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Focus on managing property and increasing property portfolio.

There are many moving parts in running a successful rental business. A great bookkeeping and accounting system is a crucial element in managing a property portfolio. Having a robust accounting system will help you plan for tax implications in advance. Not only will an accountant be of help at the tax time, but they will also provide on-demand financial help which will safeguard your business against debt or fraud. Forecasting of future expenses will help you plan better and save time. This can help one focus on managing property and on expanding the business. Historical financial data will help you forecast various costs with greater accuracy thereby ensuring that you are not financially derailed, viz. what needs to be done when maintenance costs increase in winter months or when internal/external walls require repairs?

Ensure rentals are being received on a timely basis.

Rent receivable reports run by accountants show the amount of rent the landlord has earned but not yet received from the tenant. Whereas the prepaid rent report shows the rent that has been received in advance. These reports help to identify delinquent tenants in ahead of time. When the balance of the rent receivable ledger is nil, it means the landlord has received all the rent that was due to him from the tenant.

Take advantage of available tax benefits.

Even with the flurry of activities around getting the property ready for rent and choosing the right tenant, it is imperative for the landlord to stay on top of taxes viz. capital gains tax, stamp duty, corporation tax etc.

Taxation planning ought to be done beforehand rather than afterwards as it will ensure an encumbrance free cash flow. An accountant makes certain that the landlord enjoys a tax effective property ownership.  For example, as a landlord, you are entitled to GBP 1000 tax- free property allowance. However, this rule has some exceptions, and an accountant can help the landlord with the documentation required for the ‘full relief’. Also in various scenarios, where the landlord incurs expenses wholly and exclusively for property rental business, claims part expenses, incurs maintenance, and repairs costs, is required to calculate a profit or loss for more than one property or has tax implications on account of a jointly owned property, the documentation required and the tax liability in the different scenarios can be worked out by the accountant. Prior to 2017, mortgage interest could be offset against the self-assessment tax returns which have to be filed when letting out the property. However, the government began phasing out mortgage interest tax relief by 25 percent each year in 2017. This meant that 2019 was the last year that landlords could deduct the mortgage interest paid from their income. Presently landlords are given 20 percent tax credit for their property finance costs. Since tax rules change regularly, an accountant can best help the landlord navigate the rules and identify areas for maximum tax benefits. 

Ensure surplus money is adequately invested.

Owning a property is owning a long-term financial asset, the benefit of which can be enjoyed for years to come. A rental premise usually gives the landlord residual monthly cash flow, which if invested adequately gives the landlord not only a guaranteed passive income for many years but also an opportunity to build reserves. Hence hiring a good accounting professional to help one to develop financial discipline for such investments is advantageous. Some of the ways in which the landlords can invest the surplus funds are as follows:

a) Maintenance and Safety. With the change in every season, the landlord should look at which items need to be cleaned or replaced. Ensuring fire alarms/ emergency lighting are in good working condition and investing in the best quality for the same not only keep  the property safe but also ensures that the landlord doesn’t incur liabilities on account of faulty systems. Any white goods requiring repairs and replacement can be done through the residual cash. These small changes make the property attractive to the tenants.

b)   Prepayments. Applying the surplus cash flow to paying down the principal balance helps to knock off a few years of the loan. This can eventually give the landlord the flexibility to invest in more buy-to-let property on mortgage.

Ensure all expenses are correctly accounted.

Landlords need to ensure business and personal expenses are accounted for separately. It is best to have a separate credit card and bank account which are used only for rental property expenses. In case of multiple properties, particularly when one has more than 3-4 properties, it is best to have a separate bank account for each property you own. For a given property one can have rental receipts going into one account along with any taxes and repairs for that property being debited to one single bank account. The expenses that can be reported include but are not limited to advertising, auto and travel, cleaning and maintenance, commissions, insurance, legal and other fees, management fees, mortgage interest, repairs, taxes and utilities.

Usually, lenders are less tolerant of buy-to-let mortgage arrears and they are treated to a certain extent on par with commercial loans. Hence, missing out on Loan EMI’s can have some serious consequences.

Management Reporting.

A monthly property management report describes how the property is performing and what aspects of the property require focus. By and large the following reports should be covered in the monthly management report:

Balance Sheet: helps you track your current assets and liabilities and tells you how much money you have to work with.

Monthly Income and Expense statement tells you how much money you made during the reporting period and how much you spent, 

General ledger  transactions are the backbone for all the financial reports. A general ledger scrutiny will give you a bird’s eye view of your rental business

The accounts payable report tells you how much money you owe against the property. Tenant receivables: tells you how much you are due to receive from the tenants and 

The prepaid report tells you how much of your expense you have prepaid 

The monthly bank statements with reconciliation ensure that your bank accounts match with your ledger accounts penny by penny.

Being an entrepreneur can be a beautiful & fulfilling journey with you being your own boss and watching your business grow from strength to strength. However, it also comes with its fair share of challenges. You are the CEO, the marketing manager, and the event director all wrapped into one. There is the constant juggle of wearing many hats including in areas one might not necessarily have any experience whatsoever. One such area is Accounting! Let’s look at the top 10 mistakes that Small Businesses can avoid in this domain.

