THE NEW KID ON THE BLOCK
Cloud accounting is still in its infancy, with even the big players in
accounting software, like Sage, still developing their products. Yes,
several companies have taken their products to market, but they are
unfinished systems, as this is written, with significant changes still to be
introduced before they can be considered “finished”.
Despite this, we still believe businesses should look to embrace cloud
accounting now, because the current benefits of using these systems already
outweigh the old systems, and they are improving them rapidly, at no extra
cost, giving win/win solutions to every kind of business.
FEATURES AND BENEFITS
What are the features and benefits? Well the following should help you
understand our attitude:
. Accessible anywhere in the world, on any internet enabled device
. Accessible 24/7
. As close to real time accounting as is possible to achieve (if
. You can see the accounting system that your accountant sees; in
the same way he sees it. It’s no longer something on his desktop, you cannot
. You can extract reports at the touch of a button to provide vital
. You can see the “dashboard” with current vital information
whenever you choose
. You can process your own bookkeeping if you wish, with help and
guidance from your accountant, leaving him to look after interpreting and
extracting vital management information, rather than simply dealing with the
input for you.
. Output from the system, becomes more important, relevant, and
massively useful in improving your business
. Use of the bank feeds can eliminate up to 80% of the old fashioned
. Bank reconciliations are much more accurate
. You can discuss your accounts with your accountant, whilst both
looking at the same information, from anywhere in the world
. There are add ons, which can enhance your business in a multitude
of ways, as well as capture accounting information currently not captured or
done in a long winded method
. You can raise quotes, and sales invoices from the system, emailed
to your clients,
. You can give your clients interactive payment methods for their
accounts improving cash flow
. You can see who owes you money, and which customers are overdue in
. You can see to whom you owe money, and when it’s due for payment
. You can access cash flow forecasting tools
. If you currently use spreadsheets or accounting books, for less
effort you can achieve something useful
. Growing businesses can be sure that their accounting system will
grow with them, or allow them to move up to the next level, as and when
THE FUTURE OF ACCOUNTING
Because cloud accounting is still in its infancy, there will be rapid and
significant changes to come, all of which should simply improve the
experience for the client as well as the accountant.
One of the major advantages over traditional (desktop) accounting systems is
the ability to use “bank feeds”, to download all of the transactions from
your bank account(s) and credit card accounts. This takes care of up to 80%
of the bookkeeping and is a powerful argument for moving to cloud accounting
in its own right. However, do please be aware that these feeds are usually
done through a third party interface, requiring the client to input details
of their access codes to this system.
We firmly believe cloud accounting will be a game changer for accountants
and the services they are able to offer their clients, if embraced with that
objective in mind.
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ON LINE REGISTRATION
When you register for VAT, unless you decide otherwise, you will end up on
the standard scheme, with quarterly returns. The registration process does
allow you to make alternative choices, which may well be more suitable for
your business, but without professional advice, these are not necessarily
understandable. Indeed, many businesses have the registration done for them,
by their professional advisor, who may not understand the options
themselves, or maybe, just can’t be bothered to check with the client if any
of the alternatives would be better, because it interrupts the registration
process, increasing the cost of carrying it out. If your registration was
done some years ago, before the online system existed, it is very probable
you are unaware of alternatives, or had to apply for them as a separate
For many the standard scheme is fine, otherwise it would not be the standard
scheme, but bear in mind, it suits the Revenue first and foremost, otherwise
it would have different properties!
But what about your needs? Net reclaimers of VAT, i.e. companies whose input
VAT exceeds their output VAT, have the right to complete monthly returns,
but may be unaware of that scheme. We signed a new client up last year, who,
having been a builder for 25 years was ignorant of this opportunity (poor
advisors?). The monthly cash injection is always welcome!
What about seasonal businesses? There is an annual scheme, which allows two
months to complete an annual vat return, and allows the business to pay
monthly by direct debit, thus easing cash flow planning, and potentially
removing the pain of that quarter that comes in the low season, but which
covers the high season, creating a serious cash flow crisis. HMRC dictate
the amount to be paid monthly, but this can be negotiated to a degree, and
generally, they make a good fist of estimating the monthly payment to
eliminate any serious correction. The wise taxpayer will of course want to
keep an eye on the actual liability, because it can be used to argue for a
reduction to the monthly instalments, if sales fall off for any reason.
