Recent research by Reckon, the software developer, says that financial management is the biggest concern of small business owners across the country.
59% of small businesses owners in the Reckon study said they asked are concerned about financial management and demonstrate the real importance of financial literacy as a key skill for business owners, as well as the need for more support and advice for small businesses.
This has implications for business owners at the end of the financial year, when they will face huge pressure to whip their financial records into shape for tax purposes. Doing so without the necessary expertise or knowledge, however, makes the task even more difficult.
First things first: a business plan which indicates the long-term strategy of your business – including financial targets, budgets, and profit and loss forecasts – can help you to get a handle on the potential cash flow your business will deal with.
Not sure how to create one? There are some questions you need to be asking to enable a solid plan and here are our top three:
Have you got a robust book-keeping practice?
It goes without saying, but good record keeping is incredibly important.
Money is the lifeblood of any business, and knowing how much of it has gone and where, will give you a clearer understanding of your financial position.
While tracking expenses and outlay is often a dull task, doing so will give you an understanding of your finances and a degree of control. And it’s just as important to regularly review your finances – don’t think that just because they’re in place, they’re looking after themselves.
This is particularly important when it comes to self-assessment tax. When it comes to tax, you want to be positive that you’re submitting accurate and detailed records. Good bookkeeping practice is the only way to guarantee this.
With the rise in popularity of digital accounting software, there are a number of options available to small business owners. Make sure to choose one which is suitable for the needs and requirements of your business.
Do you really understand your cash flow?
This will stem naturally from good bookkeeping practices, but having an insight into the financial trends of your business will give you certainty and clarity about what you can afford and when.
Different industries will have different cash flows.
In retail, knowing how much of your equity is tied up in stock will be important; for other services with a cash-on-delivery arrangement, being able to tide your business over between contracts is important.
Being familiar with your cash flow will help you to understand the natural peaks and troughs of your business.
When and how to seek professional help?
If you’re uncomfortable with doing the number crunching by yourself, then you need to enlist the help of a trained professional to help manage your money. Small business owners can seek advice from accountants, banks, and Independent Financial Advisers.
Accountants can offer a basic service which will reduce the workload of any business owner. This will range from helping you to file your tax forms correctly and on time, to helping you reduce to reduce your tax bill through legal means.
Banks can offer advice to their customers. However, while they will be able to identify the needs of your business, any product or service they offer will not necessarily be the best one on the market, as of course they aren’t independent.
On the other hand, an Independent Financial Adviser (or IFA) can offer tailored advice on your financial position, identifying the unique needs of your business and guiding you to the most appropriate solutions.
From business insurance through to long-term planning for retirement, IFAs are able to examine your business and help you to understand your finances and offer impartial advice on who can offer you and your business the best solutions.
While outsourcing financial management to a professional can be costly, it may represent the best value over the long-term. Professional financial advisers are able to offer specialist expert advice, tailored to the unique needs and requirements of your business. Ultimately, consulting a professional can give you confidence when it comes to your financial management.