Halloween is upon us once again, the day before All Saints Day, a day of fun, ghouls, carved pumpkins and trick or treating (a more recent import from the USA).
The custom of celebrating Halloween in the UK had its origins in ancient Britain, when the Celts celebrated the festival of Samhain. This marked the end of summer and the beginning of winter and was a time when the ancient Celts constructed large bonfires to ward off spirits they believed revisited the living world on the 31 of October.
A scary prospect indeed, but if you’re not careful, not managing your business finances properly could also provide a few scares. So, what can you do to ensure that your business finances don’t end up giving you nightmares?
1. Take a “little and often” approach
If you update your business’s financial records (aka your books) regularly, at least every week, say, it’s likely to be much less of a burden. The task won’t build up into something you dread that takes up lots of your time because you’ve been putting it off. And because you have less work to do each time, you’ll do it quicker and mistakes are probably less likely. Remaining organised is key to sound management of your business finances.
2. Store your receipts safely and conveniently
You or your accountant may need them when it comes time to complete your tax returns. And you’ll need them as proof, should HMRC decide to investigate. If you make a lot of small purchases for your business, storing receipts for things you buy in an envelope for each month, clearly marked, can save you a lot of time and hassle. Also make sure that you’re claiming for everything you’re entitled for when it comes to allowances and legitimate business expenses.
3. Set budgets and stick to them
They can help to prevent cash flow issues caused by overspending. Budgeting simply means planning and controlling how your business spends money. Whether a budget is set for a project or period of time (eg weekly, monthly or yearly), you need to know how much you can afford to spend. And once you decide a budget, accounting for all likely costs, you need to stick to it. Going over budget too much or too often could soon land your business in trouble if your sales stay the same or decrease.
4. Tightly control your costs
If you spend more than your business earns, your business risks experiencing a serious cash flow crisis, which could even threaten its survival if you can’t raise enough cash or finance quickly enough to prevent the demise of your business. Over time, cost inefficiencies can build up in most places, so you should get into the habit of closely assessing how much your business is spending and what exactly it is buying. Crucially, you should look for ways to get better value for money when buying things for your business. Saving seemingly small amounts of money can make a big difference.
Find out more about cash flow management.
5. Closely monitor your sales
Even if you manage to control your costs, your business could experience serious cash flow issues if it’s sales diminish. You need to understand which sales are decreasing or which customers you’re losing and why. All businesses lose customers, which is why attracting new customers should be a key objective for your business. You should also explore ways to sell more to customers who remain loyal to your business, as this could ensure that your sales remain healthy. Even if your sales are growing, better understanding the reasons why could enable you to focus on trying to sell even more.
Learn how to better understand your customers.
6. Work with cash flow forecasts
Suddenly running out of cash is enough to scare the living daylights out of any business owner. If you run out of cash unexpectedly you may not have enough time to arrange finance or borrow enough cash to get through, which will mean the death of your business. Better to work out accurate cost estimates and reliable sales predictions so you can identify long in advance any months when your business risks running out of cash. Then you may be able to take steps now to stay out of trouble. Cash is king – think of it as the lifeblood for your business.
Find out how to make cash flow forecasts.
7. Tighten up your credit control
Caution is advised when it comes to granting credit to customers. Some might not be worthy of it, and you should avoid being overly generous with your credit terms. Get your invoices out promptly and make sure customers know your terms. Politely but firmly ask for immediate payment as soon as it is due (your systems should give you advance warning shortly before payment date, when you should send a polite reminder). When dealing with large amounts of credit, ask for part payment on day of supply, although part payment in advance provides greater assurance.
Find out more about working capital and controlling credit.
Each of the above can help to keep your business in the land of the living at Halloween and other times of the year. In all areas, an experienced accountant will be able to advise you and can help to ensure not only that your business minimises its costs and remains tax efficient, but also that cash flow scares don’t suddenly creep up on you.
Mark Williams contributes to The Guardian Small Business Network and planned and wrote the Start Up Donut website – a leading source of advice for would-be entrepreneurs.