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Five Smart Steps That Will Guard Your SME From Financial Trouble

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. 

 

Source: AAT

 

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. 

Effective financial planning is critical for SMEs as they often lack the funds to manage an unexpected crisis. There are a number of simple things every business can do to avoid some of the most common financial pitfalls, and free resources, such as the business advice website Informi, can prove invaluable in helping companies recognise areas in which they can improve their management of finances.

Adam Harper Director of Strategy and Professional Standards at AAT

4. Have a calendar with key dates marked on it to help you plan ahead

Planning ahead is a key skill that every entrepreneur requires. You need to be aware of all key dates relating to your business, such as when your tax return will be due (it’s probably a good idea to put a date in the calendar well before the tax return is due, and consider speaking to an accountant or bookkeeper), when your bills to other suppliers are due, and even dates when you could anticipate having more or less demand for your product or service. Knowing key dates well before they happen will help you make sure you are always ready and know what tasks you need to carry out and when.  

 

5. Find your business’ ‘hidden accountant’ 

If your business is progressing steadily and you are seeing some success and employee growth, it may be beneficial and cost-effective in the long term to upskill an existing member of staff with accounting qualifications. Finding your business’ ‘hidden accountant’ will benefit you because you will have someone who is there dealing with your business’ day to day finances, allowing them to spot things you may need to act upon on a day to day basis. You will also already have an existing relationship with the individual, and they will have a better level of knowledge about the different aspects of your business than someone who does not work there. If you feel there is someone in your business who could take on a financial role, you can look into getting them trained with an accountancy qualification

 

Source: AAT

 

Having good finances is one of the most important things for any business. If you follow these five points, you will make sure that your business has the strongest financial foundation possible and is ready to meet any challenge.
 

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