Are You Prepared for the 20% VAT Rate?

In preparation for the 4th January 2011, Xero have now added the new 20% VAT code for all their UK customers. I’ve not thought much about this until today. After many years of the standard VAT rate being 17.5%, it became a logistical nightmare for many businesses when it was reduced to 15% and then raised back to 17.5%. So, are we ready this time?

In our personal lives, the majority of things we buy will all become more expensive on the same day. Christmas is a period of time when many people spend more than they intended to, leaving themselves in debt in January. In 2011, this will be just when life costs more. If it’s not too late already, have a think about what you are about to spend over the next month and a half. Will you be able to pay off a debt as well as adjusting to having to spend more each month?

How our business lives will be affected depends on the type of business. For example, if you have price lists stating the gross price, these will need to be amended. All products sold in a shop will need to have their price labels changed along with the prices within the point of sale system. If you sell your products or services at a net price + VAT, not much will change except remembering to put the correct VAT code on your invoices.

If your business is not VAT registered, your expenses will become more expensive, and you will need to budget for this or increase your prices.

If your business is VAT registered, it’s good to remember that VAT is a tax you add onto your selling price and collect for the HMRC. In return you can reclaim the VAT part from the items you buy. The money you receive from your gross sales doesn’t all belong to the business. You can “borrow” the VAT part until the return is due, but you have to pay it over, minus the VAT on your purchases, every three months. If you always struggle to pay over the amount due on your VAT return, try to transfer an amount into a savings account each month, ready for the return. If this is something you do already, from January you will need to save more each month.

The best thing of all (once you are used to the VAT increase), if the amount you are due to pay to the HMRC is higher than usual, you have probably sold more than usual. Good news!

Do Your Sales Invoices Help You Get Paid?

Sales invoices are incredibly important. If you don’t send them to your customers, you’re not likely to get paid!

If the information on your sales invoices is incorrect, your payment is likely to be delayed. Make it as easy as possible for your customers to pay you.

Using  a computerised accounting system (eg Xero), all the required information is entered at installation, along with your logo, and everything is taken care of. But it might be worth printing out one of your invoices periodically, just to make sure.

Each invoice is required to have a unique number, this is usually a sequential number, and will be supplied automatically on a computerised system. Otherwise you will need to find a way to make sure you give each invoice you issue has a unique number.

It’s good to have your logo showing  prominently on your invoice so that your customers easily recognise who it’s from.

Next, make sure the company name and postal address are correct and easy to read. If you are an incorporated company and your registered address is different from your postal address, this should also be shown, usually in small print at the very bottom of the page (along with your company number). If it is not easy for your customer to find out where to send their payment it’s likely to be delayed.

Check the customer’s name and address are spelt correctly. If the customer uses several addresses, make sure you are sending the invoice to the correct one. If you’re not sure which address to send it to, it is worth the extra couple of minutes finding out, rather than having it returned to be credited and re-issued, delaying the receipt of payment.

The invoice should be dated. Many companies save all their invoicing until the end of each month and do them all in one go, dated the last day of the month. If possible, invoice the customer as soon as you’ve sent the product or completed the work. This brings the payment due date forward, helping to ease your cash flow.

If you are VAT registered, your VAT registration number has to be shown on your invoice. This is because if it’s not and the customer is VAT registered, they will not be able to reclaim the VAT portion. Obviously, nobody wants to pay VAT if they don’t have to.

Whilst on the subject of VAT, if you’re registered, the value of the goods or services should be shown excluding VAT. The rate of VAT and the amount is then shown separately. It goes without saying, the total amount payable, including VAT, should be clear and easy to see.

Describe the goods or service being supplied. It can be hard to find a middle ground here (especially for services), too much or too little information can lead to disagreements of what was actually decided in the first place. The more invoices you supply, the easier this will become.

In my experience, once a sales invoice is received, the customer automatically assumes the terms of payment are 30 days no matter what is printed on the invoice. If your terms of payment are less, I suggest you make this clear to your customers before the transaction takes place. Then clearly state the terms of payment on your invoice along with the date you expect to receive it. At least if you don’t receive it by this date, you can contact the customer and refer back to the information supplied on your invoice.

Another tip to receive payment into your bank account faster is to supply your bank details. It is usually easier for your customer to pay directly from their bank into yours instead of writing and posting a cheque. It is much better for you, as the cheque process can take several days; the customer writes the cheque on the day payment is due, even if he posts it first class that day, it will already be overdue by the time you receive it. Then you have to pay it in the bank and it will be another three days before it appears in your account – 4 days late at the earliest.

