Freight and haulage company owners face a number of challenges every day — and accounting is a big one.
Accounting explains everything from your company’s financial history and health to overall performance. But you don’t need to be a magician with your finances to run a successful business. Often, understanding the basics of accounting will keep you on the path to success.
In this guide we cover:
- The important role accounting plays for transport and haulage companies
- Common accounting and finance related challenges
- Accounting essentials as a new or small business owner
- Accounting best practices for transport and haulage companies.
No matter the size of your fleet or how long you’ve been in business, it’s vital to understand and apply the basic accounting concepts to help your business thrive.
The important role accounting plays for transport and haulage companies
You’re no stranger to the importance of haulage and freight companies in the global supply chain. Moving things up and down the country (or across countries) is a big job.
That’s why it’s essential to stay on top of your bookkeeping. With accurate information and data under your belt, you can put together financial forecasts and plan ahead for each aspect of your business. Not only will this give you an accurate picture of your business’ financial health in the short-term, it will also give you clarity around years down the line.
Each industry has its own specialised accounting differences. In haulage and transportation, accounting typically involves vast quantities of invoices, receivables (money that’s owed to you) and freight bills — making proactive and thorough bookkeeping essential.
Common accounting and finance related challenges
To get a precise picture of your business’ financial situation, aim to record and organise everything from expenses and transactions to cash flow management (looking after the money flowing in and out of your company), and taxes.
Spreadsheets may be considered an ‘old-fashioned’ approach to accounting, but manual processes are the reality for many small and new transport companies. Technology can seem like the natural solution, but the number of features and functions in accounting software can be daunting when trying to juggle other small business demands.
Countingup’s easy-to-use accounting software and app makes it easy to digitise your accounting. With automated invoices, receipt capture tools, tax estimations, and more, you no longer have to sort through piles of paper receipts or worry about missing invoices.
COVID-19 has accelerated the move towards digital and online experiences — for both consumers and businesses. The challenge for haulage and freight companies is an increased demand for delivered goods within shorter timeframes than ever before. More orders and shipments means more paperwork to keep track of.
Like the pandemic, other unpredictable disasters can have devastating effects on businesses, and it’s no secret that new and small businesses get hit especially hard. To prepare for the unexpected, having a disaster recovery strategy and cash-on-hand could help you revive your business after a catastrophe.
Accounting and finance essentials as a new or small business owner
Accounting might not be your passion, but keeping your accounts organised is the path towards financial growth. Here are a few accounting essentials:
Implement regular tax planning
Tax planning isn’t just a once-a-year chore. Hurriedly completing tax returns and business accounts close to tax deadlines can hurt your small company more than you may think. If you make a mistake, HMRC could hit you with a large tax bill later.
To prepare, embed bookkeeping into your year-round business practices. This will save you hours, lessen the risk of mistakes and keep your accounts in good shape.
Planning ahead has the added benefit of helping you identify areas where you might be able to make some savings. Without the proper tax preparation, there’s a chance your business could be costing itself unnecessarily. Apps like Countingup saves you the trouble of tax estimation –– it estimates your tax for you so you know exactly how much you owe.
Create a cash-flow forecast and financial model
The reality is that no matter how well the economy is doing, haulage and transport businesses face challenges and opportunities that aren’t always seen coming. Poor weather may cause delays and disruptions, a supplier might be having difficulties, or an existing customer may decide to double their business with you.
Clear cash flow statements and a financial model let you analyse past results to better prepare for similar situations in the future.
A cash flow statement is vital because it gives a clear picture of your company’s day-to-day health. It indicates how your business makes and spends money. Cash flow statements show the actual amount of cash your company has on hand, and project future cash flow.
Financial models are used to estimate a business’ value or to compare businesses to similar companies in their industry. But how are financial models different from future cash flow projections (projected cash flow statement)?
A projected cash flow statement lists how you expect cash to flow in and out of your company for a specific period (usually a year). Financial modelling uses the cash flow projections and other financial information to create “what if” scenarios. You then analyse these pretend scenarios to see what impact they might have on your company’s financial health.
Leverage working capital management
Your business requires regular amounts of cash to make routine payments, cover costs and buy basic necessities to keep your company ticking over. The money your business has available to pay for these day-to-day expenses are called capital.
Working capital management is a business tool that helps you effectively make use of your capital and help you spend it on the right things. When done efficiently, working capital management allows you to streamline operations, control inventories and manage accounts receivables (money owed to you) and accounts payables (money you owe) for profitability.
In other words, it helps you cover your financial obligations and find ways to boost your company’s growth.
Optimise your asset management
Assets refers to items you own that you can sell off for cash, such as equipment, property or investments. By extension, asset management allows you to keep track of assets — namely, where they’re located, how they’re used and if any changes were made to them. For example, you can use asset management to see how your company van is performing and whether you need to repair or upgrade it.
These days, there’s software designed for asset management that could help you measure fuel use, mileage and vehicle condition. You can then use this information to estimate daily, weekly or even monthly costs of using your van. On top of that, managing assets regularly can help you see if your assets lose value over time.
