Blog

Top Seven Tips for Accurate Cash Flow Forecasting

Posted on | by Jessica Weston | Leave a Comment on Top Seven Tips for Accurate Cash Flow Forecasting

Do you want to know how your business will fare in the future? Apply the following methods to improve your forecasting.

Forecasting your company’s cash flow helps minimise potential risks and can indicate if the company is in a position to grow.

Proper cash flow management is a given. But monitoring all the money coming and going doesn’t always provide all the vital information you need to make accurate predictions.

The following tips and areas of focus should contribute to a better strategy for your forecasting.

Tip #1 – Estimate Future Sales

The accuracy of cash flow forecasting relies on multiple variables, of which arguably none is as important as the sales forecasts.

To improve accuracy, the estimate should depend on the following series of factors:

  • Market share
  • Resources
  • Competition
  • Pricing

Tip #2 – Estimate Profit and Loss

After your sales projections, you need to factor in the projected costs, too. This gives you more information about your profitability.

Of course, you have to know both the expected revenue and the cost of sales to estimate projected gross and net profits.

Tip #3 – Perform Monthly Sales Estimates

Some businesses don’t turn out enough data in a single week to make accurate projections. This happens because customers sometimes delay payments. Or, the money simply doesn’t come through in time to match the daily revenue on the books.

For that reason, it’s important to stick to monthly estimates with consideration to any known delays.

Tip #4 – Include Payments Due

Sometimes a business might have to pay for expenses, services, or purchases. And those types of payments usually find their way on P&L statements.

In some cases, however, a registered payment does not mean that the money is to leave right now. That money could leave the account only in the next month, for example.

Hence, you have to include projected payments in the cash flow forecast to further improve its accuracy.

The following are examples of payments due worth considering:

  • VAT taxes
  • Interest rates on loans
  • Utilities
  • PAYE taxes

Tip #5 – Compare with Current Cash Flow

One of the causes of inaccurate forecasting is unrealistic expectations.

It’s always important to check the forecast versus the current cash flow statement. Large discrepancies that no one can back up with facts may signal missing variables in the equation.

Tip #6 – Make Consistent Predictions

Doing a cash flow forecast once may not give you a degree of accuracy that small business owners hope to achieve.

One of the best ways to improve the accuracy of cash flow forecasts is to make it a habit. Updating your forecast as often as possible with new information can drastically improve its accuracy.

Furthermore, forecasting over long periods of time helps uncover certain trends. Again, it’s all data that can help improve future predictions.

Tip #7 – Account for Variable Costs

VAT taxes and interest rates are unlikely to change from month to month. But other costs may change depending on the weather, season, and other exterior factors.

So when calculating costs, it’s critical to allow some wiggle room for the variable costs. Those are costs that may vary from month to month – utility costs, for one, and perhaps the phone bill.

Accuracy Comes from Good Data

It’s nearly impossible to create a realistic forecast without using all the right information. This is especially true when many things can happen in the future that will be out of your control. However, using as much data as possible can only lead to more accurate forecasts. So keep collecting the right data and use it well.

The Most Dangerous Accounting Mistakes For Your Small Business

Posted on | by Jessica Weston | Leave a Comment on The Most Dangerous Accounting Mistakes For Your Small Business

Starting your own business is an amazing thing to do but it’s also notoriously risky. There’s a lot to think about when you first start out on your own and it can be tempting to put accounting on the back burner, but that would be a huge mistake. Good accounting is crucial to the financial health of your business and mistakes can be devastating, especially in the early days. It’s important to know which mistakes to avoid to ensure that your small business is around for years to come.

1. Bad Bookkeeping

New business owners are often overwhelmed and tend to neglect bookkeeping. However, it’s essential that you keep the books up to date and record all of your earnings and expenses. Without this data, you won’t have a clear picture of how you’re faring financially, which can lead to a myriad of nasty problems.

Meticulous bookkeeping allows you to spot trends, understand your spending and examine which practices generate the largest ROI. You can then leverage this data to improve the financial health of your business, maximise your profits and manage your cash flow. Staying on top of the books allows you to stay one step ahead and put out fires before they start.

