Category: accounting news

As a small business owner, you know that managing your finances is crucial to the success of your business. But with so many accounting principles and practices out there, it can be challenging to know where to start. That’s where we come in! In this guide, we’ll break down the essential accounting principles that every small business owner should know. We’ll discuss how these principles can help you keep track of financial transactions, create accurate financial statements, and make informed decisions for your business. So, let’s dive in, shall we?

Why Are Accounting Principles Important for Small Businesses?

Accounting principles are the foundation for any successful business. They provide a uniform framework for recording and reporting financial transactions, ensuring consistency and accuracy in your financial records. By adhering to these principles, you’ll be able to:

• Make better financial decisions based on accurate and reliable data
• Monitor your business’s performance and identify areas for improvement
• Meet legal and regulatory requirements for financial reporting
• Build trust with investors, lenders, and other stakeholders

Let’s explore some of the key concepts you need to know.

IFRS: International Financial Reporting Standards

International Financial Reporting Standards (IRFS) – as the name implies – is an international standard developed by the International Accounting Standards Board (IASB). 

IFRS is used in more than 110 countries around the world and is a set of principles that help companies around the world show their financial information in a clear and consistent way. Think of it like a common language for money matters, so everyone can understand and compare how businesses are doing financially, no matter which country they’re from.

Accrual Accounting vs. Cash Basis Accounting

When it comes to accounting methods, there are two main options: accrual accounting and cash basis accounting.

Accrual Accounting is the more widely accepted method, where you record transactions when they are earned or incurred, regardless of when cash changes hands. For example, if you invoice a client for services provided in December but don’t receive payment until January, you would record the revenue in December under accrual accounting.

Cash Basis Accounting, on the other hand, records transactions when cash is received or paid. In the example above, you would record the revenue in January when the payment is received.

Double-Entry Accounting: The Backbone of Financial Record-Keeping

Double-entry accounting is a fundamental accounting principle that requires every transaction to be recorded in at least two accounts: one as a debit and one as a credit. This system ensures that your books are always balanced and makes it easier to detect errors or discrepancies in your financial records.

Here’s a simple example: When you purchase inventory for your business, you would record the transaction as a debit to your inventory account and a credit to your cash account.

By using double-entry accounting, you’ll have a clear and accurate picture of your business’s financial position, allowing you to make better financial decisions.

Practical Examples and Case Studies

To illustrate how these accounting principles can be applied in practice, let’s look at a few real-life examples:

• Example 1: A local coffee shop owner uses accrual accounting to record sales and expenses. They track their daily sales and expenses, recording them as they are earned or incurred, rather than waiting for cash to change hands. This allows them to monitor their cash flow and make informed decisions about purchasing inventory, hiring staff, and investing in new equipment.
• Example 2: A freelance graphic designer uses cash basis accounting for their business. They record income when they receive payments from clients and expenses when they pay for software, supplies, or other business costs. This simple approach helps them stay on top of their cash flow and ensures they have enough money to cover their expenses.

Becoming knowledgeable in accounting principles has the power to transform the way you run your small business. A strong grasp on your financials enables you to make informed decisions and accelerate revenue growth.

Looking for a Fulham accountant for your business, or a tax advisor in London? Get in touch – we’d love to help.

e: office@londonaccountants.co   t: 0203 137 9791

Kind Regards,
The Team at London Accountants

We now look at eight characteristics important to successful businesses. International researchers who have studied many small businesses have found that these characteristics consistently play a part in the success of small companies.

The eight characteristics are:

• Owners leading by Example
• Having a simple business structure
• Information sharing among employees
• Staff are carefully chosen
• Staff commitment and loyalty
• A unique product or service
• A specific Customer focus
• Prompt follow up

1.   Owners leading by example

The owner or manager leads by example. He or she is usually the first to arrive, the last to leave. The owner knows everyone by name and their presence is obvious. They show a strong commitment, setting the standard where they work. This commitment should be easy to understand, after all if they don’t work hard in their own company, how can they expect any one else to take their business seriously?

2.   Simple business structure

They operate a simple and open business structure, encouraging easy access to the owner for every employee. They value the contribution of each employee, many of whom are given the opportunity to influence aspects of the business that would ordinarily be denied them in a large hierarchical company

3.   Information sharing among employees

Staff receive information as soon as the owner does. Goals, problems and concerns are discussed openly. Feedback on issues is encouraged and staff are asked to contribute their own ideas for making improvements and overcoming difficulties. It is often this aspect of open communication that staff appreciate the most, after all it is fairly unique to small businesses.

