A strong financial plan and management is at the heart of any business’s success, no matter how big or small. When you decide to go it alone and start your own small business, it’s impossible to know everything right away. However, your finances are simply too important to be neglected. So, here are some of the most important things small business owners need to know about finance for their business.
Don’t mix your finances
Your business expenses should always be kept separate from your personal expenses as a small business. There are several reasons for this, for example:
- You and your business are taxed separately
- You can track the financial progress of your business accurately
- There will be no issue auditing your business finances
- You won’t e tempted to dip into personal expenses for your business and vice versa
Keeping a decided business bank account for your business finances can actually reduce the amount of tax you need to pay. This is because you can easily track and prove each and every penny and easily claim your allowances and expenses.
Manage your cash flow
Simply put, cash flow is any money that moves into or out of your business over a period of time. Cash flows into your business daily in the form of income and profits from the sale of your goods or services. Similarly, it flows out of your business in the form of expenditure when you pay for things needed to keep your business running, such as rent, insurance, payments to suppliers, etc. So, you can imagine how important it is to stay on top of all this money that comes and goes.
Some of the simple ways you can stay on top of cash flow are:
- Create a cash flow statement and forecast – these simple financial documents will give you an overview of your actual monthly cash flow as well as what you’re forecasted to make/spend
- Think about terms of payment – this is going to ensure you are getting paid properly and promptly for the goods or services you provide through things like invoicing, contracts, or simple payment at the point of purchase/service
- Choose who you do business with wisely – do your research and make sure you understand who you’re working with
- Set clear and non-negotiable payment terms
- Introduce late payment fees and make these clear upfront
Keep on top of your taxes
Regardless of their size, all businesses in the UK must pay taxes. Small businesses are required to pay a number of taxes, depending on the performance of the business and the work it does. Taxes are paid to HM Revenue & Customs (HMRC), and it is your responsibility as a small business owner to know which taxes you are required to pay and to calculate. Missing tax deadlines can incur hefty fines from HMRC – so make sure you don’t miss them!
Some of the most common taxes you might be expected to pay include:
- Corporation tax
- Value-added tax (VAT)
- National Insurance
- Income tax
- Business rates
Don’t be afraid to get help
Not everyone is a finance wizard just because they want to start a business. Maybe you’re much more of a creative person, or a strategist, a marketing whizz, or maybe you’re a people person, and your skill lies in securing deals and clients. There’s no shame in not being all-knowing when it comes to financing; as long as you know when to ask for help, you should be fine.
If you’re not financially savvy, make sure you get an accountant on board to keep you right. Your business would be much better off in the long run if you hire an experienced accountant who can keep your finances on track and manage your cash flow on an ongoing basis. These professionals know everything there is to know about business and their money and will be able to handle everything from day-to-day spending to taxes and expenses, leaving you free to focus on running your business.