Ensuring the success of your business can be tricky, so the best way to future proof your finances is to plan ahead.
But what should you include when mapping the road ahead so your business doesn’t falter when you hit an unexpected pothole? To help you avoid as many obstacles as possible, we have compiled the following handy signposts to success.
Bank on your future
Having the correct account – even if you have been trading for some time – is vital for your business. Internet banking, in-credit interest, low electronic transaction charges and a local branch for those businesses handling a lot of cash and cheques are just some of the options banks offer. Also make sure you have a good working relationship with your business bank manager, as they can play an important part in your business.
An account with the ability to show real time transactions will be invaluable when it comes to making well-informed decisions and identify any financial weaknesses in your business. Therefore, if you are already trading, it’s wise to regularly review what your bank offers and switch to one that meets your business needs.
If you are new to business or choose to switch, you should aim to get at least 18 months’ free banking, but some banks may offer up to 24 months. While these may be enticing, make sure you know how much the account will cost you once the introductory period ends.
Some banks even offer a lifetime of free banking, but make sure you scrutinise the terms and conditions as there is usually a limit on the number of transactions and/ or their value.
Make sure you have enough money – but not too much
Your estimated funding requirements should be as accurate as possible – over-borrowing may result in unnecessary interest; conversely not borrowing enough could lead to more challenges and higher charges if you need further financial aid from your bank.
If you need financial help to launch your business or kick-start a new project, you will definitely need to provide the bank or lender a cashflow forecast.
Whereas a Profit and Loss Account will show the actual results on an accruals basis, a cashflow will show the forecasted results on a cash basis, and will take into account such items as loan repayments, withdrawals and HMRC’s payments – not just income, direct costs and overheads.
Your cashflow forecast should be able to illustrate that with your own personal funding and finance from the bank, your business will be able to meet its repayments and eventually generate a profit. In addition, cashflow forecasts are useful tools for any start-up business, as they illustrate whether the business proposal is financially viable and also act as benchmarks to compare the actual results with, once your business has started trading.
Prepare for the inevitable
Make sure you know your responsibilities with HMRC for registration, submission and payment dates. If you’re a basic rate taxpayer, you should try to put aside at least 25% of your profits – ideally 30% – for your income tax bill. Putting this much aside should mean that when your income tax bill does arrive, there are no nasty surprises.
Contrary to popular belief, unless there are particular circumstances, businesses aren’t generally obliged to register for VAT until their turnover has reached the registration threshold (currently £83,000). If you are already VAT-registered, review whether it is obligatory. Whether new to business or a veteran, business owners should make sure they’re on the right VAT basis and scheme, as getting it wrong can be a costly mistake.
You would be advised to seek professional advice from an accountant when considering whether to register for VAT though.
Ignore advice at your own expense
It is always advisable to seek professional advice. One of the benefits of an accountant is that they can guide you through what entity you should opt for (sole trade, limited company or partnership etc.), what expenses you can claim and the paperwork you’ll need to maintain.
A particularly complicated area to master is motor expenses and how vehicle ownership should be structured. As with most other expenses, an accountant can navigate you through your many motoring options available so you can decide which one is right for you.
Stay one step ahead
In order to stay one step ahead of your local competition, make sure you do your homework by using a search engine such as Google or Bing. By examining your search results and visiting your competitors’ shops, you will be able to determine their prices are and when they’re running any special offers, and alter yours accordingly.
Spread the word
Paramount to any business’ success is that people know it exists. Advertising is key to generating interest, and in our modern times, there are now a whole host of online options in addition to traditional print media.
Consider whether your business needs a website, blog, Twitter account and Facebook profile, and LinkedIn is rapidly becoming a very popular tool with entrepreneurs and business people. You may also like to try email marketing, but make sure you know and adhere to the rules set out by the Privacy and Electronic Communications Regulations.
Act now and be ready for tomorrow
Don’t wait until tomorrow to future proof your business, we are available right now to help you prepare for your tax and other financial needs.
Contact us to be put in touch with your local TaxAssist Accountant, who will be only too pleased to discuss any of the pointers we have provided in this article and more.
By Jo Nockels
Last updated July 2016