The oldest profession?

Apologies for the late sharing last week, the integration between WordPress and Linkedin/Facebook was more login-dependent than I realised! I hope you managed to catch up when it was shared on Tuesday instead.

And-now

Accounting

As a novice small business owner, one of the first things I did was find an accountant, so I could make sure I was legally compliant and not doing anything silly in terms of the way I was doing my finances. I am not an accountant, so clearly the contents of this blog does not constitute advice, may be incorrect, relates to UK specifically, and is for general interest only :p.

I visited a local accountancy practice, who did a free 1hr no-commitment consultation. This was useful in terms of answering my immediate questions, which were around how to extract money from the company and how to not-mess-up dealing with “The Taxman”. This materialised as questions like:

  • Should I pay myself a salary?
  • Should I register for VAT?
  • How should I do “expenses”?

The answers to these were:

  • Salary yourself as little as you can afford, and as soon as you start paying yourself ensure it is at least the minimum wage. Once you start paying yourself, you will have to do this monthly and tell HMRC (Her Majesty’s Revenue and Customs) about it. HMRC  are the tax department of government in the UK.
  • VAT register as late as possible (since it requires yet more paperwork) unless you have big capital expenditure (which I don’t). You only have to VAT register after something like £83,000 turnover.
  • Expenses should make things look obviously like the legitimate business expenses they are, so it doesn’t matter too much whether it is paid on a company bank card or on personal bank card, as long as you keep it all logically separate. The problem is when you buy something using entirely company money and use it for non-company things.

I decided, as part of my ever-continuing education, to complete my first set of accounts myself (with a little help).  As a result of this, I also learned:

  1. Accountants are charging a lot for what are simple activities once you know how to do them. For me, from scratch, it took about a day to put together my first set of accounts. My local accountant was charging over £500 for the same thing (which I guess would take them much less than half the time it took me).
  2. There are lots of tricks to legitimately avoid paying tax, which can be found on online forums or by paying accountants (if you are interested in reducing tax payment).
  3. Micro-entity accounts really do make things easy for very small companies, since they don’t ask for too much detail. [1]
  4. The “government gateway” website, which links nicely with Companies House, is actually pretty usable.
  5. Double-entry bookkeeping is almost a millennia old, the oldest complete set coming from the Republic of Genoa in 1340 [2]. Accounting itself may be from around 5000BC, pre-dating even money as Babylonians used it to keep track of livestock.
  6. It is definitely worth copying someone else’s spreadsheets (google or ask around) for cashbook, expenses and accounts templates.
  7. Little bit of lean: I’m now getting some sense of “flow” from my expenses. When I get home after a day out on business, I get all my receipts and (before I even have a cup of tea) I put them into my expenses spreadsheet, numbering and filing each receipt. Not only does this mean I get it “Done” and remove the activity of finding  and sorting receipts, but it means that I don’t dread spending hours once every few months doing expenses.

I’m really glad to have done a set of accounts so I know how it works, and if I decide to pay an accountant to do it in future I will know what I’m paying for. Overall I’d say doing this once is a highly recommended experience, much like having a vaccination.

tl;dr; Accounting is pedantic but not hard.

 

[1] https://www.gov.uk/annual-accounts/microentities-small-and-dormant-companies

[2] https://en.wikipedia.org/wiki/History_of_accounting