What Does an Accountant Do? Processes and Practices
Author: Russell SmithMay 12, 2017
Not sure what exactly an accountant does? We take a comprehensive look at what the job really involves.
Ever asked yourself: what does an accountant do? You aren’t alone — it’s a question that’s been asked plenty of times!
There is a bit of stigma and misunderstanding that surrounds the accounting profession. Despite popular belief, we aren’t just human calculators and bean counters — although we can certainly fill that role, too!
So, What Does an Accountant Do Exactly?
Accountants are skilled financial experts, here to help your business navigate the complex and often confusing world of money and tax. Find out exactly what it is an accountant can do for you in our comprehensive guide to the profession.
File Your Tax Returns
When most people think ‘what does an accountant do?’ the answer will invariably end up revolving around the filing of tax returns.
As you’ll find out in this blog, there is a lot more to the job than that. But, yes, we do file tax returns.
Recently, we at Russell Smith Chartered Accountants conducted a study of self-employed individuals regarding how they felt about submitting their own tax returns. The results of the study were pretty conclusive.
83% of those surveyed felt some sort of anxiety around tax returns.
What we learned was there is a great deal of stress that comes from tax returns, with the biggest problems faced by business owners being:
- Fear of simple mistakes leading to serious consequences
- Uncertainty with regards to filing in every aspect of the form correctly
- Confusion over financial terminology and jargon
- Worries about miscalculating income
Tax returns, it seems, cause plenty of unnecessary anxiety.
The key here is the word ‘unnecessary’.
Why is it necessary? Because there are legions of finance professionals out there who can manage this process for you.
An accountant can do many things. Filing tax returns, so you don’t have to worry about it, is one of them.
Calculate Business Fees
What should you charge for your business services or products? It’s not an easy question to answer, but who better to ask than a financial professional?
An accountant can analyse markets and competitors, and then look at your business model, your expertise and experience, the quality of service and the brand attached to help you ascertain reasonable fees to charge.
They can also help you calculate your rates as a contractor/freelancer/sole trader. Not sure what your fee per hour should be? Ask an accountant to help you work it out.
Playing a guessing game with your business fees is dangerous. Too high and you’ll price yourself out of the market; too low and you’ll give your business an aura of cheapness and low quality.
It may seem trivial, but the right rate sets the tone for your company. You need to get it right.
What happens when the government investigates your tax? They audit you. They look into all aspects of your financial history; searching for discrepancies, errors and acts of misconduct. Essentially, a finance expert, or team of experts, looks into your accounts to make sure everything is in order.
But, you shouldn’t just wait for HMRC to audit you. You should be carrying them out yourself.
Why would you want to do that?
An audit shows up any problems with your accounts; potentially misrecorded information, signs that somebody has been fiddling with figures, etc. If the sorts of problems exist in your financial records, they pose two problems:
- If HMRC finds them, you’ll face a more serious investigation.
- If they do exist, it means your accounts are inaccurate, which can lead to problems in the future.
To avoid disaster, it is a good idea to have regular audits conducted. Annually is often the method of choice. When HMRC conducts these detailed audits, it uses financial experts — accountants — to do them, so it only makes sense for you to do the same.
Help Establish Limited Companies
These processes can be quite complex, yet must be done properly in order for a business to be successfully established.
These are the basic guidelines from GOV.UK:
You’ll then need to take things further, establishing memorandum of association, articles of association and registering for corporation tax.
Accountants, although almost exclusively associated with finance, are also well versed in business procedures, such as establishing an LTD company.
With their experience and understanding of how the process works, they can support your move from sole trader to limited company.
Create Financial Forecasts
Why create financial forecasts? Because they allow you to make plans for the future, to estimate profits and predict where you’ll be next week, next month, next year. They are also powerful tools that can be used to attract investors and lenders.
That all sounds great, but how do you create a financial forecast?
Forecasts are created using:
- Historical data
- Seasonal expectations
- Current trends
- Competitor analysis
The creation of a good forecast is complicated, but the benefits of having a strong indication of where your company fits into the future is worth the time and effort required.