What do you like to see when you receive an invoice? What makes you want to pay an invoice?

Happy invoicing!!

It’s Time to Tackle That Box of Receipts!

That box in the corner of your office. The one that contains receipts, invoices, bank statements, unopened post…and anything else you couldn’t find an immediate home for. You’ve been meaning to sort it out for weeks, months, possibly a year. Well, now is the time to do it!

You will need a large floor area (a table won’t be big enough) where you won’t be disturbed. If you’re going to be interrupted before finishing you will need to be able to shut the door to keep the cats/dogs/children away from undoing all your good work!

You will also need a pack of A4 envelopes, each marked with appropriate months eg January, February etc, plus a couple of spares to hold whatever else appears, a highlighter pen and a large bin or bin bag.

Lay out the envelopes in month order.

Start with the top item in the box, if it’s unopened post, open it;

If it is rubbish, put it in the bin

If it is paperwork needing to be kept but not financial paperwork, put it on top of an envelope marked “to be filed/actioned”

If it is an invoice or a receipt, find the date, highlight it and put it on top of the envelope marked with the correct month

If it is a bank statement, put it on top of an envelope marked with the bank account details (you will need a separate envelope for each bank account and credit card account

When the box is empty (hooray – you got there in the end, well done!), you will have several piles of paperwork all over the floor. Put each pile into the envelope it is sitting on to prevent any mix ups.

Open each envelope marked with a month and put the paperwork inside into date order (this is why you highlighted the date, as you will be seeing numbers everywhere by now) and put it all back into the envelope.

Open each envelope marked with a bank account or credit card account and sort the statements into date order before placing them back inside. If there are any missing, make a note on the front of the envelope so that you can order them from the bank or download from your internet banking.

All the paperwork that was in an unmanageable mess is now sorted into date order (congratulations, what an achievement!) and ready to be entered into your bookkeeping system by you, your bookkeeper or accountant.

Filing your paperwork when you receive it saves an enormous about of time, even though it seems to be quicker to put it into “that” box, to be dealt with some time in the future. How to keep control of your financial paperwork was covered in my previous blog

http://totally4business.wordpress.com/2010/08/30/organising-bookkeeping-paperwork/

I once had a client who had become so overwhelmed with his financial paperwork he was behind with his tax returns, being chased by the HMRC and being fined by them. It all arrived with me in about 5 shoeboxes and several carrier bags! It took me hours to sort out (and yes, I was charging by the hour as I had no idea how long it was going to take me!) before I could even begin to record it. Needless to say I was very proud of the neatly filed paperwork when I was finished and the client was extremely relieved, but because he was so far behind the HMRC went through it all very thoroughly and he needed a lot of support from his accountants. All in all, a very costly exercise.

So congratulate yourself again for tackling that box that has been causing you nightmares. Well done.

Organising Bookkeeping Paperwork

Doing your own bookkeeping is usually a very unwelcome chore. Time is always short, something has to be postponed, often it’s the bookkeeping. If you’re VAT registered, you have to get round to finding the paperwork and recording it every three months. If you’re not, it can be tempting to put it off until your tax return is due.

Once you’ve made your decision you need to find all the relevant paperwork. If you’re fairly organised it will be filed somewhere. If you’re not, it will be in a box, a bag, in your wallet, in your pockets and possibly in the washing machine! Just the thought of having to get everything together is enough to put anybody off.

But once you have, and to make this chore a little bit easier for you (your bookkeeper and your accountant) in the future, I recommend the following:

1. Sales Invoices – If you use a computerised accounting system (eg Xero) these will be stored within the system. There is no need to print them out. If not, either keep copies on your computer or print copies. These can then be filed electronically or manually in “Sales Unpaid” and moved to “Sales Paid” once payment has been received (noting date and payment details).
2. Other Income (including loans etc) – All relevant paperwork should be filed in an appropriately labelled file.
3. Purchase Invoices – All purchase invoices received from suppliers that don’t need to be paid straight away should be filed in “Purchases to be Paid” and then moved to “Purchases Paid” once you’ve paid them (noting date and payment details). Personally, I find it easier to find invoices in “Purchases Paid” if they are filed alphabetically.
4. Till Receipts/Online payment Receipts – these can be filed straight into “Purchases Paid“
5. Travel & other Expenses – If these have been paid from your personal account/cash, keep a plastic wallet for each month so that one expense for the whole month can be entered into your accounts and reclaimed.
6. Bank Statements – File these manually or electronically, either subdivide one file for any separate accounts or have a file for each.
7. Owners Drawings/Investments – Keep a record of all the money/goods taken for your personal use as well as any personal money/goods invested in the business.
8. HMRC Correspondence – It is often worth making a file specifically for this so that it can be found easily

