Four Tax Preparation Tips to Follow

Four Tax Preparation Tips to Follow

If you want to avoid the stress of the tax period, follow these four simple steps to prepare your business in advance.

Tax season is one of the most stressful periods of the year for a business owner. With proper planning, however, you can change that.

It’s essential to start preparing for the filing of your business tax return in advance so you have time to gather all relevant records.

Take a look at the following tax preparation tips that can make the upcoming tax season less stressful for both business owners and their accountants.

Organise Your Tax Paperwork

Before anything else, it may be a good idea to sort out any past years’ documents, if you haven’t already. Start organising your books to make sure that you’re prepared when the paperwork starts to come in.

Tax paperwork should be organised by category and you may want to make copies of important documents received by post.

Categorise Your Business Expenses

Another time-saving tip is to start organising and categorising your business expenses weeks before the tax return due date.

You can claim most of your business expenses as tax deductions. But if you’re not sure which expenses you can claim, check out the official guide on HMRC’s website.

All business expenses must be sorted out and explained in detail. Finally, don’t forget to itemise your expenses.

Alternatively, if you outsource your tax preparation, you will want to hold on to all your documents for when it’s time for your accountant or accounting firm to prepare the tax return.

Check Whether You Can Get Deductions and Credits

Small businesses may qualify for a number of tax credits. However, don’t wait till the last minute. Check in advance whether you’re qualified for these credits.

Deductions reduce your taxable income and credits are even better, as they directly reduce the amount of tax owed. Your accountant or tax preparation software will have a list of tax deductions that apply to your business.

Get Help

Tax season is very stressful for your bookkeepers and accounting team, assuming that you have them on the payroll. Even if they’ve been doing great the whole year, they may need some extra help now.

A smart business owner won’t let his or her accounting staff burn out during the tax period. Ask them if they need help and if so, make sure to relieve the burden.

It’s essential to get your tax done correctly and on time, which is less likely to happen if you try to save money on accounting staff during this hectic period.

Advance Prep Wins Out

For most business owners, tax season is far from the favourite time of the year. However, it’s not an excuse for you to wait until the last moment to start preparing your tax return.

To avoid unnecessary stress, the best course of action is to prepare in advance.

It won’t trouble you nearly as much if you’re to find that something is missing, but that’s only possible if you leave enough time to sort things out.

Book a free consultation here, to learn more about our accounting services and how can help you grow your business.

The 6 Most Important Numbers You Need to Know to Grow Your Small Business

The 6 Most Important Numbers You Need to Know to Grow Your Small Business

In order to grow your business, you need to understand how you’re faring. Financial numbers provide you with an accurate picture of your performance, but as a busy business owner it’s unlikely that you have the time or the inclination to spend hours pouring over complex numbers. However, ignoring your financial numbers is likely to lead you towards failure. It’s prudent to create a list of key performance indicators (KPIs) to focus on so that you can keep an eye on what really matters. This will then allow you to make informed decisions about the financial health of your business and measure your progress over time.

Profit and Loss Statement

It’s essential that you understand your profit and loss (P&L) report because it tells you whether you are making or losing money, and how much. You need to pay close attention to your P&L report and review it every month so that you get a good idea of how your status is changing over time. Keeping a close eye on these numbers allows you to identify areas where you can cut costs, understand seasonal patterns and know when to raise your prices.

Expense Report

It’s vital that you understand how much you are spending each month. If you don’t know how much you’re spending it becomes impossible to calculate profit and loss. Furthermore, you need to be aware of your spending so that you don’t blow your budget. You should use your accounting software to regularly create expense reports to review and compare against one another. This will help you to identify areas where you can reduce spending and ensure that your expenses are not growing faster than your revenue – although this is acceptable in the short term when preparing for growth, for example by hiring new employees or buying new equipment.

