Congratulations on starting up your own business.
Now the work really begins. Keeping up with advertising, social media, setting up processes and procedures and keeping your website up to date. There is also the administrative stuff, office templates, invoicing, credit control and the list goes on but help is at hand.
As well as everything else, there is compliance to think about. I do not mean having insurance in place or complying with GDPR and privacy laws, I mean being financially compliant with HMRC and if you are a Limited company, also Companies House. If you are a director, you will also have your own personal tax return to submit to HMRC.
As a new business, in your first financial year it is important to ensure that you have an accountant on board, for the accounts and also for business guidance. In addition, you will need to think about how you will process the everyday bookkeeping. If you haven’t done this already, now is the time to find an accountant and set up a cloud-based accounting application. To start with, you may be able to process this yourself using Xero or Intuit QuickBooks. Once sales are coming in and there are lots of bank transactions you will either need to ask your accountant to take this over or take on a bookkeeper, so that you can concentrate on running your business. Once this is organised you will not have to be concerned about supplying HMRC with a first set of statutory accounts and corporation tax return as well as filing the accounts with Companies House. Your accountant will do this for you on your behalf and the benefit is that this will save you money, in tax savings.
After Sales, the most important area of running a business is financial planning. This will start from your initial Business Plan. If you haven’t written one, I would advise that you get this done. It can be relatively quick and easy to do or your accountant can help with this. From the business plan, you know where you want the business to go, what you want it to achieve and the timeframe in achieving it. This needs financial management in terms of cash flow forecasts, budgets and management reports.
Controls to Success
The reporting I have just mentioned, all help towards one common goal, keeping control. Controls will ensure you have an accurate idea of how much and when you expect revenue and how much and when you expect to pay suppliers and statutory payments. With this knowledge there will not be any financial surprises and you can continue to plan ahead with the business without the concerns of running out of cash. i.e. when or if to take on staff or take on a capital expense. Ask your accountant to help set up a basic cashflow forecast and annual budget.
- Cashflow forecasts
Set up a basic cashflow forecast showing your predicted income and outgoings. Keep updating it and you will see how accurate your actual numbers are to your cashflow forecast and this method will keep the business on track.
Set up an annual budget. Having a budget will keep you focused on how much you can afford to spend on variable costs, like advertising, office consumables etc. Use the cashflow to work out what you can afford to spend on each of these variable costs. On the contrary, fixed costs (i.e. rent, rates, monthly subscriptions) cannot be changed so these costs are exact and won’t change.
The variable costs are under your control. So decide what the budget is for each area at the start of the year, to give a monthly figure to work with. Compare against the actual expenditure and keep inline with the cashflow forecast.
- Monthly/quarterly management accounts
These will be provided by your accountant and will show your profit and loss account and balance sheet. (If you made a profit or a loss in the period and what assets and liabilities the business has at the time). If you do not understand the numbers, ask you accountant to explain it to you.
The reports will also show the actual sales you have achieved and the actual expenses you have made and these can be compared against your cashflow forecast and budget. Any deviations can then be acted upon and rectified in the following months.
By keeping control of your income and expenditure and having this information, you can plan ahead and be confident that your business is heading in the right direction. If the business is running out of cash, these controls will flag up ahead of time and corrective action can be taken.
In short, taking on an accountant as soon as possible is not only essential in ensuring your business is compliant but will save you time and money in tax savings. In addition, putting financial controls in place is also critical to the financial health of the business. These actions can make the difference between success and failure.
If you would like further information on financial planning or business growth, please contact us at – email@example.com or 01223 294732.
Chris Dolan and Francesca Revelo