The key to keeping things simple is to make a habit of filing all paperwork as you receive it. Open the post and file the financial paperwork straight away. Purchase invoices received by email, online receipts and statements should either be filed electronically, or printed off and filed manually, as soon as you open them. At the end of each day, take any till receipts out of your pockets or wallet and file them appropriately.

If all else fails, keep one electronic file and one tray/box/file, both labelled “Bookkeeping” to store everything until you or your bookkeeper do the bookkeeping.

If you already have several months (or more) of unfiled, unrecorded paperwork and don’t know where to start, get everything together in one place and I will tell you how I tackle it in my next blog.

Happy filing!!

Should you be registered for Money Laundering Regulations?

I have recently been asked if Virtual Assistants who carry out some bookkeeping services for their clients should be registered for Money Laundering Regulations. This is my understanding of the requirements put as simply as possible. Further details can be found on the HMRC webite.

If you are undertaking any form of bookkeeping or payroll (even for one client only) with reasonable continuity, with the aim of making a profit. you should be registered.

If you are a member of a designated supervisory authority such as the Institute of Certified Bookkeepers or the International Association of Bookkeepers, you are already supervised and do not need to register with the HMRC.

To register with the HMRC you need to complete and submit an application form MLR100, listing each premises where bookkeeping activities are carried out. A current annual fee of £120 per premises is charged. Once the HMRC accept your application, a registration certificate is sent, showing your Money Laundering Regulations registration number. More details can be found in the leaflet MLR9.

So, once you’re registered, what are you required to do in order to comply with the regulations?

1. You must assess the risk of money laundering in your business

2. You must carry out “customer due diligence” and implement internal controls and monitoring systems in your business

3. You must comply with EU payments regulation

4. You must nominate an officer for Money Laundering Regulations and train employees to identify and report anything suspicious

5. You must report any transactions you suspect of money laundering

For further details, see Your Role Under Money Laundering Regulations on the HMRC website.

If you are still unsure if you should be registered, you can email the HMRC with your specific queries (scroll to bottom of this link)

This all sounds very daunting but in essence it means having a documented system in place when taking on new clients who require bookkeeping services. You will need to:

Identify the client by taking photocopies of official documents which supply their name, address, date of birth and photograph

Establish details of the client’s business and the type of activity that will take place in your relationship

You will also need to keep up to date with the money laundering regulations and make sure you know what is deemed to be suspicious activity.

I suspect most of the above are already covered in your current terms and conditions. You will need to make sure you have all the documentation for your current clients.  I would then charge any new clients requiring bookkeeping services a registration (or similar) fee to cover processing the requirements to comply. You will also need to pass on the £120 annual fee to add their premises to your registration if you’re required to work from there.

Clients should be reassured that their VA is professional and registered for Money Laundering Regulations.

How to choose your Business Management Software

Business Management Software is designed to make your company more efficient. All parts are integrated, so information has only to be entered once. All interaction with your contacts is stored so that it is easily accessible to all staff with permission. Invoices are quickly created using contact and product information. Stock is recorded in real-time as purchases come in and sales go out. All information for particular projects can be stored and managed in one place. The accounting part takes place in the background.

All Business Management Software looks like it could be the answer to all your prayers, so look closely when choosing the right one for you and your company.

