Darren Fell covers the correct steps to setting up your accounting system.

• Step 1: Find the good accountant

• Step 2: Make sure you like their software

  Transcript:

  Steps to Accounting Heaven

  Darren: The freelancers approach is, I believe, that of a self sufficient person, a person who will try and think, as I will, to try and do it yourself, and where does that come down to, and that comes down to a software route.  So you start looking for a software approach first, and there are some fantastic pieces of software out there, absolutely fantastic, but that necessarily isn’t the right step first.  You may be choosing a fantastically graphically beautifully thing that maps out your P & L, your advanced cash flows, but you might not be following an approach correctly, and in the end, the accountant may not want to use that piece of software, and that’s the key point.

We are recommending find the accountant first.  They are not just a person that only know about accountancy, they are a person that clearly has built up a fantastic repertoire of good business advice, so they can put in place good bookkeeping practices, give you all the information on how long you need to keep your receipts for, every facet.  Should you go limited, or are you ok staying sole trader, and at what point should you go limited, what the responsibilities of being limited are, are there endless forms, or will the accountancy firm do that for you.  Lots and lots of key areas that they help you with, and will set your mind at rest.

Now other key areas are, these are questions that we’ve seen time and time again, at accountancy health checks that we’ve held with Crunch, should I be VAT registered?  At what point do I definitely need to go VAT registered?  Which scheme should I go for – flat rate or fully registered?  Again these are all key things that the accountant will go through with you.  So my experience is to choose the accountant first, not to pick the piece of software, because as I said at the beginning of this section, so many people have picked beautiful pieces of software, picked the accountant at the last minute, sat with them, and they’ve said I’m really sorry I’m not going to go into that  login and have to work through yet another accountancy bookkeeping system to get your P & L, or invoices, or your expenses out so I can do the year end, I’m just not going to do it.  What you have to do, you have to replicate it all in Excel and you’ve wasted anything between £15.99 and £25.00 a month for the whole year to get to the accountant to say I’m not using it.

Andy White: Have you had experience of people who have trodden this path?

Darren: I have, and that is exactly why I am communicating it now.  People have been on the phone, telling about the woes, and again I agree with them, they’ve picked a fantastic piece of software, and they’ve left it to the last minute and the accountant point blankly, and I mean point blankly, refuses to use that piece of software, and they really feel quite gutted they’ve wasted all that money.

1: Find the good accountant

Key points: accountants can be unqualified.  It can be a mate of a mate, they are good at bookkeeping, but they don’t know all of the rules, they are probably not up to date with the latest legislation.  I would strongly advise not to go down the mate of the mate route, because they may appear to be doing things correctly, but HRMC, once things are filed that isn’t the end of it, they can retrospectively come after you, and I think look back as far as six years.  So don’t think for a second that you’ve got away with anything or done your accounts really cheap.  It is so worthwhile having a fully qualified accountant.  Now the question is how do you find that fully qualified accountant?  Now our idea is the ultimate way, you may as well look for a fully formed chartered accountancy practice, the accountants, or at least one in the practice, will be a charted accountant, they will have all of the qualifications, and I won’t guide you through all the various acronyms that make up their qualifications, but a chartered accountant firm will have had to do all of the qualifications and have at least one chartered accountant in there.  So our advice is to find the Chartered Accountancy firm, we’ve actually set up an easy link for you on the Institute of Chartered Accountants England & Wales, which actually covers Scotland as well, the link is freelanceadvisor.co.uk/charteredaccountants, and that will link in to the Institute site, and enables you to search by county, country and by town, so of course if you wanted to go to Crunch you would look in Brighton in East Sussex.  The next thing is to shop around, and I know you are probably busy, but pick three and either go and see them or pick up the phone, now I think a good point to make now is we are in a modern era, you don’t have to have face to face meetings, there are many, many accountancy firms, which we will talk about later, that operate very, very successfully over the phone and using all the online systems like Crunch and other accountancy firms that are very specialist in the freelance and accountancy world.  The other point in talking to firms, you don’t particularly need to have a dedicated personal accountant manager, our feeling always is what happens when that person leaves, what happens when that person is on holiday, you obviously want to speak to someone very knowledgeable. Everybody in that team should be able to help, should be able to log in and see all of your accountant activity and be able to answer every single question.  So don’t worry about having to have a personal account manager in our view, if you do go down a telephone based accountancy firm.  So that’s the key thing, find 3 accountants, get a good feeling of whether they can be really useful for now.

