Lecture Notes
- Accounting - keeping track of who owes you money and how much you are spending on materials and services
- It makes sure you don't end up spending more than you earn
- An invoice is the bill that you send a client and a statement is a reminder
- An invoice details exactly what has been purchased (every single detail itemised so the customer knows what they are being charged from), the date it has been made, who the invoice is to and from (addresses), and a total, with VAT listed separately and then a grand total. Contain a remittance advice slip that you send back when you pay your cheque
- You have a certain amount of days from the day the invoice was made out to send off the money
- A statement might contain a record of any outstanding invoices
- Don't really use cheques anymore, money is usually paid straight into bank account
- A statement contains your address, their address, unpaid invoices, a list of recent invoices you have sent out, total amount outstanding
- On the back of invoices and statements are terms and conditions. The conditions are designed to protect your rights and interests. Costs - how you want to be paid. Delivery options. Payment terms.
- Have to explain who the owner is so it is clear who you are referring to (Terminology - make it clear to the customer, make it obvious and simple so there is no opportunity for them not to pay)
- How much credit you will be willing to give them - (how long before they have to pay it before they have to pay interest) after 30 days, they can charge a very small amount of interest per annum.
- Show your commitment to quality
- Data protection - ensuring the customer that you are not going to pass their address on to any one else
- Example, currys t&c contains: price, payment, warranty, limitation of liability, general, risk/title, cancellation and returns, non-delivery, delivery, description and fitness for purpose, application of terms and interpretation
- Should send statements out before the invoice is due to prompt the customer to pay their invoice on time, if they don't pay it, send a statement out every month thereafter, if it has been outstanding for a long time, tell them that you are going to take action with your solicitor. The less time you are willing to wait the easier it will be to get your money back.
- Accounting software - e.g. quick books (Standard accounting kit - does almost everything for you), bank tree (basic package for low key business), sage (the best equipment)
- Need to know who is spending the most money with you to know who is your best customer - may need to offer incentives
- Keep log of customers, profit and loss accounts
- Need an accountant, you want a certified account not a chartered one (as they are more expensive)
- Always ask for a rough estimate as to how much the accountant will cost you a year
- Businesses spend money on starting up costs, overheads and direct costs
- Overheads refers to the money you have to pay out every month whether or not you have work in or not
- Start up costs: equipment, website, register company name, signs, logo, decorate premises, launch party (one off costs- can be quite expensive)
- Many companies get a loan to cover these initial expenses, which they pay back each month over 2-3 years, as this is a risky time for the business
- Where does the money come from? Banks (hardly lending any money at all at the moment); crowd funding (opening your business up to the public, people give you money to set up your business, often don't have to give anything back, it is because they believe in your company, people can invest little or a lot to encourage you); funding organisations and investors (such as the arts council - these organisations may grant you money without having to give anything back but you have to report back to them); shareholders (But then you do have to give some of your business to them); prizes and award (often get cash prizes and also looks good on your CV)
- Investors want to see a solid marketing plan, and to know how much money you need and how much money you have got, how you spend the money, and how you will pay it back
- In order to tell someone how you will pay them back you need to have an idea of how much you will earn
- Indirect costs are things you have to pay for weather you get any business or not, including: utilities, rent, phone lines etc
- These regular payments are also known as overheads, fixed costs and the cost of doing business
- Direct costs apply to anything that you sell to a customer that they take away with them
- E.g. everything involved with the manufacture and presenting for sale of that product
- In terms of a bottle of water, you are paying for the water, the bottle, the cap, the label, and the tray and wrapping that the bottles came in. You are also paying for all the indirect costs, such as labour, delivery, the rent of the factory, the designer of the bottle... So you end up paying 85p for a bottle of water, that is worth less than 5p.
- Tangible assets (things you can touch) would include your vehicle, your computer, your high tech equipment
- Intangible assets (things you can't touch) include reputation, company name, intellectual property and list of customer, trade secrets, recipes
- A cost is what you spend and the price is what you charge
- Capital is the wealth within the business, tends to be tangible assets (money, property and other valuables)
- When you are calculating how much you are making you work with: receipts (money that is coming in to the business from a client); payments (how much money you have spent running the business on overheads and direct costs)
- The difference between your receipts and your payments is called your cash flow. If you receive less from your clients than you have spent in your bills then you will have a negative cash flow, if it is the other way round, and you are making more money than you are spending, then you will have a positive cash flow
- Your balance is the amount of money you have at that moment (not the same as profit, as some of this money may still be needed to pay your bills)
- Profit is the money thats left after you have paid all of your bills
- Loss is when you haven't got enough money left to pay the bills
- Different types of taxes: council tax; income tax, corporation tax, VAT, and business rates
What to do
1. Open up a separate bank account for your business, do not run a business through your personal account
2. Find yourself a certified accountant
3. Find a solicitor at the start
4. Register your business with the inland revenue
Websites
Business Link
Startups
HM Revenue & Customs
Creative Choices - David Parrish
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