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03/06/2020
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how-to-set-up-a-home-office

How To Set Up A Home Office For Tax Purposes

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As the coronavirus outbreak has grown and lock down began, more and more business owners found themselves working from home. For some business owners this was a case of working from the kitchen table, while others took on a spare room as their new office. As the lock down begins to relax, business owners are left wondering if setting up a home office could be a more permanent solution for them.

In this blog post we would like to share how you can set up a home office for tax purposes. We will look at this from three different points of view. This includes the point of view of the business owner of a limited company as well as the view of an employee and the view of a sole trader.

business-owner

Business Owner of a Limited Company

As the business owner of a limited company you are able to claim the cost of working from home through your limited company. In 2019 to 2020 tax year, this is a flat rate of £4 per week. This then rises to a flat rate of £6 a week for the tax year 2020 to 2021. The cost of working from home, in this case, is classed as an expense in your limited company accounts. This means you will get corporation tax relief in this instance. It is important to note that this is not seen as a benefit in kind. Therefore you do not need to report it on the directors’ self-assessment tax return.

It is possible to rent part of your house to your limited company, as a way to set up a home office for tax purposes. To do this, you will need to have a proper rental agreement between your home and your business. The rent would then be classed as an expense in the limited company accounts. You will therefore get corporation tax relief for this. The income from this received personally would need to be recorded in the directors’ self-assessment tax return.

Allowable expenses would be able to be claimed against the rental income. This covers things like a proportion of rent, council tax, utilities and similar household bills. The downside of this is that there could a Capital Gains Tax implication when you come to sell your home. This is due to part of your house being used for business. It would mean you would therefore not qualify for private tax residence tax relief.

If you are a business owner of a limited company and considering setting up a home office for tax purposes, contact our team. We can talk through the options with you to ensure you are aware of what to expect and you make the right decision for you and your business.

Employee

As an employee of a business working from home you are able to claim the same amount as the business owner of a limited company.  This is £4 per week at a flat rate for the 2019–2020 tax year, or £6 per week at a flat rate for the 2020-2021 tax year. However, it is important to note that you can only get this if your employer agrees. If your employer does not agree with this payment you are able to claim the tax relief directly from HMRC.

employee-home-working

As with business owners of limited companies and sole traders, there are other expenses that you can claim for as an employee. These expenses include IT and software costs from working from home, a business mobile phone contract and any postage or stationery costs. When looking to claim for these expenses it is essential you remember these costs must be used for business use only. If you use your mobile phone for personal and business use, the expenses claim will differ.

self-employed-working-from-home

Sole Trader

When looking to set up a home office for tax purposes as a sole trader you will be able to claim the cost of working from home, but it differs based on hours worked. If you are working between 25 and 50 hours a month from home you can claim £10 as a flat rate per month. Those sole traders working from home between 51 and 100 hours a month can claim a flat rate of £18 per month. Finally, if you are a sole trader working 101 or more hours a month from home then you can claim the flat rate of £26 per month. These are recorded as an expense. This will then reduce your personal tax. You may also be able to claim a proportion of your home telephone and internet bills on top of this.

There is another way to set up a home office for tax purposes. You can claim a proportion of all your bills while working at home. This can include your rent, council tax, electricity, water, gas, internet and phone as well as the interest on your mortgage.

The way to work out the proportion of your claim is to add up all the costs of the above bills and find the percentage used by your business. In many cases this will just be one room in your house. If the total costs for all the above come to £6,000 and you have 6 rooms in your house, and one is used for your business, this is 12.5%. This comes to £750. You then need to calculate how many hours you used this room each week for your business. In this example we will say that you work 42 hours a week from the room on your business, out of a possible 168 hours. This is 25% and works out at £187.50. This means you could claim £187.50 per annum.

In this example you would be better off on the base rate option. As explained previously, in this example you would get £312 on the base rate. This is why it is so important to talk to an experienced accountant. They will help you understand the best way to set up a home office for tax purposes.

If you are considering the options for you and your employees working from home in the long-term, contact our team now. We will help you put the right processes in place to ensure it works for you, your business and your accounts.

