Poor financial management can cost businesses significant sums of money. Without the correct financial knowledge in your organisation, you could find yourself losing money through mistakes such as filing your tax return late or making errors in important documents. This can lead to costs that could prove terminal for many small businesses. To guard against this, here are five tips to keep your business’ finances in the best condition.
1. Set up a reserve bank account for a ‘rainy day’ fund
Even if your business is having a very successful period, it’s always important to keep an eye on the future. It’s hard to predict what may happen in the coming months, so make sure you don’t get caught out if business slows down by setting up a ‘rainy day’ fund that can cover a good three months’ worth of expected costs. Having one of these will mean that during slow business periods you’ll still have enough money to meet your expenses. As accountant Henry Cooper says, you should always be prepared for the unexpected.
2. Ringfence a percentage of your regular income to pay for tax and VAT later in the financial year
Similar to setting up a rainy day fund, it is also a good idea to keep a separate income stream to pay for your tax liabilities later in the financial year. If you are saving as the year goes by, you won’t be surprised by your tax bill and will be able to cover any lump sum owed. Setting aside around 10% of your capital as you go through the year is a reasonable amount that should ensure that you can cover your tax and VAT bills when they are due.
3. Spend strategically on investments such as marketing
When first starting your business, money can be tight. If this is the case, operations such as marketing may seem like inconvenient expenses which you could save money by doing without, or doing cheaply. However, these tools are essential to help your business reach your target customers and let them know how your product or service can help them. There are many cost-effective ways you can market your business and ensure that any money you do spend gives the best possible returns. With marketing it is essential that you are strategic about who you are trying to reach, this will then allow you to decide what the best way to reach them is.