As Business Consultant’s we often get called in to support businesses that are in financial hardship and need a sharp focus on ensuring that their business is financially healthy going forward.
Managing your business finances effectively is one of the key elements to ensuring a stable financial future, ensuring your business is less likely to fail and more likely to be able to drive through business growth.
Here are our top tips for ensuring your business finances are in excellent shape:
Regularly manage your finances – set aside time each week or month to update the business finances, when receipts and invoices build up it takes longer to sort out and you don’t have a clear idea of how well the business is doing.
Get a book-keeper – generally SME’s owners are too busy or disinterested in the day to day updating of their business finances, which means it ends up getting put off. Employ a bookkeeper who can quickly and easily do this for you.
Use software to help you - Accounting software can save time and if updated regularly (by yourself or a bookkeeper) gives a good, on-going view of business finances. There are plenty of packages out there (Xero, Quickbooks, Sage) depending on your individual business requirements.
Be aware of your income and out-goings – know what is coming into the business and going out and review it at least monthly. Run a budget/forecast and track against it, if you don’t know how to do this please get in touch, we have an excellent template to get you started. Remember “what gets measured gets done” having a target helps focus and see where things may be going wrong.
Regularly review costs – check on what you are spending… is money going out of the business for things you no longer need? This is one of the first things we do with clients, and so often there are services they are paying for that they no longer need or could review and save money on?
Keep receipts and purchase invoices – so many companies don’t keep all their receipts and purchases invoices and are therefore missing out on claiming back expenses and VAT. Have a method and it becomes a habit…Scan directly to one of the numerous Apps out there to help with this, use the old-fashioned method of keeping them in an envelope, and/or have a folder on your email and transfer purchase invoice emails into that so they are all in one place when you come to produce your records.
Understand your cashflow - A lack of cash is one of the most common reasons why businesses fail. Even successful businesses can find themselves quickly getting into trouble if it is taking a long time to get cash in and they can no longer pay their bills. If finances are tight, run a cashflow forecast, again if you don’t know how to do it, then get in touch, we have got an excellent template!
Set aside a financial buffer - Try and keep aside a pot of money equivalent to at least a couple of months of expenses. If the business does take a downturn in income this gives you a buffer. Several of our clients found this invaluable during COVID providing that important cashflow, when business dropped off.
Chase debtors quickly - the longer debtors are left the harder it is to get the cash! If you don’t like chasing, then get your bookkeeper to chase. In most cases, it isn’t that people don’t want to pay you, sometimes it is as simple as the invoice going astray, but the quicker it is chased the quicker and easier it is to sort.
Pay creditors on time – be a good payer, we are not advocating paying early, but likewise don’t pay late, it upsets suppliers and could impact your credit history.
Invoice regularly – send invoices out as soon as possible after providing goods and services, to keep the cash rolling in.
Pay yourself – talk to your accountant about the most tax efficient way of doing this, but make sure you get regularly paid.
Invest in growth – but make sure you can afford it, do cashflow forecasting and break-even analysis to see the impact of investment on growth for the business. Could the investment push the company over the edge in terms of cashflow?
Set aside money for taxes and pay your taxes on time! – ask your bookkeeper to work out monthly what the likely tax liability is on your monthly Profit or Loss e.g VAT (if applicable), Corporation Tax, Personal Tax etc. Move that money into a separate account and don’t touch it, so that you have it there when your tax bill is due.
Get a good consultant – speak to a Business Consultant or your Accountant about your business finances as they can make recommendations as to tax efficient ways to manage the business, sometimes even saving you the equivalent of their fees and more in tax, making it well worthwhile.
