It’s been a long road but, finally, business is booming! Hours of hard work, networking, advertising and marketing are all paying off. This is exactly what you’ve been waiting for. The only problem is it’s growing so fast that certain areas of business — financial management, for one — are starting to suffer.
It’s tempting to think you can worry about it later. We all know that when you’re running a business, a quiet spell could be just around the corner. Surely you can wait until then to sort out your finances…can’t you?
Neglect your finances at your peril
Very few business owners actually enjoy doing their accounts, so a busy period is the perfect excuse to put the books on the back burner. However, it’s worth remembering that doing so could have serious consequences further down the line.
If you’re not regularly updating your books, how do you know how much money you have to play with? You could find yourself overspending if you think your cash-flow situation is healthier than it is. Conversely, if you take a more pessimistic view of your current financial situation, you could be missing out on purchasing opportunities that you can actually afford.
Furthermore, when HMRC gets in touch, you may find yourself in trouble if you haven’t kept an eye on your projected profits and set aside funds for your yearly tax bill. It’s all too easy to lose track of unpaid invoices or outstanding bills if you don’t keep on top of your finances.
And of course, once the new Making Tax Digital (MTD) legislation comes into play (from April 2019 for businesses that turnover more than £85,000 p.a.) you’ll need to be on top of your finances to comply with the new quarterly submissions to HMRC.
What’s the answer?
We know you’re rushed off your feet right now and don’t have the hours to dedicate to your financial management. But, if you focus on these key areas, you can be confident that you’re doing your best to avoid future financial stress.
1. Pay attention to your sales pipeline
Managing your sales pipeline effectively provides you with a font of useful information: your client conversion rates, the length of an average sales cycle, how many prospects you have at any one time.
These details will show you whether you’re likely to hit sales targets and allow you to project your monthly or quarterly profits. Keeping track of this information will highlight if you’re missing valuable sales opportunities or if your sales are falling short — before it’s too late.
2. Make sure you’re being paid
When you’re busy it’s tempting to cross off a project as soon as you’ve sent the final invoice, but really you can’t consider it case closed until the money is in the bank. If you’re using online accountancy software like Clear Books, this isn’t a problem.
The software automatically tracks invoices and sends reminders before invoices are due to be paid, as well as reminding clients who miss their payment deadlines. However, if you’re still updating your accounts manually, you’ll need to develop a system to ensure you follow up any unpaid invoices.
3. Track your tax
When Making Tax Digital (MTD) comes into play, it will actually be easier for SMEs to track their taxes. By submitting quarterly updates to HMRC you’ll be able to check, at any time, how much tax you’ll owe come the end of the year and how much you’ll need to save. No more scrabbling around for extra funds when your tax bill arrives!
For now though, it’s a good idea to consider your tax obligations as you go. It’s worth estimating how much profit you’re likely to generate during the year and how much you should set aside each month to cover your eventual tax bill.
4. Watch out for forgotten expenses
Major expenses can be pretty easy to track. You’re unlikely to forget to budget for a few thousand pounds worth of equipment. The smaller everyday expenses, however, can land you in trouble if you don’t pay attention.
A few train tickets here, a few office supplies there — these expenses are easy to forget but soon add up. Make sure you set aside time each month to track your outgoings. If you find you’ve been getting a bit carried away, you can pull in your spending before it becomes a problem.
It’s a fantastic feeling when your inbox is bulging and customers can’t seem to get enough of you, but remember that good financial practice is the foundation of a successful business. You’ll be able to enjoy your success more if you know you’re taking care of your finances, as well as your clients.