Budgeting is a vital skill for all small business owners; it helps you see whether you have enough money coming in to cover every day and larger expenses, whether you’re in a position to expand your business, or whether you need to look at ways of generating more income.
Here are a few tips to make sure you don’t lose sight of the money situation and find yourself in a difficult financial position.
Always keep up to date with cash flow
If you don’t know what’s going on with your business accounts, you could find that your business venture is short lived, even if your business idea is brilliant. Keep actively involved in the cash management, and keep a close eye on the books, even if you have a book keeper or accountant doing all your paperwork.
The main thing to stay aware of is the basic cash flow – keeping an eye on the money that comes in and goes out of your business on a weekly, monthly or even a daily basis. If the cash flow is positive, it means that your business is in good financial health, but if you notice that there’s more going out than there is going in, you can take action before the situation gets out of hand.
Being aware of what’s owed, and owed to you is also useful knowledge – you can see if there are any outstanding debts that need to be chased or plan in advance for big bills and purchases.
Keep an eye on your businesses balance sheet and list all the assets and liabilities – it’s useful to be able to see what your business owns and what it owes creditors at any given time.
Don’t be afraid to chase bad debts
At some point, all businesses will have a bad debt or two to deal with. Familiarise yourself with the procedure for chasing unpaid invoices – standard reminder letters, interest rates, letters before action and court action are all things that can be done online and don’t necessarily need a solicitor’s advice or representation.
Keep personal expenses separate
Despite the temptation to dip into the business accounts to pay personal bills, don’t do it. Mixing the accounts can cause all sorts of headaches for you, and any book keeper or accountant you employ. It can also cause problems when it comes to your tax returns.
There’s no obligation for sole traders to have a separate business account, but it really does help keep things in order. If you have set your small business up as a limited company, you absolutely should not take money from the business to send on personal bills, as legally the money doesn’t belong to you.
For sole traders, the temptation to combine the personal and business accounts can be tempered if the personal accounts are treated with as much importance as the business accounts. If you anticipate needing credit in the future, keep your personal accounts in order and make sure your personal credit is good, with all bills paid on time. Keeping an eye on the personal finances will set you in good stead for making sure the business accounts are spotless.
Stay on top of your taxes
This can prove to be one of the most difficult parts of being self-employed and running your own business. Being responsible for your own tax bill is something many business owners neglect and then when it’s time to file a tax return and pay the dreaded bill, it can come as a surprise.
If you’re not sure how much you should be paying or can’t tell one end of a tax return from another, it pays to ask for the help and advice of a professional. Some small businesses handle the day to day accounts themselves, but ask an accountant to calculate and file their tax returns so that they claim everything that’s owed to them and pay all the necessary tax and national insurance on time.
A good accountant may also be able to help you save hundreds and sometimes thousands of pounds of tax by advising you on the most tax efficient structure of your business.
Get into the habit of keeping a percentage of your income in a savings account to cover your tax bill and you shouldn’t get any nasty surprises at the end of the tax year. As a guide around 15-20% of your income should be reserved towards your tax bill.
All data and information provided in this advert is for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional accountant. Emma Stevens Accountancy Ltd makes no representations as to accuracy, completeness, correctness, suitability, or validity of any information in this ad and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All information is provided on an as-is basis.