In setting up your own creative business, you are likely to come into contact with four external professionals: the accountant, the bank manager, the insurance broker and the solicitor. Arguably, the most important of these is the accountant. He or she is the person you are likely to consult on a regular basis, who will have an input into the day-to-day running of the business.
Your accountant should be experienced in the realm of small business operation, but more than that he or she must be approachable and flexible. Probably the best way to find an accountant is by word-of-mouth. But names and advice are also available through trade bodies, including the Institute of Chartered Accountants and the Design Business Association.
Don’t contact an accountant too early on in your plans. Do as much groundwork as you can, making use of the free help and advice that is available from banks and other sources. When you do see an accountant, you should be able to present a clear business plan and cash flow forecast and be ready to respond to his or her advice. The accountant can then recommend sources of finance as well as vetting your costing and pricing calculations, help to improve the cash-flow statement and draw up forecasted accounts as necessary.
The accountant will gauge how much help you are going to need. Keeping the accounts of small businesses is not difficult once the systems are in place. All capital inputs need to be correctly documented, careful records should be kept of all sales and purchases, and all relevant invoices, statements, receipts and so on should be systematically filed. The accountant may well recommend one of the dozen or so simple off-the-shelf manual accounting systems which are available. Better still would be a computerised system, but you may need training.
These systems will lead to the preparation of a profit and loss account sheet at the end of the agreed accounting year, though the accountant will draw up these final accounts if the task seems too daunting. If your business grows, a part-time book-keeper may be necessary.
However, the more of the accounting you do yourself, the more you’ll save in fees, and you’ll also be more aware of the state of your business. The essential role for the accountant will be as an auditor – verifying your calculations and giving authority to your final accounts. The accountant will act as an advisor regarding expansion plans, methods of improving cash flow, insurance, costing and pricing, and taxation matters. Very small businesses may only need the accountant to audit the books and accounts once a year, but as the business grows, the accountant’s involvement will too.
You can deal directly with the Inland Revenue, but if you are using an accountant, you can leave this to him or her. In any event, the Inland Revenue will require you to keep accurate financial records and preserve them for at least five years. If your business turnover (gross income) is less than 15 000 per year, and you trust your record keeping – you may be asked for full details – then you probably won’t need an accountant. In this case, you only need to submit a simple assessment showing turnover, expenses and net profit and any vehicles and machinery purchased or sold. You will also need to arrange for National Insurance payments with your local Social Security office.
This changes if your turnover is over the 15 000 mark. You will then have to submit your final accounts with your tax return. In this instance, an accountant can be invaluable in ensuring that full records are kept and correctly presented. Beyond that, he or she will advise on how your “taxable” profit is to be calculated and what capital allowance and expenses you can set against it. This is a potentially complicated area and the accountant will know the rules and try to interpret them to your advantage.
Finally, if your turnover does not exceed 47 000 per year, you will not be required to register for VAT purposes, but your accountant will be able to advise you if registration is in your financial interest. If your business grows beyond that point you will certainly need advice on dealing with the increased demands.