2. Confusing Cash Flow and Income

The money you take isn’t the money you make.

£100,000 in revenue sounds great, but if you had to spend £30,000 on equipment, insurance and employees to make that money, you’re actually left with £70,000 profit. You’ll then have to pay tax on your gross profit, so the net amount will be smaller again.

It’s vital to know not only how much money is coming into your business, but how much is going out. Getting carried away with gross numbers is a common mistake that new business owners make, and it quickly lands them in hot water. It’s important to stay grounded in reality and know how much you’re really making so that you don’t overspend.

3. Using Outdated Practices

You’re a 21st century business and your accounting practices should reflect that. Online accounting and bookkeeping softwares are faster, easier and dramatically more efficient than ledgers and Excel spreadsheets.

Online accounting software is easy to learn and significantly reduces the margin of human error by automating processes and calculations for you. This means that you’re much less likely to make mistakes on your tax return. It also reduces the risk of making the wrong financial decisions due to inaccurate information.

With this type of software, you won’t have to spend hours updating and organising your financial information. Another benefit is that it allows you to locate and cross-reference information quickly and easily, without having to spend hours searching for the right files. It may be more expensive than the DIY approach initially, but using online software will save you many man hours.

4. DIY Accounting

Accounting is complicated; there’s a reason it takes accountants years to fully qualify. Trying to manage your accounts all by yourself is a surefire way to waste time and stress yourself out. Besides, without extensive financial knowledge it’s unlikely that you’ll be able to save a significant amount of money on your tax return. Furthermore, you’ll be heavily penalised for making even a minor mistake on your return which could cause financial problems for your business.

Trying to manage on your own is a drain on your resources so the sooner you seek professional help, the better. Investing in the services of an accountant is one of the best decisions you can make regarding the financial health of your small business.

Summary

It’s important to avoid the above accounting mistakes in order to set your business up for success. Neglecting or mismanaging your accounts can have serious consequences, so it’s best not to take any risks. Whilst it’s tempting to put accounting off until later, you need to make it a priority right from the very start. Good businesses and bad accounting just don’t go together.

Quick Ways to Improve Your Financial Performance

Posted on | by Jessica Weston | Leave a Comment on Quick Ways to Improve Your Financial Performance

If you want to improve the financial aspect of your business, start with smart changes that will bring you great results.

Even when a business is doing well, there’s always room for improvement. Especially if you want your company to make more money or have better cash flow.

Here are three quick ways to improve financial performance that apply to every company, big and small.

Rearrange Expenses

Some business owners start with the idea that their business needs to make more money to cover all expenses. But what if you reverse the order and see if you can reduce your expenses?

Perform an evaluation of your expenses and see if there are areas where your business is spending more than necessary. A couple of rearrangements could make a sizeable difference.

For example, you may want to negotiate with your suppliers to get a better deal. You could also switch your insurance company if another company offers the same level of coverage at a more reasonable price.

Finally, you could discuss a periodic payment plan for larger expenses to make it easier on your company’s finances.

Offer More Payment Methods

If you’re working directly with customers, you may offer additional payment options. Doing so may let you attract many more customers at the cost of a little work.

Everyone has a preferred payment method and if you don’t have that option available, they may move on or are at least less likely to buy repeatedly.

If you don’t have a webshop, you could upgrade your site to include one and have multiple payment methods available for customers. Besides credit and debit cards, some of the popular ones you can offer include PayPal, Skrill, Google Pay, etc.

Businesses that have broadened their accepted payment methods have mostly experienced an increase in sales and customer satisfaction.

Change Your Marketing Strategy

Many businesses are spending a lot of money on marketing. Having a marketing budget is fine, but if you’re not doing great, consider downsizing or trying something else.

Social networks and blogs are very powerful tools for building an audience that trusts you. It’s also a cheaper and faster channel to get your message across. Try it and you may realise that you could cut your marketing budget in half.

You don’t have to pay for ads, either. Instead, you only spend time creating content and engaging with the audience.

