February 20 Newsletter

January 31, 2020

BUSINESS UPDATE

Budgets - are they useful or a waste of time?

They can promote teamwork

It's a brilliant way of thinking about the things that you want to achieve in your business during the next 12 months. It can also be a great way to engage with your team, so everyone feels part of the process and has some input. This gives the team accountability and also helps to bring the team together as they are working to achieve the same objectives.

Use historic numbers or zero-base budgeting?

There are advantages and disadvantages of both methods. By using past performance this should give you a solid foundation and allow you to tweek the numbers for growth or new product/service launches. The disadvantage of this technique is that no-one really questions the numbers, so potentially wasteful or unnecessary spending could continue because it is 'in the budget'.

Zero based budget, is exactly as the name suggests, you begin with a blank piece of paper. This potentially takes longer to do, but it does mean that each cost is discussed and questioned before they are included in the budget.

Budgets provide accountability and performance evaluation

By getting everyone involved in creating the budget, there is an implied joint responsibility for the numbers. They can also provide the basis of performance management, to encourage people to achieve and exceed their targets. There could also be additional incentives introduced, such as profit share if the company achieves a certain profit figure, again encouraging everyone in the company to pull together to achieve the budget.

Important to have regular check-ins and compare to your actual numbers

So, you have invested the time to pull together a budget and everyone has agreed it's achievable, but it really is pointless if you don't compare your budget to your actual progress. This means keeping your figures in your accounting system up to date and easily comparable against your budget. It's important to understand why you are under or over budget so that you can investigate the problem or identify an opportunity. Ideally you would compare these figures monthly, this allows plenty of time to resolve any issues before it is too late could mean that your budget is out of reach.

Do you have a budget that you regularly check? We'd love to hear your budget tips.

ACCOUNTING UPDATE

VAT reverse charge: the basics

The domestic reverse VAT charge for construction and building services comes into force on 1 October 2020. The new reverse charge will apply to any businesses or individuals that supply or receive specified services that are reported under the Construction Industry Scheme (CIS), and are registered for VAT in the UK. It will not apply if the service is zero-rated for VAT, or if the customer is not domestically registered for VAT.

What does it mean?

Any VAT incurred on the supply of a relevant service will be paid directly HMRC by the customer, not the supplier. The customer can then recover that VAT, in line with the normal rules for VAT recovery.

When is it happening?

Generally, before 1 October 2020 - normal VAT rules apply, and on or after 1 October 2020: the reverse charge applies.

What do I need to do?

Determine whether these changes will affect you. If they do, make sure that your accounting system has been updated and understand if this will impact the cash flow of the business after 1st October.

APP OF THE MONTH....

GOCARDLESS

With it's direct integration into Xero, GoCardless is an app that we recommend to all of our clients. It is a direct debit that auto collects on the invoice due date.

What can it do for me?

Protect the relationship with your customer.

By requesting your customer to sign up to GoCardless you no longer need to chase them for payment and can concentrate on providing a great product/service to your customer.

Gives you back time

GoCardless users typically spend 84% less time chasing unpaid invoices and 76% less time reconciling payments.

Improve your cash flow

You will have some certainty when your invoices will be paid which helps with your spending decisions.

Contact us if you would like to know how GoCardless could help you.

TEAM NEWS

The first Digital Accountancy Show magazine has been published and we are featured in it!

Katherine is an advisory board member of the Digital Accountancy Show and was interviewed in the first issue of the magazine. There is lots of new thought leadership and technology included in the magazine, so definitely worth a read.

Until next month,

Katherine and David

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