Other users of this scheme might be people who simply want the certainty of
knowing how much they will be paying monthly, or prefer monthly to
quarterly, because, let’s be fair, the quarterly payment can sometimes come
with a high degree of pain, in cash flow terms!
I hesitate to suggest that others might prefer this scheme, because it
removes the urgency to process their paperwork, but this does happen,
despite how short sighted an approach to your financial records it may be.
TURNOVER BELOW £150,000 PLUS VAT
A very popular scheme is the Flat Rate Scheme (FRS). This is designed to
reduce the burden of accounting work on small businesses, but also may have
the advantage of reducing the amount of vat payable. The upper threshold for
applying for the scheme (HMRC are not obliged to grant it) is £150,000
excluding VAT, at the time of writing this, and the threshold for having to
revert to the standard scheme is £230,000, including VAT.
It works as follows:
The business selects the percentage of VAT to be paid from a table provided
by HMRC. It’s not a choice, but a case of selecting the most appropriate
category for your business. Sadly we have signed up several clients who were
put on the wrong scheme by their previous advisors, and ended up paying more
VAT than was necessary. So be warned, it may not always be black and white.
Some logic needs applying, and getting it wrong can end up incurring
penalties if the amount of vat paid falls short of what it should have been.
It’s also possible for the business to change categories, so it is essential
to understand what effect changes in the business can have on the original
choice, and to ensure you, or your advisors, keep on top of the realities
within your business!
Your sales are still invoiced at the prevailing rate of VAT, as if you were
on the standard scheme. The FRS is applied to your internal accounting, not
the external documentation, so there is no need to notify customers or
suppliers of the change. The percentage you fit into is then applied to your
total sales, inclusive of the VAT you have charged, as follows:
Vat on sales at 20% £20.00
Total sales £120.00 X say 6.5% = £7.80 due to
the revenue as VAT
You are not allowed to deduct your input VAT, so the amount payable above is
£7.80. As I said earlier, it’s designed to make the bookkeeping simpler for
small businesses. So, if you operate a business that has little in the way
of input VAT, you may well discover a reduction in the amount of VAT payable
is possible by switching to the FRS.
There are some exceptions to the input VAT claim. Capital expenditure over
£2,000 including VAT, may still be claimed, although be warned! T’s & C’s
apply! The process of claiming this is also very easy. Just fill it in on
the next VAT return, in the relevant boxes. No complicated claim systems!
You are obliged to pay the FRS VAT on all sales, even if they would
otherwise be zero rated or exempt, or sold into the EU, so another warning.
If these items make up a large proportion of your turnover, you may pay more
VAT, not less.
The bookkeeping is done by accounting for the total value of all sales and
purchases, including VAT, with only the amount of FRS VAT being deducted
from sales, as an adjusting figure to the total, not the individual sales.
The final piece of good news about this scheme is that as a bonus incentive,
HMRC will allow businesses in their first year of VAT registration to deduct
1% from the appropriate rate. This does mean choosing the FRS as early as
possible, and preferably upon registration, to maximise on this benefit.
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Every PLC in the country uses KPIs, so why shouldn’t you? KPIs are used by
successful companies to measure, monitor and change how their business is
performing. They are business dynamics, with the following attributes:
· They must be easily measurable on a frequent and regular basis.
· They must be capable of being acted upon to improve them
· They must impact significantly on the revenue or profitability
There are varying levels of KPI within any organisation, starting from the
top, where the overall business is monitored, through individual profit
centres/divisions, and down through each department.
Business size is not relevant to whether KPIs are useful. Every business has
drivers, and therefore performance measures can be determined, and some will
be key. The first trick is to identify them, and then the more difficult
trick kicks in – acting on them! Measuring and monitoring them alone will do
nothing to the bottom line!
How many should you look for?
It’s important not to try to use too many KPIs. In the 1960’s and 70’s,
Arnold Weinstock, CEO of GEC used only six KPIs to manage a multinational
company. There will be an optimal number for your business, and if it’s only
one, then be satisfied if that’s all you have. How many, is not a contest,
but improving them is.
