Building a financially strong business can be summed up in a few words – know your figures!! I will explain what I mean by this and why it is so important.
Planning
A business plan when you first set up a business is a great idea and can often help you get funding and start up loans. It can also give you an insight into whether the business will be profitable enough for you to live your current lifestyle or more. Although a business plan can sound a scary prospect they’re not as bad as you’d expect and reaching out to an accountant to help you with this can ease the burden. Knowing what sales you need to make to get to a profit means you know what you need to aim for and if the business could run into trouble.
Profits
If you sell a variety of products or services, are you confident that each one makes you a profit? Do you know which ones make the biggest profit so that you can concentrate on these products? Xero enables you to use tracking categories so that you can track the profit on products and services or on each job to ensure that you are making a profit. This will enable you to see if any of your products are loss making and can help you make decisions on these, for example do you need to stop selling this product or is it a loss leader that enables you to make a larger profit in other areas? If there is an area like this that Xero cannot help you with there are numerous other software’s that can link to Xero to give you the information you need.
Cashflow
Cashflow is particularly important to ensure you have cash available for upcoming bills, particularly your VAT and corporation tax. Again, keeping your figures up to date will enable you to run a cashflow analysis. We recommend you open a separate bank account and put a percentage of your profits into this account purely to pay your tax bills. Up to date accounting software would also show you which suppliers you owe and when those payments are due. Trying to arrange favourable payment terms with suppliers can be a good way to help cashflow. Software will also show you which customers have yet to pay you and enable you to chase any outstanding amounts. Adding a payment function to your software such as Go Cardless can make paying an invoice simpler and can often mean the customer pays it quicker.
Budgets
Setting a budget can be a great way to keep on track of your numbers and give you an achievable incentive for yourself and your team. Again, Xero will allow you to input a budget and then it will compare the budgets v actuals as the time period occurs.
Bookkeeping
We know that a lot of business owners hate bookkeeping and believe it’s not that important. This could not be further from the truth. Accurate and up to date figures can make a whole world of difference. We cannot forecast your tax figures or do any tax planning if we’re looking at incorrect figures. You may also look like you’re making a profit when in fact you’re making a loss.
Running a business without having any idea if you’re profitable or what your tax bills may be, can be very scary and take your mind off doing the important things like running your business.
Here at Archimedia we have a fantastic bookkeeping team who will tailor their bookkeeping to your needs, they are accurate and efficient to ensure that all records are up to date and correct. They can also recommend software that can make the bookkeeping more efficient and accurate.
We can also use these up to date figures to prepare management accounts if you require to show you exactly how the business is doing. We can also aid in providing a financial director role to help you run the business and increase profits if needed.
Running a business can be difficult and very daunting, but it doesn’t need to be if you work with people who are in your corner and want your business to succeed as much as you do.
Tips
Get on top of your figures from day one.
Know what you need to be selling to make a profit.
Benchmark against your competitors to see what margins you should be making.
Keep your bookkeeping as up to date as possible to make accurate decisions.
Utilise software to help make informed decisions. Please give us a call if there is anything that you are concerned about or that we could do to help you run your business profitably.
Wondering how to build a financially strong business? Get in touch
At Archimedia Accounts, we are here to act as your financial department. We give you the knowledge and tools you need to help financially set-up your business for success.
