Emily Coltman ACA, Chief Accountant to FreeAgent, – who provides an online accounting system for small businesses and freelancers – gives her top tips on how to ensure your new business gets off to a flying start.
Plan ahead
Before you set out into the business world, you must ensure you’re thoroughly prepared for the road ahead. Without a good financial plan in place, you’re likely to struggle.
So draw up a simple financial forecast for your new business and be conservative with your estimates. There’s no point in forecasting a huge wave of profit in your first six months of trading unless you know you’re actually going to achieve it. Also, work out some simple ratios such as your break even point – which is the point at which your costs and your revenue are equal – in order to help you make decisions about where your business needs to go next.
Look online for a forecasting tool – such as Float – that can help you with this initial planning for your business. It may be easier than trying to do it from scratch yourself.
Keep on top of your finances from day 1 – or earlier
If you’re starting a business, there’s no escaping the fact that you have to keep records of everything you earn and everything you spend. HMRC requires you to keep these details so you can show how much tax you owe – but it’s also incredibly useful information for your business. For example, it can show you whether you’re charging your customers enough, or if you’re getting paid as quickly as you think you are.
Recording your income and running costs can be tedious but the longer you leave it the harder it gets. I recommend starting the moment you spend any money on your business, rather than waiting for your first sale. If you don’t do this, you could lose receipts for costs, forget about that cost and pay too much tax!
Use a good record-keeping tool
It can be a nightmare trying to keep track of the money you’re spending for your business and how much you’re actually making. Many start-up owners end up cramming receipts into a shoebox and forgetting about them until it’s time to do their tax return – which just creates a mess.
The good news is that you don’t have to do it this way. If you’re using an online accounting system such as FreeAgent, you’ll be able to automate your bank data directly into your accounts – or use an app like Receipt Bank that allows you to scan your receipts straight into them.
And even if you’re on a shoestring during the early days of your business, there are a number of free mobile phone apps – such as Earnest – which allow you to input your data and have an at-a-glance overview of how your business is performing and how much tax you owe.
It’s a lot easier than wrestling with a spreadsheet!
Update your books regularly
It’s vital that you make sure you keep your books up-to-date so that you know what’s going on with your business’s cash flow.
For example, a common mistake that small business owners make is to set their prices too low and end up losing money. How will you know whether that’s happening to you if your books are out of date?
How often you’ll need to update your books depends on how many transactions your business has. It might be once a week, or once a month, but you should make sure you do it regularly.
However, if you find that you really don’t have time to keep your books, don’t leave them undone – hire a bookkeeper to do it all for you.
Stay on top of your tax
No-one looks forward to paying the taxman, but if you don’t keep track of all your income and outgoings you may end up paying too much tax. And if you don’t maintain good records, you might not be able to submit your VAT or tax return on time which could lead to you incurring penalties from HMRC.
Ensure you keep the correct information that you need for your tax commitments and make sure you know all of the relevant dates for submitting your tax or VAT returns. And make sure to check HMRC’s website for any additional information you may need about your tax responsibilities.
Keep an eye on your invoices
Once you’ve completed some work for a customer and issued them with an invoice, it’s tempting to just move onto your next project. But remember that, until you’ve received payment for the work you’ve done, the sale is not complete.
Don’t be afraid to chase up late or non-payments from your customers – after all, it’s your business that suffers if you don’t get paid on time. It could be that some of your customers are having cash flow difficulties and aren’t able to keep to your terms – but you won’t know this until you chase up your invoice.
You should also consider implementing a system that sends out automatic invoice reminders if you don’t feel you have the time to do this yourself.
Starting a business can be a daunting prospect, but it’s important to not be overawed by your accounts. Remember that staying on top of your figures, keeping good records and being organised when it comes to paying your taxes could be the difference between your business being successful or not.
