Six key things to consider when choosing an accountant

Choosing an accountant is a key decision. Find the right one and they’ll make your life easier, while helping you to maximise your income and minimise your tax bills.

Some sole traders and small private landlords don’t use an accountant. They take a “DIY approach” to bookkeeping and completing their tax returns. Software makes this possible and it enables them to save money.

But for an easier life and peace of mind, many other sole traders and small private landlords do use accountants. Choosing an accountant is a key decision. Find the right accountant and they’ll make your life easier, while helping you to maximise your income and minimise your tax bills. Make a bad choice and you’ll earn less income and end up frustrated at the poor service you receive. So, before choosing an accountant, what key factors should you consider?  

1. Experience

You’re looking for a well-established accountant with years of experience of working for sole traders and landlords. If they’ve worked for sole traders in your sector, it can be hugely beneficial. They’ll be familiar with the unique challenges faced by sole traders in your sector, which should enable them to give you reliable practical advice. And although you’re likely to have to pay more for it, they or someone within their network should also be able to advise you on other important matters, such as growing your business or property portfolio, future investments, your pension, etc.  

Top tip! Seek recommendations from other landlords or sole traders in your sector. Ask them which accountants they use and whether they would recommend them. Also find out how much they pay and what services they get in return.

2. Qualifications

An accountant should of course have the necessary professional training and membership of relevant professional bodies. In the UK and Ireland, leading chartered accountancy bodies include the Association of Chartered Certified Accountants (ACCA), Chartered Accountants Ireland (CAI), the Institute of Chartered Accountants in England and Wales (ICAEW) and the Institute of Chartered Accountants of Scotland (ICAS).

Top tip! Qualifications and memberships will only tell you so much. The right accountant will also understand you, be committed to working hard for you and want to build up a strong professional relationship with you.

3. Services

You also need to find an accountant who can offer the services you require, now and into the future. While basic services such as bookkeeping and tax returns are essential, you might also gain from tax planning and business advisory services. If you run a business and it grows, consider whether the accountant can help to enable your growth and support you as your needs change over time.

When weighing up your options, get prospective accountants to explain what specific services they offer. Also find out about their culture and approach to customer service. You should be sure that they will respond quickly and satisfactorily to your requests for support, not leave you waiting ages for a reply.  

Top tip! Find out who your regular contact will be at prospective accountants and ask to meet them. This is the person with whom you’ll need to establish a good working relationship. Crucially, they need to be someone you can trust.

“When weighing up your options, get prospective accountants to explain what specific services they offer. Also find out about their culture and approach to customer service.” 

4. Reviews

Prospective accountants will probably tell you how wonderful they are and how much their existing clients love them. Their website might also contain glowing quotes from satisfied clients. But you need to do some of your own research. Look on social media and review platforms such as Trustpilot to see what clients are actually saying and what ratings they have given. You need to be able to trust your accountant, they need to demonstrate integrity and professionalism.

Top tip! Even the best accountants attract negative reviews – sometimes unfairly. As well as the glowing reviews, read the bad ones to see how the accountant has responded. It can reveal much about their customer service and explain bad reviews.

5. Value

Although, obviously, you’ll want to minimise your accountancy costs, going for the cheapest option can be unwise. Generally, you get what you pay for. You need to consider what value you will get, not necessarily what price you pay. An accountant who charges you slightly more might offer you greater quality. They could be much more reliable and give amore responsive, personalised service.  

Top tip! Accountants either charge a fixed monthly fee for specific services or a set fee for a specific task (eg complete a tax return), possibly an hourly fee for other work. Make sure you understand what you’ll pay and what you’ll get for your hard-earned cash. Transparency is essential, there should be no hidden costs. And be sure to claim back all accountancy fees as an allowable tax expense.

“Make sure you understand what you’ll pay and what you’ll get for your hard-earned cash. Transparency is essential, there should be no hidden costs.”

6. Software

As a sole trader or landlord, you realise the importance of keeping accurate, up-to-date financial figures, so you’re happy to use accounting software. But you just need accounting software that’s quick and easy to use, gives you basic functionality and gives you access via your smartphone if you’re out and about. You want something that enables you to manage and minimise your expenses, something that saves you time, effort and costs when completing your Self Assessment tax return.

Top tip! Ask prospective accountants what software they’ll expect you to use. Also ask them how quick and easy their preferred client accounting software is. If it comes with complex and unnecessary “bells and whistles”, ask for something simpler.

And finally…

Leave yourself enough time when searching for an accountant. Rushing your decision can lead to mistakes. Seek recommendations from other sole traders or landlords. Make time for a brief face-to-face meeting with accountants, to get a better idea of who will be working for you.

Have conversations with a few shortlisted accountants before making your decision. Be clear about how much you’ll pay and what services you’ll get. Speak to some of their other clients. Find out whether they think they’re getting good value for money. Choose an accountant that uses the right software for your practical needs, software that saves you time, effort, money and makes your life easier. Ultimately, you’re hiring an accountant for the same reasons.

• This blog was written for Coconut accounting software.

