with no recourse to try and claw money back.”
It’s a familiar tale: entrepreneur starts business and gets by for a while on a business bank account and an Excel spreadsheet, but pretty soon the pile of receipts gets higher, the hours spent trying to track unpaid invoices stretch into the weekend, and it’s not long before the strain starts to show.
“One of the big issues I see is what I call ‘leaving money on the table’,” says Paul Beare, whose accounting practice Paul Beare Ltd, near Maidenhead, serves a range of SME clients. “That will typically involve doing a piece of work but not invoicing for it because work gets in the way.
“That’s when we need to help them out. They may have finished the work six months ago, but the customer isn’t going to chase them to pay it. Little things like that make a big difference. And typically that’s when they take on an extra pair of hands to help with the invoicing.”
It’s not just letting invoices go unpaid: Mr Beare says he sees clients struggling to keep up with a whole range of challenges once the business starts to grow. “There are reporting requirements and deadlines around that; taking on a new member of staff and organising their salaries and workplace pensions. Then there’s VAT: we find companies may not have reached the £85,000 threshold but want to charge VAT anyway to give the impression they may be more well-established than they are. It’s a long list.”
Time is money
It’s a story familiar to Anna Burke. She started her animation business with her husband three years ago and has since established the North Wales agency as a well-known local presence.
However, she admits that the company’s growth came with difficulties.
“Initially you do realise you’re spending too much time on payroll and accounts and it’s stressing you out,” she explains. “We quickly realised as we rebranded that we needed a proper accountant to take some of the financial stuff off the desk. Getting help will cost money but it means I can work on the business and make it back. The time you take trying to do the bookkeeping takes over from the other elements of the business, such as finding leads, marketing and sales and so on.”
It was at that point she engaged an accountant to tackle much of Animated’s core financial management: payroll, bookkeeping and so on. “It was great to get some of that off my plate, but I still had to make sure I was in full control of the direction of the company. I’ve had to teach myself about financial strategy and planning. I’ve researched it and listened to other business owners. And we have a business coach who has been guiding us as well.”
Taking the lead
Ms Burke is exactly the kind of client Derek Blair, Managing Partner at Pinkham Blair, an accountancy practice in Hertfordshire, loves.
“Every accountant wants a well-informed client. We don’t want them to abdicate all responsibility,” he says. “The best clients take the time to understand what we’re asking them to sign. Accountants don’t like people who’ll just sign anything. We want them to understand the underlying parts of the business.”
Mr Blair’s Hemel Hempstead office offers accounting services to local start-ups, often run by ‘corporate refugees’. “They’ve often had senior roles in big organisations where they might have had an HR, IT or finance department to do things for them. Now all of a sudden they’re responsible for all this themselves.”
Mr Blair suggests that a business owner should devote some time each week to their finances, in order to stay on top of them. “I encourage them to wear each of those hats to understand the business in the round. I tell them: ‘You need to wear the finance director hat, and even if you’ve outsourced your accounting, the accountant isn’t the finance director. You are’.”
For some budding business owners, the idea of wearing the finance director hat is a daunting one – but a little effort can yield results. “I’ve learned a lot more than I thought I might,” says Mr Kelly. “The point is that I know what I need to do, what I need to pay and when, and I understand what the consequences are if I don’t.
“You vaguely know about things like VAT but not the detail,” he adds.
“So you do need to educate yourself about things. Payroll, for instance, has been a big learning curve to make sure we’re compliant.”
Mr Kelly and Ms Burke are among the growing legion of start-ups that rely heavily on technology to track and manage their finances. “We use FreeAgent and we find it works fine for us,” says Ms Burke. “We’ve got our reminders set up so that helps us keep track of invoices and we know exactly when we should get paid. I’m in there every day, tracking suppliers and cash flow. We’re still a young business so having people pay on our 30-day terms is super-important.”
From the accountant’s perspective, the growth of Xero, QuickBooks and other cloud-based accounting packages is a godsend. “We insist on our clients using Xero and Receipt Bank, which helps them capture invoices with a phone so that we get the data into Xero,” says Mr Blair.
As with most accountants, he helps clients set up on the accounting software, often providing basic training to clients early on. “Most clients can operate Xero and Receipt Bank themselves, provided they engage with it,” he says.
“They just need to do a minimal amount of self-led training. And they’ll get repaid for doing that. The more you understand about your business’s finances, the better.”