7 errors that hold SMEs back

Licensed members share common oversights on the part of clients.

We all wish our clients did certain things better. Indeed, many SMEs fall into the same traps. Not only do these errors hinder their business but they also have a knock-on effect on accountants.

Small-business website Informi spoke to licensed members about the problems that stop clients getting the most from their accountants.

1. Not seeing their accountant as a partner

Clients don’t see their accountant as someone who can help take their business forward; often their accountant is seen as the ‘numbers person’, when really they should be seen as a business partner. “I expect my clients to do their jobs well – they are the experts at that – and I will do my job well in return,” says Julie Hodgskin. “That works for me and my clients. They should know I am there to make their lives easier by providing good financial backup.”

2. Missing deadlines

It’s unfortunately all too common for some small business clients to be unaware of key dates for accounts submission, and to fail to take the consequences of non-compliance seriously. “I had a client who had an old dormant company with about £7,000 in the bank account,” says Henry Cooper. “He ignored numerous reminders from Companies House. In the end, Companies House dissolved the company, which meant the company bank account was frozen and he lost all of the money in it.”

3. Being disorganised

Many small businesses struggle with retaining, organising and filing documents. This hampers the client-accountant relationship, not to mention hindering the client’s own systems. “I wish my clients would retain all receipts and invoices in a safe place,” says Diana Cornford. Tim Birkett agrees: “A lot of the benefits of computerised accounts are lost if you can’t quickly source the paperwork.”

4. Not engaging with regulation

There are clients who do not read up on, or even try to get their heads around, their regulatory and legislative duties. Instead, they rely heavily on their accountants. Together with a lack of organisation, communication problems and a tendency to miss deadlines, this can cause real problems down the line. “When it comes to auto-enrolment, gender pay gap reporting, the national minimum wage, and so on, they hear a little bit about them from the news, but, apart from that, rely on me for expert advice,” says Hodgskin. Beyond that, some clients are unaware of lots of shockingly basic things – what tax they need to pay and at what stage, for example. “Payments on account is a biggie, as so many start-ups aren’t aware that you could be required to pay 150% of your tax liability once you start to make a profit,” Claire Owen-Jones explains. “Also, you may not have to pay tax until you exceed the personal allowance, but you have to pay national insurance once you earn over £5,000. The list goes on. There are a couple of surprises that can easily catch people out.”

5. Difficulty in controlling their cash flow

Cash flow is a massive challenge for many small businesses. Many don’t realise just how common this problem is, which perhaps contributes to their reluctance to discuss it. Owen-Jones recommends that her clients set aside 5% to 10% of every invoice they raise and put it into a rainy-day fund: “Saving is boring, but you never know when a customer will be late paying you, or refuse to pay.” Cooper cites the saying “Profit is vanity, cash is sanity” in relation to cash flow; even if a business is making lots of profit, it will be worthless if the cash isn’t there to keep the company trading. “For instance, it might have assets in the form of equipment and debtors. However, if the cash isn’t there to pay suppliers or the Taxman, it will all be meaningless and the business will soon fail,” he says.

6. Not delegating

Many small businesses hesitate when it comes to bringing in extra support, especially when it comes at a cost. In the long run, this reluctance diverts clients from their core moneymaking activities. “If clients delegated more, it would free them to focus on what they are good at, while their accountants and other advisers take care of the things that they are good at,” says Brian Palmer. “The question that I would like owners to ask themselves before doing administration activities is: ‘If I paid someone else to do my administration, would this leave me free to generate more income than the cost that I will incur when paying them?’ If the answer is ‘yes’, they should incur the cost and pay it willingly, safe in the knowledge that their business will be more profitable.”

7. Being structured inappropriately

Should the client operate as a sole trader or a limited company? Many small businesses and self-employed people don’t understand the importance of this question, which they decide early in their business life. They should consult with an accountant, not friends and family, says Owen-Jones: “So many people just guess or they take the advice of friends. Sometimes they make the wrong choice. You can cause pretty big problems for yourself if you don’t understand the differences between the two.”

Informi has created an ebook addressing the areas discussed in this article. You can download the working with your accountant ebook.

Huw Moxon is Digital Marketing Manager for Informi.

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