20 financial terms that every small-business owner should know and understand

They’re words or terms that are frequently used in business. Many of them you possibly already use or often hear. But do you know the actual meaning of them all?  

1 Accounting period 

This is the period to which a business’s financial accounts refer, which is usually 12 months. You can compare headline numbers from different accounting periods to assess how well your business is performing or developing.

2 Accounts payable

This is an accounts/bookkeeping record of money owed by a business to its suppliers. This is shown as a liability on a business’s balance sheet (see 4). “Accounts receivable” is a record of money owed to a business by its customers.

3 Assets

These are items of value that a business owns. They can be physical, tangible things, such as machinery, tools, vehicles, premises, computers, office furniture, etc, or non-physical, intangible things, such as intellectual property, brand identity, “goodwill” (ie reputation), customer base, in-house systems, etc. Both can be important when valuing a business for sale.

4 Balance sheet 

A balance sheet is a financial statement that shows a business’s assets and liabilities at a given point, while detailing shareholder equity (ie the amount shareholders would receive if a company’s total assets were liquidated and all debts repaid). Bottom line is the last line on a balance sheet that shows total profit or loss.

5 Cash accounting 

Cash accounting is an accounting method that records income when it’s received and expenses when they’re paid. The alternative is the accrual accounting method, which is where income and expenses are recorded when they’re earned/incurred, regardless of when cash actually enters or leaves a business. There are pros and cons to each.

6 Cash flow

Cash flow (or cashflow) describes the relationship between cash entering and leaving a business. Positive cash flow means more cash entering a business than leaving it. Cash-flow problems arise when you spend more than you make or when you don’t have sufficient cash to pay your short-term debts. Poor cash-flow management can kill even profitable businesses.

7 Credit control

Firstly, this requires managing which customers get credit from your business and how much they get. Credit control also involves monitoring customer accounts and prompting them when necessary to ensure that they pay their invoices when due. 

8 Creditor 

An accounting term used to describe a person or business to whom/which your business owes money. Your suppliers can be described as trade creditors. A debtor is a person or business that owes money to your business.

9 Double-entry 

A bookkeeping system whereby every time you detail a transaction it’s recorded in two places within your accounts, once as a debit and once as a credit. The double-entry system can make it easier to prepare accurate financial statements and identify errors.

10 Gross profit  

This is your turnover (see 18) minus your cost of sales and direct costs. Your gross profit margin/percentage = gross profit/turnover x 100. So, if your business made a gross profit of £30,000 on a turnover of £75,000, its gross profit margin/percentage would be 40%.

11 Income

This is money that you or your business receives in exchange for your labour or supplying goods or services. Income can also be earned through investment. Revenue is an alternative name for business income. Net income is income minus cost of goods/services sold, expenses, depreciation and amortisation, interest and tax.

12 Inventory

This is simply another word for materials or stock that a business buys to sell or make into products for sale. Inventory is reported as a current asset on a company’s balance sheet.

13 Markup

Margin is sale price minus the cost of goods/services sold. So, if you sell a product for £100 and it costs you £70 to make, your margin is £30 (or 30% margin percentage). Markup is how much you add to your costs to reach your selling price. So, a markup of £30 from your £70 cost gives a £100 price, but the markup percentage is 42.9%, which is the markup amount divided by your costs.

14 Net profit 

This is your gross profit (see 10) minus your indirect costs and expenses. So, if your gross profit is £30,000 and your indirect costs and expenses are £10,000, your net profit is £20,000. Your net profit percentage = net profit/turnover x 100. So, in this case, £20,000/£60,000 x 100 = 33.3%.

15 Overheads 

Overheads are your day-to-day running costs, such as rent, rates, etc. Sometimes these are called “fixed costs”, because they don’t change regardless of how much you make or sell. However, your “variable costs” will increase if you make or sell more. Raw materials are the most obvious variable cost.

16 Petty cash 

This refers to small amounts of cash belonging to a business that is kept for low-value day-to-day purchases, such as a bottle of milk, tea bags or jar of coffee. Obviously, petty cash purchases must be accounted for.

17 ROI

Return on investment. Basically, the financial rewards your business gets back from things it invests in, for example, a marketing campaign, new website or new item of equipment. The formula for working out ROI as a percentage is net profit/total investment x 100. Doing such calculation enables you to work out how effective an investment proved.   

18 Turnover 

This is one of the most common words in the business lexicon. Turnover simply means the total value of sales made, usually in a year. Sometimes the word revenue is used, but it has the same meaning. A small price increase can make a big difference to your turnover.

19 Working capital 

This is the amount your business needs to operate day to day. It’s easy to work out how much working capital you need. You simply take your current liabilities (accounts payable – how much you owe) away from your current assets (ie your available cash, accounts receivable, inventory and short-term investments).

20 Year-end 

This refers to the end of a company’s accounting or financial year. It is known by the alternative name of accounting reference date (ARD) and is on the last day of the month during which the company was registered with Companies House (although it can be changed).

• Read the Companies House guide to accounting reference dates and periods.