Your business accountant is more than just the person who crunches the numbers in your business, he or she can be a valuable asset in helping you achieve your goals.
With modern cloud accounting tools like Xero and MYOB at your fingertips, keeping track of your finances is easier than ever, but the specialist advice, compliance, and reporting an accountant provides are still invaluable.
Your accountant should be providing you with regular reports on different aspects of your finances. This isespecially important if your business is in trouble. Your accountant can alert you to the early signs that you might be struggling, and suggest what can be done to turn things around, before it’s too late. The important thing is to ask your accountant for these reports or their opinion.
You may be able to free up cash by reducing supplies or redundant stocks, selling underutilized assets, or arranging time with your creditors through a creditor compromise. You may also be able to reduce your overheads. There are lots of options to mitigate financial trouble, if you get advice early on.
What are some of the financial aspects your accountant should be reporting on or alerting you to?
Borrowing money from the business
Many small business owners draw out funds from their business to cover their personal expenses. If borrowing money from the business is done in an ad-hoc fashion, it can cause huge problems and harm the business.
Your business accountant should be making you aware if too much is being withdrawn. They should also be ensuring that as director you are keeping proper accounting records and that directors remuneration is properly authorized by the company board and recorded in an interests register. Any payments need to be fair at the time they are made.
If you borrow more than you invested and the sum is considered excessive, you could be forced to reimburse these funds if your business later faces liquidation. You can be found in breach of director's’ duties and have claims made against you if you do not act in the best interests of creditors and in good faith.
It is bad practice to borrow funds from the business personally to the detriment of business tax and creditor obligations.
One of the main purposes of having an accountant work on your business’ balance sheet is to measure your solvency. Your company has to be able to pay its debts as they become due, and the value of its assets must be greater than its liabilities. As a company governed by the Companies Act 1993, you have specific responsibilities to ensure your business remains solvent. However, this is often something that creeps up on a business owner without noticing. Your accountant should be able to draw your attention to any potential issues impacting solvency. It is important to factor in contingent liabilities.
If you’re using practices that could get you in trouble with the IRD, your accountant should be alerting you so you can amend your behaviour. Getting on the bad side of the IRD can be extremely stressful, and may result in you being investigated and facing penalties. Your accountant should be able to advise you on how to engage with the IRD.
If you have upcoming tax or debt payments coming due, then your accountant should be able to keep track of these and assist to remind you to meet these obligations.
If your accountant says your company is insolvent, then you either need to introduce capital to keep it afloat (but get some advice on that first) or seek advice on the options for insolvent companies. Courts have also criticised accountants who fail to give this type of advice to their clients. It is unwise to take distributions as a shareholder when the company is facing difficulty or to incur obligations you cannot meet – in both cases you will likely be held personally liable.
Your accountant is a valuable member of your team, as they understand your books and how to interpret results. It’s important to choose an accountant you trust, and one who will inform you not just when business is going well, but when it and possibly you could be heading for trouble.
If you think your business in financial trouble contact us now.