When we talk about functional business systems and the 5 point plan, what do we mean by accounting? What does that cover? What is involved?
Here we will look into some of the key aspects of accounting for you to consider in your business.
What springs to mind when we talk about accounting as part of your functional business system?
If you're thinking 'book-keeping' you would be absolutely correct.
Book-keeping is an essential part of any business financial structure, it can be defined as: "The activity of keeping records of the financial transactions of the business." But that is just a part of what your business accounting involves - so what else?
Accounting is a much broader term. It deals, not only with the recording, but with the measurement of financial activities and the effects these activities have on your business. Accounting also includes the legal requirements for financial reporting of value and performance to key organisations; HMRC, banks, investors etc.
Whether your company consists of just you or whether you have a team, partners and/or employees - you will need to incorporate some or all of the following in to your accounting system.
You probably recognise most of these elements but do you have a clear plan of what they mean to you and how you will manage them?
Suppliers - accounts payable; do you have credit with your suppliers, e.g 30day payment terms? If not, how will this affect your cashflow?
Customers - accounts receivable; Do you give your customers credit? If so, is it in line with credit terms offered by your suppliers? Can you sell goods and get paid by the customer before you have to pay your supplier? How do customers pay you - cash, card, paypal, BACS?
Employees - PAYE; this includes you! If you are paying yourself a salary are you also paying the correct level of tax and NI? When do you pay any employees - weekly, monthly?
Tax - Corporation, Income, VAT. Whichever type of tax you are liable to pay, are you putting aside enough money on a regular basis to cover your annual tax bill?
Investors - do you have them? What does this mean to your cashflow? What agreements are in place for their return on investment?
Bank - business loan, business account; what loan repayment terms have you agreed? Do you have the best deal on a business account?
Of course, you may outsource your business accounting to an accountant but you still need to have systems in place for order processing, invoicing, inventory control and to understand the basics and how it all works in order to maintain control of your business.
This is the second article in the Functional Business Plan series, in the third article we will look at the second segment in the 5 point plan - administration. Until then, keep your finger on the pulse! In the meantime if you would like advice or support with your business plan, please contact Online Office Services Ltd for more information. Thanks for reading.
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