10 top tips to improve the finances of your business
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With these in place, you will know what your financial expectations are for the current or first/coming year
- Create a solid business plan, including realistic annual financial projections/monthly budget
With these in place, you will know what your financial expectations are for the current or first/coming year – regarding your revenue from sales and the costs (as well as profit). It may be important too to have an associated cash-flow forecast – to identify any anticipated ‘pinch points’ when cash may be tight. You can then prepare for those and act in advance rather than being caught out when they occur. If you need assistance with making the financial projections and drafting a budget then seek the support of an appropriate professional such as a qualified bookkeeper or an accountant.
2. Set up your financial records, bookkeeping and credit control process
Apart from it being a legal requirement to keep adequate business records for tax purposes, it simply makes good sense as without accurate and up to date records you will be unable to make informed decisions regarding your finances. Again, if you are uncertain about what records to keep and how to set up bookkeeping processes appropriate to your business, then refer to a bookkeeper or an accountant. Regrettably, research has shown that running out of cash due to poor financial management is second only to lack of sales as the reason for new businesses failing within the first three years of operation. Getting these processes in place and other good practice will help guard against this occurring.
3. Consider using Cloud based bookkeeping/accounting and other App solutions
Whilst some very straightforward businesses (with relatively few sales invoices and expenses per month) may find that keeping a simple spreadsheet or manual bookkeeping records is perfectly adequate for their needs, most other micro and small businesses find that computerised bookkeeping/accounting software will assist in many ways – with invoicing, credit control, bank reconciliations, regular reporting etc. Many online (Cloud based) solutions are available and again a professional bookkeeper or accountant can advise on these (although be aware that some are re-sellers and you may not consider then to be impartial).
4. Keep your finances under close watch
It should go without saying that you need to regularly check on your financial position – your bank balances, levels of sales and costs etc. Your plans are only just that – plans and what actually turns out in reality might be quite different. The earlier you identify any variances from the plan, whether positive or negative, you will then be able to make better if not critically different decisions to those that you might have taken if simply ploughing on regardless. Again, support from a professional bookkeeper in producing and interpreting monthly reporting for example, can greatly assist in ensuring that your monitoring is both regular and effective.
5. Ensure your customers pay you – and on time
When customers pay late or worse (fail to pay), this can cause severe problems and is a major cause of firms running out of cash. Without access to bank borrowing facilities (which come at a cost of course) or alternative finance, late or non-payment can be terminal. To seek to protect your business, when making your sales and on any invoices be certain that your credit terms are clearly presented. Key then is to issue your invoices promptly, have a clear process for flagging up when invoices become due and immediately chasing up late payers.
6. Optimise your stock (inventory) levels
How confident are you that you are buying in at the rate of accurately anticipated future sales? Or are you simply re-ordering based on historic patterns and potentially then over or under stocked? Are you monitoring stock levels against actual sales based forecasts with appropriate regularity?
7. Pursue more sales of your most profitable products
Businesses in general and perhaps even more so micro and small firms, need to prioritise their efforts and focus on those products that are more profitable and, if resources are tight, reducing or curtailing efforts on increasing or simply maintaining sales of low margin lines. Using the information in your financial records to identify the revenues and related costs of providing each product, you are able to identify the ones to pursue. Again, a professional bookkeeper or accountant should be able to assist you with this if necessary.
8. Make sure you pay HMRC – on time
It is now well known that missing deadlines for the submission of tax returns and related payments, including payroll deductions, leads to either automatic penalties being levied on the business or worse. The ‘worse’ can include a visit from HMRC to conduct a tax investigation (which can be costly to prepare for and conduct if, which is quite likely, you need the support of your accountant or bookkeeper – albeit, at a cost, insurance cover is available to cover this eventuality).
9. Put insurance cover in place that is right for your business and at the lowest cost
Failing to have the cover that your business needs may lead to costly claims that could cause severe damage to the firm. Equally, excessive cover is wasteful in terms of paying over the top premiums. With the support of a professional such as a qualified or competent broker, you may wish to consider reviewing the insurance risks that you specific business faces and then seeking competitive alternative quotes. Just as you might with your own personal insurances (car, home etc.), you might also consider annually or otherwise regularly reviewing your needs and alternative quotes to ensure that you continue to get the right cover at the lowest cost.
10. Are you the best person handling the finances?
If you are one of or the business owner and struggling to keep up with the financial record keeping etc., you do need to ask yourself if you are the best person to be doing it. Would your time be better (more productively) spent on other aspects of the business and which play to your strengths? Coupled with the risks of getting things wrong, taking poorly informed financial decisions and falling foul of HMRC, it may actually more than pay to use the services of a qualified, professional bookkeeper!
If you are looking for a bookkeeper for your business, why not choose an IAB professional member? Our members are qualified, experienced, professional and regulated and offer a range of services including bookkeeping, wages, personal tax, corporation tax, VAT and much more https://www.iab.org.uk/
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