In the opening episode of The Apprentice, hapless accountant Edward Hunter learnt the hard way that you can't afford to take your eye off the numbers. After splashing the cash on mountains of oranges and tomotoes, his team Logic were unable to translate the investment into a winning profit, and Edward ultimately got the boot. But how can you manage your accounts in the real world of small, self-run business? Stylist spoke to serial entrepreneur Darren Fell, the founder of crunch.co.uk, an online accounting service for small businesses to find out.
At the heart of last night's Apprentice lay the issue of accounting - and how not to let money roll away before your eyes even in high-pressure, do-or-die situations. If Edward had got his figures for selling sorted at the beginning of the task it's very likely he would have been quaffing champagne by the end of it. Instead he squandered £210 on 1400 oranges, which no amount of muscle in team Logic could translate to juice by morning.
By bypassing the minutiae of incomings versus outgoings, Edward fell victim to an increasingly common, and crucial, issue. With more and more people racing to break from the mould and set up their own business, managing accounts can become a make-or-break factor. Knowing how to balance your books for maximum turnover can be tricky in the do-all world of the self-employed, especially without professional guidance.
Entrepreneur Darren regularly gives advice to people looking to launch their own companies and shared the following tips with us:
In order to protect your assets, it is a good idea to register your business as Limited as quickly as possible, rather than have your accounts under your own name as a sole trader. This can be done online for as little as £60 and it's possible to complete the process and have the papers registering your company in front of you within an hour and a half. By taking this step you will be giving your business credibility to potential clients - but more crucially, it will protect your money in the event of things going wrong. If someone sues you or the company goes into administration, it will be your business - rather than you and your personal finances - that will take the hit. Going Limited is also the most tax efficient way of trading and can significantly reduce your tax bill (basically by using dividends to withdraw your earnings) and provide national insurance savings.
Invoice straight away
The inability to invoice effectively is a classic reason for the failure of small business. At the beginning of any start-up, money will be flowing out before it comes in and it's important to redress that balance as quickly as possible. Invoice a client straight away to ensure payment a few months down the line. To avoid having to chase payment, it's also a good idea to ask for a percentage payment upfront, before delivery of service. Don't let your eagerness to impress a new client or pamper to their demands get in the way. Asking for a pre-payment is a good way of establishing how creditworthy a person or business is and if you are forthright and confident about it, clients are likely to respect that. Equally if they refuse any kind of pre-payment, it may be a warning sign not to take business any further.
Cash is king
It's important to establish a flow of cash into your company as quickly as possible, in order to avoid falling into a quagmire of debt. Special offers and discounts are a good way of doing this, so don't be afraid to set up tempting deals from the outset. You could think about offering a discount for prompt payment - thus settling invoices at the same time as drawing in business. It may seem obvious, but don't wait around for the phone to ring. If money isn't coming in straight away, you need to do everything you can - including cold-calling and raising your profile in the business world - to generate business, draw in cash and so balance your accounts.
Many people are put off by accountants' sky-high consultancy fees, but the bottom line is that flying solo in a small business without any kind of professional advice on accounting is likely to bring problems. Not only do you have to negotiate a vast array of complex tax rules set out by HM Revenue & Customs, but also any small deviation in filling out forms may result in you missing out on money via tax savings. Plus, any tax issues must be dealt with on top of running your own business at the same time. This is where online accounting comes in, offering a cheaper alternative to traditional accountancy services. A number of online bookkeeping applications have been launched over the past five years, many of which are designed to deal specifically with small businesses and freelancers. For a set fee, they allow people to see the exact status of their accounts, as well as invoice and add expenses via online software. Prices vary depending on the level of assistance you want - crunch.co.uk offers a full service, including preparation of annual accounts and returns and a telephone helpline for a full fixed monthly fee of £59.50.