Company managers in this sector should aim to have a basic understanding of accounting. The difficulty is being aware of what this basic understanding needs to cover and this is where some come unstuck. It is up to the accountant to advise company managers what they need to know. For example it is amazing how common it is for companies to be unaware of their P&L (profit and loss) from month to month – keeping a close eye on this is essential especially in these current times. Specialist accountants can offer broader, risk management type of advice from managing cash flow, planning expenditure and the criteria for working out what is essential etc.
In December 2009 the FRRP (Financial Reporting Review Panel) announced the sectors they will focus on during 2010/11. This list included Media and Information Technology – which covers a multitude of businesses. The FRRP review Annual Reports and Accounts of Companies. Whilst these are mainly the larger companies they can select from a wide range of companies. Their findings will become best practice. I would expect them to look into turnover, as this is a “hot potato” in the accounting world. No longer does turnover equal the total of the sales invoices raised in the accounting year. Instead accountants look at contracts and activity levels. This can bring sales and therefore profits and tax forward or could push sales, profits and therefore tax back. Expect the taxman to be watching this review and also challenging accounts submitted to them. It would be easy for them to challenge a set of accounts and push the profits up so they get tax paid sooner.
Accountancy services should not be a last minute panic buy to meet the deadline just before your tax return is due. The C&D sector often find it difficult to find an accountant that understands their issues. It is a two way process – the more homework both sides do the better and more profitable the relationship will be.
My quick checklist for choosing who you work with:
• Always choose a qualified accountant. Anyone can set up shop and call himself or herself an Accountant.
• Get a recommendation from a friend, colleague or business adviser and use this information in conjunction with other research.
• Meet with your potential accountant. Does this person talk your language or just meaningless accounting jargon? You need to get on with your accountant – it is your right to ask this person any question no matter how stupid it seems. You are the buyer and you can be as demanding as I am sure your clients are. See if they are interested in you and your business and ask who will be looking after you and your business day to day – a principal or the office junior.
• Clearly agree the services you are to buy from the accountant. It should all be set out in writing in a contract that accountants call a “letter of engagement”.
• Accountants appear to be expensive. To avoid any surprises it is as well to agree a fixed or a capped fee.
There are some questions you can ask yourself. The C&D sector is well known for their collaborations and how this is accounted for can be a nightmare. Are you in partnership sharing profits or is one of you entitled to a set fee? Was the cash lent to the business or is it share capital? How do we account for IP?
The business world runs to a strict timetable of reporting deadlines. It is useful to put these dates on your calendar in order to guard against unnecessary last minute panics.
• Private limited company accounts now have to be filed 9 months after the year end, no longer 10 months. PLC’s only have 6 months - it was 7.
• Company tax has to be paid 9 months after the year end and the tax return filed within 12 months of the year end.
• Most people are fully aware that personal tax returns have to be filed by 31 January.
If any of these dates are missed there are penalties and interest to pay, so making sure you plan a head and book meetings with your accountant well in advance will make life simpler and less stressful!
As specialist accountants in this sector it is our responsibility to seek to understand your business. We have to be creative ourselves (no pun intended) as a number of the practises coming from C&D challenge the traditional way SMEs do business. For example, they are more likely to be working in a hub and forming many informal joint ventures. A lot of C&D companies do not like traditional boring suited business people – others feel safe because that is what they expect an accountant to look like. So forget the suited exterior and just ask the right questions or demand to know what questions you should be asking.
However, in my experience, commercially successful C&D businesses are built on, yes, creativity and effective delivery, but also good accountancy practice ie having proper procedures in place to deal with tax planning, watching cash flow etc. This means the business can grow without over stretching itself.
Montpelier Chartered Accountants is well known in the Creative & Digital sector, as well as sponsoring the Dadi Awards, The Big Chip Awards and Digital Week Awards they have a specialist CDI accounting and tax team working across a number of offices. Simon Young can be contacted on 0113 258 8216.