4.   Staff are carefully chosen

Staff are recruited very carefully, because the owner(s) recognise they are the lifeblood of any small business. Staff are hired on the basis that their knowledge, skills and abilities will be beneficial to the organisation rather than because of friendships or family relations. Staff are not only carefully chosen but are nurtured and trained so that both the staff member and the organisation get the maximum benefit possible out of the relationship.

5.   Staff commitment and loyalty

All staff are very committed and loyal: good performance is rewarded with praise, extra responsibility and money—poor performance is not. Consistently poor workers are removed as they upset the rest of the team. Organisations whose staff show optimum commitment and loyalty have a source of competitive advantage that is hard to copy or to beat.

6.   A Unique product or service

Most successful businesses have unique products or services, such as their own designs, products, systems or some other aspect which sets them apart. This uniqueness is an important source of competitive advantage and one which many companies work hard to sustain, adapting and innovating their products or services as their competition catches up on them.

7.   A Specific customer focus

Successful small businesses have a specific focus on their customers and clients and are geared to supplying them with exactly what they want. This focus means adopting a market led approach, with the owners and their managers consistently looking for ways to solve their customer’s problems and improve their products to match their customer’s requirements.

8.   Prompt follow-up

On occasions when an enquiry or complaint is received, successful small companies actively follow up and solve them as quickly as possible. The results are promptly reported back to the client or customer and in the case of complaints, measures put in place to reduce the likelihood of similar issues reoccurring. Successful small businesses view complaints and problems as opportunities for growth and improvement in their businesses.

Looking for a Fulham accountant for your business, or a tax advisor in London? Get in touch – we’d love to help.

e: office@londonaccountants.co   t: 0203 137 9791

Kind Regards,
The Team at London Accountants

Retirement is a significant milestone that brings with it the need for careful planning and financial security. A well-planned retirement ensures that you can maintain your desired lifestyle without worrying about running out of money. One of the key components of successful retirement planning is seeking good financial advice. Obtaining professional financial guidance can contribute to a secure and comfortable retirement.

The Benefits of Good Financial Advice

Tailored Retirement Planning

Every individual has unique needs and goals when it comes to retirement. A financial advisor can assess your financial situation, understand your objectives, and design a plan specifically to meet your requirements to ensure that your retirement strategy is both effective and achievable.

Streamlining Savings and Investments

A financial advisor can help you diversify your investment portfolio and allocate assets strategically to balance risk and reward. By doing so, they can improve the growth of your savings and investments while reducing potential losses to a minimum, setting you up for a more financially secure retirement.

Tax-efficient Strategies

Understanding the tax implications of various investment options can be complex. A financial advisor can guide you through the process and help you structure your investments in a tax-efficient manner. This not only improves your returns but also reduces your tax burden during retirement.

Managing Inflation and Market Volatility

Inflation and market volatility can have a significant impact on the value of your retirement savings. A financial advisor can help you navigate these challenges by protecting your investments and adapting to changing market conditions, ensuring that your retirement funds remain secure and continue to grow.

Estate Planning and Wealth Transfer

Good financial advice extends beyond retirement planning to include estate planning and wealth transfer strategies. It’s important to seek advice to ensure the financial security of your loved ones.

When selecting a financial advisor, consider their professional qualifications, as well as their track record of success in retirement planning. This will help you gauge their expertise and ensure that they are well-equipped to address your specific needs.

Understanding how advisors are compensated is crucial when comparing different providers. Make sure you are aware of their fee structure and any potential conflicts of interest. Transparency is key to building a trusting relationship with your financial advisor.

A good financial advisor should provide regular updates on your portfolio performance and be available for consultations and meetings when needed. Effective communication ensures that you remain informed about your investments and can make well-informed decisions.

When to Seek Financial Advice

While it’s never too early or too late to seek financial advice, certain life events and milestones may prompt you to consult a professional. These include major changes in your financial circumstances, such as receiving an inheritance, experiencing a job loss, or approaching retirement age. Periodic financial check-ups can also help ensure that your retirement plan remains on track and adapts to any changes in your life.

Investing in good financial advice can have long-term benefits for your retirement planning. With the right financial advisor by your side, you can look forward to a comfortable and fulfilling retirement.

Looking for a Fulham accountant for your business, or a tax advisor in London? Get in touch – we’d love to help.

e: office@londonaccountants.co   t: 0203 137 9791

Kind Regards,
The Team at London Accountants

Don’t miss out on the Tax-Free Childcare program!

According to HMRC, more than 400,000 families utilised the Tax-Free Childcare (TFC) scheme in December, and they are now encouraging other eligible families to check their eligibility and take advantage of it.

In the past, childcare voucher programs were popular, but they have been closed to new participants for many years. In their place, the government created TFC, which provides financial assistance to working families with children up to the age of 11 (or 16 if they have a disability).

