Achieving the appropriate balance of debt vs equity in a business is vital, especially when your business is susceptible to seasonal changes, reliant on a small number of large clients, or is vulnerable to changes in the market.
A good accountant will advise business owners on how to manage this balance effectively.
This can be critical, especially when businesses require money to invest in equipment (capital expenditure). It is much easier for businesses to access finance than perhaps it was 5 years ago. And with this comes an element of risk. A business owner with £20,000 on a company credit card, leased equipment, and a bond or secured loan, for example, may find that they have borrowed too much in relation to their equity base (the amount contributed by the owners).
This imbalance may even cause a business to go under if creditors decide to call in debts unexpectedly. If your accounts are kept up-to-date, your accountants should be the first to recognise the early warning signs. So, if you have borrowed too much for your equity base, they can help you to rebalance your finances accordingly.
As the recent story of the Carillion collapse illustrates, when big businesses hold off paying small contractors for sometimes as long as 120 days, this can cause huge problems. An accountant can advise you on cashflow finance solutions, such as factoring, invoice discounting, and supply chain finance. The availability of cash is one of the primary reasons why many early-stage businesses falter, despite making a profit on paper, so use your accountant to help reduce the risk of this happening to you.
Have you outgrown your accountant?
In most instances business owners will decide that they need a new accountant at the point when they become frustrated, perhaps feeling that they have been given poor advice, or that they are not properly looked after.
Two clear signals that your accountant may no longer be a good fit for your business are:
- If they are unable to answer your questions; or
- If the answers they give are woolly, or you feel that they are not up-to-speed on a particular topic.