As you might have guessed, producing such forecasts takes a level of expertise beyond that of most business owners. If not done properly, you’ll be making decisions off an inaccurate forecast. I don’t need to tell you how many problems that can cause.
To build an accurate financial forecast, you need somebody fully capable of not only using data to produce such predictions, but also collecting the necessary information, too.
An accountant is one such person capable of doing this.
As a business owner, it’s your job to keep your business afloat — networking, making sales, evolving the brand and plenty more goes into this goal. But all this comes at an expense — and we aren’t talking a financial one. Time is the enemy of a business owner. There just aren’t enough hours in the day to do everything yourself.
As such, while some aspects of business operation take priority, others are given a backseat. These are often the subtle things; the things that don’t demand attention, yet they can still have a profound impact on the way you operate.
One such aspect is operating costs. This includes rent, loan repayments, bills, supplier fees and more. Once set up, it’s all too easy to forget about these costs and just carry on paying the same rates, but this could be costing your business a lot of money.
Bringing on an accountant means they can investigate these rates and find out where you are overpaying.
With this information, you can then make changes to streamline business operating costs, saving you money that could be better spent elsewhere.
It would be nice to pay a bit less tax, wouldn’t it?
The thing is, saving on tax is possible.
No, we aren’t talking about avoidance schemes; we’re talking about legitimate techniques that simply take advantage of systems put in place by the government.
Tax saving methods include managing your business as a partnership, splitting income between yourself and your spouse, taking advantage of dividend rates, using tax allowances wisely, claiming on the right expenses, using different VAT calculation methods and more.
The thing is, though: every business is different, so one method of tax saving may not work — or at least may not be as effective — for one company, even if it did for another. In short, you can’t just copy what others are doing.
To save tax through such methods requires a fairly advanced level of knowledge of finances and HMRC regulations.
Accountants have that knowledge; knowledge they can use to look at your business and devise a unique strategy that saves you tax.
Manage Employee Tax
It’s not always about asking ‘what does an accountant do?’ It’s also about asking ‘what do you need them to do?’
If your business has employees, even if it’s just one, you’ve opened yourself up to the crushingly complex world of payroll, PAYE tax, P60s and P45s, varied tax codes and more.
The acquisition of employees is often a necessary one, but it does take your business’ tax obligations to a whole new level — one few business owners are capable of managing alone.
Accountants can manage every aspect of your employee tax responsibilities, from upkeep of PAYE payments to dealing with payroll and ensuring accurate records are maintained.
Set Up a Pension Plan
Employees pose another issue for small businesses. It is now mandatory that you offer workers a pension plan. They don’t have to take it, but you must at least offer it.
A pension scheme is something you are able to set up yourself, but it is by no means a simple task, with plenty of hoops you have to jump through on the way.
We recommend you take a look at this page on Pensions Regulator. If you find yourself dizzied by the information and requirements, you aren’t alone.
With pension schemes now mandatory, you must set one up if you employee people or plan to do so in the future. If you aren’t confident in managing the process, though, this is something an accountant can do on your behalf.
Produce Financial Reports
Financial reports are an important part of business. An accountant can help produce high-quality financial reports that provide real benefits to your business. But is it necessary to have an accountant for this process?
Staples of management, financial reports allow business owners, shareholders and HMRC to get a firm understanding of a company’s financial health. They can also be used to make both long-term and short-term strategy decisions.
There are many different types of financial reports a business can produce. Some, like statutory account reports, are a mandatory report that must be produced to certain specifications for shareholders and government officials.
Other types of reports can be created more loosely, perhaps showing just monthly net profits or outgoing expenses.
Producing reports, though, is a time-consuming process. You also want to make sure that the right data is in the report, in order to allow clarity for decision making and ensure you convey the right information to the right people.
This is where an accountant comes in handy.
Maintain the Books
We’ve already written a pretty comprehensive blog about what a bookkeeper actually does, which you can find by clicking the link. However, we’ll quickly sum up what they do here, too.
Bookkeeping is very important to business.
In fact, we’d say it is one of the foundations on which a business should be built.
Bookkeeping is simply keeping financial records of transactions, be they outgoings or income.
