Tag: #cashflow

Taking out cash for Directors vs Sole Traders

Posted on | by Jessica Weston | Leave a Comment on Taking out cash for Directors vs Sole Traders

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.

6 Strategies to Survive a Cash Flow Slump

Posted on | by Jessica Weston | Leave a Comment on 6 Strategies to Survive a Cash Flow Slump

In business, cash flow is just as important as profit. If your business is a car, then cash is the fuel in your engine; when it runs out, you’ll stop moving. A study by the U.S. Bank found that 82% of failed businesses cited cash flow problems as one of the main reasons behind their collapse. Therefore, it’s essential that you prepare for cash flow problems and understand how to survive a slump. 

1) Annual Discounts 

When cash is tight, it’s worth looking for ways to get a significant inflow into your business. One way to do this is to offer your customers an attractive discount for an up-front annual payment. For example, you could offer them one-month free when they pay a year in advance. This will give you a big cash injection that can help you to get moving again. 

2) Line of Credit 

A line of credit is essentially a hybrid between a credit card and a bank loan. This style of borrowing has many benefits and can be a godsend when you run into cash flow problems.

Much like a credit card, a line of credit is a preset amount of money that a bank or credit union has agreed to lend you. You don’t actually have to use it until you need it. You can borrow money at any time and pay it back either immediately or in increments. A line of credit usually has a higher limit than a business credit card. As with a bank loan, interest is charged as soon as money is borrowed. 

The flexibility of a line of credit makes it a great solution for smoothing over cash flow issues. The best time to organise a line of credit is when your company is in good financial health because this puts you in a better position to negotiate good rates and terms. 

3) Cut Down on Unnecessary Expenses 

When cash is tight, it’s worth reviewing your bank statement and looking at which expenses you can eliminate. Getting rid of costs that don’t drive value can really improve your situation. For example, you may be paying monthly software subscriptions, when the free version is sufficient for your needs. You also may still be forking out for forgotten-about products that you no longer use, or overpriced services when you may be able to get a better deal elsewhere. 

4) Shorten Payment Cycles 

Many businesses offer 30, 45 or 60 day payment cycles because that is simply the way things have always been done. However, in the digital age, such long payment cycles are no longer necessary. Nowadays, you can send your invoices via email so that your clients receive them instantly, and electronic payments mean that you no longer have to wait multiple days for cheques to process. Shortening your payment cycles means that cash lands in your bank account faster, and can thus put an end to a cash flow slump. 

5) Reach out to Existing Customers 

If your cash flow slump is due to a shortage of sales, it’s worth re-engaging your existing customers. More often than not, customers don’t stop buying from you due to dissatisfaction; they simply become disengaged because you fail to nurture them adequately. It is dramatically cheaper to retain an existing customer than to acquire a new one, so during a cash flow slump you should focus your marketing efforts on your existing customers. Be sure to nurture them via social media and email newsletters, and offer them an attractive deal or discount to re-engage them.

6) Stay Motivated 

Last but not least, it’s vital that you stay motivated during a cash flow slump – now is the time to work harder than ever. Surviving a cash flow slump is about creativity, communication and hard work. Although slumps can be demoralising, it’s vital that you stay motivated and work to use the above strategies to solve your money problems so that your business stays afloat. 

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.