Eight steps to understanding finances for your small business

Get ahead by creating a clear plan to manage your finances from the beginning. Keeping an eye on what could be on the horizon is a sure-fire way to stay compliant and also be prepared to tackle any potential challenges down the line. 

The following steps provide an overview of how to get started with a financial strategy for your small business. 

Open a dedicated business bank account to separate your personal and professional finances, and register for an MTD (Making Tax Digital) compliant bookkeeping software like Xero, FreeAgent, or QuickBooks to keep on top of recording your financial data.

Think about how much your business needs to generate in order to provide the return you require. Estimate your revenue and expenses in order to model projected profits and get a feel for how much money you expect to have for reinvestment, enjoyment or saving – let that guide your plans.

Once you’ve set your goals, it’s a good idea to break down your estimates into bite-sized quarterly, monthly, or weekly budgets that cover all outgoing costs and, most importantly, include your required profits. Don’t forget to adjust your budgets throughout the year to account for the impacts of seasonality on your trade.

One of the biggest threats to business success is not keeping an eye on incomings and outgoings. This is where calculating how much money you need on hand for unexpected expenses (otherwise known as a core cash budget) comes into play. This is vital to help you deal with nasty surprises – there are always some.

Keeping and submitting financial statements, such as profit and loss (P&L) statements, balance sheets, and cash flow statements, is not only vital for tracking performance, but is also required by law depending on the legal structure of your business. It’s important to understand how to read, record and report in line with your business’s legal obligations to avoid fines, penalties and interest.

Register with HMRC and understand your obligations regarding Income Tax, National Insurance, VAT, PAYE and Corporation Tax – these may not all be applicable to you, but each has differing rules for submissions and settlement that you must consider.

It may seem odd to think about the end so soon, but without an idea of how you one day plan to leave working life, you could end up limiting your options for retirement. You don’t need to pencil in a hard financial plan straight away, but some thought now will open more doors later.

Working with a trusted financial adviser who specialises in helping small businesses is a great way to take some of the strain off yourself and further secure the future of your business.