Building an organic presence on social media won’t happen overnight. But if you know what you’re doing or have someone on your staff that does, a month of constant work may be enough to get your foot in the door.

Smart Changes

If you want to improve your company’s financial performance, you don’t have to do anything drastic. Small and smart changes can already lead you to where you want to be.

Every business can rearrange its expenses, offer more payment options, and get the most out of social media.

Try using these strategies for a few months and you may be pleasantly surprised by the results.

Need a hand improving your financial performance? Get in touch today! www.sunnysideaccountancy.co.uk/contact/

Four Ways to Reduce Costs and Boost Your Profitability

Posted on | by Jessica Weston | Leave a Comment on Four Ways to Reduce Costs and Boost Your Profitability

Not sure why your bottom line isn’t pretty? Sometimes, overspending can hurt your profitability despite your record sales.

Profitability doesn’t only come from sales numbers. And a profitable business isn’t always the one with the most customers and the highest sales.

The sign of a business profitable depends on what’s left in the account at the end of the month or the fiscal year.

It’s important to account not only for the money coming in but also the money going out. That’s why cutting costs is one of the best ways to boost profitability… assuming that you do it right.

Tip #1 – Address Material Costs

Sellers of products are most concerned with raw material costs. That’s why increasing profitability can be as simple as lowering manufacturing and or development costs.

You’d be surprised at how much this move can make your business profitable.

Tip #2 – Reduce Labour Costs

Is there something in your business that you can replace with an automation system?

Have you considered hiring a VA as opposed to an on-site assistant?

Reducing the amount of money spent on wages can also boost profitability when you draw the line on your finances. So, evaluate the daily tasks that your team members perform and look at some of your own duties as a business owner.

In today’s environment, outsourcing is one of the best ways to cut costs. It’s also one of the smarter ways to hire as you may have access to a wider pool of experts. 

Properly executed, you can lower costs and maintain a high level of quality with outsourcing.

Tip #3 – Manage Expenses

Many businesses are overpaying for marketing.

For example, hotels may work with a variety of travel agencies even though a couple of them may be bringing in the bulk of the bookings.

In that scenario, it may be a good idea to drop the non-performers.

The same principle applies to all other expenses and services. If you pay for things and they don’t end up improving your business or what you offer, these may be expenses worthy of the chopping block.

Needless to say, this would affect your bottom line directly.

Tip #4 – Know What Costs to Cut

If only cutting costs were simple, right?

Most business owners don’t know where to start. If you’re one of them, it’s ideal to start by performing an internal audit of your finances.

Identify where all the money comes and goes and decide what you can or can’t cut.

Tip #5 – Get Better Deals

Many industries work with vendors, which happens to be a great area to look at if you want to boost profitability.

You may already know that it’s possible to renegotiate vendor contracts, though it’s easy to be put on the back burner. Getting better deals, however, doesn’t always have to involve other vendors, as you can also leverage your relationships with existing vendors.

You can even consider changing service providers and utility contracts.

Cut Costs Smarter, Not Harder

You don’t have to make massive cuts in a single department. Even small amounts add up to significant savings if you make enough of them here and there.

These tips are particularly helpful to anyone operating a cash flow-dependent business. That said, they apply to both B2B and B2C companies looking to boost their bottom lines.

Need a hand cutting your costs? Get in touch now! www.sunnysideaccountancy.co.uk/contact/

7 Most Common Money Mistakes for Start-ups to Avoid

Posted on | by Jessica Weston | Leave a Comment on 7 Most Common Money Mistakes for Start-ups to Avoid

Smart financial management is essential for any business, no matter how big or small. However, it can be difficult to get things right, especially during the start-up stage. Poor financial planning is one of the most common reasons that start-ups fail, so the sooner you take ownership of your business’ financial health, the better. Dealing with your finances head-on from the get-go is the best way to set yourself up for lasting success. Careful planning can help you to avoid common money mistakes and shows potential investors that you’re serious. Here are the most common financial mistakes that start-ups make and how to avoid them.

