There are almost 4.5million small businesses in the UK and securing finance has been a longstanding problem for SMEs. Already this year Bank of England figures show that loans to smaller firms have dropped by more than £700m, despite efforts to boost credit.
Ade Potts, Managing Director of Experian Business Express explains how small businesses can help themselves by keeping a close eye on their cash flow.
Don’t wait until the last minute
Trying to raise cash or attract investors when you desperately need it, is always a bad idea. There are all sorts of implications such as; the valuation of your business which will show if you are in trouble alongside the external perception of your management abilities. If you think you’ll need extra money for the business in the future, you should think about securing the extra cash before you need it. This will avoid the risk of damaging your credit score if you can’t pay bills or worse still, not being able to stay afloat if the economy takes an unexpected nose dive.
If you’re also the person in charge of managing the finances this could be a part of the business that is always pushed to the bottom of your list of priorities. Small business often find themselves in the ‘ostrich’ financial management approach, it’s when those in charge have overlooked the need for extra cash, simply by not being on top of things. Be honest with yourself, can you really manage your business accounts yourself or should you enlist the help of an accountant to guide you through the process? If you’re spending endless hours trying to understand tax and accountancy whilst missing crucial deadlines, it would probably be more cost effective to pass it over to the experts.
First things first
It may sound overly simplistic but you should diarise all tax payment deadlines, even if you’ve an accountant to manage this for you. This will ensure you have the cash ready for every payment, avoiding interest penalties or, worse still, falling victim to a negative footprint on your credit record. You must also make sure you put aside an allocated percentage of your income each month to cover all these payments. You should think about:
- The due date for submitting your accounts.
This depends on whether you operate as a sole trader or a limited company.
- You can choose when your accounting year is to end, but since taxable income for sole traders is calculated on a 6 April to 5 April basis – and accounts are needed to back up the tax return – it makes sense for sole traders (and partnerships) to have an accounting year that runs from 1 April to 31 March.
- For limited companies you can more or less choose your accounting year to suit yourself and your business but you still need to complete and file accounts every year with Companies House.
- Making your Self-assessment tax submissions by the 31 January 2015 to avoid penalties.
- All UK limited companies pay a 20% charge on any profit generated up to £300,000 under the rules of corporation tax payment. This payment is due with HMRC within nine months of the accounting period.
- You must register for VAT if your annual turnover (sales) is £79,000 or more – registration is optional if turnover is below that. VAT returns and payments are due on a quarterly basis.