Accounts Receivable

Accounts receivable refers to the money that you are owed in unpaid invoices. If you have a lot of money tied up in accounts receivable then you’re likely to run into cash flow problems, even if you’re operating at a profit. Keep a close eye on accounts receivable by using your accounting software to automate invoices, as this will help you to understand who owes what. Being aware of your accounts receivable allows you to differentiate between cash flow and profit, take action to chase up payments and make informed decisions about when to spend and when to hold back.

Profit Per Client

Some clients generate more profit than others. Your most lucrative clients aren’t necessarily the ones who spend the most, and it pays to know who actually makes you the most money. This will allow you to focus on attracting profitable clients who will earn you more money in less time and thus optimise your business growth.

Calculate profitability per client by taking the total fees received and subtracting the expenses involved. Then, divide this number by the hours that you spent on the work to calculate the hourly wage per client. You may be surprised at just how much this can vary!

Cash Flow

Managing cash flow can be a tricky balancing act. It’s important to produce cash flow statements regularly so that you understand how much is coming in and going out of your business, and how much you are left with. Remember that cash flow and profitability are separate entities. It’s possible to be in profit but run out of cash because your money is tied up in assets and unpaid invoices.

You should create and review cash flow statements regularly and track how your situation is changing. It’s important to stay on top of your cash flow so that you know when you are able to make investments without running out of available funds.

Item Sales

Item sales reports create a clear picture of how profitable each of your products or services are. For example, one product may generate a lot of sales but a minimal amount of profit. This is actionable data that indicates which products or services you should be focusing on, and which to discontinue.

Summary

Like it or not, numbers don’t lie. As a small business owner, it’s vital that you stay on top of your financial numbers so that you can assess the health of your company and take action accordingly. You need to review and analyse your numbers regularly to understand how you are performing and give your business the best chance of success.

Did you know we’ve also got a free downloadable eBook dedicated to the most common profit draining mistakes made by small businesses. Check it out here.

Book a free consultation here, to learn more about our accounting services and how can help you grow your business.

Why You Need An Accountant For The Growth Of Your Small Business

Why You Need An Accountant For The Growth Of Your Small Business

Small businesses often put off hiring an accountant until they’ve grown bigger, but that’s a mistake that can actually delay growth. The services of an accountant extend beyond simply minimizing your tax bill, although that’s an undeniably valuable advantage. In addition to saving you time and money, a good accountant helps you to manage your cash flow, plan ahead, make smart decisions and reduce any risks to the financial health of your business. Here’s why investing in a quality accountant beats the DIY route every time.

1. Save Money On Your Tax Return

Let’s start with the most obvious advantage of hiring an accountant: to save money in taxes. Filing your taxes is notoriously complex and even a small, innocent mistake can result in a hefty fine. Chartered accountants train for years in order to be able to complete this process accurately, so doing your own return puts you at risk of making expensive mistakes.

Furthermore, a qualified accountant will have up-to-date knowledge of tax breaks, loopholes and business incentives to save you a sizable sum of money that you can re-invest in scaling up. If you do your own accounting or go with a very cheap firm, you’re unlikely to benefit from these savings.

2. Free Up Valuable Time

In addition to saving you money, an accountant will also save you a lot of time that you can put to far better use. As a small business owner, it’s vital that you keep accurate financial records and stay on top of your accountants. However, it’s equally true that your efforts are most valuable when concentrated on your area of expertise. Hiring an accountant allows you to ensure that your accounts are being managed well whilst allowing you to focus on growing your business.

3. Startup Advice

As mentioned, many small business owners are reluctant to hire an accountant in the beginning stages. However, an experienced accountant will be able to provide valuable advice during the startup stage that can accelerate your growth on areas such as:

  • Key financial risks
  • Budgeting
  • Financial forecasting
  • Growth
  • Funding
  • Tax incentives
  • Overall financial health

Hiring an accountant from the very beginning can help you build a solid financial foundation to ensure that your business is around for many years to come. They can advise you on which legal structure to choose and offer unbiased, constructive criticism of your business plan. It’s also worth noting that an accountant-approved business plan is more attractive to prospective investors.