1. Prioritising Instinct over Information

Whilst following your gut is generally a good principle, it’s a dangerous game to make assumptions about your finances. It’s vital that you meticulously track your revenue and expenses and closely monitor your cash flow. If a small mistake goes unnoticed for too long, it could prove very damaging for your business. During the start-up stage, using an Excel spreadsheet will suffice but be prepared to upgrade to bookkeeping software later on.

2. DIY Accounting

Managing your accounts by yourself will suffice for the initial setup of your business, but it’s wise to hire a professional accountant as early as possible. Juggling self-taught accounting with running a small business will eventually result in a backlog of errors, which can prove costly. Professional accounting services save time, money and stress, allowing you to focus on growth. You don’t need to hire a whole team. Start by outsourcing your taxes or setting up quarterly meetings with a financial consultant for help and advice.

3. Failing to Assign Project Budgets

Assigning a budget to a project prevents it from draining your finances should something go wrong. A clear budget will allow you to reassess your finances should the project require more money and make smart decisions that won’t damage your business.

4. Disorganized Files

The importance of balancing bank statements and keeping receipts in order cannot be overstated. Patchy bookkeeping can cause chaos for your business and result in a lot of trouble, not to mention wasted man hours trying to resolve the problem. Keeping all of your receipts and cross-referencing your accounts with your bank statements is vital for transparency and future success.

5.  Misunderstanding Your Target Market

In order for your business to be successful, you need to understand what your customers need. Knowing your target market helps you to reach them, as well as how to appropriately price your products and services. Here are some questions to consider:

What is your market position?

What need do you fulfil for your customers?

How much value do your products or services provide?

Who is your competition – and what makes you stand out?

Miscalculating prices can prove to be a grave error for a small business, but knowing your market well will help you to figure things out.

6.  Hiring Quantity over Quality

Over-hiring is an expensive mistake to make. Hiring employees is one of the most costly parts of running a business, so going overboard is a huge waste of money. It can also damage staff morale and productivity, and lay-offs further down the line will only amplify the problem.

Bad hires are another threat to a small business. Hiring the wrong employee can create an imbalance within the company culture. In turn, this can negatively impact other staff and even damage your business’ reputation. Don’t rush the hiring process. Taking extra care to avoid mistakes can save a lot of trouble in the long run.

7. Miscalculating Expenses

In order to keep your business afloat, you need to know exactly how much cash your business burns each month. Keeping a meticulous record of your expenses allows you to understand where your money is going, and how much you’ll need to survive. Underestimating your cash burn can land your business in hot water, so create a projection of your monthly expenditure and be sure to monitor it closely, making adjustments whenever necessary.

A successful business needs a strong financial foundation, so keep these mistakes in mind. No business is invincible and it really does pay to be cautious and always stay one step ahead.

If you want help to ensure that your new business gets off to the best possible start click the link below to arrange your free discovery call.

www.sunnysideaccountancy.co.uk/contact/

Why not join our free Facebook group for help and support?

https://www.facebook.com/groups/367505000939830

How to Create a Realistic Business Budget

Posted on | by Jessica Weston | Leave a Comment on How to Create a Realistic Business Budget

Your business needs a budget but when you’re starting out it can be tempting to skip this step. That would be a mistake, because a budget is a powerful tool to ensure the financial health of your small business. A realistic budget enables you to make confident financial decisions and save money for future investment and expansion. On top of this, your budget will prevent you from overspending and provide concrete goals against which you can measure your success.

It can be difficult to know where to start when it comes to creating a budget, particularly during your first year in business. You’ll need to work with estimates if this is the case, but it will still make financial planning much easier. Once you’ve laid out a realistic budget, you’ll be able to adjust it as necessary rather than starting from scratch. Here are six easy steps to creating a realistic budget for your business.

1. Calculate Your Income

Business income is the money you receive from customers for your goods or services. This is easy to work out from your records if you’ve been in business for a while, but if you’re just starting out you’ll need to make an estimate. Try to be as realistic as possible but if in doubt, always err on the side of caution. It’s better to be conservative with your budget than risk overspending.

