Yearly Finances and Dividends in Business
When it comes to your first year in business either as a sole trader or a limited company finances are of the utmost importance. Every penny must be accounted for and every effort must be made to ensure a steady income so that all repayments and bills are paid on time thus reducing the risk of bad debt and increasing your business’ standing with its creditors.
First Years FiguresIn your first year – unless you have a viable business model that hits the ground running – you will find that you do not make much of a profit if any profit at all. This is nothing unusual for a fledgling business and most banks and small business organisations who provide start up grants appreciate this and work it into their figures.
That said it is up to you and your accountant to ensure that no more money that necessary is spent and that all monies coming into the business are accounted for.
Year End AccountsAt the end of your business’ financial year you are obliged by law to submit an accurate set of accounts to Companies House. These records become a matter of public record unless you specifically ask for them not to be made so. This however only applies in certain circumstances and only under advisement from your account and Companies House.
Your company accounts must be produced and ‘signed off’ by a registered accountant and again he or she can only sign off on them up to a set amount. Many accountants are only allowed to sign off on accounts up to the sum of £1 million; larger sums must be handed by a firm of accountants who will specialise in tax issues as well as the production of your final accounts.
Statements of Assets and LiabilitiesYour company accounts must contain a statement of assets and liabilities. This statement is designed to show anyone viewing your accounts (especially anyone interested in investing or purchasing your business) just how healthy the books are.
The statement of assets and liabilities includes information such as how much money you have borrowed from a bank or building society, private loans used for company purposes, the value of all assets (such as computers, furniture, company vehicles etc) and their depreciation. Depreciation is the amount of value an item will lose over a set period of time normally a financial year. For example if you purchased a computer at £1000 at the beginning of the year then taking into account wear and tear, general reduction in cost and other factors the computer may only be worth £500 at the time of the accounts being prepared.
This is designed to give an accurate measurement of how much the assets of the company might be worth if there was a requirement to sell or go into liquidation and how much money your creditors may expect to receive from you.
DividendsA dividend is an amount of money paid against a set target (perhaps a yearly sales bonus) or share of profits made throughout the course of the year. These dividends will normally be agreed in advance and all employees are made aware of the nature of the dividends around a month before the end of the financial year.
It is important to note also that normally in year one of a business’ existence dividends are not paid as most small to medium sized businesses in year one only manage to break even.
For more information on any of these topics it is best to consult with your company accountant or visit www.companieshouse.gov.uk for information on how to submit your yearly accounts.