8 ways to stay on top of your small business finances
Posted on the 19th May 2016 by Hamish Anderson in SME blog
Running a small business is tough. Finding new customers, sticking to budgets, delivering quality products or services, maintaining a happy, healthy workforce and keeping clients satisfied. It’s a stressful, and often thankless, task at the best of times.
Staying in control and on top of money management continues to prove a real headache for most small company owners. In fact, a recent survey by ABN AMRO Commercial claimed that almost half (48%) of accountants say their clients find their finances “complicated and confusing,” while 40% say small businesses just bury their heads in the sand when it comes to sorting out their finances.
However, it doesn’t have to be this way. Here’s eight of our top tips which will help you stay in financial control.
1. Have a plan
If you don't know where you're going, how can you expect to get there – or acknowledge when you’ve actually arrived?
The practice of writing a business plan is not just reserved for those applying for a loan; it can help you establish where you are, and where you want to be in three years’ time – crucial if you want to stop those knee-jerk reactions to cover up short-term cashflow problems.
Be sure to include financial targets, budgets, profit and loss and cash flow forecasts.
2. Understand your financial position
Monitor your bank account regularly. Sign up for online banking or get an app on your phone to make it quick and easy. On a daily basis, you should know exactly how much cash you have in the bank – and how much you expect to hit your account in the days ahead.
3. Meet tax deadlines
Miss a deadline to pay your tax, VAT or to file a return and you could get a hefty fine and accrue plenty of nasty interest. Get a great accountant to make sure you stay on track (and help you reduce your tax liabilities). Keeping your books up to date on a weekly basis will help too.
4. Chase debts
You are not in business to help finance somebody else’s company, so don’t let unpaid debts drift. As uncomfortable and awkward as it can be to ask for money, be strong and forthright with a well-written email setting your stall out (as well as your strict payment terms).
5. Don’t pay over the odds for bank services
Give them an inch and banks will notch up a mile of charges to your business account – from making cheque payments and withdrawals, to transfers and telephone banking services. Don’t be afraid to challenge them on these costs and shop around for alternatives.
For example, earlier this year we commissioned Accourt, a specialist payments industry consultancy, to find out the truth about the cost of international payments. The results showed banks are seriously overcharging small businesses for sending money abroad. A total of 2.43% of the value of international payments is being charged by UK banks, amounting to a staggering £3.96bn in transfer costs. Read the full report.
6. Get lean
There is a very good chance you are not operating your business as efficiently as possible. Have a look through your bills and see where you could make savings – especially when it comes to energy.
According to WRAP, small companies across the UK have the potential to save up to £23bn a year just by using gas, electricity, water and raw materials more efficiently – often with simple changes like automating lighting control systems or installing recycling bins.
7. Cash is king
Yes, turning a profit is what it is all about. But even the most ‘successful’ business will come unstuck if it runs out of cash to cover day-to-day running costs. Get a grip on how much your business needs to survive each month, for things like rent and salaries, and make sure your account doesn’t fall below this level.
The effective management of stock is a good way to improve your cashflow. Make sure your capital is not tied up unnecessarily by buying in only the stock you need.
8. Don’t be an ostrich
There’s no point in sticking your head in the sand. If your business is heading towards economic meltdown, face up to the crisis and take action as soon as you can to limit the potential damage to staff, customers and clients.
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