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Accounting issues that can hurt your Birkenhead business

Birkenhead and the wider Wirral area have long benefited from their proximity to Liverpool and Chester, but are becoming genuine business powerhouses in their own right. This is something reflected in the presence of centres like BizSpace and the Wirral Business Association.

Despite the existence of so many small businesses in the locale though, there are common and easily avoidable accounting issues that many fall prey to, denting their chances of success.

Lack of accountancy understanding

Perhaps the single biggest problem of all is simply that many small business owners opt to go it alone with their accounting and bookkeeping, despite lacking a real grasp of them. The two are not the same, as bookkeeping means keeping records of business profits and expenses, while accounting is the analysis of this data so that you know the financial status of your company.

Mistakes during this process can see you facing HMRC penalties and possible disqualification from running a business, so it makes sense to use a professional Birkenhead accountant if you are not confident dealing with financial matters.

Managing VAT

There are a lot of different accounting issues relating to the tax system that cause problems for small businesses, but VAT is one of the most common. It stands for Value Added Tax and the first thing you need to know is when to actually register your company for it. A lot of small business owners register too early, which adds to their financial records burden, or too late, which leads to fines from HMRC. You should only register if you go over the £85,000 VAT profit threshold during the 12-month tax year.

Other VAT issues that hurt businesses in Birkenhead and elsewhere are calculating the right sum to reclaim, whether or not to use flat rate VAT schemes and working out what their VAT rate is correctly.

Managing the business capital

If your business does not have enough money in it, not only can you lose out on growth opportunities, but you might even lose the company altogether. It generally makes sense to keep between three and six months’ worth of cash in the business just so that you know you can cope with smaller debts, bills and rent for your business headquarters.

Beyond this, you also need to make sure that there is enough capital to cover completed work that has been invoiced for but not yet paid – which is known professionally as ‘accounts receivable’. Insufficient capital is a common reason why small businesses fail.

Posted by Mark
July 6, 2019
Accounts

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