If there is a history to either the company, the idea or product, it could also be included in the business plan. It might detail the company’s past performance, successes or other notable information.
May 292007
This sums up, the key elements of the business, and may include:
- what the product or service is
- the market it is aimed at
- why they will buy it
- what the result will be
- key reasons for success
- barriers to entry to the market
- risks and how they will be managed
- strategic objectives
- potential for growth
- key strecths of the management team
- summary financial projections
Reason One
The first reason for writing a business plan is to formally decide what the company is doing, where it is going and how it will get there – kind of a “focusing the mind” exercise.
Reason Two
The second reason, which is possibly the primary reason why people call in accountants and business advisors, is to gain the backing of a financier.
Whatever the reason, a business plan normally follows a fairly standard format, However, it is important that each business adapts the structure to its own requirements. Equally, while it is important to seek good advice from an accountant and/or business advisor, this is no substitute for being fully involved yourself.
May 252007
The great thing about MS Excel (and others say it’s greatest downfall) is that it is so adaptable and because it normally comes bundled with the PC you bought for your business, it’s cheaper than buying accounting software.
For start ups and possibly for the sole trader or small limited company, it’s a very easy way of keeping track of essential accounting information, especially if you have no intention of getting involved in double-entry bookkeeping (which will be the subject of a future post).
I’ve blogged previously (5 April 07) about the three basic “books” you need. (Cash book, sales ledger and purchase ledger). All three can be created in Excel very simply.
Excel also has very powerful capabilities, a whole range of financial and statistical functions, the ability to chart your data and analyse it in all manner of ways. For that reason, accountants (depending on their sector and job function) make very extensive use of excel.
Of course, Excel is also used where other applications would be better. As a business grows, it will (hopefully) outgrow the use of Excel for bookkeeping. Depending on the business, this could happen quite early on. Also, if your primary requirements are data storage, Access, being a database, handles data storage and retrieval much better than Excel.
May 212007
The Profit and Loss account is probably the financial statement that gets the most attention. At it’s simplest, it is merely a statement of income less expenditure – which hopefully still leaves a positive figure. If you are a plc (public limited company, who’s shares are traded on the stock exchange), the Companies Act lays down the exact format and rules that need to be followed.
Exemptions for Small and Medium sized limited companies
Small limited companies, as defined by Companies House, do not have to file a Profit and Loss Account at all. Medium sized companies may file an abbreviated Profit and Loss Account
Sole Traders
There is no statutory requirement for sole traders to produce a profit and loss account, however, as previously blogged (18 May 07), a professionally prepared Profit and Loss Account helps to impress the bank manager and people you may need to persuade in the course of your business.
May 182007
Because…
- doing the accounts takes you away from your real business
- an accountant will do the job quicker
- an accountant can save you money
- professionally produced year end accounts will be taken more seriously by banks and other lenders
- Your accountant can help you get the most out of your business
Capital is the amount of money that the owners have put into the business. Capital is also referred to as a liability. This is because capital is the debt that the business owes to its owners.
In the case of a limited company, the capital will be in the form of shares. When a limited company needs to raise more capital, it has to issue more shares.
May 112007
- Speak to your prospective accountant on the phone first and then, if you are still happy, set up an initial meeting – which should be free of charge.
- Ensure that they are professionally qualified and are current members of a professional body (Chartered Accountant (ICAEW/ICAS/ICAI), Chartered Management Accountant (CIMA), Chartered Certified Accountant (ACCA) for a fully qualified accountant. Or AAT or CAT for an accounting technician).
- Get some personal recommendations. However, do make sure that you trust the judgement of the person making the recommendation and they have an understanding of your business requirements.
- Always make sure for yourself that the accountant offers the service that you require.
- Conversely, accountants offer many services (from tax to company secretarial services), check that you require what they offer. There is no point in paying for something you don’t want.
- Ask you accountant about their experience.
- Try and find out how accessible your accountant is. How quickly do they respond to telephone and email messages? Is it easy to speak to them directly? If you are tied up with your own business during office hours, ask your accountant if they offer an out of hours service.
- Find out about their fee structure: whether they will offer a fixed fee and/or an hourly rate. If it is an hourly rate, get an estimate of the time required to complete the work.
- Check if you are going to be charged for speaking to your accountant on the phone and for any letters they might send to you.
- If approaching a firm of accountants, find out who will actually carry out the work. On many occasions, it will be an accounting technician or clerk who carries out much of the work rather than the partner. Make sure that you are billed accordingly.
- Most importantly, make sure that you get on with your accountant. You need to be able to talk comfortably with them. If a junior will be carrying out work, make sure you speak to them, too.
- Finally, if you are not getting on with your accountant, for whatever reason, do not be afraid to make a change.
This gives a definition of profits earned:
Profit = Increase in net assets (excl drawings) + drawings – extra capital introduced.
It shows the link between the amount of profit earned and the increase in net assets and drawings.
May 022007
Drawings are amountsof money taken out of a business by its owner. Profits are only capital as long as they are retained in the business. Once they are taken out by the owner (appropriated), there is a reduction in the business’s capital.
Following the previous example, if Tina had taken drawings of £150, then the accounting equation would then be:
£1,000 (asset of the stall) + £250 (asset, cash from the sales – £150 drawings) = £1,200 (original capital) + £50 (profit retained in the business)
