The Financial Squeeze of Micro Businesses

Britain’s 5.3 mil­lion strong army of sole traders and micro busi­nesses estim­ate they’re spend­ing the equi­val­ent of 2.5 mil­lion work­ing days col­lect­ively each month on man­aging their fin­ances, a fig­ure which could be a ser­i­ous under­es­tim­a­tion accord­ing to Kash­Flow

How do you cur­rently man­age your accounts? I have used an Excel spread­sheet since I star­ted my busi­ness over 20 years ago. Unfor­tu­nately, even this simple meth­od seems to be bey­ond the cap­ab­il­it­ies of many micro busi­ness own­ers who still prac­tice the shoe­box approach to their account­ing records.

Kash­Flow com­mis­sioned a study among sole traders and own­ers of busi­nesses with less than ten employ­ees, to get a bet­ter under­stand­ing of the pres­sures they feel when it comes to things like bal­an­cing their books, man­aging cash­flow and doing their annu­al tax return.

The study uncovered some sur­pris­ing find­ings: Des­pite almost a third (32%) admit­ting that man­aging their fin­ances leaves them feel­ing stressed, only 6% rated their fin­ance man­age­ment abil­it­ies as ‘not good’ – with 87% rat­ing them­selves either ‘really good’ or ‘not bad’ at doing things like keep­ing on top of cash­flow, man­aging pay­ments and stay­ing com­pli­ant.

Oliv­er Shaw, CEO of Kash­Flow said of the find­ings: “It’s really encour­aging to see that many of those we sur­veyed feel con­fid­ent and in con­trol when it comes to their busi­ness fin­ances, espe­cially as we know it’s not their favour­ite thing to do.”

Kash­Flow say the impact of non-com­pli­ance on small firms and sole traders should not be under­es­tim­ated, with pen­al­ties being enforced for late pay­ment and fil­ing, or mis­takes with a broad range of things includ­ing tax returns, stat­utory accounts to Com­pan­ies House, PAYE, P11D and Nation­al Insur­ance.

These can have ser­i­ous con­sequences for micro busi­nesses, a sen­ti­ment echoed by Roy Maugham, Tax Part­ner at UHY Hack­er Young who recently said: “There is increas­ing pres­sure on small and mid-sized busi­nesses to spend their time and money on sys­tems to ensure that tax affairs are accur­ate and up to date. Without adequate care, small busi­nesses are at risk of being pulled up over minor mis­takes or small dis­par­it­ies, which could incur dis­pro­por­tion­ately heavy fines and pen­al­ties.”

Tak­ing con­trol

If you’re like me the worst part of run­ning your own busi­ness is accounts and tax. They are a neces­sary bur­den, which could become much worse as MTD (Mak­ing Tax Digit­al) comes into force next year.

There are of course many advant­ages none more so than hav­ing the abil­ity to see how well – or not – your busi­ness is doing. I think the gov­ern­ment has backed off being able to pay the tax you owe on the fly, by cal­cu­lat­ing what you owe at any one time. But mak­ing the best use of MTD will mean being a little more soph­ist­ic­ated with your account­ing sys­tems.

The gov­ern­ment says that even using a spread­sheet will the OK, but really to ensure your busi­ness fully com­plies with the accounts and tax reg­u­la­tions, some form of account­ing sys­tems will be needed.

My account­ant for instance is also a small busi­ness, so they are wait­ing to see which sys­tem their account­ants sug­gest they use, and by exten­sion, which account­ing sys­tem I should move to. A bit of a chick­en or egg situ­ation, but at least this advice should be based on a detailed exam­in­a­tion of that MTD means on a prac­tic­al level.

And prac­tic­al­ity is really what this is all about. None of use in the micro busi­ness com­munity want more com­plex­ity – espe­cially when it comes to tax and account­ing. I am at the moment in the pro­cess of assess­ing – at least as far as this is pos­sible – how all the small busi­ness account­ing sys­tems stack up when MTD is con­sidered.

Cur­rently there is a lack of detailed inform­a­tion about MTD will be imple­men­ted and how the lead­ing account­ing ser­vices such as Sage and Kash­flow will inter­face with the new online tax accounts we will all be get­ting from HMRC.

The Micro Busi­ness Hand­book col­lec­tion of eBook Apps I am writ­ing at the moment will include what I call ‘Mini Guides’ These are eBook Apps but they focus tightly on a single sub­ject. I intend to write a Mini Guide on my assess­ment of MTD and the online account­ing ser­vices that will be lob­by­ing for your sub­scrip­tion money as MTD approached.

If you have any first-hand exper­i­ences of these account­ing sys­tems and MTD you think the rest of the busi­ness com­munity would bene­fit from hear­ing about, use the con­tact page on this site to get in touch.