What to look for when choosing an accountant

No matter how small your business or how terrible your cash-flow is, an accountant is one professional you cannot afford to be without.

Accountants provide services that go way beyond frantic, last minute tax returns; or at least they should do. They are highly trained professionals who can be a tremendous benefit to your company.

This article discusses some of the areas an accountant can help you and highlights some areas to consider when choosing the right one for your business.

Accounting services

Advice to start-up businesses
Start-ups can take many forms: sole trader, partnership, limited liability company, trusts. Ask both your accountant and your lawyer for advice. Accountants help with the legal and tax aspects of registering a new company and can help with your business plans.

Accounting and book-keeping
Many start-up businesses maintain their own accounting records, particularly early on. This can be a good thing, because it may help you understand the financial heart of your business, but eventually the book-keeping should be outsourced, to allow you the busy business owner to focus on other parts of the business. The accountant may have an in-house book-keeper, or be able to recommend one.
 
Ask your accountant to recommend a good software package. Be aware, though, that they may simply recommend the packages they use, which are likely to be complex, rather than the one best suited to your business and expertise. Also be aware that modern accounting software produces lovely reports and graphs, but you need a professional to tell you what they mean and whether the data makes sense.

Tax services
A good accountant should be active long before the end of the tax year, advising you on how to structure your finances in a tax-efficient way. Ideally, they should be diligent, but not overly aggressive, about minimising taxes, and must remain well within the limits of the law. Accountants prepare, or assist with, tax planning and tax returns, although it will be more difficult for the accountant to focus on tax-planning or tax-saving opportunities after your financial year end has finished.

General business finances
Accountants can help you implement systems and controls to ensure that your business runs more smoothly and profitably. They can also help to find sources of finance and prepare funding applications.

Buying and selling

Ask your accountant to investigate the financial performance and position of any company you are interested in buying and also help you present your finances accurately and clearly if you are planning to sell.

Personal finance
Your accountant may be able to provide financial advice and, if not, should be able to recommend a good advisor.

SELECTING AN ACCOUNTANT

Look for a firm comparable in size to your company. Small to medium firms generally provide personalised service, specialise in small business work and charge less than big firms.

Also ensure that you select one that is qualified. Qualified accountants may charge a little more but they have undergone very rigorous training and need to ensure that their skills remain up to date via regular training. They will also belong to a professional body that regulates them to ensure they have the skills and experience to serve the general public. If in doubt, insist that you see their certificates allowing them to provide services to the general public.

Start by asking friends and contacts for recommendations. Online searches are another helpful way to compare and choose one suitable for your needs.

It’s best to meet two or three accountants before you make up your mind. Ensure that the first meeting with them is free (if not, find someone else). Plan what you would like to tell them about your company, and what you want to know about them. Ask about their fees, services and availability and consider asking for references from businesses similar to your own.

Find out how many partners there are, whether you will always be dealing with the same person, how many clients they have and the type of client base. Ask why they think their firm is appropriate for your needs.
It’s also appropriate to ask for an estimate of your return on investment – in other words, how much money they are likely to save you, compared with the cost of the services.

Fees
You should not choose an accountant based on their fees, but on how much time and money they will save you. However, you do need to know at the outset what the services will cost. Some fees are based on an hourly rate, which may differ depending on who does the work. Fees for tasks like audits are usually offered at a fixed-rate. Find out beforehand what the annual cost will be, and whether you will need to pay a lump sum or whether you can pay in instalments.

You can reduce fees by ensuring that time spent with your accountant is focused and well planned, and that your financial systems and records are well organised and up-to-date. They should be able to give you a checklist to help you collate the information they need to save time and money.

Driving the relationship
In most cases, the relationship with your accountant has to be driven from your side. Most accountants, however competent they might be, are not very pro-active. Arrange regular meetings (at least twice a year) to discuss your finances and taxes. Keep an eye on your tax returns to ensure that nothing is overlooked.

