Managing money: A short guide for SMEs
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.
Keeping control of your business finances is crucial to maintain stability and steer everything towards success. Yet not every owner is confident in establishing good financial habits to pay yourself (and team members), build good credit, plan ahead and keep on top of the books.
Below, our Grantham financial planners share some insights and tips about how small and medium-sized businesses (SMEs) can manage money effectively in 2023. We hope these insights are helpful to you.
To discuss your financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:
01476 855 585
info@casfin.co.uk
Paying yourself
A small business may comprise only a handful of team members – or, just you. Regardless, most, if not all, of your income will derive from your business. It can be difficult to know where paying yourself sits on the list of priorities (e.g. next to other expenses).
It can be tempting to throw all revenues into the day-to-day operations of your business. After all, capital spending can help your business to grow. However, be careful not to neglect your own compensation – and that of your employees, if you have them.
Of course, you do not want to extract so much value from the business that it cannot get off the ground. However, if your business does not work out, it may hurt your personal financial plan to have not paid yourself fairly throughout its lifetime.
Invest in growth
Consider setting funds aside which are ready to invest in growth opportunities. Even if there is nothing appealing in sight right now, owners should keep a watchful eye on the future. Perhaps an innovation in technology (e.g. artificial intelligence) could give you an edge in the market.
Growth-oriented investments might include buying new machinery which enables your business to produce more products, faster and more cheaply. Or, you might invest in new digital products to diversify away from purely physical products.
Funding for growth can come from a range of sources – not just earmarked profits. These might include bank loans, angel investors, venture capital and crowdfunding.
Have a strong billing strategy
Do you have any customers or clients who are consistently late in their payments? To truly thrive, your business needs steady, reliable cashflow to ensure smooth day-to-day operations and build funds ready for growth investments.
For such customers, consider different ideas to incentivise timely payments. Constant phone calls and emails can help to badger some people into compliance, but often this does not work.
Perhaps, instead, you could use an approach like “2/10 Net 30” – i.e. the customer gets 2% off their total bill if they pay within 10 days; otherwise, the total is due in 30 days.
On this topic, make sure your business has an effective system for keeping track of invoices – highlighting “problem customers” quickly and using automation for speed and accuracy.
Set up the invoice timing to help cashflow and optimise efficiency for accounts receivable processes. Even if you have a bookkeeper, it is wise to look at your books each day/month to familiarise yourself with financial compliance and good practice.
Measure expenditures and ROI
Which investments are worth continuing? Where should you raise, lower or cut expenses? Having a clear method for measuring expenditures and return on investment (ROI) will help you greatly in these complex decisions as a business owner.
Take time, every so often, to examine different places where you are spending money. Are you spending too much on certain cloud-based apps, for instance? Perhaps there will be cheaper, better solutions elsewhere in the market in 2023 due to advances in technology.
If you notice certain expenditures which do not have clear metrics to let you measure ROI, consider taking time to put these in place. Going forward, this will help you ascertain their effectiveness in light of the performance data.
Plan for taxes
It can be difficult to know which taxes your business will need to pay – and, how much. Working with a financial adviser can help you craft a tax-efficient plan in light of your goals and circumstances. However, we can mention some general tips here.
As an owner, be mindful of how any income from your business may affect your personal tax plan – e.g. income tax, dividend tax, national insurance (NI), capital gains tax (CGT) and even inheritance tax (IHT).
If you are a company director or shareholder, then the business itself will also need to plan for corporate taxes such as value-added tax (VAT), NI, CGT, business rates and corporation tax. Certain reliefs may be available to help ease the bill, such as small business rates relief.
For sole traders or self-employed business owners, many of these taxes can get muddled together – making it difficult to neatly separate your personal financial plan from your business financial plan. Again, consider seeking professional advice to optimise your tax position.
Invitation
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585
info@casfin.co.uk