4. Manage Cash Flow

Managing your cash flow well is essential to the growth of your business. Poor cash flow management is a serious threat to even the most profitable businesses, so it’s very important to get it right. Accountants are experienced in managing cash flow and can produce regular forecasts to ensure that you always have enough funds to continue operations as you scale up and market conditions change.

5. Growth Management

A quality accountant can help to fund and manage the growth of your business. Firstly, an experienced accountant will help you to identify sources of funding and present your case to potential investors. Additionally, they can also help you manage sudden growth spurts and ensure that they don’t overwhelm you and damage the financial health of your business, as is often the case.

6. Market Knowledge

It pays to hire an experienced accountant who knows exactly where your company is positioned in relation to your market sector. You can leverage this knowledge to create your unique selling point, price your services appropriately and gain a competitive advantage. In short, an experienced accountant allows you to benchmark your company which is incredibly useful for growth.

An Accountant Is An Investment

It pays to hire a high quality, proactive accountant. Whilst there are many cheap services out there, you’ll see the greatest return on investment from hiring an accountant who has the time, knowledge and experience to grow your business. A good accountant will do everything they can to not only save you money on taxes but to provide valuable advice, manage your cash flow and secure the financial health of your business for years to come.

Did you know we’ve also got a free downloadable eBook dedicated to the most common profit draining mistakes made by small businesses. Check it out here.

Book a free consultation here, to learn more about our accounting services.

4 Common Cash Flow Mistakes That Small Business Owners Make

4 Common Cash Flow Mistakes That Small Business Owners Make

Good cash flow is essential to the financial health of your business. In finance terms, cash is comparable to food – without it, your business will run into many health problems and eventually starve. Cash flow problems are often cited as one of the main reasons that small businesses fail, so you need to make this a priority. We’ve put together a list of the most common cash flow mistakes business owners make so that you can avoid these traps and keep your company in good financial stead.

1. Unrealistic Budgeting

Many small business owners underestimate how much it costs to get started, and this can lead to an array of cash flow problems. If in doubt, always overestimate your costs in order to avoid any nasty surprises.

Furthermore, if you underestimate how long it will take your business to become profitable, you may find yourself facing some serious cash flow problems. It’s important to create a realistic time frame for your business to reach profitability. Remember to account for seasonal peaks and troughs, too.

Many small business owners delay hiring an accountant until after they launch, but working with a quality accountant who has experience of your industry can help you to create a realistic budget that will save you a significant amount of time and money in the long run.

2. Not Creating a Cash Flow Budget

In addition to a business budget, you should create a separate cash flow budget so that you can understand when money will be flowing in and out of your bank account and plan accordingly. Money tied up in unpaid invoices is no good to you when your suppliers require payment right now. You must ensure that you always have enough cash to continue operations, so creating a cash flow budget is vital.

3. Slow Invoicing

One of the simplest ways to ensure a healthy cash flow is to get paid on time. Of course, this isn’t always 100% within your control but there are plenty of things you can do to encourage your clients and customers to pay you faster.

Firstly, when onboarding a new client, make sure that you hash out payment details straight away so that both of you know what to expect. You should both understand:

  • Who will handle the invoice
  • When it will be sent
  • When it must be paid
  • The method of payment.

It’s also worth checking who you should contact to handle any potential problems that may arise.

Secondly, send invoices on time and ensure that all of the details are correct. This will prevent a time-consuming back-and-forth communication to straighten out any mistakes.

Finally, keep a close eye on deadlines and don’t be afraid to send out a polite but firm reminder to customers who are cutting it fine. You may also want to consider introducing a late payment charge to incentivise them to cough up on time, but be sure to give your customers plenty of notice.

4. Not Having a Cash Reserve

Having a cash reserve is imperative for good cash flow management, but many business owners skip this crucial step and then find themselves in hot water later on. In any given business, unforeseen costs will arrive sooner or later and it’s important to prepare for this by creating a cash reserve. This way, you can smooth over any cash flow issues without going into debt or suffering an extreme amount of stress.

