Of course there may be sometimes good financial surprises in your business but for a lot of business owners it is the more costly ones which cause us the problems. These are the surprises which you weren’t expecting or the ones which you did really know were coming but perhaps you had put carefully to the back of your mind. Here are just a few examples;
- Unexpectedly high VAT return
- Corporation tax
- Critical or expensive piece of equipment needing replacement
- Losing staff that bring you in particular income
You know as well as I do that we can’t plan and predict everything that is going to happen in our life or our business but there is a lot we can do to help plan ahead financially.
This helps us feel more in control, make better decisions in our business and ultimately to have a successful business. It can be the difference between a business surviving or not.
So here are my top 5 things you can do to avoid or at least manage those nasty financial surprises.
1. Have an effective system in place for doing your bookkeeping on at least a monthly basis. This may be done by yourself or you may have a bookkeeper doing it for you. You need this so that you know exactly how your business is performing, to help you manage your costs and so you know what is coming up ahead of you. If you only do your bookkeeping once every 6 months or once a year, you are not in control of your finances and you will get nasty surprises.
2. Have a separate business account where you put funds for your next VAT bill or your Corporation Tax bill. We know these are coming so there is no reason we can’t plan for these. If your bookkeeping is up to date, you can work out how much your VAT liability is each month and you can put money aside return for when the VAT return is due. If you have finished your year end, even if your accounts haven’t been done by your accountant yet, you can do a rough calculation and estimate your Corporation tax at 20% of your net profit and start to put money aside in a separate account. This way it doesn’t hurt quite so much when you have to pay these and you won’t end up the wrong side of the HMRC.
3. Set a budget for the year. You can predict for your financial year what your sales and expenditure will be and then review this against your profit & loss produced monthly from your bookkeeping. This is great information which you can use to see where you can reduce costs, look at where income could be increased and look ahead to see what is coming up.
4. Do a cashflow forecast using the information you already have about your business finances and in consideration of what you know is coming up. So for example, if you want to take on a new member of staff or buy a new piece of equipment, you need to know that your cashflow will sustain this as the time you do it. If you have a seasonal business, you need to know that you have enough cash in the business to sustain you during the quieter periods. Cashflow forecasting can be done with the support of your bookkeeper or accountant and it can be done simply on an excel spreadsheet or there are lots of cloud based tools which will link with your bookkeeping software to help you with this.
5. Make sure you have money in your account for a rainy day. Aim to get 6 months of income in your account if you possibly can. It may seem a tall order right now and it may take a while but starting to put some provisions aside in case there is a significant issue which occurs in your business that you couldn’t have anticipated is the sensible thing to do. It could be the difference between your business surviving or not.
The Bookkeeping Department help clients with bookkeeping and much more and offer a free 1 hour bookkeeping review/consultation for businesses. Please contact firstname.lastname@example.org or Tel: 01462 455455.