Good financial housekeeping can be ‘soul-destroying, but it’s at the heart of all successful small firms
Our efficiency expert, KPMG partner Bivek Sharma, sets out the fundamental trouble micro businesses have with bookkeeping and how to make it that bit easier on yourself.
Becoming efficient probably shouldn’t feel as challengingas it does for micro firms, but KPMG partner Bivek Sharma feels it often turns into a struggle because it’s just not what gets people excited.
If you want to become tax-efficient from an early stage, Sharma said it essentially comes down to keeping good financial housekeeping? as a priority. Staying on top of the regular bank reconciliation work can make all the difference.
Too many early businesses leave the regular upkeep of admin to either the weekend or the month end, often because it’s simply not a nice thing to do, as Sharma put. So, it’s often delayed and delayed, leaving a business owner with a stack of work to wade through come the end of the month.
So, what does good financial housekeeping look like? Sharma recommended going through bank statements daily, keeping on top of expenses and making sure each sale is plugged in properly. It’ll mean you’re spending minutes on it rather than days, he explained.
The value in doing so comes back to a couple of points. Sharma mentioned that businesses will be doing VAT returns every quarter and you can’t do that unless you’re on top of bookkeeping.
Often statistics are trotted out concerning the failure rates of startups with some saying as many as 80 per cent fail due to some form of cash flow issues. This in itself can link back to keeping finances in order as Sharma warned, when it comes to VAT returns, if you get it monumentally wrong, you’ll be in for a big shock when it comes to cash flow.
If there’s an underpayment you’re then looking at paying penalties and interest, and you can quickly lose a grip on your business with such spiralling issues.
Good financial housekeeping also means you’re able to actually track your business progress and have greater clarity as to how you’re performing. Are you growing, are you profitable yet and what does your cash flow look like? These are all easier to keep an eye on, Sharma outlined.
You may have a fantastic business idea, but without the processes in place behind it to set it up a solid starting position, not only will tax efficiency look increasingly out of reach, but sowill the future success of yourbusiness.
Many of the topics covered onbusiness Advice interlink, which is reflected in Sharma’s discussion of funding too. Whether you’re looking for a bit of working capital to tide you through? or extensive cash for investment via ‘seedrs or Crowdcube or from angel investors, you need to prepare for doing so.
to do that you need management reporting information behind you, Sharma said. Depending on what you’re after and who you approach, you may be asked to show cash flow for the past six to 12 months among other criteria to see for example if you can afford a certain loan.
This side of the business is often left to accountants and Sharma acknowledged that there’s just so much to to do around orders, customers and marketing? for business owners. These all feel critical and bookkeeping doesn’t.
Bivek Sharma has been a partner with KPMG for over ten years, specialising in accounting, tax and software. He started the Small Business Accounting division over two years ago with a goal to transform accounting services for small businesses. The team works with a huge variety of industry sectors and companies including coffee shops, technology companies, manufacturers, pubs, restaurants and retailers.
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