Accounting best practices for transport and haulage companies
Understanding best practices in business accounting is a great way to get ahead. It also provides an opportunity to identify risks and weaknesses to determine any areas that need improvement.
Stick to International Financial Reporting Standards (IFRS)
IFRS are accounting standards with the purpose of giving guidance on how companies should prepare and disclose financial statements that are true, fair and comparable with similar companies across the world.
It’s particularly important for haulage, freight and transportation businesses to adhere to the IFRS as many operate internationally and participate in cross-border transactions. IFRS brings transparency by improving the quality of financial information, allowing you to make informed decisions and scope new opportunities.
IFRS has specific rules regarding:
- Statement of Financial Position: This is your balance sheet. IFRS influences how you report the different components of your balance sheet, like how you list assets or liabilities.
- Statement of Comprehensive Income: You can either submit this as one statement, or separate it into a profit and loss statement and a statement of other income, including property and equipment.
- Statement of Changes in Equity: Also known as a statement of retained earnings (income you have left after paying out dividends to your shareholders). You use this to report your company’s change in earnings or profit for a specific period.
- Statement of Cash Flows: IFRS has rules for how you report your company’s financial transactions in the given period, separating cash flow into Operations, Investing, and Financing.
You can find more information on the IFRS website. If you find it too complicated, an accountant can help clear things up for you.
Pay attention to local legislation
While it’s crucial to comply with IFRS, local regulations are just as important. Due to the nature of your operations as a freight or transport business, you may complete work across a number of countries. This means you should be aware of appropriate legislation for each area ahead of time to avoid any compliance or legal issues.
Keep your personal and business finances separate
When running a small business, the amount you pay yourself has an impact on the tax you pay. On top of this, it’s important to consider the different effects of salary, dividends and other benefits.
Opening up a separate business current account will have many benefits. Keeping your finances organised could help with transparency, but is also very helpful around tax season. Separating your transportation business’ finances can prevent you from overspending and keep you compliant with HMRC rules and regulations.
When you open a Countingup business current account, you also get free built-in accounting software that helps streamline your financial admin. Features like invoice automation, a receipt capture tool, and tax estimation, help you stay on top of your finances easily.
Budget for tax and remember tax deadlines
Keep a clear record of fixed expenses (rent, loan payments, wages), variable expenses (utilities, supplies) and one-off costs during unexpected situations. Don’t forget to factor tax into your business budget to be prepared when payments are due.
Budgeting allows you to plan ahead effectively, prioritise finances and take any steps towards change to reduce outgoings and increase incomes or profitability. Forward planning could be the difference as you identify cost-savings and create a safety net should an economic storm ever appear.
As a small business owner, there are a few dates throughout the year to put into your business calendar. Visit the UK Government website to prepare for the year ahead.
Keep all your freight invoices and receipts
Goods and freight is one of the most important parts of your transport or haulage business, meaning it counts as one of the major costs you’ll incur. For that reason, it’s important to keep records of all bills and invoices.
Post-shipment or after delivery, aim to keep detailed records of all your activities and operations. Not only do export regulations require you to maintain thorough documentation for at least five years after a transaction and delivery is complete, but it gives you clear visibility of your business operations.
For most haulage companies, five years’ worth of records includes:
- Digital copies of invoices, packing lists, bills of lading, country of origin certificates, money you owe and that’s owed to you (accounts payable and receivable), purchase orders and sales records. The Countingup app allows you to to create invoices on the go, and scan paper receipts to keep everything digital and in the same place.
- All compliance screening records (which should be saved and stored in case your company is audited).
- An archive of shipments emails. It’s likely you won’t be able to print every email, so save them in multiple locations on an external hard drive or in your email archives.
Remember, all records, invoices, and financial data need to be secure and easily accessible. If you have a team, at least three people within your company should be able to find them at a moment’s notice.
Use the most up-to-date accounting software for your transport company
One of the best ways to improve your accounting is to keep your systems up to date. Outdated and inefficient accounting software will slow down your operations and could keep you from meeting your every-evolving expectations.
In the modern business climate, companies deal with more and more digital data — including financial information — that must be recorded and processes correctly. Inefficient accounting software could fail to record valuable information you need to make informed decisions about your business.
Using accounting software will help you manage the different parts you need to determine your company’s financial health. Benefits of quality accounting software include:
- Time saved on financial admin
- Financial data organised in one place
- Simple and fast data entry processes
- Traditionally time-consuming aspects of bookkeeping and taxes are automated
- Reduced manual errors
- Invoices can be created and sent in seconds
- In-depth and comprehensive financial reports for better decision making
- Tax estimates so you know exactly how much to put aside
- Live business insights
One less thing to worry about with Countingup
The Countingup business current account has built-in accounting software that automates the time-consuming aspects of bookkeeping and taxes for sole traders, contractors and one-person limited companies. Find out more here.