If you’re starting out in business on your own, it’s likely that you’re counting the pennies every time you need to spend anything on your venture. So an on-going expense – such as a subscription to an online accounting service, like freeagent – may not be high on your list of priorities, especially if you think you can keep your business books free of charge on a spreadsheet.
But is a DIY bookkeeping strategy using spreadsheets really the best way to ensure that you’re staying on top of your business accounts?
Emily Coltman ACA, Chief Accountant to FreeAgent – who provide an award-winning online accounting system for freelancers and small businesses – explains why the “spreadsheet method” is rarely the best way to manage your small business accounts effectively, and why an online (or “cloud”) accounting package could be a better investment.
You’ll save time and accountancy fees
How long do you take to write up your spreadsheets a week? A few hours? Or do you spend entire nights getting more and more frustrated with your figures?
What would you do if you could save some – or most – of that time? Could you make more sales and grow your business, or would you prefer to have more personal time to walk the dog or play football with your kids?
And how much does your accountant charge you for the time it takes him/her to turn your spreadsheet into accounts at the end of the year?
I had a client, in my days as an accountant in practice, who kept his records on a series of spreadsheets of his own design. It used to take me several days to just add up everything that had gone in and out of his bank account and make sure that the amount he thought was in his bank account was what really was in his bank account, because he always put these transactions in several different workbooks.
I moved him onto a nice simple piece of purpose-built accounting software. Not FreeAgent, because unfortunately that didn’t yet exist, but something else designed for small businesses.
At the end of his first year on that, I was able to check his banking was accurate in 5 minutes flat.
The client saved a lot of money and I avoided a lot of grey hairs, and our relationship improved vastly!
It does your sums for you – and provides automatic updates
Online accounting products are updated automatically by their development teams when the government changes relevant rates in the tax system.
For example, if the VAT rates are changed, or the rate at which you can claim mileage for business travel in your own car is revised, then your accounting software provider would normally update that for you.
This not only saves you time but reduces the risk of error.
Another reason for not using spreadsheets is that one mistake in a formula, such as a column SUM not picking up the bottom row, can mean that your figures are incorrect and you pay the wrong amount of tax or VAT.
They’re also difficult to turn into a set of accounts, as we saw earlier.
An online accounting software package such as FreeAgent will do all the sums for you, which minimises the risk of inaccuracies appearing in your accounts due to miscalculations. So provided you have entered the right information, you can be confident the figures are correct.
You have access to timely financial information, anytime, anywhere
If you’re summarising your transactions on a spreadsheet, can you see whether you’re charging your customers enough? Whether particular costs look too high? How much tax you can expect to pay?
It would have to be an incredibly detailed spreadsheet to show you all that – but if you use an online accounting package, then this information about your business’s profit and cash will all be there at your fingertips to help you make timely decisions about your business’s future.
You can also view this information wherever you happen to be, so long as you have access to the Internet. For example, you could look at your accounts on your iPhone when you’re on the train on the way to meet a client and make sure they’ve paid your last invoice!
It’ll be easier to collaborate with your accountant
We looked earlier at how keeping more accurate records can save you accountants’ fees and help improve your relationship with your accountant.
This is where online accounting software helps much more than a traditional desktop-based package like Sage or QuickBooks can – because you and your accountant can both see your records in real time, at the same time, by logging in from your own computer, iPad, or other device. That means that your accountant can offer timely, proactive advice, rather than having to wait until the end of the year to suggest that you should put your prices up, or could cut costs, or correct a mistake.
So, say I have a client who lived in the Midlands but I’m based in Cumbria. When this imaginary client is posting his expenses to FreeAgent for his quarterly VAT return, for example, I can be watching what he’s doing by logging in and refreshing the page every so often. If he makes a mistake, I can pick up the phone, or send a Skype chat message, to say, “Don’t put that meal for two into staff entertaining – you haven’t any staff and you can’t reclaim the VAT on that!”
You’ll look more professional to your clients
Many online accounting software packages create invoices that automatically use a numbering sequence and can be turned into recurring invoices if you charge the same customer for the same amount every month, or every week.
You may also be able to send estimates to your contacts and create reports of time you’ve spent.
How long would it take you to do that on Excel? If you use an online accounting package like FreeAgent it would take you two clicks of the mouse.
Using online accounting software helps you keep accurate, up-to-date records that provide you with crucial financial information about your business, and work more effectively with your accountant and your clients.
What’s not to like about that?
The Startup Magazine have an affiliate program with FreeAgent the online accounting software, if you are interested in signing up to free agent, please sign up here and receive your first 30 days free and 10% off your subscription price.
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