One of the top reasons that small businesses fail is that they aren’t properly organising and monitoring their finances. There’s a lot of things to do and jobs to handle so it is easy to understand how it can happen. But the result can be catastrophic if the business runs out of cash flow or faces a large income tax bill that it cannot manage. Before things get out of hand, here are six tips for organising your small business finances.
Talk to an accountant
It is never too early to chat with an accountant about the state of the business finances. If you have a system in place to organise bookkeeping and other essential financial systems, then they may be able to take a look at it all and give you a general assessment of the business. And if you haven’t started handling this, they can get you in the right place to avoid those nasty surprises.
Do you have the right type of business?
Many small businesses start out as sole proprietorships or partnerships and these can work well. As the business grows, it might be worth incorporating it into an LLC in order to protect yourself if something does go wrong. As a sole trader, you are the business, and this means if there are problems, you are responsible for the entire bill. As an LLC things are a little different and you can be protected. An accountant or company formation expert will be able to advise you if it is time to make a change.
Keep check on tax payments
HMRC are an unforgiving bunch and that means you want to keep on top of tax payments and also any benefits you may have been receiving. For example, if you qualified for income support when you first started your business, you may no longer depending on the business position. Get some advice or you may need to call the income support number! The same applies to tax – having a good idea of where you are with your tax bill, what is due when and what you need to put away each month can be crucial.
Keep your business and personal finances separate
It is very important to keep your business and personal finances separate or to put measures in place if you haven’t already. This is mandatory if you become an LLC but good practice for all types of business. Make sure you have a business bank account and that you put all business transactions through it as well as all income. Consider a savings account to put your tax money to one side each month. You may also want a company credit card to pay for business expenses and to easily track these.
Have a system in place
Cloud apps are a very good way to store all your receipts, documents and everything relating to your business. Then if HMRC suddenly wants to see a copy of something, you know where to find it. You can also use cloud-based software to manage your business finances, invoice clients and even pair it with your smartphone to track mileage.
Don’t forget the real world stuff
There’s the temptation to forget the real world stuff when you are getting your business organised, but it is important too. Cleaning your workspace, regular maintenance for equipment and your work vehicle, all this stuff is important. It may not be exciting, but it does keep the business running smoothly. And don’t forget any expenses for these things is often applicable to your business income – just keep those receipts!