As a sole trader or small business owner it is vitally important that you have some control over your business finances. Here are my suggested seven effective finance tips for business owners.
1. Create a simple budget
As a new business owner, the most important finance tip that I can give you, is to create a simple budget. Make time to sit down and make a list of all the expenses that you think you are going to incur over the course of a defined period of time, whatever is easiest for you to manage. You can review this as you go and update it with things that you had not thought of initially. In doing so that means when you come to do the next plan for the next period, these items will be there to remind you to include them. Once you have a budget created, it is important that you stick to it. A budget is your financial plan which you can then track to see how you are doing. Getting into the habit of doing this on a regular basis means you always know where you are at.
2. Keep your personal and business money separate
It is very tempting in the beginning to pay for items from your own personal bank account for your newly formed business. Whilst this is convenient it makes tracking what you have actually spent running your business much more difficult than it could be. The second most important finance tip would therefore be to open a separate bank account purely for business transactions. If you are not a limited company you can just open a separate personal bank account. You can then arrange for any income generated through your business to be paid into this account and any expenses to be paid out of the same account. This will enable you to keep track of your cash position much more easily.
3. Don’t forget to pay yourself
It’s tempting as a small business owner to fall into the trap of paying yourself a varying wage every single month. Some months you might have expenses you’ll need to pay in your personal life, so you might pay yourself some more. However, this is a habit that gets out of control quickly and is best avoided at all costs. When you are creating your budget work out the minimum amount you will need for your personal finances and include this in your budget. Pay this to yourself every month or week (whichever is easiest for you to manage) by transferring it from your business account to your personal account. After all your pay is a now a genuine business expense.
4. Save up for you end of year taxes
Don’t forget that at then of the tax year, both you and your business will be liable for tax. If you have not included this fact in your budget and not planned to put some money aside for this inevitable bill, it can be difficult to find the money to pay for it all at once. In most cases, this might mean that you’ll have to take out a loan or use a credit card in order to pay for it, which is only going to put extra pressure on your finances. Best seek advice from your accountant or if you don’t have one, find an accountant to help you work out how much your end of tax year bill is likely to be.
5. Try to avoid getting into debt if at all possible
It’s not always possible to have sufficient funds at the outset to start your business so sometimes borrowing is necessary. However, if at all possible, try to avoid getting into too much debt. Pay for expenses as you incur them so that whatever you have at the end of the month, is yours. It is important that you check your finances regularly. As a small business owner, get into the habit of checking your bank balance and your bank statements. With online banking this task has become much easier so make use of it. This is so you can be aware of what you’re spending, what’s going where and how much money you’ve got coming in. Many small business owners are in debt, from either previous commitments or start-up costs and you need to make sure it’s your priority to clear these debts. Since you’ll probably have debt with a bank (in the form of an overdraft or loan), it’s important to realise that you’ll be paying interest on that money which is money you could be using to expand your business.
6. Don’t put off checking what you are paying for
As a small business, your expenses can range quite dramatically. I recommend that you regularly check your bank statements to make sure that you’re not spending money on subscriptions or supplies that you no longer need nor want particularly if they are paid by direct debit. We have all heard the old saying “Manage the pennies and the pounds will look after themselves”. Always shop around and make sure that you are getting the best value for money for everything that you need for your business. Chances are that you will save yourself some money in doing so and better that the savings are in your business bank account than in your providers.
7. Find yourself a good accountant who could provide you with support
Often sole traders and small business owners put off getting their own accountant due to the cost, feeling it’s a luxury, they simply can’t afford. However, by doing so you may set up your businesses poorly, pay too much tax or worse still pay fines from HMRC. A good accountant should be your “trusted adviser” who you can talk to. They will save you time, as let’s face it every hour you spend doing paperwork you are not earning. Accountants are experts in their field and will get it right for you so that you only pay the tax that you have to pay.
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