Last month I was invited to the ICB (Institute of Certified Bookkeepers) awards, also known as the Lucas after the inventor of the double entry system, Luca Pacioli. I love judging the awards as I get to see what the best bookkeepers are doing to help their clients. A good bookkeeper is worth their weight in gold.
I’m also a Champion of the ICB, an honourary position that I was awarded a few years ago. This allows me to use the CICB letters after my name along with my usual FCA.
As well as seeing the best bookkeepers take the stage to collect their awards (including some who had travelled over from the trouble in Ukraine) there were software awards too.
I was delighted when the bookkeepers voted our favourite Xero as the bookkeeping software of the year. We also have client using Freeagent which was chosen as the friendliest software; not surprising as their chief accountant, M, writes all sorts of useful guides.
Which is your favourite bookkeeping software and why?
As accountants we’re usually sat in front of a computer and use Xero that way.
But as a business owner I’m out and about working from all sorts of places and I love the Xero apps.
The main Xero app is great for uploading receipts for expenses. Just snap and code as you go. If I receive any invoices by email I can forward them to my Xero files email address and then finish off coding when I get a moment or when I get back to the office.
I can raise invoices on the go. If I’ve written an article for you on the train I will usually raise the invoice from my phone at the same time.
I can reconcile my bank each morning I’m away so that my clients don’t get automated chasing emails when they’ve just paid me by bank transfer, card, or direct debit.
But, most importantly of all, I can see my profit in my hand.
The other Xero app I use on my phone is Hubdoc. This is like Dext but free to Xero users and perfectly adequate for us or any client with lower volumes of invoices. It’s another snap and go app. If you can take a photo of your kids on your phone then you can use Hubdoc. We capture the receipt instantly before it gets lost and then do the coding later from a proper screen/keyboard.
Xero Go is a new app for small businesses. This has the same invoice upload functionality and bank rec but there is an additional charge for raising sales invoices. It suits small landlords or those with a separate invoicing system. As an accountant we can still help our small clients but they don’t need to pay for the full Xero package.
What other useful apps do you have on your phone?
Why we love Xero (Quickbooks online and Freeagent are quite good too)
Xero is user friendly (according to our clients) software for small businesses. It sits in the cloud rather than on a single PC so that it can be accessed at any time by the business owner (that’s you) looking for management information, the bookkeeper (that may be you, Minerva, or somebody else) to input data, and your accountant (that’s us) to prepare your accounts or to give advice at any time.
You can put the Xero app on your phone to raise quotes and invoices on site. You can buy a small card payment machine such as Square or Zettle for around £20 and, with the app on your phone, you can take payment on site.
You can include a Stripe payment button on your invoices (although bank transfer is the cheapest method) to make it easy for customers to pay you by card.
You can forward electronic invoices directly to Xero (or to Dext if you have the app) or upload them manually to attach to your transactions. Once you have attached a digital copy you can get rid of your paper copies although we recommend that you keep them somewhere until we have completed the year end. If you ever need to check an invoice it is easy to search the supplier in Xero to find it.
Xero multi-currency version handles all your foreign currency purchases automatically.
As long as your Xero is up to date we can estimate how much tax you will expect to pay at any time.
Most small businesses fail because they run out of cash. It caught out a lot of people who couldn’t cope while they waited for covid funding came through. Hopefully we’ll never have to manage a global crisis of that magnitude again but there are many things that might go wrong for individuals. I’ll talk about business continuity planning separately as I just want to consider your bank balance today.
I recommend reading the first half of Profit First by Mike Michalowicz and I think I’ve written about it before. There are some good principles and the remaining chapters just go into more detail
I have a Starling account which comes with savings spaces and I do monthly management accounts on Xero so I try to ensure that I have the following saved:
- VAT per Xero
- Corporation Tax per Xero management accounts (or you can save 19% of your profit)
- 3 months of overheads in case of illness or crisis which can also be used to buffer any large or unexpected bills
- Dividends to pay myself later in the year
- Spare cash to pay into my pension later in the year to minimise my tax
I usually pay my suppliers immediately because, as a small business, it reduces my admin to only deal with each transaction once. You should ensure that you have enough funds to pay your suppliers on or before the due date. A business is insolvent if it can not pay its debts on time.
