Posted: 27th March 2017
Today’s blog is all about getting the money side of your business right. I’ve been working on the Financials module of the new course and below are some of the highlights for making sure your business stays on track financially.
Know your Break Even Point
You need to know how much you have to make before you turn a profit – sounds obvious right? But you’d be amazed at how many businesses don’t. Put together a spreadsheet and include all the FIXED monthly costs in it, these are the things you have to pay regardless of how much you sell, things like rent, salaries, utilities and the like, also include annual costs for things like insurances (divide these up into 12 and put an allocation in for the month to contribute towards it). That tells you how much money you have to make to pay your bills and yourself.
On top of this you will have VARIABLE costs, these are costs that are directly connected to what you sell, so for me it may be things like the print costs for creating a brochure for a client. These need to be factored into your quotes but can’t really go into the monthly spreadsheet as they change according to what you are doing.
HMRC Money is not your Money!
Vat, Corporation Tax, Personal Tax, Benefit in Kind…. Everyone hate paying it, and it’s made even harder to pay if you have already spent the money. One thing I recommend all business owners do is open a separate bank account(s) and put all the HMRC money in there and leave it alone. It’s not yours and the last thing you want to have to do is get a loan to pay your tax bill! For things like Corporation Tax, work out the monthly amount you need to be accruing and put that in every month. For VAT get the figures from your accounts system and accrue that too. It makes it much easier to deal with if you just don’t see the money as yours.
The Difference between Turnover and Profit
The way I see it what you turnover overall really doesn’t matter in the slightest, what does is the amount of profit you are making. There is no point turning over £1m is you are making no profit. So make sure when you are doing your quotes that you always know what your profit margins are and how these relate to your breakeven figures. Again, you’d be amazed how many businesses don’t have a clue.
Cashflow in a business can be a complete nightmare, waiting for payments, chasing late payments, paying suppliers on time, can all make for a very difficult time of it if things are tight. One thing I have always done, and it makes life so much easier to manage cashflow, is pay the suppliers relating to a project as soon as you are paid, if you do this from the off it really helps not get into trouble. So if I had a brochure project, when the client paid me straight away the printer would be paid. If you start ‘robbing Peter to pay Paul’ you can very easily end up with an escalating problem.
So that was all a bit doom and gloom for a Monday wasn’t it? In reality though some careful financial management from the off can really take the headaches out of your day.