It’s a new year and the perfect time to think about doing some financial housekeeping for your business.
But where do you start and what should you prioritise? Read on for our six top tips for businesses going into 2022.
Create a budget
First, you should review your budget, which you will have created when you started your business.
A business budget is a detailed representation of where you want to be within a certain period of time, typically a year.
That could be the sales volume you want to see, the financial position you want to be in, the cashflow you want to achieve, a mixture of these or something else entirely.
To do that, you should identify the resources available to you and allocate them to different parts of your business in a carefully considered way to create a spending plan you will try to stick to.
You can then review your budget at the end of the period you are recording to identify areas for improvement.
Review your cashflow
Next, take a look at your cashflow, which is the flow of money that is circulating through your business.
You ultimately want a positive cashflow, which means you have more money coming into your business than going out at any period of time.
Making a cashflow forecast is essential for this, as it will give you a projection on how much money will flow in and out of your business in the future.
If you create multiple forecasts based on different sets of assumptions, such as the amount of sales you make, you’ll be able to see if you need to then take action to improve your cashflow.
To achieve a positive cashflow, you can boost your incomings by staying on top of your invoices so you get paid early and discounting goods to encourage customers to spend more.
Cuts costs
Boosting your incoming isn’t the only way to improve your cashflow and finances, though. You need to think about cutting costs.
First, start with the books and interrogate every single one of your expenses. You might be surprised about the number of redundant repeat payments you’ve forgotten about.
When you can’t cut a cost out entirely, consider if you could pay less for the same goods and services, or more.
For instance, you could negotiate with suppliers to see if you can strike a better deal. Ideally, that would mean buying more stock for a discounted price.
But don’t assume your supplier is the best for you whether that’s for stock or electricity. We would suggest comparing around six suppliers by contacting them directly about their prices.
Sometimes, though, cutting costs is a simple matter: switch to energy efficient bulbs to reduce electricity costs, turn off equipment when not in use and improve insulation.
Tax planning
Just like how you might be spending more than you need to for stock and utilities, you might be paying more than you need to in business tax.
It’s likely you have filed your self-assessment and corporation tax returns for 2020/21, which would have been a perfect opportunity to fine tune part of your tax strategy for you to focus on next time.
You can do that by making sure you add every single allowable expense you made in your tax return, the cost of which can be deducted from your tax bill, saving you money.
Consider as well if 2022 is the year you switch from running your business as a sole trader to running it as a limited liability company.
Companies are liable to corporation tax, currently set at 19%, while sole traders pay income tax on their business profits.
Talk to an accountant
Last but not least, talk to an accountant.
That’s not a simple advertisement, but a serious recommendation. After all, we’re tax experts who can help you streamline your taxes and business advisers who can help with budgeting, cashflow, incorporation and much more.
We’re not even saying get in contact with us, just that it is seriously in your business’s best interest to talk with one about what they can do for you.
Call us at 01462 420042 or email us at info@hw-associates.co.uk to talk about your business.