1. Changing from whatever you use now to a new system will involve upheaval – money, time, training and implementing new procedures. Are you, your staff and your company prepared for this?
2. No new system will do everything exactly the same way as you do things now. This is a challenge as people naturally resist change. On the other hand it’s an opportunity to make those changes you’ve wanted to make for a long time, to have a fresh start. You could ask your staff for ideas on how they would improve the present system and see if you can find something that will accommodate them.
3. When having the system demonstrated to you, tell the demonstrator as much as you can about how you work, how you want to work and ask lots of questions. Is the system going to make things easier and more efficient or are its limitations going to be irritating? It would be rare for somebody to want to sell you something that isn’t going to enhance your business practices, so make sure they understand your requirements.
4. Make use of the free trial. Play with it. Try to replicate some parts of your business and see if it does what you want it to do. Make notes of questions you want answered then contact the demonstrator or the help/support. It will be time well spent.
5. Are you going to use the whole system or just parts of it? Because of the integration, if one part isn’t used it could affect a part that is. You may not be able to do something that was demonstrated or pull off a particular report you wanted.
6. Now for the positive. You like it. It seems to meet most, if not all your requirements. Think how this is going to change your business for the better. Be more efficient. Better customer service. More organised stock management. Effective project management. Up to date accounts. Stress these points to your staff, build up enthusiasm and look to the future with optimism. It will make the changes take place much more easily.

Business Management Software should make big, positive changes to your company. Take time to find out what you, your staff and your customers require, research the market to find something you like. test it to its limit, decide a date for implementation and train everybody thoroughly. The transition will then be as smooth as possible and you’ll reap the benefits for a long time to come.

Does Cloud Accounting Reduce the Need for a Bookkeeper?

I was asked this question by Brian Barnes of Call Assistant UK.

Brian feels that cloud accounting packages like Xero are so intuitive and easy to use that they reduce the need for a bookkeeper. He wanted to know if my bookkeeping clients had reduced my hours once they started using Xero and how did it affect my business. His view is followed by my reply:

After having used Xero for over a year for our business accounting, I don’t think we could switch back to one of the ‘old’ players of the industry.

It was with reluctance we moved away from Sage, but it certainly has been one of the best things we have ever done – for the business.

For the potential bookkeeper we would have employed though, this wasn’t good news at all!

Xero provides such a user-friendly interface that even with no bookkeeping experience, you will not only be able to do your own bookkeeping, you will enjoy it, my Business Partner certainly feels that way.

Having a lot of common sense, my Business Partner likes everything in plain English in front of him, and that’s exactly what Xero does for him, he can log in from anywhere and see that the accounts department are logging payments, chasing payments etc, and this makes for some very easy going board meetings.

Now the good points have been mentioned about Xero and how you don’t need any bookkeeping experience to use it, how is it, and other similar solutions, having an impact on the professional bookkeepers position – is it attainable?

This is my reply as a bookkeeper:

As my clients move onto Xero I find the bookkeeping part of my business becoming more enjoyable. Suddenly clients become far more interested in the financial side of their business. I’m not constantly having to ask or look for invoices and receipts, question what the expenses are for, beg for bank statements.

Clients new to Xero start by entering sales invoices and tracking debtors. As everything is so clear, they quickly want to start entering purchase invoices to keep a rudimentary eye on cashflow. My bookkeeping hours are now reduced as I’m really only required to do the bank reconciliation, entering any missing transactions and make sure the VAT figures are correct.

So is a bookkeeper needed at all?

The role has become more advisory. I set up businesses on Xero, migrate the data and show clients how to use it. I can then do as much or as little bookkeeping required. Usually it becomes less as time goes on. But this is not a problem. I am no longer a necessary evil for my clients, “Oh no, the bookkeeper is in today, I’ll have to find all my paperwork and answer loads of difficult questions.” I am someone who can help and guide them. It is me who gets the questions now. I feel I’m a useful part of these businesses. I am helping them to move forward and grow. This is so much more rewarding.

With the reduced bookkeeping hours I have the choice to take on more bookkeeping clients and be involved in more businesses or use the time to evolve my own business and offer other services. A win-win situation I think.

To Cloud or Not to Cloud?

To Cloud or Not to Cloud? by Lee Brookes, IT Manager, Beacon for Business

That is indeed the current question?  As an IT professional among the many questions I get asked here are the most popular regarding cloud

1.    Is my data safe?

2.    Where is my data?

3.    Can I get at my data whenever I want?

4.    Can I get my data out should I wish to change provider or host etc?

5.    What is the cloud?

Well In answer to my original question, to be honest it all depends.  What?  I hear you say kind of answer is that?  Well here is a definition of cloud computing:

Cloud computing is Internet-based computing, whereby shared resources, software and information are provided to computers and other devices on-demand, similar to a public utility such as the electricity grid.  [source]

You see, Cloud computing can mean anything from Virtual servers, virtual desktops or online applications such as Pearl CRM or Xero.  In the context of this post we are talking the lower end of the scale online applications such as Pearl or Xero both powerful tools utilising the Internet as storage medium over in house infrastructure.  Basically meaning instead of having to buy expensive Servers to store your data on its all done online also this means you can view it from anywhere.  The office home or if you so wish even on holiday!

