Managing your finances

One of the most crucial aspects of running a successful business is ensuring that you understand and look after your finances. It doesn’t matter how great your idea is, or how hard you work if you either don’t have the funds to support it, you don’t make the appropriate provisions for tax, or you end up in a situation where you are drowning in debt.

Understanding all the literal ‘ins and outs’ when it comes to your operation’s finances not only helps you to understand where your business is now but also what the future may hold.

This month we want to chat a bit about what  financial management is and introduce some of the basic financial lingo.

Profit and Loss Account

A Profit and Loss Account shows the financial performance of your business over a specific period. It is used by HM Revenue and Customs to check your calculations for tax and by potential investors to understand how the business is performing.

Forecasting Sales

Forecasting sales is an important part of business planning. You can use the information to develop your cashflow forecast and budget effectively.

Cashflow forecast

Your cash flow is simply the amount of cash coming in and going out of your business each month. This is an invaluable planning and management tool for  understanding and supporting the health of your enterprise. Your cashflow forecast is a critical planning tool. It helps you to see whether you have enough cash to pay all your expenses when they are due. It also helps you make important decisions about running the business.

You should monitor your cashflow regularly, ideally at least once a week. Record your actual income and outgoings and compare them to your forecast. If you keep a close check on your cashflow, you can see the peaks and troughs and are more likely to be able to deal with them. If it looks as if you may run into short-term problems with your cashflow, react quickly.

There are 2 sides to the cash equation – Income and outgoings-and if you have cash problems look at them both.

Remember, one of the keys to running a successful business is to make sure that what you get in is higher than the amount you spend.

Once your business is established and is making sales, you should aim to have at least one month’s cash reserve. This may sound a lot of money but by saving slowly and regularly this cushion could help you through unexpected slow periods or expenses.

Tax obligations

As a business owner, it’s your responsibility to make sure your business keeps accurate accounts and records, and meets all of its tax and filing obligations. The key is to be organised, keep your paperwork up-to-date and make sure that you are putting enough money aside to pay any tax due.

Your tax obligations as a business owner include:

Self-assessment (if you’re a sole trader, in partnership or are the director of a limited company)

Corporation Tax (if you are a limited company)

PAYE (if you are an employer)

VAT (if you expect business takings to be above the VAT threshold of £90,000)

For all businesses, if you expect your business takings to be above the VAT threshold, you must register for VAT. See HM Revenue and Customs for current threshold level.

All the relevant information regarding your tax obligations is available from HM Revenue and Customs who also provide advice and support. You can register and complete all necessary documentation online.

IMPORTANT:

Failure to meet all your legal obligations could result in a fine or even court proceedings.

For help and advice with all aspects of running your business why not book in with one of our business mentors. Not only are they wonderful friendly folks, they are experienced at helping individuals just like you make sure that they are taking the steps and making the moves to ensure business success. Drop us a line at info@treeshpeherd.org.uk to get things going.