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Five vitally important things to review in your finance regime

We all know that keeping good financial records is key to business success. Bookkeeping, profit & loss forecasting and cash-flow analysis are all fundamental aspects of running a business that are taught on so many Start-Up courses, College Courses and University Modules.

Yet as a business grows, gets busier and becomes more demanding, it's not unusual to see things slip.  This is particularly common in companies that have started off as a Sole-Trader and made the transition to a Limited Company, then register for VAT.  HMRC obligations and Companies House reporting become more complex as a company grows, as do the transactions in the bank accounts.  If a company is steadily growing and hasn't taken into consideration that the workload for the accounting procedures will grow too, then there is a risk that important trends and essential dates will be missed, fines may be incurred and cash-flow could get out of control.  At worst, a business could become insolvent without the Director's knowledge.

Here are some vital steps to take no matter whatever the size your business may be, to ensure that your finance regime isn't letting you down or putting your business at risk.

1. Keep a record of all filing dates

It may sound basic, but filing dates are a source of confusion for many small businesses.  This is because the accounting period doesn't naturally correlate with what you might call "year end" - either April 5th, or December 31st.  The date that your Corporate Tax return and VAT returns are due for submission to HMRC will naturally occur around the date that you registered for each scheme.  Your annual return and accounts to Companies House may be different again.  If any of these important dates are missed, fines will be incurred, estimated bills will be sent out and at worst, a Gazette Notice for Striking Off your company could be made.  Keep a list of all your important dates.  You can change your accounting period for your Corporate Tax return on the website, to help align your accounting dates to a more suitable point in your business calendar or to bring them in line with the UK financial year.

2. Make sure you are meeting your employer PAYE obligations

Employing staff for the first time can be a confusing process. There are new reports to manage, new taxes to collect and pay, minimum wage considerations, holiday pay, pension schemes; and the rules will vary depending on how many hours your employees work and what they earn.  You will need robust contracts of employment and working procedures, otherwise you could become subject to an Employment Tribunal claim.  You should be very familiar with your pension obligations by now, if not look into these immediately as you will need to offer a pension scheme to anyone earning more than £10,000 per year aged between 22 and state pension age.

As soon as you employ someone you should speak with HMRC about your obligations and register as an employer.  It would be very sensible to work with an experienced payroll practitioner to help you manage your employer's HMRC obligations.  If you can't yet afford to employ an in-house accounts team, then out-sourcing the payroll function is a sensible option.  Your payroll practitioner can create payslips and make reports to HMRC on your behalf.  If you have been employing someone for a while and have paid "cash in hand" or just an hourly rate into their bank account without reporting it, you are putting yourself and the  employee at risk of a large tax bill later down the line.

3. Keep control of your aged debts

Keeping a list of your aged debts will help to manage cash-flow.  Accounting software can do this for you, if you raise your invoices on the software.  You should have a running total of how much money is owed to you, how much of this is 30 days late, 60 days late or more than 90 days late.  Don't forget that you're entitled to charge interest and penalties for late payment.  If you know how much you are owed, it can help you to plan your own payments to your suppliers.  For payments over 60days old you should consider passing these to a collections agency if you don't have the resources in your business to be vigilant at following up these missing payments until they are cleared.  A collection agency will take a percentage of your invoice value to collect the debt, but usually the time that is saved in using an agency is worth their fee.  Failing to maintain control of your debtor book will quickly lead to financial distress for the business, however, having a robust collection process and sticking to it reduces the risk.

4. Review your interest rates, bank account fees, and credit card rates on a quarterly basis

We recommend reviewing all of your accounts on a quarterly basis to make sure that you aren't merely paying off interest on top of interest and that you are receiving the most competitive rates.  Interest rates are influenced by  inflation, so what may have been a good deal at the time may be higher than average now, so look at whether any loans could be refinanced for a cheaper interest rate.

If you regularly use credit or charge cards for your business, look at when you are making payments to be sure that you're making the most of any interest free periods but also check that your minimum monthly payment isn't just clearing the interest but the credit balance too.

Finally, look for cards that offer reward schemes such as cashback, points or frequent flyer miles that you could use to make savings elsewhere in the business.  There are many schemes that will reward you for everyday expenditure.

5. Review your invoicing dates

If your accounts team only send out invoices once a month, consider whether this is the best way to manage your cash-flow.  If customers have set credit terms, for example 30 days, but the invoices aren't sent out immediately after purchase or order, then you are inadvertently giving your customers extra time to pay and therefore delaying the time that the money will be in your account.  That money could either be earning you interest or sitting ready to invest back into the company or be used to pay off any loans or credit cards early, so make sure you ask for money as soon as an order is received.  There are many automated Customer Management systems that can generate an invoice for you - it may be worth investing in this kind of software to improve cash-flow.

If you would like a full review of your company Finance Strategies to improve cash-flow and profitability, R2B Business Solutions can help.  Please call us for a free consultation.


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