Credit Control – Sunnyside Accountancy

Taking out cash for Directors vs Sole Traders

Posted on May 3, 2022 | by Jessica Weston | Leave a Comment

Every business owner needs to take cash out of the business at some point. But if you’ve just moved from being a sole trader to a limited company, you may get caught out by the different rules around withdrawing cash from the company.

Why are the rules different for directors and sole traders?

When you’re a sole trader, you and your business are one and the same legal entity. So taking cash out is a simple procedure. But as the director and shareholder of a limited company, you and your business are two separate entities – and that means that money in the business is no longer your personal money. It’s money that belongs to the limited company.

Do I need to keep my personal and business money separate?

Regardless of which way you operate, you should always have separate business and personal bank accounts. The business account should be used to deposit all funds from sales and other business income, and to pay for purchases and other business running costs.

As a sole trader, there’s no legal difference between your personal and business funds. The main reason for a separate personal bank account is to keep your personal expenses separate from your business expenses. So, rather than mixing up things like mortgage or house rental payments, groceries and household bills with your business expenses, you have two distinct accounts – one personal, one business.

If you need money for personal expenses, you just transfer it from the business account to your personal account – it’s all yours to do what you want with. Obviously, you need to leave enough in the kitty to pay suppliers when their bills become due. But, as a sole trader, there’s nothing to stop you draining the business account completely, if you want to.

How do I draw money out as a limited company director?

For a limited company, it’s a legal requirement to have a separate business bank account. Even if you own the company 100%, the money in the company bank account belongs to the company, it does not belong to you.

So, how do you take out money to live on?

There are four ways of taking money out of the limited company, and in each case you should do it by transferring funds from the company account to your personal account. Preferably you should make these separate transfers, even if they happen on the same day.

Claiming back your expenses – any business expenses that you’ve paid personally can be reclaimed. Your expense claim should include receipts or other documentation, and a description of what they were for.
Being paid a salary – you can opt to be paid a salary for your role. This salary is processed through your payroll system, with any PAYE and NI deducted. The net pay due should be transferred to you on the normal company payday.
Withdrawing a dividend – where there are sufficient after-tax profits available in the company, you can withdraw dividends. Paying yourself and your fellow directors a dividend requires some formalities, including board minutes and dividend vouchers.
Directors’ loans and repayments – if you’ve previously loaned money to the company, the loan can be repaid to you. Where nothing is due, the company can lend you money but there may be interest charged (or a taxable benefit may arise if no interest is paid). The company may also be liable for a 33.75% temporary tax charge (section 455 charge) if the loan is not repaid by the end of your company’s financial year.

Talk to us about taking out cash as a director

Withdrawing funds from your company for personal use takes some serious thought and planning. If not, you may well end up with an unintended overdrawn director’s loan account.

It’s important to remember that the company’s funds are not yours in the same way that a sole trader owns the funds in their business account. Getting professional advice as a director is the best way to manage your cash withdrawals from the business.

We’ll work with you to:

Decide the best split between salaries and dividends
Help with any board minutes and other documentation
Help ensure that your company’s bookkeeping records accurately and timeously reflect the movement of funds between you and the company.

Get in touch to talk about your cash requirements.

4 Bad Financial Habits That Are Hurting Your Business

Posted on April 4, 2022 | by Jessica Weston | Leave a Comment

Habits are everything. From getting up early, to working out and eating healthy, habits are what differentiate successful people from others. The same applies in business – entrepreneurs who have good financial habits tend to make better decisions than those who lack them.

If you have poor financial habits, then your small business could be suffering as a result. What’s more is that many business owners aren’t even aware of the behaviours that are costing them money and slowing their growth.

Let’s take a look at four bad financial habits that could be hurting your business:

#1 – Not Paying Attention to Expenses

One of the biggest killers of small businesses is neglecting to keep track of expenses. This often leads business owners to overspend on unnecessary items, or worse: not having enough money to cover necessary costs. The key to overcoming this habit is creating a budget, and sticking to it.

This will help you identify areas where you’re overspending, so that you can make the appropriate changes. For example, if your business spends too much on travel expenses, then consider having meetings via Skype or Google Hangouts instead of in-person whenever possible.