12/03/2020
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2020 Budget: What it means for businesses

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The chancellor Rishi Sunak has delivered his first budget on the 11th March 2020, but what does it mean for UK businesses?

Tax cut on national insurance

As promised in the Conservatives manifesto the national insurance threshold will increase from April. This will not only affect the self-employed and Directors of limited companies, but anyone who

is employed will enjoy this tax break. The table below shows the changes:

Annual National Insurance Threshold Monthly National Insurance Threshold Weekly National Insurance Threshold
Current £8,632 £719.33 £166
From April 2020 £9,500 £791.67 £182.69
Increase £868 £72.34 £16.69
Tax Saving £104.16 £8.68 £2

 

With the personal tax allowance set to stay at £12,500 per year, this means that anyone earning up to £9,500 will not pay any tax at all in the 2020-2021 tax year.

VAT changes

There have been a few changes announced on VAT in the budget:

  • 5% VAT on women’s sanitary products is to be scrapped from January 2021 – this is also referred to as the “tampon tax”.
  • VAT to be scrapped on digital publications including newspapers, books and academic journals from December 2020.

Coronavirus statutory sick pay and interruption loan

It has already been announced that if employees self-isolate to help contain coronavirus then they will be paid statutory sick pay from the first day off work, which is to be paid by the employer. However if you are a smaller business with fewer than 250 employees the government will pay the first 14 days of isolation. Small businesses will need to reclaim the cost of the statutory sick pay.

For those that are self-employed and not eligible for statutory sick pay, they will be able to claim employment and support allowance from day one rather than day eight.

The government has also introduced a business interruption loan for small businesses affected by Coronavirus of up to £1.2m

Pension tax relief changes for higher earners

Currently the tapered annual allowance threshold for pension tax relief is £110,000, which means anyone earning over this amount sees the tax relief on pensions reduced. From April this will increase to £200,000.

Business rates

The chancellor has announced that tens of thousands of England’s retail, leisure and hospitality companies will not need to pay business rates in 2020-21.

Eligible businesses are those that have a rateable value of less than £51,000, this is made in a move to help the high street and those that will be hit hard by Coronavirus causing a lower footfall. This applies to shops, restaurants, cafes, small hotels, nightclubs etc.

In addition the government have pledged a £3,000 cash grant for smaller businesses currently eligible for the small business rates relief.

Corporation tax

There was a planned reduction in corporation tax to lower it to 17%, however this has been scrapped and the rate of tax will remain at 19% for 2020-21.

Entrepreneurs’ relief

There were rumours that entrepreneurs’ relief was going to be scrapped however it has been retained at the rate of 10%, however the lifetime allowance will be reduced from £10m to £1m.

At Direct Peak accountants, we aim to do much more than just help you meet corporation tax compliance. We communicate with you throughout the year, not just at year end.

Contact our team now to see how we can help you implement the changes from the 2020 Budget into your business.

26/02/2020
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gocardless-and-xero

Use GoCardless and Xero To Increase Business Cash Flow

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Of the myriad issues and problems that businesses have to deal with, cashflow is high on the agenda. However poor cash flow for a small business can be an incredibly serious issue. Poor cash flow is a big reason why many small businesses fail in the early years of business.

Maintaining a consistent and reliable cash flow is a difficult talk for many small businesses throughout their lifetime. If you are struggling to get cash into your business bank account it can slow down your whole operation and affect the growth of your business. From debt to late payments, there are plenty of cash flow problems that small businesses face. So why not use GoCardless and Xero to make it easier to get payments from your customers?

Here at Direct Peak we see that one of the most common reasons for cash flow issues are delayed payments. However, by using online payment solutions and online invoicing you can take some of this pain away. We recommend GoCardless and Xero to our clients as the two platforms create a seamless way for you to invoice customers and clients, and an easy way for them to pay.

What Will Good Cash Flow Help My Business Achieve?

When you have good cash flow in your business, you are able to plan for the future. A reliable and strong cash flow allows you to make firm decisions on business growth and investment. By using GoCardless and Xero you will be able to free up time spent on chasing badly paying clients, and focus on your business success instead.

