Functional business: Finance & accounting

Expert advice on finance and accounting to meet the dynamic needs of businesses in 2024

In recent years, SMEs have grappled with multiple challenges, from the disruptive forces of Brexit and the lingering impacts of Covid-19 to the relentless pressures of a cost-of-living crisis. However, amidst these trials, time has proven to be a great healer, gradually easing the complexities and offering renewed clarity for navigating the path ahead.

So, where does finance and accounting factor in? To shed light on the dynamics in 2024, we’ve curated insights from industry experts at Talis, Kreston Reeves, MHA, Kennedy’s Accounting and Opus Business Advisory Group.

Opening the conversation is James Cole, managing director of Talis IFA, an Ashford-based firm providing comprehensive financial advisory services to SMEs across the South East, with a focus on retirement planning and wealth management.

James paints a picture of resilience among SMEs amid a shifting economic backdrop. While challenges like inflation and interest rate hikes loom large, he acknowledges that businesses persevere with adaptability and innovation. “Inflation is now trending down, and there is an emerging consensus that interest rates have peaked. Official data says the UK was in recession for the second half of 2023, but it could prove to be one of the shallowest and shortest periods of economic contraction we’ve known. The businesses that have managed to successfully navigate the past two years may be on the brink of a more promising future.”

As 2024 unfolds, robust financial management stands as an absolute necessity. James explains that scrutinising expenditure, monitoring cash flow and anticipating early warning signs become imperative practices. By maintaining a solid budget, businesses can effectively manoeuvre through challenges while preserving plans for future growth, which is essential for securing financing and ensuring long-term viability.

An invaluable piece of advice from the Talis team is to keep business and personal finances separate. James expands on this: “Even as a sole trader, running a separate business bank account and paying yourself a regular wage while setting aside funds for your tax bill is key. For those operating a limited company, carefully consider the right mix of salary, dividends and pension contributions that will work for you both now and in the future.”

James emphasises the importance of having a back-up plan in case it all goes wrong. He poses critical questions: “What if you’re sick and can’t do the work to generate the income? What will happen in the event of your death? Business partners, co-directors and shareholders should be realistic about what this might mean. Will bereaved family members expect some financial compensation for their share of the business? Will they want to join the operation? Can business even continue without a key member of the team? Assessing these scenarios ensures the business can adapt and persevere, even in challenging times.”

Pensions stand as a cornerstone of financial planning, offering business owners an avenue to leverage highly favourable tax reliefs and enjoy tax-advantaged growth on their savings. Delving into the subject, James notes the opportunity for income tax relief or corporation tax relief on pension contributions of up to £60,000 annually.

While it may be tempting for limited company owners to opt for extra dividends from retained profits, he says redirecting those funds into a pension could offer greater tax efficiency. “These contributions can be accessed from age 55 (moving to 57 from 2028) if needed or left to grow in a tax-advantaged environment for as long as you wish. Pension assets can be inherited tax-efficiently and are typically shielded from inheritance tax. Moreover, in the event of business failure, pension savings are often protected from creditors. You can even use pension funds to buy commercial property and let it to your own business.”

Over the past few years, the economic landscape for SMEs has proven turbulent, with new challenges seemingly rearing their head in every corner. Abbey Watkins, accounts assistant manager at Kreston Reeves, observes that the increased appetite for home working has allowed many businesses to reduce their overheads as they require less office space. However, in some instances, this is having a detrimental impact on efficiency and productivity.

The team has also noticed mounting pressures concerning wages and salaries. “Most, if not all, SMEs are grappling with rising staffing costs due to the cost-of-living crisis and high inflation, which, thankfully, is now on the decline,” Abbey points out. “Add to that the rise of slow-paying customers, businesses have not been able to increase turnover by the same percentage and so profit margins are taking a hit.”