An eligible family must establish a TFC account, which is used to cover childcare costs. The government provides financial assistance by contributing to the account. For every £8 deposited into a TFC account, the government adds £2, up to a limit of £500 for each child every three months (or £1,000 for a disabled child).

In its latest press release, HMRC revealed that in December 2022, over 400,000 families received £41.5 million in top-up payments through the program. Families are encouraged to check their eligibility and apply.

However, if you are currently receiving childcare vouchers (still available to those in schemes prior to 4 October 2018), you may be better off sticking with them. It is important to note that if you successfully apply for TFC, you will not be able to switch back to vouchers if your circumstances change, such as if your income or your partner’s income exceeds the £100,000 maximum for TFC.

You can use this tool to determine the best option for your family!

If you are looking for Fulham accountants or a tax advisor in London, get in touch!

e: office@londonaccountants.co   t: 0203 137 9791

Kind Regards,
The Team at London Accountants

Collaboration: 5 Reasons It’s Essential to a Growing Company!

Many elements are vital to a growing company’s success. A financially-astute leader is one. A confident and motivated sales team well-versed in a company’s product and service line is another. But starting and growing a business requires more than employees with extensive functional skills and appropriate personal characteristics.

Growing a business requires collaboration – namely, the deployment of employees in a way that allows them to work together to problem-solve and act with a shared sense of urgency.

When this occurs, group members come to leverage the strengths of one another as they work to achieve shared objectives vital to the company’s growth. Also, mutual learning takes place, which increases the probability that each employee’s performance will evolve from good to better and then best. In turn, a company’s performance improves as well.

As collaboration occurs, teams leverage individual differences to produce exceptional outcomes. This knowledge sharing creates a learning enterprise in which employees more readily identify solutions to problems. As a consequence, the company may become more operationally and financially successful.

There are many reasons that collaboration has these positive effects, not the least of which is the ability of a company to make the best use of available skills.

Makes the Best Use of Available Skills

A collaborative environment makes a range of disciplines accessible on an as-needed basis, which leads to the efficient use of employee talent in a way that isn’t possible otherwise. Collaboration allows multiple individuals to participate in the completion of a task at hand, which makes it more likely that the right talent is available at the right time. With collaboration, tasks are completed more efficiently, leaving more time for a staff to concentrate on activities that contribute to company growth.

Facilitates Problem Solving

Collaboration allows a company to throw the most skilled resources at a problem, which may mean a solution is identified more quickly and more cost-effectively than might be possible otherwise. Leveraging the most appropriate resources means a team’s overall functional breadth and depth increases, which can improve the quality of a project’s processes and end products.

In addition, diverse and complimentary talent may enhance individual work processes as each employee becomes a part of a greater whole, which can positively affect a company’s culture. It’s the change in culture that contributes to new thinking, which may lead to new products and new ways to use existing products, each of which contributes to company growth.

Leverages Individual Differences

Asking employees with very different skills to collaborate to accomplish an objective leverages individual knowledge, strengths and capabilities and maximizes organizational potential. A team succeeds or fails according to the combined capabilities and commitment of the individuals involved.

Deploying a variety of unique strengths and skills advances a team’s understanding of a problem, which can lead to faster problem scoping and solution formulation, and more effective solutions.

Builds Company Knowledge

A group brings different perspectives to a problem at hand.  As individuals share their perspectives, each team member considers problems from multiple viewpoints and the person begins to think like the group.

Likewise, as each individual demonstrates a particular skill, other team members may learn these skills, which will be helpful when attempting to accomplish new goals. In effect, team interaction allows team knowledge to build up, like compound interest. In this way, a company leverages individual perspectives across the enterprise.

Creates a Learning Enterprise

Collaboration provides an opportunity to move beyond learning management systems and content to learning in context, which can be empowering to an entire team.

When two people work together, it’s inevitable that they share knowledge, which contributes to a culture that supports ongoing learning. Consequently, collaboration creates a safety net that protects a company from a lack of appropriate knowledge.

As an individual collaborates with others, his knowledge expands as does the reach of his knowledge. When this occurs throughout the organization, its knowledge boundaries expand leading to new opportunities and new ways of doing things.

Collaboration supports a company’s efforts to act with a shared sense of urgency by deploying employees with particular skills in a variety of ways. Collaboration is also an effective means of problem solving because it allows a company to leverage individual employee differences, evaluate employee efforts in the aggregate and create a learning enterprise. When problems are solved more readily, resources become available to achieve other company objectives, including company growth.

Got a question about your business? If you are looking for Fulham accountants or a tax advisor in London, get in touch!

e: office@londonaccountants.co   t: 0203 137 9791

Kind Regards,
The Team at London Accountants