With 60% of start-ups in the UK failing in the first three years, and almost three quarters of small business owners experiencing cashflow issues, it’s not surprising to learn that almost two thirds (65%) of small business owners wish they had known more about accountancy before starting their businesses.
It’s not just about ensuring you have capital to operate, pay any staff you may have and cover your bills; your cashflow also needs to be resilient enough to survive any late payments — something which is sadly a reality for thousands of businesses. The Federation of Small Businesses estimates that 50,000 SMEs go out of business each year due to cashflow problems. Over a quarter (27%) of British small and medium-sized business have admitted to being owed between £5,000-£20,000 in unpaid invoices.
You can have an innovative business idea, a strong customer base and sales that are healthily growing, but cashflow can — and has — unravelled even the most tenacious of entrepreneurs and founders. With The Rose Review 2023 revealing more women than ever are starting new businesses, with 150,000 new female-led incorporations in 2022 alone, we want as many of these as possible to sustainably grow and rise.
There is a stark difference between having a great business idea and understanding finances. It’s far more than just getting your prices right and nailing margins. It’s about understanding when you need to register for VAT, what expenses you can legitimately run through your business, any grants or loans you may be applicable for, the correct tax and VAT codes to use. And most importantly, deciding on who you trade with and sticking to terms — the list is endless. In fact, a third (33%) of small business owners advise others that they should hire an accountant to help manage finances; which is particularly crucial in the volatile early years of starting a business.
We know that SMEs expect a professional, honest service when they engage accountants and tax advisory agents. But that’s not always what all business owners get. Six out of 10 people had no idea accountants could practise without a qualification.
How do small businesses know they have found a qualified, competent, and trustworthy accountant or one that is unqualified and unregulated?
Incorrect tax guidance can lead to significant HMRC fines and even result in prison time. For some SMEs, it’s simply not viable to correct the mistakes — some may not be able to afford to pay another accountant to essentially repeat the job again, or they may not have the cash reserves to pay more VAT or tax which hasn’t been accounted for in the cashflow. Incorrect tax guidance can, in extreme cases, spell the end of business for a company.
For over a decade we’ve campaigned for much-needed protections for small businesses. In March this year we landed a historic victory when, for the first time ever, the UK government publicly committed to seriously consider mandatory membership of a recognised professional body for tax practitioners, in an announcement made as part of the Spring Statement.
This is an incredibly positive step forward given that currently a third of accountants and other professionals providing tax advice remain unregistered with a professional body with regulatory abilities such as AAT. It’s really important that small business owners are fully aware of their accountant’s credentials and confident with the services they are receiving, so they can make an informed choice.
Many rely on word of mouth or recommendations from other business owner contacts to find an accountant. Which is understandable; if someone you know and trust suggests someone, the chances are they are going to be good, right? Not necessarily. There are so many factors at play here, the main one being: has your contact asked the accountant what their qualifications are? Or whether they are a member of a professional body, who ensures they keep their skills and knowledge up to date and properly supervised? Chances are they won’t have. Even if they have, they probably don’t really know what the qualifications mean or which bodies and associations they should be a part of.
Just because a business has had a good experience with an accountant, doesn’t mean another is going to as well. Different business models present different issues, lack of continued learning and development throughout their career may result in the accountant coming up short in knowledge areas, different company structures result in different tax arrangements; the list goes on.
A fail-safe way to find a qualified and professional accountant is through online directories, such as our AAT Licensed Member Directory, which signposts consumers to all the accountants who are practising AAT members. These online directories are free to use and enable business owners to search according to the accounting service they require, the location or the name of the accountant. This is an example of how, as a sector, we can work to ensure small businesses are protected from rogue accountancy.
Accessing sound financial expertise isn’t only for when a small business is up and running, it’s also an integral part of the pre-launch phase as well. Accountants can help a business register with HMRC, set up the cashflow, apply for loans and grants; all essential components of getting ready to launch.
Employment across SMEs is 16.7million, 61% of the UK total. Without good financial planning SMEs can’t manage their cashflow effectively, pay staff, expand and grow or invest in product development. Partnering with accountants that help them flourish will not only drive them forward, but also ensure they are able to continue to provide employment opportunities and economic growth to the UK.
Sarah Beale is CEO at AAT (Association of Accounting Technicians). AAT is one of the UK’s largest providers of accountancy qualifications and skills training, with 70,000 people studying towards AAT’s qualifications and short courses at any one time, and more than 50,000 professional members who collectively serve more than 840,000 small or medium sized businesses.