She highlights that the cost of borrowing for businesses has surged dramatically since the onset of increases in the Bank of England base rate, commencing in December 2021. “This spike has imposed significant financial strains on SMEs, particularly those reliant on variable-rate borrowing or needing to refinance their debts. Increases in interest rates has made it difficult for businesses to execute growth strategies, especially those hinging on borrowing, as the return on investment is significantly reduced by increased interest costs.”

Based in Canterbury, Kent, Kreston Reeves specialises in supporting ambitious and growing businesses with a comprehensive suite of accountancy services, including audit, annual reporting, cash flow forecasting, payroll, and business and personal tax advice. “We are more than just accountants though,” explains Abbey. “We recognise that running a growing business is challenging and often lonely. We are, above all, business advisers helping our clients achieve sustainable growth.”

In an ever-changing and uncertain environment, Kreston Reeves strives to serve as a beacon of certainty and support, bolstered by its B Corp accreditation, which emphasises the company’s commitment to balancing profit, people, planet and purpose. “In such unpredictable times, knowledge is paramount,” advises Abbey. “Keeping management reporting and information up-to-date enables businesses to remain agile and make swift decisions. Staying prepared to pivot and seize opportunities as they arise ensures businesses stay adaptable and resilient in the face of uncertainty.”

On 6 March, the chancellor of the exchequer Jeremy Hunt delivered the spring budget to the House of Commons, describing it as a “budget for long-term growth”. However, the response from many business owners and financial experts, including Aaron Hawkins, audit director at MHA, was one of disappointment. “The spring budget didn’t indicate any dramatic government initiatives to help businesses for the coming year, and that’s not likely to change with an election looming,” says Aaron. “There were policies announced, but from a business point of view, was there really any substance or anything that will help the SME markets? It wasn’t a budget to stimulate business confidence out of the current recession, so it will be up to SMEs to create their own opportunities.”

He further elaborates on some of the budget’s provisions: “There were some minor benefits. Hunt confirmed the increase in the VAT registration threshold from £85,000 to £90,000, a move welcomed by HMRC, estimated to benefit 28,000 businesses eligible for deregistration. Mind you, it’s long overdue since the 2017 threshold freeze and behind six years’ worth of inflation. His hands are tied by the Northern Ireland protocol, whereby we are still limited by the EU’s own €100k limit – too politically difficult to have different thresholds in Northern Ireland vs the rest of the UK.”

Aaron also comments on other aspects of the budget: “The national insurance cut from 10% to 8% is positive from a working family perspective, but unfortunately offers nothing for employers – the Chancellor seems to have overlooked employers’ NI. Having said that, it’s encouraging to see tax cuts that benefit the working population – better in my view than a global reduction in income tax. The increase in the child benefit threshold and improved allowances for childcare hours, however, are a significant boost for employers, as parents receive more assistance to re-enter the workforce while balancing the high cost of childcare against take-home pay.”

MHA is the UK member of global Top 10 accountancy network Baker Tilly International – the eighth largest accountancy organisation internationally. The firm provides audit, tax, consulting and advisory services to SMEs, as well as larger global groups. “With our international reach matched with local knowledge, we aim to provide the insights our clients need now – to accelerate growth, to prepare for tomorrow’s challenges and to seize tomorrow’s opportunities,” says Aaron. “We aren’t just accountants and tax advisors; we provide support to businesses in a variety of areas – commercial finance, independent wealth management services, corporate finance, ESG reporting, cyber security assessment, HR, recruitment, M&A and beyond.”

Economists predict that the Bank of England will reduce interest rates in June of this year, citing the central bank’s anticipation of inflation returning to its 2% target. Despite this optimism, Aaron urges careful planning, advising: “Budgets, forecasts and up-to-date management information remain paramount. Accurate data aids decision-making and cash flow management, especially with the base rate currently at a 16-year high of 5.25%, while effective debt management is crucial.”

He further suggests leveraging advanced accounting systems to streamline processes and reduce administrative burdens, and advocates for regular consultations with business advisors. “At MHA, we keep in touch with our clients throughout the year, particularly to keep management informed of legislation and tax changes that will inevitably affect decision-making.”