What is GoCardless?

GoCardless is an online tool that is extremely useful for business owners in managing their business and cashflow effectively. The online took makes it easier for your regular customers and clients to pay you by direct debit. This can include all regular payments such as variable business invoices, software subscriptions or instalments for example.

With GoCardless you can easily and effectively manage the entire direct debit process through one simple to use online tool.

Why Should I Use GoCardless and Xero?

By using GoCardless and Xero together you are able to collect cash quicker from your clients and customers. Payments can be automated from clients, meaning that they don’t need to worry about when to pay and you don’t need to worry about chasing outstanding payments. We can help you integrate GoCardless seamlessly with Xero to pick up payments from due invoices with ease. Our team will offer support with the integration and help you every step of the way.

GoCardless and Xero Case Study

This is one example of how we have helped a client;

Jonathan, the Financial Director of a publishing business came to us with some major cashflow issues. With hundreds of advertising bookings a month, the business should have been in a healthy condition. However, cashflow was a real issue due to overly long credit terms for advertisers. Also, the onus was on the advertisers to set up payments or pay by cheque, slowing down the payment process even further. 

We could see that by implementing automated invoicing and setting up fast payment options would give no excuse for Jonathan’s clients to drag their heels. By using GoCardless and Xero together we reduced Jonathan’s average payment delay by 45% and his same-day invoice payments increased by 30%. This increase in reliable cashflow enabled Jonathan to plan securely for future growth.

Here at Direct Peak we believe that getting paid shouldn’t be painful. With GoCardless and Xero you are in control of when you collect payment. It’s a great solution for recurring payments. We can help you set it up in a matter of minutes, and you’ll go on to save hours in chasing outstanding payments.

Contact our team now to see how we can help you increase your business cash flow with GoCardless and Xero.

14/01/2020
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change-accountants

Out With The Old (Accountant) and In With The New

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As a business owner, you’ll find the festive period is one of the few breathing spaces you get all year. One which, in between the roast dinners and family visits, you find yourself reflecting back on the past business year, its successes and areas to be improved. We speak to a lot of business owners in January and February that are looking to change their accounting software to a cloud-based solution, such as Xero or, looking to source a new accountant entirely. Have you looked back on the work your accountant has done and decided that now is the time for change?

Why Should I Change Accountants?

There are lots of reasons that people choose to move to a new accountant. If you feel that you are unhappy with the level of service you are receiving then this is a good reason to change accountants. Your accountant should be proactive in finding tax-saving options, if they’re not doing this you could be spending more on tax than you should be.

How Can I Change Accountants?

In one word, easily! Accountants are not allowed to put a fixed term of contract in place, so all you need to do to change accountants is give 30 days’ notice to switch providers.

We would always recommend that you give your accountant notice when you are leaving them. However, as your accountant, we can make this process easier for you. We will send your old accountant a professional clearance letter that asks for all the relevant documents and information that they hold for your business.

We will send your professional clearance letter to your old accountant on your behalf. This is a letter of correspondence that asks permission for us to take you on as a client and ask for the documents and paperwork that we need to look after your business accounts. This is the hardest part of changing accountants and absolutely nothing to worry about as we will do it all for you.

What Can Direct Peak Do Better?

We make sure we communicate with you throughout the year, not just at year end. We will make sure that you are utilising your tax savings. Once the end of year has passed it is too late to utilise these, so we make sure you are ready to utilise these savings. Our team will keep a close eye on your accounts throughout the year to make sure your business is on track. We will also let you know before year-end any changes that we recommend.  As accountants, we are regularly in contact with our clients. As our client, we will speak to you throughout the year with any recommendations or to answer any queries. We don’t just offer an end of year service; we offer an all year round service.

As a small business and accountants experienced working with small to medium businesses we know how worrying an accounts query can be. This is why we get most to almost all cases within 24 hours, to put your mind at rest. There is no charge for queries by phone or email, so if something is worrying you, please tell us.