Working with an accountant is a great way to keep you accountable when it comes to your finances. This person can help you create a budget, and assist you with making financial decisions on behalf of your business.

Having someone who assures that things are done correctly is a lifesaver for many small businesses, especially those with little experience in managing their own finances.

#2 – Paying Too Much for Office Space

Another common mistake that business owners make is spending too much on office space. This can be a major issue, especially if your business isn’t generating a lot of revenue yet.

There are several ways to avoid overspending on office space. For starters, consider working from home until your business is more established. You could also look into renting office space on a shared basis, or taking out a flexible contract with a coworking space. This means you won’t have to worry about forking out for furniture and equipment, and you’ll have the flexibility to pay for less space when things are slow.

#3 – A DIY Attitude

Doing everything yourself saves money, right?

Wrong.

Many small business owners try to do things on their own, but this can be a huge waste of time and money. In some cases, you may end up doing more damage than good. This is especially true when it comes to financial matters – unless you’re an accountant or bookkeeper, there’s no reason for you to handle all the financial tasks for your business.

Hiring professionals to help you with bookkeeping, accounting and other financial matters can save you a lot of time and money in the long run. Not only will you have more time to focus on what you’re truly good at, but you’ll also have peace of mind knowing that everything is being handled correctly.

#4 – Lax Invoicing and Billing Practices

Another bad financial habit that can hurt your business is lax invoicing and billing practices. This happens when you don’t send out invoices in a timely manner, or when you don’t follow up on unpaid bills.

Both of these things can lead to money being left on the table, which is obviously not ideal for any small business.

To make sure that you don’t fall victim to this bad habit, it’s a good idea to create an invoicing and billing schedule. This ensures that your bills are sent out on time each month, without fail. It also helps you avoid forgetting about overdue bills, so that you can follow up with clients in a timely manner.

You may want to consider hiring an accountant or bookkeeper to help you with this task, as it’s something that can easily be overlooked by busy business owners. A simple mistake like forgetting to send out invoices on time could cost your business thousands of dollars each year – money that could have been spent on paying bills, marketing your business, or hiring new staff.

Final Thoughts

Make sure to avoid these bad financial habits if you want your business to succeed! Implementing a budget, working with professionals, and sending out invoices on time are all great ways to keep your finances in check. Remember that over time, good habits compound to provide great results!

What To Do When a Client Won’t Pay

Posted on December 13, 2021 | by Jessica Weston | Leave a Comment

Many business owners have experienced the frustration of trying to collect payment from a client who simply won’t cough up. If you are having trouble getting paid, then it is important to take action quickly before the situation becomes even more difficult. In this blog post, we will discuss what to do when your clients won’t pay, and how to avoid this from happening in the future.

Don’t Make Assumptions

When your client does not pay, it is easy to assume that they are being completely irresponsible. However, sometimes clients have legitimate reasons for why payment has not been sent out. It’s important that you don’t accuse them of anything until you know the full story. This is especially true if your client has always been reliable in the past – give them the benefit of the doubt.

Keep Your Cool

In the heat of the moment, it can be easy to want to send a strongly worded email or make an angry phone call in order to get your point across. However, if you take this approach, then there is a good chance that you will only make matters worse and put future business at risk. It’s important not to jump the gun.

Send Reminder

Your clients are only human. If a client is late to pay, resend the invoice along with a polite notice that their payment is now past due. Don’t be demanding or accusatory. You should also make it as easy as possible for them to pay by including links or buttons to your accepted methods of online payment.

Contact Them Via Social Media

If your client doesn’t respond to your follow-up emails within a few business days, try contacting them on social media instead. In some cases, a client might simply be neglecting their inbox and so it’s worth trying another channel. Again, it’s important to maintain professionalism and not accuse them of disappearing on you.

Send an Attorney’s Letter

If you still have not received your payment then it’s time to send an attorney’s letter. You can arrange this for an affordable fee and often the client will be unnerved enough by the suggestion of legal action that they pay up.

Small Claims Court

If you have exhausted all other options, then it’s time to take your client to small claims court. This is a last resort and it’s a fairly costly option, so it’s important to weigh up whether or not it’s worth it. Unfortunately, if this is not the case then it’s best to cut your losses and focus on preventing this kind of behaviour in the future.