If you’ve been in business for a year or more, take some time to analyse seasonal trends. If you’re new, do some research on patterns within your industry. Many businesses experience a boom in sales at Christmas, followed by a lull in January.  It’s important to plan for these peaks and troughs as accurately as you can.

2. Determine Your Costs

Once you’ve worked out your projected income, it’s time to take a look at your expenses. Business costs fall into three different categories: fixed, semi-variable and variable.

Fixed: these costs are the easiest ones to calculate. Fixed costs are the expenses that are likely to remain the same for the next year or so, such as rent, internet and insurance.

Semi-variable: this is a bit of a grey area. Semi-variable costs are fixed costs which may increase or decrease in proportion to your workload. For example, a boom in sales might result in increased hires, phone bills or power usage.

Variables: these expenses are directly linked to your number of sales, such as commissions or raw materials. This is the part of your budget that you’re most likely to have to tweak over time. You can calculate this by adding together all of your variable costs over a given period of time and then dividing them by your production volume.

3. Factor in One-Off Expenses

You need some wiggle room in your budget in case things go wrong. Unforeseen expenses do crop up every now as then, so you need to be ready for them. For example, if a piece of equipment breaks down, you’ll need to replace it as soon as possible so that it doesn’t impede productivity. Of course, some one-off expenses are planned, such as facility upgrades or conferences. Keep a separate fund for this type of cost and don’t be tempted to put it towards your regular expenses.

4. Work Out Your Profit

Your profit represents how much money you’re actually making. You could have a huge income, but that doesn’t mean much if it’s outweighed by even larger costs. To calculate your profit, subtract your costs from your income.

5. Refresh

A budget doesn’t mean much if you don’t review it regularly, and a lot can change in a surprisingly short amount of time. It’s vital to keep checking your budget and making adjustments whenever necessary. Each month, set aside some time to check your finances and compare them against your plan. This will keep you on track and allow you to keep your budget relevant to your business.

6. Use Bookkeeping Tools

Staying on top of your budget can be time-consuming, especially when your business is growing and you’ve got a million other things to do. Cloud-based bookkeeping software is the easiest and most reliable way to keep track of your expenses and you’ll have 24/7 access to your records from anywhere in the world, as long as there is an internet connection.

The Importance of Budgeting

A realistic budget for your business makes it so much easier to plan for the future. However, regularly reviewing and adjusting your budget is essential, or it could quickly become outdated. Your budget is a roadmap for your business and it helps you to prepare for all manner of situations. Most importantly, it gives you control over your finances, which will help your business not just to survive, but to flourish.

LEAVE THE TYPEWRITER BEHIND AND SWITCH TO CLOUD SOFTWARE

Posted on | by Jessica Weston | Leave a Comment on LEAVE THE TYPEWRITER BEHIND AND SWITCH TO CLOUD SOFTWARE

We recently had a meeting with a potential client whose current accountant is still using a typewriter to produce their accounts. This led us to write a blog on the reasons why it’s time to leave the typewriter behind and make the move to cloud software!

Here are our top five reasons to switch to cloud software:

  • They help you to grow your business

The software allows you to get a real-time figure of how your business is doing at any moment so that you can immediately see any problems that need to be fixed. The software can also be used to predict any future problems and create ‘what if’ scenarios so that you can decide on the best course of action to take.

  • Integrates with other software

The main accounting apps such as QuickBooks online and Xero integrate with several other apps to make your life a lot easier. This allows your business to run as smoothly as it can with little input from you.

  • You can access your data from anywhere

Cloud software has all of the same features as desktop software but it can be accessed from anywhere so you’re not stuck at your desk all of the time!

  • Less micromanagement

Cloud apps require a lot less micromanagement than desktop versions because they are more intuitive. They’re also much less complicated to use!

  • Huge variety

There are absolutely loads of apps available to choose from so there’s definitely something to suit every business.

If you’re not sure about which apps you should be using for your business or you’d like a hand with your current software, please feel free to contact us.