Without bookkeeping, you could not hope to accurately:
- File returns
- Create reports
- Provide HMRC with evidence during an investigation
- Produce forecasts
- Streamline costs
The list goes on.
Basically, every finance task starts with the books.
As they are so important, proper attention must be given to them. Poorly maintained books — those that aren’t updated regularly — are riddled with errors or missing information, resulting in widespread problems across the business.
Having an accountant manage your books means you can rest assured they are of a standard high enough to comfortably support your business.
You could, of course, manage the books yourself, but you must be dedicated and follow best practices, or you face serious financial disaster.
Liaise with HMRC
Dealing with Her Majesty’s Revenue and Customs, or HMRC, is an unavoidable part of being self-employed. Managers of tax, HMRC ensures your business is following its legal responsibilities when it comes to finances.
Most companies won’t hear a peep out of HMRC until tax is due. However, some must deal with them more than others.
As mentioned already, a tax investigation is one such time you’ll hear from HMRC, but there are plenty of other circumstances in which communication with the governing body will flow more than usual.
HMRC have also known to be ruthless, though, and we’ve all heard horror stories about dealings with them. It isn’t so much as it’s out to get you; more that it is out to make sure you aren’t hiding anything you shouldn’t be. That said, they can be careless at times.
If you are in a position where you have to communicate regularly with HMRC, perhaps an issue has arisen outside of an investigation and you aren’t confident in handling the process, an accountant can help.
Accountants deal with HMRC on a daily basis. They know a bark from a bite, they know how to keep its people happy and they know how to handle even the most complex situations.
HMRC permits financial advisors (accountants) to liaise with them on the behalf of your business — something always worth keeping in mind.
Keep You Updated of Financial News
Business owners are an unusually busy breed. They’ve often got a million tasks to hand and are a group of people to whom a 40 hour work week would be close enough to a holiday.
These people are good at many things, but keeping up to date with current financial affairs is not one of them.
The accounting game is constantly changing; new laws and policies coming in, new best practices that should be followed, new software launched, etc.
As a business owner, you can’t always expect to keep up with this, but an accountant can and always will.
So what does an accountant do when it comes to finance news?
They make sure you know about current laws and obligations, including changes to those laws and obligations. Even if you don’t have time to hear about them, they will at least make sure that your business is following them.
Help Manage Niche Industries
Sometimes, the path to sound financial management is pretty obvious.
Many businesses follow the same standards of practice and, as such, those with experience can often get to grips with the basics and handle things on their own — at least on a small scale.
Some businesses, though, are a little more complex.
Two particularly good examples are doctors and musicians, but there are plenty of other niche industries and jobs that this applies to as. In these industries, things aren’t as straightforward as, say, eCommerce.
- Doctors usually have a host of different employers, unusual expenses, unique insurance protocols, etc. Things aren’t as black and white as they are for your standard company.
- Musicians have similarly complex processes to go through. As a person gigging from place to place, buying new instruments, recording new tracks, renting rooms, selling CDs on the side, while potentially working other jobs, it can be tough to know exactly what your tax obligations as a musician are.
An accountant knows how to manage all industries and all job types in all sectors. Whether you are a locum doctor or a musician touring the world, they’ll know how to manage your finances and make sure you’re on the right side of HMRC.
Ensure Survival During Turbulent Times
2016 was a dramatic year.
We had the groundbreaking EU referendum and Donald Trump shocked the world with ascension to the US presidency. Following that, we had the snap election called by Theresa May.
The result of such surprising and anxiety-inducing moves is that markets can slow, as investors become uncertain about where things will go.
Nobody wants to take risks during a time of turbulent financial forecasts, so many businesses and wealthy individuals choose to keep their money banked until there are clearer skies ahead.
However, this can be tough for the little guy.
Small businesses thrive on people and companies taking risks on them, but opportunities like these can be few and far between during troublesome times like Brexit.
During this time, survival is all about proper financial management, experience and making shrewd business discussions.
An accountant can be vital to this process. Their expertise in keeping businesses afloat can be the difference between the life and death of a company in times of great uncertainty.