Your finances are the centre of your business – they can help forecast your financial future and help the business grow so, as we say goodbye to Winter, we believe it is the perfect time to tidy up and declutter your finances.
This blog is jam packed with our top tips for Spring cleaning your accounts. It’s a lengthy one but is full of useful ideas … feel free to skip to the sections that interest you the most.
A paperless approach has many benefits. Not only does it offer a much higher level of security for you and your customers’ sensitive data but can also save you time and money. Online accounting software can allow you to create invoices, track payments, report VAT and manage stock levels. We highly recommend Xero, which we use for all our clients, as it allows you to keep track of all your financial information in one place. If you are on Xero, you’ll know exactly where you are in terms of your numbers. Knowing what issues you have, quickly and easily, means it’s quicker and easier to solve any problems you may have.
Cloud accounting software can make tracking expenses and income so much easier. Automation can eliminate mundane tasks and increase productivity making it easier to scale your business if you are wanting to grow. It’s also a good idea to check if there are any processes that can be automated, for example, recurring invoices and direct debit arrangements can automate payments and save time leaving you able to focus your efforts elsewhere.
Have separate bank accounts
Not having separate bank accounts for business and personal, or using the wrong account to pay for things, can mean your finances can get a bit messy. And is one of our biggest bug bears! By using a separate business bank account, you avoid having to trawl through all your personal bank statements each month and sifting through hundreds of receipts trying to identify (and remember) the items that relate to your business. If you’re not doing your bookkeeping on a regular basis this process can be incredibly time consuming and you also run the risk of not picking up genuine business expenditure.
Check your transactions for VAT
If you’re registered for VAT, it’s not always easy to know how much you should charge to your customers and how much you can reclaim on your costs.
What you charge to your customers depends on which goods and services you sell. If you’re not sure whether a particular item should be standard-rated, reduced-rated or zero-rated, or exempt or outside the scope of VAT then you can check HMRC’s guidance here https://www.gov.uk/guidance/rates-of-vat-on-different-goods-and-services
Set a budget
It’s clear that the world is changing, every day. Take time now to look back at the whole of the previous year. You can compare month on month, quarterly or yearly figures for cash flow statements, balance sheets and a profit and loss breakdown. You can then use this data to get an idea about patterns and trends that your business is following so far. Then use your up-to-date financial information to set a realistic new budget. Allow yourself enough spend to grow – cutting costs too far will stifle growth – but be strict, keep track of your spend every month and stick to your budget. Xero even has its own built in Budget Manager which will help you to analyse the data to be able to predict the financial outcomes of this year and make any important decisions.
A clear view of cash flow helps to inform better business decisions. Without a strong cashflow even the most profitable businesses will fail.
To make sure you’ve got enough cashflow to keep your business running, follow these steps:
- Stay on top of bookkeeping. It’s the single best way to understand all the financial transactions in your business, and you can’t do the rest of the steps without it.
- Analyse your cashflow. Take the information from your cashflow statements and use it to understand how money is moving through your business.
- Cut overspending to increase cashflow.
- Speed up your accounts receivable (i.e. money owed to you). The faster you get money in your pocket, the more cash you’ll have.
There is nothing worse than getting a fine from HM Revenue & Customs. We would suggest you bear in mind potential future expenditure such as VAT and other tax payments. We advise business owners to try and set aside funds in a separate bank account, so that when it comes to paying those bills there is money available and no need to panic.
Review accounts receivable and accounts payable
Run an aged receivables report. Does this reflect the amounts that are actually owed to you? If there are any overdue amounts, following up on payment can provide an instant injection of cash. Write off any small balances or amounts you won’t collect. This will make sure your accounts receivable list has had a spring clean and accurately reflects the amounts owing to you. We would recommend reviewing your accounts payable report regularly. It helps to manage duplicate entries or remind you of any credit notes that need to be applied.
If you have any retainer clients, we suggest setting them up as a recurring direct debit so that you don’t have to follow up payment. This will mean you get paid on time and save you chasing each month. Using receipt processing tools like Hubdoc or Dext will help to save time when entering invoices.
Get financial help before it’s too late
Small businesses are not always strategic when they access finance and as a result, often only end up seeking it when their business is struggling. The best way to tackle this is to plan better and seek financial assistance before it becomes urgent. If you need access to funding, we highly recommend speaking to our strategic partner Amiga Finance who can help you to understand your goals and funding requirements.
Know when to ask for support
If you’re unsure about anything with your accounts, it’s always better to ask for support from an expert … early. It can be very easy to try and push through and keep trying to manage everything on your own but unfortunately, as we have seen recently, this not only leads to mistakes but to bigger problems in the long run. The best way to Spring clean your accounts is to hire professionals that you can trust to do it for you, freeing up your time to focus on running your business. Putting the time and effort in now to Spring clean your business finances will ensure that your business has the best chance at thriving in the future.
At YST, that’s what we’re here to do so if you need any advice then get in touch.