✔ Doing it on your own. 

Imagine this! You are a patissier and you run a business of baking artisanal cakes, your value-added tasks are the tasks for which customers are ready to pay you. To run a successful baking business however, you will have to undertake some support tasks as well which could be marketing and of course maintaining financial and accounting records. As much as the support tasks might be necessary and important, they do take away some of your focus from your core business activities. However, with the support activities, one does have a choice to either work on them on one’s own or outsource them.

✔ Not using Cloud Applications.

Accounting can be daunting for a business owner, but the advent of cloud computing has ensured that everyone can have organized, user-friendly, and secure accounting software at their fingertips. Using cloud accounting software provides reliable data with less room for human errors. A large amount of sensitive data can be stored that can be easily accessed by business owners thereby giving them the power to know the financial position of their business at any given point in time.

✔ Creation of Multiple Chart of Accounts. 

A coherent COA is the foundation of the reporting that the business will be required to perform. From a record-keeping perspective, a Chart of Accounts is the most fundamental planning that is required of a business. Creating multiple Charts of accounts can be one of the most serious accounting mistakes a small business could make as the Chart of Accounts is the framework on which the reporting – whether for bookkeeping, GAAP, or tax – will be based.

✔ Delay in Accounting.

Regular accounting helps you track the movement of money in and out of business which helps you make informed decisions leading to a thriving business.

✔ Focusing on Revenue and not Cost.

Most small businesses want their revenue numbers to show a steady rise and who doesn’t. But in the rush to get great top-line numbers, many small business owners tend to overlook focus on cost. To put it simply, your Revenues – Cost = Profit. So, while the topline might look good, the bottom line which is the profitability of the business and which is more valuable for a healthy thriving business gets ignored. How does one achieve a balance between focusing on costs along with revenues? Ask yourself questions like: Is there a way you can save taxes? Is there a way to standardize the processes? Are you managing your inventory efficiently?

✔ Not segregating personal expenses and business expenses. 

Small business owners oftentimes do not segregate their personal and business expenses given that they might be the sole proprietors of the business. This can lead to challenges when it is tax time. Underreporting/over-reporting of business expenses results in an unclear picture of the business income.

✔ Not reviewing Profit and loss accounts on a monthly basis. 

A Profit and Loss account shows the health of your business in terms of what is your income and what is your expense. You can identify the costs needing analysis, and also whether your revenue is in line with your goals.

✔ Just focusing on cash management.

Cash is undoubtedly one of the most crucial financial metrics. Hence the goal of good management should be to eliminate surprises pertaining to cash and ensuring that there is sufficient cash for the business to meet its daily cash needs. Also, while excess cash might seem great for the short term, for the long term it might indicate the business did not utilize it effectively to generate more profits and indicates the opportunities the business might have lost while being short-sighted in managing its cash.

✔ Too much inventory.

While a business would always want to maintain an optimal level of inventory to avoid any future raw material shortages, it runs the risk of being too cautious and being stuck with excess inventory which eventually can lead to cash inflow issues. Excess inventory is also more susceptible to theft More than optimal inventory also means there might be slow-moving stock which is a source of working capital loss. The ideal way to manage inventory is being proactive and on top of the requirements which means accounting and recording of data must be up to date.

✔ Being unaware of compliances.

Legal compliances are an integral part of any business. Businesses need to meet compliance requirements to be able to run the operations smoothly without levy of any penalties. Knowing the compliance requirements not only helps the businesses to be on the right side of the law but also brings in a lot of customer trust. Small businesses are no exception when it comes to meeting compliance requirements. The compliance requirements can range from Legal (entity-specific compliances for businesses depending on whether they are Sole Proprietorship, Private Ltd. Company, or Partnerships) to Human resources (Labor laws) to Tax (includes Income tax, National Insurance, Corporation Tax & VAT).

Every successful entrepreneur will tell you that a very significant part of their success depends on the ability to manage their books effectively. But, the primary challenge for an entrepreneur lies in learning how to manage their books and bookkeeping records with minimal effort.

Bookkeeping can be a very tedious and time-consuming task for an entrepreneur. This is because bookkeeping is not just about being organized but, more importantly, about being effective.

We explore in this article the six best ways for entrepreneurs to manage their books and bookkeeping records effectively.

1. Get The Perfect Accounting Software

There is no one “perfect” accounting package or software. A full-function accounting software, which meets your current needs and will expand to meet your future ones, though, is a hidden asset. It allows you to easily handle the accounts help you manage your business proactively.

With the variety of accounting software in the market, however, there are certain questions you need to ask before choosing the one best suited for your business:

●  Is it compatible with your other systems?

●  Can the software import and edit existing documents?

●  What features does it have?

●  What is your budget & plan, and what is the price & availability of the software?

Once you have the answers to the above, your choice of accounting software becomes easier.

