What is the number one reason small businesses fail in the UK? For sole traders, the primary cause that will ultimately lead to the winding down of your business is poor cash flow. Inadequate cash flow can lead to various issues, including the inability to pay suppliers, meet payroll, or invest in growth opportunities. It is not an issue unique to UK businesses. It is something that impacts business owners across the world and is one of, if not the most common, causes of business failure worldwide. So read on for some effective financial tips for small business owners.
For sole traders, managing finances and understanding what is required of you can be intense, especially if you are not a numbers person. Keeping records, tracking payments, and managing invoices can be a full-time job. But these tips can help you make life easier and manage your accounts.
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Accounting Software – Financial Tips
Accounting software such as Xero and QuickBooks can be a lifesaver for small businesses. These tools are designed to simplify the tasks of monitoring, analysing income and expenditure, and understanding your financial situation. With their various options and functions, you can tailor them to your business, making the daunting task of managing accounts much more manageable.
Functional Business Banking
Having a business bank account is essential, but having one that helps you monitor and record all activities relating to your finances can give you a sense of control. From helping you with your taxes to tasks such as snapping and uploading receipts for business expenses, the more your business account can do for you to help you track every penny, the better.
Build a Reserve – Financial Tips
This might not be a huge reserve, but a reserve where, possibly, you can reinvest back into the business to use when business is slow can be a buffer to help you navigate those particularly tricky periods. It might be that you experience high increases in sales or influxes of work at certain times of the year. Great, put more money away from the busier times to help you cover the lulls in trade. Alternatively, squirrel away small amounts each week. Even token savings for a reserve fund are beneficial, especially in the beginning. If you want to boost your finances and avoid the pitfalls of running out of cash for essential payments or unexpected costs, a reserve can be exactly what you need.
Professional Advice
While the budget might not stretch to using an accountant or bookkeeper regularly, it can be worthwhile to check in with a financial expert occasionally to ensure you are on track with everything you need to be. Whether it’s identifying strategies for determining your tax payments, understanding what you can and can’t claim as expenses, or just getting advice on how to improve your financial behaviour, the more knowledge and understanding you have of business financing and good financial habits as a business owner, the better.
Don’t Mix Business and Pleasure
Lastly, for this post, absolutely do not mix business income and personal income. This won’t end well for you, and come tax return time, things can be that little bit extra complicated when working out what a personal expense or income is and what you need to declare. Not having a separate business account can lead to confusion, potential tax issues, and difficulty tracking business expenses and income.
Have a separate bank account, even if it’s not a business account, for your business income, and transfer over a wage to yourself, leaving money in the business account for expenses, tax, national insurance, etc.