Money magic

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Given the complexities of the tax laws and other statutory requirements, managing finances is one of the most painful yet most necessary tasks an SME owner must complete…

One of the hardest things for many new business owners to cope with is managing finances. Accountants can help – but often only at relatively high expense. Desktop personal finance software is often too consumer-oriented to work well for even sole traders and fuller-featured accounting software, such as QuickBooks, MYOB, or Sage, is often too difficult for non-experts.

Yet failing to come to grips with financial management can quickly kill a business. Managing cash flow, understanding how tax and VAT liabilities are mounting up, and being able to track expenses and unpaid invoices are all vital. And all registered companies must produce the legally required accounts. None of this is what most people set out to do when they found a business – and yet it’s all essential.

On account

Ed Molyneux faced exactly these problems when he set up a one-man consultancy firm following  an 11-year career in the RAF.

“I was not very organised,” he says, “and I found myself filling in accounts spreadsheets late, or with the wrong numbers, and I had no idea where the business was financially. I was doing OK and had reasonably reliable consulting work, but I felt out of the picture.” He tried some of the main software packages, but found them frustrating.

“The language put me off and the workflow didn’t seem to correspond,” he says. “I wanted a single place where I could raise an invoice, see how much I owed in tax, see what was in the bank, and find out what money I could take out of the business. I couldn’t model the real accounting and tax side of things – it could never give me those answers.”

As part of his RAF career included a degree in engineering and computer science from Oxford, Molyneux thought it ought to be possible to do better.  The result is FreeAgent, a cloud-based service that aims to make managing finances as easy for users as possible. In Molyneux’s comparison, you don’t have to think about how an engine makes a car move in order to drive to the supermarket; similarly, once you’ve input payments and expenses, FreeAgent produces all of the accounting and tax forecasting for you.

The service, which went live in 2007 and costs £15 to £25 a month (newcomers get a 30-day free trial) is accessed securely online through any internet connection and can retrieve data automatically from cooperating banks.

“It gives you the numbers you need without getting you bogged down in accounting jargon and processes, ” Molyneux says. “You get a clear picture of your finances all through the year and can collaborate with your accountant online.”

In April 2011 Free Agent was chosen to form part of a package of cloud services called MyBusinessWorks that Barclay’s Bank offers to its small business customers.

Looking forward

At the same time, part of the point of FreeAgent is to reduce the time-consuming administration involved in keeping accounts and estimated tax liabilities up to date.

“If you automate much of the manual processes associated with compliance then when you collaborate with your accountant they can focus on giving you valuable business advice rather than making sure all your receipts and invoices are accounted for.” Molyneux says. Besides, “Money is such an emotional subject for people. They feel guilty about not being up to date with the books, and worried about what tax is going to be and whether they can pay it.”

He adds, “The fundamental thing is that most freelancers and small business owners don’t have formal financial training and aren’t well equipped to manage their finances. Businesses primarily fail because they run out of money.” By providing the tools to allow businesses to understand the state of their finances in real time, or close to it, he says, it empowers business owners. Instead of understanding only the past as reflected in last year’s accounts, they can understand the present – and the future.

“We compare it to trying to drive along the motorway by looking in the rear-view mirror,” Molyneux says of traditional accounts. “When you’re dealing with the accountant at the end of the year and he tells you how much tax you have to pay – it’s all too late.”

For a 30 day free trial visit