So is your Data safe?  It certainly is, well as safe as anyones data is on the internet Amazon use cloud computing Microsoft do and Google are the granddaddy of cloud computing so that has to stand for something. I could go on but you can read here.

Where is your Data? That tends to depend on the individual company but you can always ask and then do a little research most cloud computing companies or companies that use cloud computing use highly secure server farms or data centres so the answer really is yes!

Can you get to your data whenever you want?  That is all down to your Internet access most companies have broadband these days and a good proportion of homes have a reasonable broadband link those that don’t can usually make use of a usb dongle. So accessing your data really is upto you. If you only use your broadband in the office and at home it wouldnt hurt to get a pay as you go USB dongle just in case your broadband supply experiences any downtime for whatever reason.

Can you get your data out (export) should you wish to change provider?  This really is a question you should be having before you sign up there is nothing worse than importing all you contacts/clients/suppliers using a system for a few months only to find it isn’t the system for you it isn’t powerful enough and then to find there is no export function or even worse you have to pay for it!

Cloud computing is a step in the right direction for any company and it can answer and solve or kinds of problems. To cloud or not to cloud really depends on the individual company. A good needs analysis is required before making this step but it can save time, money and help any company grow.

We have provided this service to many companies to see them expand and flourish

So to Cloud or not to Cloud you decide

Accounts System + Add Ons or Fully Integrated System

About three weeks ago I added a discussion to the Xero Community website, Xerousers and was surprised at the comments it raised.

Helen Stothard had told me a way of utilsing draft invoices in Xero as a simple way to track time. I hadn’t thought of this and was very impressed. I wanted to share it. But soon the discussion became about using add ons that integrate with Xero. Should you tweak ways of using Xero or should you invest in software that is designed to to do a particular job?

If you are a new business with very little to invest, you need to find the software that will do whatever is most important for your business; accounting, billing or time-tracking etc, at a price you can afford. This will be a compromise. As your business grows you will want to look for software that can further assist the growth. If you love what you’re using, you can look for something that integrates. And so it goes on.

Eventually you will have many integrated systems, each one costing an amount per month/year. It’ll soon add up. Also when one system upgrades it may not work as well with the other systems until they catch up with their own upgrades. This is when it is time to move over to a business management solution, which has been designed to run accounts, CRM, sales, warehouses, logistics, project management etc. It will probably be cheaper overall and all your business data can be accessed from one place.

Whatever you use to run your business it should save time and make the business more efficient. However tempting business management systems and integrated applications are it can be easy to use them just because you can. The time and organisation it takes to actually utilise a system can outweigh all its benefits. Which is why I hope Xero continues to remain a simple, easy to use accounting package, striving to be the best at what it is.

Mamut vs Xero

Originally, Totally 4 Business was a bookkeeping practice. Many of my bookkeeping clients were using MYOB. The UK division of MYOB was bought by Mamut Business Software about 18 months ago and the licenses will no longer be confirmable by the end of 2011. I became a partner with Mamut and learnt all about this business management system.

For the level of pricing, Mamut has amazing functionality and is especially suited to manufacturing companies. It is designed for small to medium businesses and I’ve seen it working really well in a variety of companies, including ones that have upgraded from MYOB.

Most of my MYOB clients were very small businesses, often sole traders. They used MYOB because of it’s simplicity. Mamut was too big and complicated for them, even the smaller versions. Of course, the majority of businesses, whatever their size, can benefit from an integrated management system as long as finances and time to learn and use the system are available, but this is not always the case.

I looked at many of the accounting packages available but struggled to find something that would suit my MYOB clients who just wanted a simple accounting system. One client showed me Xero and I’ve been a lover of it ever since. It really is straight forward and  easy to use. All the businesses I know who are using Xero were able to start using it immediately with very little guidance from me. In fact, most people say they enjoy using it!

There is a place for business management systems and a place for simple accounting systems. The two are very different and appeal to different businesses. Many factors contribute to the choice of system to be used; nature of the business, size of business, time available to implement new procedures and staff training, finances available and do the directors/owners like the look of a new system. The benefits of using an integrated system do not always outweigh basic simplicity and ease of use.