Now, more than at any other time, knowing the state of your business finances inside out, is more important than ever and it could be the key to surviving this pandemic, and any subsequent economic downturn. So we have pulled together some top tips to ensure you keep your eye on the fine financial details to stop you getting into hot water…
Manage the day-to-day:
Hire a good bookkeeper or purchase DIY accounting software. It is crucial that you keep accurate track of your income and costs.
Keep track of all of your small business expenses. These can add up quickly, but reviewing them allows you to fine-tune where your money goes.
Having clear financial projections is important. Your main business plan will help you to anticipate and address possible future obstacles.
Consider using an app for expenses. Mobile apps make it easier to keep track of what’s going on with your expenses without too much effort.
Send out invoices as soon as possible after providing goods or services.
Separate your accounts
Keep a separate business bank account. Mixing business money with your personal finances is a recipe for unexplained losses and tax-headaches.
Make sure to pay yourself first. This doesn’t mean sucking up all the profit the moment you make it; start with 10% of the earnings. This is a good way to set aside money consistently and to test the profitability of your business. It also provides a safety net for unexpected expenses.
Even though you pay yourself, don’t get sucked up in the benefits of business ownership even if you can afford it. Set your salary as low as possible and offer government-mandated benefits only. What you save now will give you more flexibility in future lean months.
Look at the bigger picture:
See if you can save on utilities. It’s easy to become lazy when it comes to energy or Internet providers, but periodically reviewing your contracts and comparing alternative options will save you from the so-called loyalty penalty – that is, the extra money you’ll end up being charged if you always stick with the same provider.
Take care when expanding. Make sure expansion is done steadily and wisely. Pushing large amounts of money into expansions that are too quick and too drastic can be disastrous.
Consider renting instead of buying. Leasing equipment instead of buying helps you avoid maintenance costs and can also prevent you from overpaying on equipment only needed for a specific period of time. You could also consider renting your office space, as it makes relocation and expansion easier.
Don’t wait too long before seeking a loan. An easy mistake to make is waiting until your business is in financial trouble before applying for loans or other credit. This is exactly when you will be least likely to receive financing. Consider applying for a business loan when your financials are still in a good state. This way the loan can be used for expansion or as an emergency line of credit instead of rescue.
Make sure you have enough capital. Small businesses tend not to have enough capital to get themselves through the startup phase. To prevent this, have three months’ living expenses saved plus the amount you are expecting to need for the first three months’ business expenses. Plan as if you expect to receive no business revenue.
Check your business credit score. It may be preventing you to get top credit deals, so it’s worth checking it out and doing what you can to improve it.
Don’t make late repayments. Especially if you can avoid them. If you’re personally managing your business finances, it’s easy to make a mistake, but it can turn out more costly than you think.
If you feel that you some accountancy support then do not delay in contacting us at DNA Accountants, we are here to make sure you get on with what you do best, while we take care of the boring stuff. We can also make sure your money is working for you by assessing your tax efficiency. Get in touch and we’ll make your income work smarter for you.