Don’t make the mistake of handing everything over, sitting back, and only finding out two years later that the accountant has been playing golf while your tax returns have been gathering dust in the corner. Your accountant can certainly help keep your finances healthy, but only with your active intervention.

Conclusion
Choosing a good accountant and developing an ongoing, professional relationship will be a key decision and is worth spending some time on. Finding the right one for your needs should result in you having an invaluable aid for your business as it progresses through the various stages of its life-cycle.
 

How to prepare a budget

There you are, running around in small circles with deadlines to meet and bills to pay.  Can you really afford the time required to produce a detailed budget?  Isn’t your time better spent generating revenue?

Yes and no. To paraphrase Alice and the Cheshire cat: “If you don’t know where you are going, you are sure to get somewhere if you only walk long enough”. The budget provides you and your investors with a numerical map that leads somewhere specific.

What is a budget?
A budget is a forecast of revenue, expenditure and profit. Most budgets are revised annually.

What does it achieve?
There are two (often overlapping) reasons for producing a budget. One is to persuade potential investors that your company is a good bet. The other one is to plan your business finances - how much money do you have and how do you plan to use it? How much revenue do you need to generate to achieve your target profit? Is your business plan viable or does it need adjusting? In retrospect, did the year pan out the way you planned, or did something go wrong?

How to approach a budget
First, find out how your accounting software deals with budgets. It’s far more efficient to use the same package for accounting and budgeting.  Next, meet your accountant to plan how to structure the budget. Arrive prepared, with a chart of accounts and a list of informed questions. Take copious notes.

Traditional budgets are very difficult for start-ups and firms with a short history, because there is little or no historic data. Revenue is particularly problematic, because no matter how carefully you have planned, it’s impossible to predict the future. There are two main approaches to budgeting:

The projections approach
Here you enter projected costs and projected revenue, and calculate projected profits from these. This is reasonable and rational if the company has several years of relatively stable history to project from. If it’s a new company, such a budget is likely to become an exercise in denial and wishful thinking.

The required profits approach
An alternative method is to enter projected expenses, and then calculate how much profit you require, and how much you think you can actually generate. 

Eventually this should be enough to pay your salary and provide a return on your investment in the company.  However, it might be realistic to plan for a loss in the first year or two, and only a small profit for a year or two thereafter.
Having settled on a number, you now add expenses to profit to come up with your required revenue.

Turn this number inside-out. Is it realistic? Is it achievable? Instead of guessing wildly how many widgets you may be able to sell, or how many hours you hope to bill, you can now soberly assess whether you will be able to reach your targets. Don’t have 10,000 billable hours in the year? Can’t afford enough machinery to make a million widgets? Go back and adjust the business plan.

Once the company is liquid, determine your salary based on what you would be earning if employed in a similar job, and your return on investment based on the interest you would receive if investing outside the business.

EXPENSES
Fixed costs
Fixed expenses remain the same regardless of sales volume. They include rent, loan repayments, and insurance.

Semi-variable costs
These are costs with fixed and variable components, such as telephone, salaries and wages. The fixed component is the minimum cost of supplying goods or services, while the variable component changes depending on sales volumes.

Variable costs
Variable costs increase or decrease in line with sales, and include costs of materials, distribution and commissions.
Start-up costs
Initial costs must be factored in for a start-up.

REVENUE
If you use the required profits method outlined above, you will have generated a total figure for required revenue. This is a goal rather than a prediction. You need to break it down to decide how many of what you need to sell, what you need to charge, and whether the targets are realistic. It has the added advantage of generating very clear monthly sales targets.

Once the business has been running for some years, revenue will be predicted in a more conventional way, based on past performance.

MONITORING THE BUDGET
Once you have set up the budget, compare it to the actual figures every month, to look for differences and establish why they are there. Adjust expenditure or sales efforts as you go along, to bring the next group of numbers in line with the budget.

For help in preparing your budget or cash flow forecast, email us at enquiries@bizadvice.co.nz