I also use a Starling account for my personal finances and I use my savings spaces for:
- 3 months of household costs in case of illness or crisis which buys me enough time to sort out alternatives
- Savings to replace my car every three years
- Savings for holidays each year and fun experiences such as watching musicals with my kids
- Income tax due on my dividends and other income not on PAYE.
It’s taken a long time to build up this financial security so don’t worry if you’re not there yet but, if you’d like a hand with making your business run more profitably, please give me a shout.
Anyone who had to do timesheets in an accountancy firm probably remembers how much time they spent/wasted recording their time to the nearest 6 minutes. Then trying to make sure that the hours balanced. What did you do with the extra hour you worked but didn’t get paid for? And what about the 7 hours on the job that was already over budget? And then being beaten with a big stick (not literally) for dumping everything to admin.
Most businesses, with the notable exception of lawyers, now charge fixed fees rather than hourly rates so timesheets are rarely used for billing. So, what purpose do they serve?
They are a mine of management information.
That over budget client was undercharged for years because nobody was honest about how long the job actually took. One staff member took twice as long to do jobs as another because they hadn’t been trained properly. And the amount of time genuinely spent on admin justified investment in some automated systems to speed things up.
So, what is the compromise?
We keep timesheets to the nearest 15 mins with the exceptions of phones calls and ‘quick’ emails which are recorded as a minimum of 10 minutes because of the disruption to other work. If I do some work on the train to a meeting, then I may double record the time as part of the meeting time AND the job I worked on on the journey as otherwise it would have had to be done in the office.
This means that I know roughly how much time (our most expensive resource) is spent on each job so I can ensure that our fixed fees cover this as well as a share of the automation and overheads. What I really need is reporting by exception. What jobs are taking significantly longer than expected so that I can see what the holdup is and how to improve. This doesn’t need 6-minute reporting. And it doesn’t need a timesheet balanced to the official working day.
Before implementing timesheets think about WHY you want them and make sure that they will give you the information that you need. You may find that the recording process doesn’t need to be too onerous. I use the Xero project app on my phone, but Toggl is another free resource.
What are your payment terms? Do you even have stated payment terms?
Most businesses seem to opt for 30 days from the end of the month of invoice which means that the wait an average of 45 days to be paid.
But accounting systems are far faster now than when I joined the workplace 30 years ago so surely it’s easier to register, approve and pay invoices much faster now than all that time ago? Personally, as a small business, I find it easier to pay invoices as they arrive to minimise admin time. But not everybody is in such a strong cash position.
My standard payment terms are 7 days from invoice so an average of, well, 7 days. And most of my clients pay me by direct debit which costs a few pennies but the integration between Gocardless and Xero means that it does all the bookkeeping entries to so saving me precious time.
When speaking at conferences I’m always paid the full amount before I travel to the event as organisers like to take a few days off afterwards rather than fuss over invoices.
Is it time to review your payment terms to improve your cash position and, in turn, to pay your suppliers faster?
Cloud is now old hat. Even before the Corona Virus caused many of us to work from home most modern businesses were going paperless and using cloud based software*
So what software do we use with most of our clients?
- Receipt bank – to get your data into Xero as simply as taking a photo or forwarding an email. Optical character recognition does the rest
- Xero – to link directly to your bank statements so that your accounts are as up to date as possible for those important business decisions and loan applications
- Xavier – which helps us to check the quality of bookkeeping. We use it to check our own bookkeeping and for the few clients who insist on doing their own.
- Fluidly or Futrli – to keep track of cashflow which is so vital at the moment
- Clarity – to help you improve your business through tracing 7 key indicators.
While the software in our tech tool box does the heavy lifting we can then help you to CHANGE your numbers with our free monthly Money Matters webinars and our online Flyby review sessions. We might recommend other software depending if we think that it will make your business run more efficiently and help you to create more profit for the hours that you put into your business.
*If you’re not already using cloud based software then we can help you to migrate. If for some reason you don’t want to use the software that we like then we’ll be happy to introduce you to accountant colleagues who use other software