Are you keeping good records?
In the eight years that we have been accountants for small businesses we have seen that the standard of records that have been sent to us have been generally of poor quality. This gave us the idea to conduct research into the percentages of businesses that do not have adequate records.
During our research we looked at over two thousand small businesses from a wide variety of industries including property, leisure and marketing that had engaged us as clients over a set five year period. We applied a number of tests to each client’s records to decipher whether or not the records were up to scratch or not. These tests included factors such as whether or not the bank was balanced, if bookkeeping software had been used and whether the records were complete or incomplete. Factors such as errors within the records were not taken into consideration but instead the system that was used in general.
We were surprised to find that based on our metrics nearly 80% of new clients’ records that were sent to us covering their first trading period were below the standard that we expected. Additionally just over 50% of the bookkeeping records submitted to us by new clients for their second period of trading also submitted substandard books to us.
We believe that the reason these percentages are so significant is because the majority of new small business owners usually ends up putting together a set of records using the little knowledge they have.
As this problem was so common we decided to address it by raising this issue with clients as soon as they engaged us. We sent out guides to all new clients which outlined the basics of the tax system and explained their obligations as businesses owners to HMRC and Companies House (if applicable). After this initial conversation we found that clients were much more receptive to learning how to produce proper records and so from there we recommended that they try a bookkeeping software package such as IRIS. We explained that by using a system like IRIS early on, it is much easier to monitor the expenditure of the business, easier to see what is owed from customers and what is due to suppliers along with a much higher likelihood of the data being accurate.
The uptake we observed was very positive and the amount of clients that ended up getting in a mess close to the tax return deadline and receiving penalties as a result reduced significantly, meaning a much smoother and less time consuming process for us and the clients.
KashFlow is the online accounting software from IRIS. Designed for small business owners to simplify bookkeeping, invoicing and keeping track of accounts and, with its integration into the IRIS Accounts Production, accountants become the business advisor rather than the number cruncher.