A new year often brings with it a new challenge. So, if your thoughts this January are around starting your own business in 2012, read on for 5 top tips on the finance-front by Emily Coltman ACA, of freelancers’ accountancy provider FreeAgent. The following tips are for anyone for whom “start my own business” is on their New Year’s Resolution list!
1. Look before you leap
It’s very difficult to predict how much profit your business will make and how much cash it’ll earn for you.
Could you ‘test the water’ by starting your business in your spare time while keeping a full-time job, as a type of financial security blanket?
Make sure you take plenty of time to research your market thoroughly. Your business idea may be brilliant but are you sure that other people will think so and buy what you’re selling?
2. Get your books in order from day 1
When you’re in business, there’s no escaping the fact that you have to keep records of everything you’ve earned and everything you’ve spent.
Why? Well firstly because the taxman says so, and secondly because there’s a lot of useful information that good records can provide.
And because tax is due on your business’s profit, which is its income less its running costs, if you forget to note a cost then you’ll pay too much tax!
So make sure that you create firm foundations by starting to keep records as soon as you spend any money on your business. Don’t wait until you make your first sale.
A tool such as FreeAgent can make it straightforward and help you to look after your records.
3. Update your books regularly
By the same token, make sure you keep your books up-to-date so that you know what’s going on with your business’s money.
For example, a common mistake that small business owners make is to set their prices too low and end up losing money. How will you know whether that’s happening to you if your books are out of date?
How often you’ll need to update your books depends on how many transactions your business has. It might be once a week, or once a month. But make sure you do it regularly.
That needn’t take up too much of your time if you’re using purposefully-designed software, which can save you time thanks to features including recognising your bank transactions and allowing you to create recurring invoices.
But if you really don’t have time to keep your books, don’t leave them undone – hire a bookkeeper!
4. Forecast your cash
Cash is the lifeblood of any business. If there’s not enough cash coming in to pay your bills, then your business can’t survive.
As well as tracking your cash as it actually comes in and goes out, you need to plan when you expect to receive and spend cash in the future.
Will you offer credit terms to your clients, so that they might not pay you straight away? How will you chase those who don’t pay?
Who will you buy from? What are their payment terms? Can you afford to keep to these if your clients don’t pay you on time? Consider making use of a tool such as Float to plan your future cash.
5. But remember you’re not Mystic Meg
Unlike your historic records, your forecast doesn’t have to be 100% accurate.
You’re not trying to predict the future with absolute certainty. What you’re trying to do is to make sure your business will always have enough cash to meet its bills, and, if you want it to, to grow into new sectors or opportunities.
So don’t sweat for ages over your forecast. Be careful but don’t get too bogged down!
Final advice: Running
a business is exciting and challenging, and the numbers can be daunting. Tackle them early and they won’t be so
frightening!
Jan 20, 2012
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