2. Equip Your System With Additional Software

The next thing that an entrepreneur should do for managing their books properly is to use the right business management software package. Although this may seem like a daunting task and heavy on the pocket it is quite easy and many packages are affordable. A complete business management package will take up all the manual work of your accounting, financial transactions tracking, and back-office tasks. This software package when integrated with the accounting software will bring significant automation to the system. It will allow you to focus on the core business activities instead of worrying about the books and accounts.

3. Integrate Bank Feeds

Bank feeds directly import transactions from your bank or financial institution into your software spreadsheet. This process eliminates the need to import transactions manually. Bank feeds bring the advantage of easy and straightforward automatic data entry, avoiding any manual errors in the process. With integrated bank feeds, you will be able to manage your books and your bookkeeping very effectively in a very short period. 

4. Set up invoice schedule 

The demands on a solopreneur or an entrepreneur’s time might lead to loopholes in billing their customers. This will affect their cash flow due to delays in receiving client payments and there will be a knock-on effect on the business. Setting up an automatic invoice generating software to raise and send clients’ invoices in line with their billing cycle will prevent this to a large extent. You can also use the software to follow a standard monthly billing cycle for clients. 

5. Follow Bookkeeping Rules 

Many entrepreneurs may not know how to set up their companies’ accounting systems properly. Ensuring that bookkeeping rules are followed will minimise chaos in managing the books. These rules allow one to track essentials and make it much easier for the entrepreneur to evaluate business progress using up-to-date books.

6. Diarize bookkeeping 

Another strategy for managing the books is to create a weekly bookkeeping calendar. This diary should not only list the clients and updates, but also important financial and compliance dates. You might even need to diarize the availability of your bookkeeper! There are several business bookkeeping software packages available that can make the process of managing your books a breeze.

If you are looking for the best Bookkeeping Software for your business, Corient can help you! Corient enables you to keep your accounts up to  to date helping you manage and grow your business

We are once again in national lockdown until mid-February (which may stretch to the end of March) to fight against the fast-spreading new coronavirus variant.

The prolonged shutdown and severity of restrictions have resulted in severe challenges for SMEs. Small businesses are the backbone of the UK’s economic system; heavy blows have bowed this down despite the Government’s strategies to help it stay upright and businesses viable.

In this article, we will discuss the five major concerns of Chief Financial Officers (CFOs) for SMEs during the pandemic crisis.

Let’s get started…

1. Issues around work from home

Unlike MNCs and large businesses, most small businesses have started to return to the office. But, once again, the Government’s firm stay at home protocol has created a cloud of confusion for employers, forcing employees to work from home. Both employers and employees want to get back to a shared physical workspace, at the same time, many employees now prefer working from home, and employers are enthused by the increased productivity – confusion!

Corient has successfully adapted to WFH culture since March 2020. We have set systems in place to keep our employees engaged in the cloud workspace. We have kept up our training, complaints, and grievances, and employee awards ecosystems to keep our staff happy and productive, and to transition new employees into our work culture. Our investment in technology has paid off in excellent communications, support, and smooth workflow.

2. Reduced revenues

Businesses will lose millions of pounds in revenue due to the shutdown of hospitality and non-essential shops. The disruption in business in tourism, pubs and restaurants is expected to adversely impact survival, more so in this lockdown phase than in March 2020. According to Deloitte’s CFO, business revenues will face a 22% fall compared to pre-COVID estimates. Some significant structural changes will be expected from all SMEs to survive this major downfall.

3. Innovation at stakes

Innovation is a result of close collaboration of ideas and great teamwork. However, with major IT employees moving back to their hometowns from March 2020, companies faced repeated internet and network connectivity challenges. This crushed the companies’ spirit of innovation with their dispersed workforce and shattered work environment. However, even in WFH culture, Corient observed a significant boost in employees’ productivity. Corient’s team mitigated the gap in creative performance via regular video conferencing among all team members. This initiative has boosted the creative spark and diversity of thought to bring innovative ideas for the business.

4. Sceptical stakeholders

With rapidly changing Government rules and regulations in the COVID scenario, stakeholders have a reduced say in business crafting. This circumstance has put SMEs under pressure and services on hold to customers, employees, suppliers and investors at large. Planning and traditional methods of execution of plans have almost vanished during the pandemic.

Despite uncertainty due to COVID, we at Corient have kept our internal and external stakeholders engaged and happy. This clarity with stakeholders is maintained with regular interaction through calls, video conferences, emails and reports, which also helps keep their decision-making process going.

5. Employment challenges for new graduates

With the COVID lockdowns continuing to tighten hiring budgets, more and more companies worldwide are placing a freeze on hiring, cancelling internships and pushing back joining dates. Rising uncertainty has forced many businesses to hold off hiring for this year regardless of the business needs. According to a study conducted by the National Association of Colleges and Employers (NACE), 70% of companies consider revoking employment and internship offers for now. New graduates of 2020 will face considerable hurdles before landing a job.

The final words…

UK business can only grow if SMEs use financial resources smartly. Businesses need to make financial decisions using professional financial advice to support them in the long run.

Other critical aspects of the survival of SMEs are access to credit and financial management of the business. CFOs of all major companies will agree that SMEs need to implement operational and strategic changes in the system to act as a long term solution to rebuild and renew the UK’s economy.