Summary

Maintaining a healthy cash flow is one of the most difficult parts of running a business, but it’s also incredibly important to the financial health of your company. Set yourself in good stead by planning carefully and creating a realistic budget to help you avoid overspending. Remember that cash flow and profitability, though related, are not the same thing and so it’s prudent to create and monitor a separate cash flow budget, too. The importance of good cash flow management really can’t be overstated, so when in doubt it’s always best to defer to a quality accountant for help with this essential process.

Did you know we’ve also got a free downloadable eBook dedicated to the most common profit draining mistakes made by small businesses. Check it out here.

Book a free consultation here, to learn more about how our bookkeeping services can support you.

7 Top Tips for Successfully Scaling Your Small Business

7 Top Tips for Successfully Scaling Your Small Business

Scaling your small business is incredibly exciting, but there’s a lot to think about. It’s important to have solid rules and guidelines in place, and a clear plan to follow. If you’re ready to scale up your small business then read on for seven top tips to help you do it.

1) Hold Onto Your Values

Your values should always be at the heart of your business, so be careful not to lose sight of them as you scale up. After all, these values have been instrumental in helping you achieve success so far, so don’t sacrifice them as your company grows.

2) Identify Your Barriers

What is getting in the way of your growth? What could go wrong as you scale up?

Take a step back, put your emotions to one side and take an honest, objective look at your business. Do you lack funding? Are you experiencing cash flow issues? Do you have a high staff turnover rate? Are there problems with your current premises?

Identifying your barriers to growth is the first step to overcoming them so don’t be afraid to take a long, hard look at your business. Every business has its weaknesses, so don’t be disheartened by yours but instead view them as an opportunity to improve.

3) Run the Business You Want, Not the Business You Have

In order to scale up successfully, you need to bridge the gap between where you currently are and where you want to be. What works for you right now might break as you begin to grow, so it’s important to put systems and SOPs in place that will continue to work seamlessly as you scale up. Take a look at your cash flow, team, IT systems, workflows and supply chain to see what is going to creak or even break as your business expands, and prepare accordingly.

4) Build the Right Team

Leading on from the previous point, building a strong team of employees is an essential part of scaling your small business. You will need to take on more staff as you grow and ensure that they share your values. When hiring, place special importance on attitude and willingness to learn; you can teach an employee new skills but it’s very difficult to fix a negative mindset.

Staff morale is essential to productivity and a low turnover rate, so it’s in your best interests to create a supportive company culture that helps each team member reach their potential. Remember that making your staff feel seen, heard and appreciated goes a lot further than fancy merchandise or an extravagant Christmas party ever will.

5) Learn from the Competition

Study your competitors who have successfully scaled up – how did they do it? What worked well for them, and what could they have done better? How did they change as they grew? Your competitors constitute a valuable learning opportunity, particularly when it comes to business growth.

6) Stay Focused on Customer Service

The last thing you want to do when scaling up is antagonise your customers. You must remain consistent with the quality of your customer service; scaling up will do more harm than good if it causes all of your customers to flock elsewhere.

Of course, mistakes do happen but it’s important to rectify them as soon as possible, maintain honest communication with your customers and make them feel valued to keep them coming back.

7) Monitor Your Cash Flow

Many of the biggest challenges businesses face during the scale-up phase are cash flow related. Whilst you do have to spend in order to grow, it’s important to keep a close eye on your cash flow throughout this process so that you know where every penny is going. This way, you can identify and solve any issues as soon as they arise, and see off potential threats before they come to fruition. It’s also important to prepare an adequate cash reserve for emergencies and unforeseen costs so that bumps in the road don’t cause a total breakdown.

Summary

Whilst the scale-up phase can be challenging for small business owners, it’s also exciting and provides a great opportunity to build an even better business. Whilst we can’t promise that employing the above seven tips will make scaling your business 100% worry free, they can make the process significantly smoother and easier.

Book a free consultation here, to learn more about how our bookkeeping services can support you.