By knowing where your business is at, it is easier to make informed business decisions. We turnaround management accounts within an average of 25 days of month end. This helps you see exactly what is happening within your business. All our work is on a fixed fee so there will never be surprise bills. We also utilise technology to make your life and business management easier.

All of our new clients moving over to Xero receive a free Xero migration service and two hours training for a member of staff, so you know your business will be up and running on Xero smoothly and your staff know how to use the essential day to day features. We are Xero Gold Partners and also offer advanced Xero training and Xero Payroll Training, so if you need further training, we are here for you.

If you’re finding frustration with an existing accountant or feel it’s time to move on to better accounting systems to reflect your modern business, let us help. Call us now for a free consultation on 01778 481044 and let’s get this job ticked off your new year’s to-do list!

14/11/2019
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Three New Years Resolutions For Small Business Owners

Three New Years Resolutions For Small Business Owners

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Three New Years Resolutions For Small Business Owners

Research shows that each year around a third of us in the UK will set New Year’s resolutions. The most common resolutions are things like joining the gym, losing weight, quit smoking, drink less alcohol and so on.

However, if you run your own business you may have set some New Year’s resolutions to help improve your business for the New Year? We have listed three new years resolutions for small business owners that we would recommend.

  1. Keep Costs Down

Minimising your costs is essential if you want maximise your profits.  Money can be wasted in all areas of the business very easily. Cost inefficiencies can build up to large amounts over time if you don’t keep a close eye on what you are spending. If your business slows down between Christmas and the New Year, take advantage of this. Use this time to review your in-comings and outgoings. You may choose to speak to suppliers about discount for customer loyalty for example. You could also introduce staff incentives for finding ways that money can be saved in the business.

It’s a good idea to do quarterly reviews on your spending to quickly spot where money is being spent and if money can be saved.

  1. Credit Control Tightening

If you have non-paying and late-paying customers that it is likely you are giving yourself a major cash flow headache. Do you currently carry out credit checks on all new customers? If not then this should be a new year’s resolution for your business. Make sure that your customers receive invoice as soon as possible. Any delays will affect your cash flow, so the sooner the invoice is received by your client; the sooner payment can be made.

We would recommend that you have a credit control system in place that tells you when a payment is overdue so you can chase that late payment before any more work is done.

  1. Cash Flow Forecasts

Every year over 32,000 businesses fail in the UK; this is usually because they run out of cash. As a business owner you need to address cash flow issues. You need to keep your financial records up to date so you know how much money your business has available at all times. Creating reliable cash flow forecasts is essential to a successful business.

If you notice that you have a short-term cash flow problem before it is too late then you may be able to cut costs or arrange finance to get you by. Just ignoring your cash flow and hoping for the best is not an option.

 

These are just three new years resolutions for small business owners that we would recommend. If you would like the help of a local small business accountant in Peterborough to help your business New Year’s resolutions then contact us directly. We would be happy to discuss how we can help you.

14/10/2019
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Tax Planning in Peterborough

Tax Planning in Peterborough

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Tax Planning in Peterborough

Some business owners experience a quieter period in the run down to Christmas. While some business owners find this to be an uneasy period and worry about what they can do, other business owners embrace this quieter period to get things in order for the year ahead.

In this blog post we would like to look at tax planning. Tax planning should be on your year end accounting checklist. It should also be something you look at and review during quieter periods of the business to check you are on track.

Here at Direct Peak we help with tax planning in Peterborough. We help you get an analysis of your financial position from a tax perspective. This will help you ensure your business pays the least amount of tax that the law allows.

By completing some tax planning in Peterborough at the end of the year you can accelerate expenses you were planning to buy early in the New Year. For example, if you have software subscriptions or memberships that need to be renewed, you can do these before the end of the year and this will help increase your expenses and lower your taxable income.

If it is possible to defer sending invoices to customers until January, then do so. This will help make your taxable income lower than if you were to send these invoices in the current year.

These are just some of the basic legal tax strategies that you can try. However if you would like to know about some of the more in-depth tax strategies that will really help you gain some big savings on your tax we would recommend you speak to a tax accountant in Peterborough.