No 2.  Make sure you like their software

So many firms out there are utterly brilliant and completely knowledgeable, but are not very savvy on the software side, and either have brought in a third party system, or recommend a more traditional software system that may not be compatible with your computer, so I want you to be able to check that the software they recommend is something you like, is not completely in bookkeeping language that you won’t understand, or just hate using, and if you don’t like any of their software, go down the route of looking into the market place and checking which software you like.

Unlike any other podcast or article that is sponsored by an accountancy firm we are going to guide you through what we believe is the top five for you to go out there and make your own opinion on this.  Of course, as the sponsors we will have to say Crunch is with that top five, the first combined chartered accountancy firm and on line software system, so that’s in no.1, I’m not actually placing it in any particular order.  The second one worth looking at is KashFlow, been around for a long time.  State Side is a Company called Blink Sale, then there’s Fresh Books, again it’s a US based system, and another UK based one, which I believe is based in Scotland, is Free Agent Central.  These are all on line systems.  I was speaking to some consultants this morning who felt that was a really useful attribute to be able to log in anywhere, as they were often on different sites in different places, and wanted to get invoices off, and didn’t want to have to go all the way back home, which was going to be the end of next week because they were staying in hotels.  So online offers a lot of advantages, and all the systems that I have spoken about there, I would believe have gone through stringent security checks so I wouldn’t worry about security.

I’ve pick three key pieces of PC based software. The one we all know about is Sage, there are personal versions out there, I’m not going to say too much about these systems, all I’m going to say is not all of them are PC and MAC based.  Now Quick Books is second on the list, and I believe that is only PC based, so that is something really to watch out for and that is a system that I used on my MAC and obviously had to use it in parallels using a PC emulator.  Third and last in our top list, is MYOB, Mind Your Own Business, and that is software only and not on line.

So as I’ve discussed I think the key, key thing here is to make sure you get the chartered accountant you want, you know you are going to get excellent advice there, and get software you like and will actually use, because if you don’t like it you really won’t use it, and then you are going to get lumbered with lots of manual bookkeeping and high charges from the chartered accountancy firm.  Now the typical bookkeeping charge is anything from £18 – £25 an hour, so it’s well worth getting software that really suites you, and will work with the accountants.  So pick the system you like, if it’s not one the accountant normally recommends and just make sure they are going to actually log in for year end and do everything for you, because if they are not you are obviously wasting your time.

So there’s the two clear steps.  Pick the accountant first, right up front.  Don’t get half way through the year, or close to the year end, get the accountant, pick the three, chose the best one, then get the best software, make sure the accountant is going to use that software and your away – job done.

Contractors Aproach. If you think about the beast of, I’m not being rude to contractors, a contractor is looking for large swathes of work, they typically aren’t so self sufficient like a freelancer.  A freelancer would go and do their own marketing, a contractor is equally highly skilled but would prefer to go via a recruitment agency to find that job, so they are pitching for the jobs in that approach.  So consequently what happens is the contractor will take the first bit of advice from the recruiter, and that is often as a result of that recruiter or recruitment firm getting a kick back for recommending a particular firm.  Now this, on the contracting side, is where you see the recommendations for the contracting specific accountancy firms, the telephone based ones I spoke about earlier, it’s also a place where you may get recommended to an umbrella firm.  To be honest with you it’s highly likely you will get recommended to an umbrella firm.  So some typical recommendations just so you can see some big firms out there, do contracting specific, it could be SJD Accountancy, another one you could be recommended to if you are doing it through a recruiter could be Churchill Knight potentially.  Now there are loads of them out and all telephone based, and I believe that is the correct modern approach to save you having to keep going to an accountant.  The umbrella firm, we’ve all heard of umbrella firms, what does that really, really, mean?  What it means is that it’s a more efficient way for them to operate with multiple contractors, and the way they do it more efficiently is that they have everybody on PAYE.  Wait a minute, that’s exactly what I used to be on when I was an employee working for a corporate telecoms firms, and that is highly tax inefficient, the most tax efficient is becoming a limited company which we recommend at Crunch, so you are benefiting from paying yourself a small salary, which is the smallest possible, and then paying yourself through the profits of the business as dividends, so it’s a far more tax efficient approach.  Now umbrella firms, given they’ve got thousands of thousands of contractors, the easiest way for them to do this is via PAYE, so instead of getting something like 82 – 85% of your take home pay your only getting 62 – 65% so it’s getting close to what you were doing as an employee.  So, I can’t knock umbrella first, because they are often highly efficient, but just be aware that they are not very tax efficient and you want more money in your pocket.  The big umbrella companies that I have seen are Orange Genie and Giant, so they are worth looking at, but please be aware of the tax issues around that and the fact that you are not getting as much take home pay, in fact you are getting considerably less.  Now of course umbrella firms will argue strongly against, or for the reasons why the PAYE route is good and it is often around IR35, ultimately the HRMC wants to collect all taxes via PAYE and therefore IR35 doesn’t come into it.  You can do it very successfully via a limited company

