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Financial planning for small businesses

Obvious statement of the day: as a small business owner, keeping track of your finances is crucial. Otherwise, how do you know what you’re earning, what you’re spending, how fast you’re growing, what your next step is and whether in fact you are making any money at all? Plus, if you keep your financial records in order, boy will you thank yourself when it’s time to file your tax return.

Nonetheless, financial planning is something many entrepreneurs struggle with, which is hardly surprising; you’re a business owner, not an accountant. (Unless you own an accountancy business, in which case you probably don’t need to be reading this article.) And if you’re just starting out, you probably have no idea where to even begin with it all. At THP, we’ve got lots of financial planning tips for business owners to get you going in the right direction.

Create a budget and a financial plan

If you take nothing else away from this article, let it be this: if you are going to run a successful business you need to know where you are financially right now, and where you are going to be.

At least once a year, use a spreadsheet to forecast your performance, revenue and expenses. Make several different forecasts, with different projections for different factors, such as sales, customer numbers, prices and manufacturing costs. Work out both your fixed expenses – rent, salaries, utilities, insurance, admin – and the cost of the plans you have for the business that year, such as recruitment, advertising, equipment and improvements to facilities.

There’s a variety of apps and software out there to help you with this. Use figures from previous years as a guide and remember to consider things like the economic climate, inflation and seasonal fluctuations in business. Have an eye to any savings you can make as you go through your outgoings.

Check your financial results against your plan each month (yes, each month) and make changes to your spending if necessary. Keep accurate records of everything, from your invoices to any personal money you loan to the business.

Have savings

Small businesses often don’t have enough capital to get themselves through the start-up phase. We recommend having three months’ living expenses and business expenses saved before you go into business and you should be working on the assumption that you will make no money at all initially. Even once you are turning a profit, you must still have some money in the bank for unforeseen expenses or circumstances that are out of your control, such as a downturn in the economy.

Keep your personal and business finances separate

Being a sole trader works for some – many freelancers and personal trainers, for example will find it their best option. But however you trade, you should always keep your business and personal transactions separate. For one thing if, god forbid, HMRC decided to look into your financial affairs do you really want them poking through all your personal transactions?

Also it’s worth looking into whether it may be an advantage to register as a limited company. In doing this, you and your partners won’t have any personal liability should the company run into financial difficulty.

Be frugal

While income is limited – or coming from a limited number of sources – you may need to cap capital expenditure. Of course, depending on your industry it may be necessary to invest in good quality (and therefore expensive) equipment but try to prioritise and limit overspend. If you’re ready to expand, do so steadily and wisely, not quickly and excitedly. Consider whether it’s better to rent things instead of buying them, for example equipment that you’ll only need for a short period, or which is expensive to maintain.

And if you do know that you are going to need a loan, get it sorted sooner rather than later, while your finances are still relatively healthy. When you’re in trouble is when you will be least likely to receive financing.

Choose the right accounting software for your business

Different software programs suit different people and different companies and it’s wise to look at several options. Cloud software is becoming more and more popular as it allows you to view information in real time, from anywhere, at any time. If your business is VAT registered, you’ll need to use software that’s compatible with the government’s Making Tax Digital initiative.

Hire a good accountant

Accountants love numbers; you don’t; it’s a kindness to both of you.

Many entrepreneurs have a tendency to try to handle everything themselves but this is probably not the best use of your time, skills or blood pressure. Yes, accountants do cost money but a good accountant will be able to help you save a lot more money than it costs you over the long term. And you’ll actually be able to spend your time growing your business rather than shouting on the phone to HMRC.

Find a good credit union

Credit unions can be invaluable to small business owners and start-ups. They’re community-run financial organisations where people and companies can deposit savings and take out loans. They don’t have shareholders and are genuinely there to serve their members, and keep profits within the community.

In 2017 there were 305 credit unions in England, Scotland and Wales, with almost 1.3 million members – they are all set up for specific purposes, such as to help people in a particular area or profession, so you will need to be eligible to join. You can find one through the Association of British Credit Unions’ Find Your Credit Union website.

At THP, we work with small businesses across London and the south east, helping them every step of the way with financial plans and budgets. Balance sheets, accounting software, credit control, the cloud – you name it, we’ve helped our clients get to grips with it. We understand what life is like for small business owners and our approach is always to be guided by you, involving you in the minutiae if you want us to, and dealing with it for you when you don’t.

We now have four offices in CheamChelmsfordWanstead  and Saffron Walden – so give us a call at our head office on 020 8989 5147 to see how we can help you.

Avatar for Mark Boulter
About Mark Boulter

Mark Boulter is responsible for the efficient running of the firm’s infrastructure, and ensuring that THP delivers the best client service. Promoting the vision and culture across all branches, people are the key: “I like people who have a fresh approach and I’m happy for them to run with their ideas,” he says.

Communication across departments is crucial and Mark pioneers this. He ensure that people and departments not only talk to each other, but that they share ideas– whether they’re about marketing, finance, sales, strategy or any other topic that can result in us offering a better service. “I think helping to develop the next generation of THP people is essential to our success,” Mark adds. “We’ve a lot of talented people and our way of doing things increasingly attracts ambitious newcomers who are looking for a fresh approach. That’s good for us and even better news for our clients.”

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