A tax planning accountant in Peterborough, like the team here at Direct Peak, will help you create and optimise your tax planning for the year ahead. They can also help you put together an end of year checklist to ensure that your business and accounts are all in order.

Remember – what you do at the end of the year for your business will help the success of your business in the New Year!

14/09/2019
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Three Common Mistakes Made When People Do Their Own VAT Returns

Three Common Mistakes Made When People Do Their Own VAT Returns

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Three Common Mistakes Made When People Do Their Own VAT Returns

We know that all business owners want to save money we can, that is completely normal. However, trying to save money by completing your own VAT returns can result in it costing you more. Here at Direct Peak we are a local accountancy firm in Peterborough and we can help you complete your VAT returns correctly and on time.

You might even find that by using a local accountancy firm in Peterborough for your VAT returns you could end up saving more money than you pay, not to mention the time and stress you will save.

In this article we have put together just some of the common mistakes that people make when doing their own VAT returns. So, if you do decide to do your own VAT returns you know some of the mistakes you can avoid.

  1. Flat Rate Scheme

If your company is registered for the Flat Rate Scheme then the box 6 figure on your VAT return needs to show the gross sales for that period. While you charge VAT at 20% on your net sales, the Flat Rate Percentage is applied to your gross sales. When people return their own VAT returns as registered Flat Rate Scheme businesses, this is a mistake that is often made.

  1. Nil VAT Returns

People commonly believe that if you do not trade in a period that you don’t need to submit a VAT return. However this is not true. Instead you need to submit a VAT return that says the sales were none. As no sales were made therefore no VAT is due. It is important that you remember if you’re using Standard Rate rules for VAT that there may be some VAT reclaimable. This will create a refund from HMRC for that quarter. If you are on the Flat Rate Scheme and have a single purchase of capital expenditure goods that cost at least £2,000 (VAT inclusive) then the input VAT may still be able to be reclaimed.

  1. Flat Rate Percentage

If you are registered for the Flat Rate Scheme as a company then you must follow the new rules that came in during April 2017. These rules are in regards to ‘limited cost businesses’ and came in play from HMRC. These rules can be confusing for some business owners because it is hard to know the correct percentage that needs to be applied. This is especially the case if you are still in your 1% discount period.

If you would like to work with a local accountancy firm in Peterborough on your VAT returns then please contact our team. We would be happy to discuss your business and how we can help make your VAT returns easier.

14/08/2019
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The Benefits Of Using A Local Accountant In Market Deeping

The Benefits Of Using A Local Accountant In Market Deeping

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The Benefits Of Using A Local Accountant In Market Deeping

In this modern day we are seeing more and more local and personal services, becoming huge corporate robots and machines. Personal services are now offered by robots and automatic replies. Just look at your local bank where you are directed towards the machines or your local supermarket where you can self-check out your shopping.

The world of accounting is no different. What used to be a local and personal profession is becoming a service from a faceless person on the phone. But what if you still want a local accountant in Market Deeping? Is that even still a thing?

Yes! Here at Direct Peak we are your local accountant in Market Deeping.

There are lots of benefits to having a local accountant too. For example, you will get a more personalised service. A small local accountancy firm like ours has the ability to get to know you and your business. You aren’t a number to us; instead we know who you are, what your business and what your business goals are.

The fees of an accountant can vary drastically from one accountant to another. When you work with a local accountant you can reduce your prices on travel for meetings. There will be no high mileage costs as we are based locally to you. This means you have regular meetings and reviews with us, without worrying about the expensive hidden costs of travel and mileage being added to your invoice.

Perhaps the biggest benefit of a local accountant in Market Deeping is the convenience they offer. Time is everything for a business owner so having a local accountant means you can just pop in. You don’t need to deal with issues over the phone. Instead you can go through your concerns face to face, which many business owners find easier.

There are lots of huge benefits to having a local accountant in Market Deeping. Why not call us now to see how we can offer you a more convenient, personal and timesaving service as your local accountant?

