The Accounting Activity your business should be performing

I am not going to keep you waiting. The #1 accounting activity your company must perform is cash flow management. This activity is so overlooked by businesses that it is scary. The fact is lack or or improper cash flow management can lead to death of your business. It may sound dramatic but numbers don’t lie. 68% of small businesses perform no cash flow analysis at all. This results in many successful, growing and profitable businesses failing because they do not have adequate cash to meet the needs of their growing business. 

Research from stasticsbrain.com shows that 46% of businesses failure is largely due to financial reasons.Simplycashflow.com stated that 28% percent of small businesses states “cash flow as their biggest challenge.”Businesses who have cash management actives have a 80% greater chance of surviving, compared to 36% chance if you manage your cash yearly. So know that you have the numbers, let’s learn more about what cash flow management entails. Cash flow is the movement of money in and out of the business. Therefore, cash flow management is tracking, analyzing, and monitoring this movement on a continuous basis. This can be daily, weekly, or monthly. 

Cash flow management can be very detailed and involved. The purpose of this post is not to teach you cash management (because to do it correctly it will take way more than a blog post) but to get your wheels turning. I want you to assess your current cash management activities and come up with a plan to improve it. 

Payroll accountants is one of the most important part of your business. Contact us for payroll services in Birmingham and much more.

Ask yourself

Do I completely understand how to manage cash? What cash flow management activities am I currently doing? How often do I take time to effectively monitor and manage cash? What is the difference between profit and cash flow? I recommend reading the book Never Run out of Cash. It is a great book on how to manage your cash flow especially if you are not an accountant.

What is an Input Tax Credit?

If you’re a business owner in Birmingham around UK, then you’re collecting GST from your customers and remitting it to the HMRC. However, you’re also paying GST to your vendors on legitimate business expenses. The amount your remit to the HMRC can be offset by the amount you pay to vendors. This offset is the input tax credit (ITC).Without input tax credits, many products that we buy every day would be taxed over and over.

                             


Think, for example, of a sandwich you buy at our local Calgary corner store – the shop that sells it charges GST, as does the catering company that made the sandwich, the bakery that baked the bread, the cheese maker who made the cheese, the dairy farm that produced the milk to make the cheese… and so on and so on.

What input tax credits mean for businesses is that while you may collect a large amount of GST, you only actually have to give the government the difference between what you collected and what you paid out. For this reason, solid bookkeeping is very important. This is why our bookkeepers work closely with our clients to keep meticulous records of both the GST that is collected and the GST that is pay out.

Your bookkeeping records have to be extremely clear and detailed because when you make an input tax credit claim to the HMRC, you will be required to provide proof that these expenses were incurred legitimately and paid out as reported. The clearer this is, the easier time you’ll have working with HMRC in the event you have to undertake a GST audit. While these audits are never any fun, they are also nothing to fear if your records are in good order and you have kept track of receipts.

Here’s a tip:

• When you receive a receipt from a supplier or service provider, make sure that the amount of GST is itemized on the receipt and that the vendor’s GST number is recorded on the receipt. 

• You can save time and money by breaking out the GST and making a note of it on your cheque stubs so your bookkeeper doesn’t have to rifle through receipts or back it out.

• Nobody likes paying tax, so it’s really important to keep on top of those receipts and see your bookkeeper regularly to be sure that you are claiming as many input tax credits as you can and offsetting your GST remittance. 

R R Accountants LTD bookkeeper service in Birmingham help you to keep on top of your GST remittance schedule, whether it be monthly, quarterly or annual. If you are thinking about using the services of a professional bookkeeper, give us a call at 0121 766 5477 or email info@rraccountants.co.uk for a free consultation.