Numbers game

Of course you know there's more to business than developing a product or service, selling it often, and banking the money. Running a business also involves the back-office stuff - keeping records, filling in forms, collecting and distributing numbers.

There's an upside to the numbers game if you can keep on top of things. The taxman needs to know the difference between your income and expenditure - but so do you.

Most obviously, uncollected receivables mean lack of cash. Unpaid bills can ruin your relationship with suppliers and maybe your credit rating. But more generally it's important to understand where you're making money and where you're spending it: that way you can tweak the business to make money (or at least to save it).

Many small businesses try to manage their accounts by hand, typically by entries in a ledger book. That's the cheap option... until you cost in your time and the likelihood of human error. A spreadsheet is a much better option, and many accountants will advise on what you need for simple book-keeping. Self-produced accounting spreadsheets can become quite sophisticated, thanks to the plethora of functions in Excel and its (few) competitors, and of course they're great for analysis and "what-if" forecasting.

The best alternative is to use a purpose-built accounting package. Setting things up might take a bit of time, but it won't be as long as designing a spreadsheet application from scratch for yourself.

Thereafter it's a question of regularly and religiously entering invoices issued and bills received, payments to and from your bank account, and (depending on your business) payroll and stock matters. All the right entries will be made automatically in the right places. You'll b offered the chance to generate invoices, chase payments, chose the right time to reorder, maybe even juggle your bank accounts to take maximum advantage of deals on rates. And you'll be able to produce the kind of reports that will help you make management decisions for the business - exactly the kind of information that is tricky to produce any other way.

Key issues that financial reporting can highlight:


· Over-reliance on particular customers and/or suppliers: time to look for alternatives?
· Habitual late payers: do you need a firmer approach? A discount carrot as well as a Late Payment of Commercial Debts (Interest) Act stick?
· Substantial purchases from particular suppliers: any chance of a better discount?
· Comparisons with the same period last year: are things getting better? Where are the crunch points?
· Profitability per job: why the variations?
· Breakdown of costs: is the mix as expected?
· Projections for the near future, based on past experience: are you likely to get in enough cash to meet your obligations/cover your plans?
· Budgeting: have you set realistic targets? Are you hitting them?

If you have a company registered at Companies House, a balance sheet is required: this summarises your business in terms of its assets and its liabilities - what you owe and any long-term debts like bank loans. The balance sheet should also show an analysis of the equity in your business.

If you operate as a sole trader or as a partnership, the detail required from your end-of-year accounts isn't defined in law - the accounts must show a true picture, but you don't normally have to produce a balance sheet. In practice, though, a balance sheet is a good idea - tax inspectors like them and it will impress your bank manager.

You aren't required to use an accountant at all unless you're running a limited company with sales of more than ?1m and a balance sheet total above ?1.4m. On the other hand, accountants know the rules - which means they also know the wrinkles. A good accountant should minimise your tax obligations, while keeping you the right side of the law. In larger or more complicated businesses, an accountant would probably sell themselves more on the basis that they can show you how to run your business more efficiently and more profitably. You could certainly try asking the accountant to justify their fee in terms of business results, perhaps in terms of some previously agreed goals.

Which software?

Very small business? Not many customers, not many invoices to issue, not many suppliers to pay and bills to record? You can probably live with a personal finance management program like Intuit's Quicken or Microsoft Money - designed primarily for home users and geared to managing your bank account, but these days provided with enough extras for practical business applications. n Quicken XG (about ?60; see www.intuit.co.uk/quicken) can do estimates, invoices, statements, track accounts receivable and record customer payments, and even handle payroll. You can also create a few of the basic business reports - balance sheet and P&L, outstanding invoices, accounts receivable and accounts payable.

· Microsoft's Money doesn't yet have the business-oriented bits in the UK version of its latest incarnation (Money 2004) but the existing Money 2002 Personal & Business (www.microsoft.com/money) isn't at all bad - looks good, easy to use, includes options for two dozen business reports and charts. Discounted to around ?55. Bigger business? Or one with plans to grow quickly? Multiple currencies, multiple companies, multiple bank accounts? Look at a fuller-featured accounts program. Typically you'll get a much more rigorous approach (which means more accountancy jargon) with a lot more reporting options.

· The best-seller is Intuit's QuickBooks Pro (www.quickbooks.com). It comes in various incarnations, all distinguished by a good collection of standard reports (as many as 125 of them) plus a commendably easy and non-technical start-up (there's enough heavy stuff later to keep any accountant happy). Entry-level QuickBooks Regular at ?150 does the books, Pro adds a lot of analysis for ?300, Premier does strategic planning at ?450. Two tips for QuickBooks users: don't overlook the export-to-Excel button on all reports. And check out Mastering QuickBooks Reports, a downloadable ebook - $9.95 from http://myquicktraining.com/mastering

· QuickBooks uses a tabular spreadsheet-like accountancy layout for much of its presentation, but MYOB Accounting 11 (www.myob.co.uk, RRP ?233 but widely discounted to around ?180) takes a different approach - illustrated menus and natty explanatory flowcharts for specific operations. It can be a bit long-winded, but it does make things much simpler. And reporting is excellent, particularly because of its good links to Word and Excel.

· Omni Accounts (www.omniaccounts.co.uk) is another clever candidate. You buy a basic package for a tenner, then specify add-on modules for as little as ?2.50 each. The integration is seamless, but you end up with a package that does exactly what you want - and no more. That's the theory, anyway. You have to know what you do want from your financial management, which makes some hand-holding essential. But it's a neat alternative.