14/07/2019
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Beginners VAT Guide For Small Businesses

Beginners VAT Guide For Small Businesses

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Beginners VAT Guide For Small Businesses

Our professional VAT return accountants in Peterborough work with a lot of clients on their VAT returns throughout the year. However we understand that for a small business, the world of VAT returns can be a confusing world. This is why we have put together a beginners VAT guide for small businesses. This is a really easy guide that gives you the fact about VAT that you need to know.

What is VAT?

We couldn’t complete a beginners VAT guide for small businesses without talking about what VAT is. VAT is Value Added Tax. It is a tax on consumer expenditure and is collected on the sale of goods or services. VAT has been around since 1973 when the UKL joined the EEC. Previously VAT was known as Sales Tax.

What is VAT Charged On?

VAT is often charged on things like the sales of your goods and / or services. It can also be charged on exchanges, for example things like a new car in exchange for an old car. When you are selling your business assets, you can be charged VAT on this too.

Business goods that are used for personal reasons may also have VAT charged on them. You will also be charged VAT on commission as well as items sold to staff, such as uniform or meals. If you hire or lease your goods, VAT will be charged on this too.

When Do I Have To Register For VAT?

If your business has a VAT taxable turnover of £85,000 or more in the last 12 months then you must register for VAT. However, if it is expected that your VAT taxable turnover will be more than £85,000 in the next 30 days period, this is another time that you must register for VAT.

When it comes to the end of a calendar month and you find that the value of your taxable sales exceeds £85,000 over the last 12 months you need to register for VAT. We would recommend that you contact a professional VAT returns accountant who will notify HMRC on your behalf. You will then be VAT registered from the first day of the next month.

Good to Know

If you have just become a VAT registered business but are holding any assets that have been purchased previously you should be able to reclaim VAT back on registration. These assets could be things like furniture, machinery, technology or equipment for example.

 

However, the most important thing to gain from reading this beginners VAT guide for small businesses is that if you’re in doubt, check! If you’re not sure about anything on your VAT returns then call your specialist VAT returns accountant and ask.

14/06/2019
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Why Your Start Up Needs An Accountant

Why Your Start Up Needs An Accountant

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Why Your Start Up Needs An Accountant

While accountants are not always seen as a ‘must have’ for start up businesses, there is a lot of things that start-ups need an accountant for.  In this blog post we have put together just some of the reasons that your start up needs an accountant.

You’ll Be Busy

As the owner of start up business you will be really, really busy. In the early days it is likely you will be the only person within the business which means you are the owner, the marketer, the admin, the sales, the secretary, the customer service rep and the toilet cleaner. You may think you’ll be busy, but you’ll be busier than that – trust us! As experienced accountants for start-ups, and as a business owner myself, we know how busy you will be. A start up needs an accountant to help them keep the finances and books up to date. If you let it slip it could have disastrous effects on the business.

Taxes Aren’t Simple

Calculating your estimated tax payments can be tricky. In fact the National Federation of Independent Business surveyed small business owners on their concerns. Every month when the survey was repeated and the report shared ‘taxes’ always ranked highly of the list of business owners concerns. Your start up needs an accountant to help you understand your tax payments and your tax code. You will find a good quality accountant to be a huge source of relief when it comes to taxes and dealing with HMRC.

Accountants Are Liked By Investors

As an entrepreneur you may be great at pitching your business. However, when you start talking to investors they will want to see and hear more than just your pitch. Investors want to see hard facts which includes your current figures, a financial forecast and growth projections. By working with an experienced accountant for your start up, even if you are not looking for investment now, you will be more attractive to investors.

Growth Is Made Easier

While you know you want to grow your business, it is not always that easy. When is a good time to expand? Which part of the business should you expand? How far can your finances be stretched without putting the business at risk? A good accountant will be able to help you plan for the future and plan for growth. It is always a good idea to run ideas past your accountant and they can then offer advice and guidance to help you.

 

Reports show that 3 in 5 businesses fail in the first year of business. Many studies show the reason behind this failure is poor financial planning. While start up accountants may look like an expensive luxury for a start up business, you’ll be amazed at how much help they can offer you and how much money they can save you over time.

Smart Accounting For Modern Businesses