To identify your KPIs will require a thorough understanding of your
business, and its objectives. These then need translating into measurable
goals, and from these you can select KPIs to measure the performance of each
Goals in this context are specific strategies you use to achieve your
Generally, these are simple to identify, and subsequently therefore, simple
to measure, monitor, and act to improve. If you are a member of a trade
association, or run a franchise, then there will be people out there that
have already identified some or all of the KPIs in your industry, so don’t
reinvent the wheel, use their guidance.
If you are left on your own, as many small businesses are, then work through
a logical progression. Do you need more sales? Are your material costs too
high? Are your units of input producing the optimal units of output? Are
your sales per £ of labour/square foot/shelf foot/rep/ etc acceptable? The
list goes on!
Four main areas of your business
By working through your business and drilling down, you should be able to
identify what needs improving, and therefore how to measure it, and then act
upon it. In reality this comes down to four main areas:
· Revenue improvement
· Cost reduction
· Process cycle-time improvement
· Increased customer satisfaction
Think through these, and your KPIs will reveal themselves. Bear in mind that
things like revenue improvement, may not (just) be “more sales”. If you are
quick to pay your suppliers, and slow to invoice and collect from your
customers, or tie too much money up in stock, then paying suppliers when
they are due and not early, robust debt collection methods, or a robust
inventory system can all improve revenue. Similar thought processes can be
used to tease out the KPIs in the other areas too.
From this you should also have realised that not all KPIs are financial,
although they are all expressed numerically. If your sales are dependent
upon the number of telephone calls you receive, then you can measure this,
and do things to improve the dynamic.
Everyone has heard the acronym KISS. Keep It Simple, Stupid, and that is
vital when selecting your KPIs. If they are complicated to identify, measure
and monitor, then you will never use them. In which case, you will fail to
improve your business. So look for them with that acronym in mind. They are
not a mystery, or hard to find, or they would not be KPIs.
A major essential when using KPIs is to fix a timetable to produce them. If
you’re looking after your own monitoring, then you need the discipline of
producing them to a timetable, or again, you will never use them.
I’ve got them, now what?
Once you have them, how do you use them? It comes back to understanding your
business, of course. Take the food, drink and hospitality trade. Sales per
working day, is a useful measure, but it needs dealing with as an average,
not a daily issue. From that average, over whatever sensible period you have
decided upon, the trend needs to be worked out, and it’s this trend that
would then generate action to correct, or indeed determine to keep on doing
what you are, since it’s (currently) working! Comparing year on year is also
a useful tool. If school holidays normally present a dip or boost, that fact
should be included in the resulting use of the metric.
Targets must be set for improvement of the chosen metrics, and measures
taken to bring each KPI into line with the desired target, or to keep it on
target, once achieved. The important point here is they are acted upon, to
improve the performance of the business, and therefore its profitability!
How do you know you are measuring the KPI properly? Getting this right is of
course important, but so is consistency. If you change the method of
calculating a KPI, you immediately invalidate the comparability of any prior
information, unless you go back and recalculate it by the new method. Take
calculating debtor days for example. It is possible to use sales over the
past year divided by 365 to give a daily sales figure, and then divide
current debtors by that figure, to give current debtor days. This is a
simple system, giving reasonable information, except when sales are growing
or shrinking rapidly. A more robust system is to take current debtors, and
deduct sales from the month just finished, and then calculate the remaining
balance based upon the sales of the prior month. If your remaining debtors
exceed the sales of that month, keep working backwards, as for the current
month, but also note that you have a debtor issue to be resolved! And don’t
forget the VAT.
Is your target figure realistic?
How do you know if your chosen target is realistic, or otherwise, if you
don’t have an industry norm to compare to? Well in some regards, that
doesn’t matter. If you use gross profit percentage as a KPI, and measure
what it is, you can then determine if you are satisfied with it, or wish to
increase it, or feel it is too high, and may be costing you sales volume.
Once again, a thorough understanding of your business will act as your
KPIs need to be:
1. Available and measurable
2. Hugely business bottom-line impacting
4. Instantly useful
For more information and guidance, Barry can be contacted by email to