Annette (Nettie) Buss, business development director at Kennedys Accounting (previously RIFT Accounting), agrees that the recent budget had very few wins for small businesses. She notes a reduction in national insurance primarily benefiting the self-employed and a modest increase in the VAT registration threshold to £90,000 turnover starting April, marking the first adjustment since 2017. “Other changes, such as tax-free dividends reducing further to just £500 per annum from the 2024/25 tax year, offer little relief for business owners in the short term,” explains Nettie. “Coupled with recent increases in costs, these developments continue to pose significant challenges for many small businesses.”

As Kennedys Accounting approaches its 10th anniversary, Nettie emphasises that the focus remains squarely on the firm’s clients and collaborators. “It’s not about us,” she asserts, “it’s about providing unparalleled support to our clients and all those we engage with. Whether it’s guiding startups through incorporation, facilitating expansion and investment endeavours, navigating shareholding changes, optimising VAT registration and schemes or providing tailored services like regular management accounts, mentoring or virtual finance directorship, Kennedys Accounting is dedicated to offering customised accounting solutions tailored to meet each client’s unique needs.”

Nettie underscores the utmost importance of maintaining good accounting records. “Accounting records which are kept up to date will give you a competitive edge when looking at potential contracts. They empower business owners to identify cost-saving opportunities and allocate time for strategic negotiations with suppliers, potentially securing better deals. Neglecting accurate record-keeping or deferring bookkeeping tasks under the assumption of future convenience can swiftly lead to unwelcome consequences for any business.”

Ensuring timely completion of HMRC returns, including VAT submissions and punctual payments, also significantly enhances your business profile. Nettie continues: “Although sometimes payment plans for HMRC debts are necessary, businesses don’t want to be relying on them. HMRC would always rather help a business catch up, rather than face situations where payments are missed, leading to penalty points and fines. Avoiding these penalties is crucial for maintaining smooth business operations and preserving cash flow.”

Nettie’s fundamental advice is straightforward yet crucial: surround yourself with the right people. According to her, these individuals could include your staff, mentors, accountant or lawyer – people you can rely on to provide honest opinions. “A good mentor offers guidance, support, motivation and understanding, particularly if there are tough decisions to be made. Having this person by your side in whatever guise is always invaluable.”

Opus Business Advisory Group provides a full range of business advisory services tailored to the SME market, including finance raising, equity fundraising, corporate finance, restructuring and insolvency, and solvent restructuring. Operating from fourteen offices nationwide, the firm boasts 30 partners, all armed with a wealth of experience in helping SMEs, and a total headcount of over 100 staff.

One such expert is partner Adrian Dante, who explains: “Most important to us at Opus is our determination to support and assist businesses facing challenges and not to criticise or judge how or why these problems have arisen. Our core objective is to find positive solutions and outcomes, striving to alleviate difficulties wherever feasible.”

Adrian encourages business owners to cultivate relationships with trusted accounting and business advisors, fostering an environment of openness and transparency where both positive and negative developments are shared. “Seeing accountants as just bean counters who sign off the accounts once a year and help agree the tax liabilities is far too narrow a view,” he says. “Experienced firms can be a vital part of the infrastructure of a successful business, especially as their independence can enable them to be a sounding board for new ideas and a crucial source of reassurance in troubled times.”

Central to business success is robust management information feeding into flexible and regularly updated forecast packages. This, Adrian states, allows management to take preventative action before a financial drama turns into a crisis and to re-allocate resources within a business to its most profitable activities. “These processes help management teams to stay on top of cash flow and to avoid the sort of unexpected pressures, which can throw a business off course. Without decent management information and reliable accounting processes, it is difficult for businesses to raise the finance they need to support exiting level levels of activities and to fund growth.”

Adrian emphasises the importance of staying informed about one’s business and its market dynamics, relying on factual financial data rather than industry hearsay. Armed with this knowledge, it’s essential to maintain a balanced approach to risk, remaining vigilant yet open to seizing opportunities, particularly during challenging economic climates.