10 QUICK TIPS TO IMPROVE YOUR CASHFLOW

Posted on | by Jessica Weston | Leave a Comment on 10 QUICK TIPS TO IMPROVE YOUR CASHFLOW

  1. Send invoices straight away.

The quicker you send your invoice, the faster you’ll get paid and you won’t get paid at all if you forget to send them.

  • Ensure that your customers pay your invoices on time.

This can be made easier by using direct debits, automatic invoice reminders, early payment incentives such as discounts, or late payment fees.

  • Increase your prices.

Are you charging enough for your products or services? If your prices are too low then you will be selling yourself short.

  • Consider new ways to appeal to more customers.

This could be by adding more products or services, putting items together to encourage customers to buy more or just updating your marketing strategy. Another great way to expand is to reward your loyal customers so that they are more likely to spread the word about you.

  • Take a look at your operating expenses.

Are there any you could cut out? Is there a cheaper alternative? We would recommend that you do a bank account audit every few months so that you’re only paying for what you need to.

  • If you use equipment is there a more efficient version you could buy?

Although this would cost more in the first place, in the long run it would save time and cut wage costs allowing you to produce more products. If purchasing equipment isn’t an option right now you consider leasing.

  • Be strategic about when you pay your suppliers.

If the supplier offers a discount for early payment then ensure that you pay early to save some money. If they don’t then pay at a time that suits your business best.

  • Open up a high interest savings account.

Put any spare money into here instead of leaving it sitting in your bank account not earning you any money.

  • Do credit checks on your customers before you sign them up.

If the customer has a poor credit rating then it’s very unlikely that you’ll receive payment on time.

  1. Make use of accounting products.

Cashflow is a much easier thing to keep on top of if you can see the situation in real time.

How do I get paid faster?

Posted on | by Jessica Weston | Leave a Comment on How do I get paid faster?

1. Keep your invoices (seriously) simple

Make your invoices as clear and simple as possible. Include information on how to make the payment, along with your contact information so customers can easily get in touch if they are confused by anything.

2. Email your invoices

Are you still posting your invoices? Sending your invoices by snail-mail slows down the process and decreases your chances of getting paid. Email your invoices or even better send them through software so that your customers can just click a button to pay you instantly.

3. Incentivise early payments

How can you encourage your customers to pay early? Can you offer discounts or gift certificates? Did you know that simply using polite language such as “Thank you for your business” on your invoices can increase your chances of getting paid faster?

4. Send friendly reminders

Don’t be too passive about your debtors! Remember, if your customers haven’t heard from you in a while, then you’ll most certainly be the last of their vendors to get paid.

5. Don’t wait!

The sooner you send your invoice, the sooner you get paid. Instead of waiting until the end of the month, send an invoice to the customer as soon as you’ve completed a sale. Make it a habit to invoice ASAP!

Remember that numbers tell the story of your business.

TOP TIPS: Reduce Tax The Right Way

Posted on | by Jessica Weston | Leave a Comment on TOP TIPS: Reduce Tax The Right Way

1) CLAIM EXPENSES

The simplest way to reduce taxes is to claim expenses. Did you know that you can claim for less obvious things such as:

  • Working from home costs
  • Mileage for business travel
  • Mobile phone
  • Professional subscriptions/memberships
  • And much more!

2) TAX RELIEFS

HMRC offer a wide variety of reliefs depending on your situation. A couple of these are:

  • Married and your partner has no income? Make sure you’re using the marriage allowance.
  • Are your self employed expenses less the £1,000? The trading allowance gives you a £1,000 deduction instead of using your expenses.

3) BUSINESS STRUCTURE

Depending on how much profit your business makes, exploring different business structures may give you tax benefits as well as business benefits. Ask our accountants about:

  • Sole traders
  • Partnerships
  • Limited Companies
  • Limited Liability Partnerships
  • And more!

Did you know? On an average income of £50,000 some of our clients have managed to save £3,000 in taxes by converting to a limited company.

4) FINANCIAL ADVICE and BUSINESS CONSULTANCY

Accountants aren’t just there for the numbers. With a large variety of clients and an extensive knowledge of the business world, we can help you with key business decisions and ensure you are as financially efficient as possible.

Get in touch to find out how we can help you.