How an Accountant Can Help You Make the Right Business Investments

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Whether you are just starting out as a contractor or you have been self-employed for some time, it is important that you keep your finances in order and this is how an accountant can help. As a business grows so does the taxation issues, and accountancy firms can look after all of the paperwork and taxes to ensure you are obliging with UK law.

But accountants can do much more than file tax returns to HM Revenue & Customs. A professional and experienced accountant can also help with company formation and assist in finding the right business structure for you to enjoy tax efficiency.

As part of their financial advice, an accountant can help you make the right business investments. When planning your overall wealth, you may wish to consider investments in other areas such as an Individual Savings Account (ISA) or investment trust.

So how can they help?

  • Attract investment

Accounting helps you to attract investment. If your business needs a loan or wants financiers, you need to have the necessary statements. These show that the business is being managed effectively and is in good financial health- and a good accounting system can produce these.

  • Expertise

Investing money is a major decision and not one to be taken lightly. It has a huge impact on your tax liability and general financial status so it is vital that you seek expert advice from a qualified accountant.

  • Which investments are best

A good accountant will tell you if a prospective investment is a bad idea. But what are the best investments? Examples include publicity, customer research, automation, outsourcing, book-keeping, training, technology, sales data and quality suppliers.

  • Models for evaluation

There are four common models which are used for evaluating business investment and these comprise of:

  • Net present value
  • Internal rate of return
  • Accounting rate of return
  • Payback

Net present value and the Internal rate of return methods are the most popular methods because they consider the cash flows over the entire length of the project, and the future cash flows are discounted to reflect the time value of money.

Accounting rate of return considers the profitability or an investment based on accrual accounting amounts in the financial statements and the time period covered is the average of all years.

In contrast, the business investment evaluating method Payback uses cash flows not the accounting net income flows. A negative to this is that it doesn’t discount for time value of money so £10 received three years ago is the same value as £10 in the current year.

This article was written by nixonwilliams.com, one of the leading expert accountancy firms in the UK.