So in summary for contractors.  Don’t grab at the first recommendation, pick three chartered accountants, ideally look to go down the limited company route, which is obviously obviously offering many tax adavantages and limited liability which is a very key benefit.  Go to the link freelanceadviser.co.uk/charteredaccountants and you can search by town, county, country.  Make sure you are happy with the software exactly the same as a freelancer would.

Crunch was set up to be completely different to the rest, to make sure you have the most tax efficient way of getting take home pay, we are fully registered members of the Institute of Chartered Accountants England & Wales, and also an accountancy software firm.  We have a whole enterprise Java development scheme.  You have telephone support, and speak to someone who not only knows about systems but technical questions about accounting.  All answered in one place, and you don’t have to rush around to get your year end done.  The others range from £95 to as much as £140/£150 per month, I’m not quite sure where there pricing point comes from especially when we talk to people who are leaving them, we’ve set  our pricing point at a really fair price at £59.50 per month plus VAT for the software, which is constantly being improved, chartered accountant, VAT returns as well.

We are trying to make accountancy software sexy, look at www.crunch.co.uk look at the demo and see how easy it is.  The really exciting part is the connection to the bank.  We’ve had support from Lloyds TSB for the last 2 years, and Crunch connects on a read only basis.  It is obviously banking grade secure, enterprise java, exactly like all the online banking systems, so let me give you an idea of what all of that means, that means that if you go into Crunch and issue the invoice, and send it out via email you can actually set Crunch to send an email, or you might even want a text message when you’ve been paid.  None of this waiting around for when have they paid me, they still haven’t paid me.  All these natty things that we all personally wanted is in the system, so you see that you’ve been paid, it will show you graphically, that invoice looks it equals that payment, click ok, and it graphically merges together, so reconciliation is done.  None of this £25 an hour bookkeeping stuff.  The next fun bit is the biggest pain, personally I’ve had.  Have you ever done lots of entering of receipts?

This is what I find are some of the biggest costs to what could be a £1,000 bill, you might get it cheaper, but often we are so busy the majority of the accountancy costs is made up in bookkeeping, so with a connect to a bank, we can completely eliminate that, so if you imagine using your debit card or cheque book to pay for all of your materials and your travel, hotel etc, and it automatically appear in Crunch, so you can simply click on each one, and go that was travel, that was hotel, that was materials, keep your receipts in the bag, and that will be completely the end of bookkeeping as we know it.  We are starting off with one high street bank, and we expect to bring the others on board, the others are dealt with in a normal electronic statement route.  But what a beauty to actually not have to worry about it.

We are working with a superb mobile application developer, and I love the gadgets, if we could make accountancy sexy we are trying every which way, we are working on an I phone application that will allow you to do a lot of things that you would do within your computer, that you can log on from anywhere, so that’s coming.  Every possible element that we can gadgetize in there is there. There are also lots of other accountancy benefits in there as well.

So many of us have stayed sole trader because we think going limited is only when we have employees or its going to be so much paperwork, well Crunch can do all of the paperwork for you, do the submissions so it is almost like being a sole trader again, although that is all mixed up in your own personal finances.  So the key point, now is the time to consider going limited.  If you go limited and say your earning around £25,000, we can save £3,000 – £4,000 in tax by using that dividend method that I spoke about earlier.  So many, many advantages.  Later on we may release a sole trader version, but at the moment we are firmly behind pushing limited for its tax advantages and limited liability benefits.