How to find an accountant for your startup
Getting to grips with accounting - or finding a professional who can do it for you - is a vital part of staying on top of cashflow, tax, and other business matters. This sort of stuff is a big stumbling block for many businesses, but burying your head in the sand about it puts you at risks of fines and worse.
Luckily there are people whose jobs are to help you with this stuff, no matter what level your business is at. We asked Clive Lewis, Head of Enterprise in the Business Department of ICAEW (the Institute of Chartered Accountants in England and Wales) some questions about how professional accountants can help startups, and when you need to consult one.
What can accountants do for a small business?
Accountants provide a range of services, and most ICAEW chartered accountants provide the following services which are useful to businesses starting up:
- Helping decide the most appropriate business format - sole trader, partnership or limited company. The business format has implications for taxation, raising finance and personal liability, so it's vital to choose the right option
- Advising on setting up accounting records, including use of software
- Advising on who needs to be informed of a new business
- Deciding whether to register for VAT
When your business is more established, an accountant can:
- Make sure tax returns are filed on time and that clients pay the correct amount of tax
- Ensure the client uses all the tax reliefs available to them, and provide advice to the client on minimising future tax liabilities
- Advise on payroll preparation
- Help to prepare business plans and financial forecasts
- Help with choosing appropriate finance for the stage of development of the business, and assist in raising the required amount
- Help with managing cashflow so the business does not run out of money
When should startups think about consulting one?
People thinking of starting a business should definitely talk to an accountant when developing the business idea. They can help with business plans (including the financial forecasts), provide suggestions for raising finance, and the regulatory issues you need to address, such who to notify that a new business has started.
Once the decision is taken to start the business, the accountant can help decide which business format works best for the client – basically sole trader, partnership or limited company. This is important because it affects many other issues such as getting the correct letterheads, addressing patent rights, filing the correct paperwork with H M Revenue & Customs, etc.
What things should startups consider when hiring an accountant?
Always look for a firm which is similar in size to yours, or has clients of the same size as your business; they'll be more understanding of the issues and problems you will face. You might prefer an accountant who has experience of advising clients in the same sector as your business. You also need to consider their reputation and whether they'll be acceptable to third parties e.g., finance providers and shareholders. For specific services (such as audit, investment business or insolvency work), make sure that the accountant is authorized to undertake the work.
It's important to ensure that they're members of a recognized accountancy body. What qualifications do they have? Are they chartered or certified? Do they have professional indemnity insurance?
You should invest time in finding the right accountant, as it's potentially a long-term relationship. Start by contacting three to six firms and arrange to meet with at least three of these. When arranging a meeting check in advance whether the first meeting to discuss their appointment is free of charge. If you ask for specific advice, you may be charged.
At the meeting
Tell the accountant about your business, and check whether they offer the services you will need. Talk about the accounting records you plan to keep. Can they suggest improvements?
Ask for their comments on your business plan, if you already have one. If you need finance, you will need a plan with financial forecasts. How much would they charge to do one with you? If you also want personal financial advice, check whether they can provide this.
You should also establish what the fees will be and when they are payable. Ask who at the firm will be dealing with your work - it may not only be the person you're meeting with. Do you feel like this is someone you can work with? Do you feel happy that they will be able to help you develop your business? Ask to speak to existing clients - references are always important.
The ICAEW Business Advice Service (BAS) offers a free advice session with a member firm. You can discuss any business or personal finance issue.
After the appointment
If you've agreed to hire the firm as your accountants you will receive a letter setting out their terms and conditions (an “engagement letter”).
After the appointment your accountant should always keep in touch, not just at the end of the year when they are expecting the records to prepare the accounts. In addition you must tell your accountant as soon as possible of any changes in your business, problems, circumstances etc.
Developing the relationship with your accountant
Don't be afraid to tap into your accountant's knowledge for help with running your business. Your accountant may advise businesses in a similar sector to yours or of a similar size, so use their accumulated experience and expertise.
It pays to periodically assess whether your accountant's services still match your business needs, and if you require new services check if they can provide them. You should be reviewing your accountant's charges every 3-5 years.
Finally, if you decide to sell your business, tell your accountant - they could help you minimise tax liabilities through using reliefs such as Entrepreneur's Relief, which minimizes the capital gain to 10% .
Is there aid or funding out there for startups struggling to afford accounting services?
Many ICAEW firms will give a new business a fixed fee quote for the first year’s services. The core services most start-ups use are annual accounts preparation, completion of tax returns, advising of tax liabilities and payment dates. They will usually ask about the financial records that will be kept - this helps them assess the amount of work required to prepare the first year's accounts. Some firms prefer clients to pay the anticipated fee each month, while others will bill the client when they complete the first year’s work.
Many ICAEW firms now ask clients to keep their financial records on accounting software accessed through the cloud. This enables the firm to check the client’s records as they are written up, so the accountant doesn't have to do it all in one go at the end of the year.
What are some common mistakes you see startups making with regards to accounting?
The most common mistake startups make with their accounting is putting it to one side “until they have the time”. When they get around to writing up the records they can't remember what the transaction referred to.
Secondly, not opening a separate business bank account, which means they mix personal and business transactions. This involves unnecessary work (and increased costs) on the accountant’s part separating business transactions from the personal ones.
Thirdly, leaving it too late, usually leaving it until the deadline for filing self-assessment returns approaches when the accountant is at their most busy.
Finally, clients who leave bringing the financial records into their accountant often find they do not have enough money to pay the taxes that are due, and no time to save for the payment
If you only have budget to get professional help with one aspect of accounting, which should you make a priority?
It would be wise to address the issues in the last question. If you can keep good accounting records not only will you save on accountancy fees, but you (with your accountant's advice) will also be able to calculate your tax liability so you know how much to set aside for the payment date.
But it goes much further than that. Up-to-date and accurate accounting records mean you can be on top of your business. For example, you can check:
- whether the sales are what you planned when you started
- what is the gross margin and is it improving?
- how much profit the business is making
- if cashflow ensures you're able to meet your liabilities
- if you sell or buy on credit you can keep a check on the monies owed to the business, as well as the money the business owes suppliers
- whether you are able to draw sufficient money out of the business to met your personal expenses.
In other words, good accounting records allow you to manage the business rather than have it run you!