How to stay on top of your business finances

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Whether it’s the first, second, or tenth endeavour, the launch of a new business is an exhilarating experience for any founder.

But as Nic Redfern, Finance Director, explains that along with this excitement comes the weight of ensuring that all the basics are done right to ensure the startup is best positioned to live beyond the crucial formative years.

Getting business finances in order is often the critical first step to success; after all, if a company’s numbers aren’t managed properly, it may cause a ream of issues down the line. This can present a serious hurdle for those founders who are time poor, or who simply lack appropriate knowledge and expertise in areas of accounting and basic business management.

It is estimated that while more than 660,000 new businesses are formed in the UK every year, over half will fail within their first five years. It’s difficult to ignore the role that financial accounting plays; of all the factors contributing to a young company’s downfall, poor cash management was identified by CB Insight as the second most common reason as to why startups fail.

It’s easy for the financial side of things to get overlooked if entrepreneurs are not well-versed in the ins and outs of accounting and bookkeeping. Fortunately, today you don’t need to be a finance wiz to successfully prepare and manage your accounts as a small business. All that’s needed is some basic understanding of account management, supported by some readily available and accessible tech solutions.

Easily manage your expenses

Having worked closely with young businesses to develop and implement long-term growth plans, one common mistake I have witnessed is that many sole traders use their personal bank account for business purposes, rather than setting up a separate business account.

In doing so, they risk losing the benefit of inherently simpler financial management, particularly as some business accounts like Coconut now come with simple cost analysis included.

Beyond this initial stage, it might be tempting to delegate the day-to-day frills of managing expenses to an accounting professional; but with limited resources, startups generally have to shoulder the burden themselves. That’s not to say it has to be difficult, particularly when easily accessible cloud software solutions can be used to drastically simplify the process.

Just consider how much time is spent manually managing invoices, recording expenses, monitoring outgoings, paying employees, not to mention the abundance of other micro finance tasks. Yet, just by leveraging the advantages on offer through accounting software and apps, managing finances does not have to be time-consuming or complex.

While previously businesses would rely on more traditional accounting options such as using programmes on local desktop computers, this technique is now becoming largely outdated. Not only are there processing and memory constraints involved, but such programmes would need to constantly be installed, maintained and updated.

Now, businesses are reaping the benefits of cloud software solutions like Xero and Sage One. These allow companies to house all of their financial data on remote servers in the cloud, providing a detailed overview of transactions like receipts, expense claims and card statements. As this information isn’t tied to an individual computer, this means that employees across the company are also able to update the information in real time to ensure it accurately reflects daily expenditures.

Not only does this relieve some of the pressure of managing this information manually, it also offers immense time and cost savings. Today, there is a wide range of subscription-based software solutions that are tailored to small businesses and their specific needs; for example, startups can choose a plan that is best suited to their current needs, and can pay less for a more basic, less frills, option. Indeed, some solutions like Wave Accounting are entirely free to use and yet are invaluable in supporting tasks like tracking income and creating professional invoices.

Planning for the future

Software solutions can also encourage startups to pursue a long-term growth strategy and help them remain accountable to their financial goals. Accounting software helps businesses better understand their own financial position which helps inform their budgets; for example, this software can be used to categorise transactions, reconcile accounts, and generate financial statements and reports to manage cash flows and set long-term plans.

Having a clear overview of profits and outgoings ultimately means that businesses are able to plot out what expenses they will face for the foreseeable future and plan what kind of revenue they need to generate to enable them to grow.

And for those seeking investors to help get their business off the ground, these solutions come in handy too. Organising all of your financial data in a software solution like ZipBooks means that, when the time comes, you can provide investors with a clear and insightful overview of your earnings, outgoings and general progress.

Why does it matter?


Startups operating outside of the tech realm might be sceptical about focusing on such solutions in the early stages, particularly if they are under the impression that they are prohibitively expensive or inaccessible. But the reality is that startups in all sectors should be embracing new solutions like these to keep pace with their ongoing transitions, enforcing good habits from the beginning.

Indeed, big changes are already occurring in the business sphere. The government has recently advocated a big push towards digitising tax for businesses; the first phase of the new HMRC initiative, Making Tax Digital, came into force earlier this year on April 1 2019.

For the time being, this reform only applies to VAT-registered businesses with taxable turnover above £85,000, however it requires them to keep and submit digital tax records through pre-approved software solutions. A comprehensive list of software solutions that have been approved for Making Tax Digital can be found here.

As detailed, managing business finances is a much less cumbersome and complicated process with the help of cloud software solutions. Entrepreneurs are therefore encouraged to experiment with different solutions – particularly as many offer an initial free trial – and find a solution that fits the specific needs of their business.