Protect Yourself

It’s always better to be safe than sorry. Take steps now that will protect you in the future and avoid having this problem again.

One way to do this is by introducing late fees. Your cloud accounting software should be able to calculate and add these for you automatically.

If you do decide to introduce late fees, be sure to communicate this clearly with your clients and give them plenty of notice so that they can’t accuse you of taking them by surprise.

You should also make sure that all of your clients are aware of how to pay online so that they have instant access to their account details at any time.

In addition to this, you should consider asking for payment upfront to protect yourself. This could be a 30%, 50% or even 100% deposit.

Finally, make sure that you have the right legal contracts in place so that you are better able to take action if a client still fails to pay.

Conclusion

If you find yourself in a situation where your client hasn’t paid you, it’s important to keep calm and take the proper steps. Make sure that before taking legal action, you’ve exhausted all other options by sending reminders and social media messages. If these tactics still do not work, then consider contacting an attorney or small claims court for assistance with collecting payment from clients who won’t pay on time. Finally, make sure to put the right steps in place to protect yourself against this situation in the future so that you can concentrate on running your business rather than chasing up payments.

Accounting and Bookkeeping Basics that Every New Solopreneur Needs to Know

Posted on November 22, 2021 | by Jessica Weston | Leave a Comment

Starting a new business venture by yourself is incredibly exciting, but it can be daunting, too – especially when it comes to accounting and taxes. The sooner you begin to learn about accounting, the less likely you are to run into trouble, which is why we’ve put together a basic accounting guide for new sole traders, contractors and freelancers who need a nudge in the right direction.

Separate Business and Personal Bank Accounts

They say you shouldn’t miss business with pleasure and this is especially true when it comes to banking. It’s important to create a separate bank account for your business expenses and transactions, for several reasons.

Firstly, this creates a log of your business-related transactions. This saves you from having to comb over your records and try to remember whether each purchase was business-related or not when tax season rolls around. As a consequence, you’re less likely to miss out on tax deductions and end up paying more than necessary.

A separate business bank account makes it easier to monitor your cash flow situation and understand how much you can afford to spend. It also helps to maintain business credibility, which is important when seeking financing.

It’s also worth arranging a business credit card. Business credit cards typically have a higher limit than personal ones, which is useful since business expenses tend to be higher, too. This will help you to smooth out any cash flow issues you face without putting your personal credit score at risk.

Invoice Management

Invoice management is a simple but crucial part of effective cash flow management. Not only is it important to send invoices on time, with a clear itemised bill and the correct payment information, but you also need to be proactive about chasing up late paying clients, too.

Track Expenses

Track everything from client lunches and printer ink to office rent and software subscriptions. Carefully tracking your business expenses keeps your financial records crystal clear and helps you to maximise your tax deductions. As well as using a business bank account or credit card to keep your records, it’s also a good idea to use a cloud-based accounting software so that you can upload and organise your receipts with ease.

Go Paperless

Of course, you will need to keep hard copies of certain important documents but going as paperless as possible is a great way to stay organised and make accounting easier. There’s really no need to store everything in a shoebox anymore.

Accounting software can do everything from generate invoices to storing receipts, eliminating your need for an overflowing filing cabinet.

Electronic payments are also much faster to process than old-fashioned cheques, which is great news for your cash flow.

Don’t Forget About Taxes

Employees with regular paychecks tend to spend a fairly minimal amount of time thinking about tax, but as a solopreneur you need to be much more proactive. For every invoice payment you receive, you need to set aside anywhere between 15-30% of that sum, depending on your annual earnings and business type. It’s important to be aware of this and budget accordingly so that you don’t receive a nasty surprise when the tax year ends.

Summary

Accounting and bookkeeping doesn’t have to be difficult. By staying organised, being proactive and taking a common-sense approach, you can overcome many of the common pitfalls experienced by new solopreneurs.

Being proactive about expense tracking and invoice management will give you a huge leg-up. By separating your personal and business accounts and using accounting software, keeping your records in order becomes far easier. Trust us, this will save you many headaches and sleepless nights!