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Watching These Five Critical Areas Will Keep Your Business On Track

Running a business can take up an inordinate amount of time, dedication and energy in order to be successful. There is always a danger of being distracted and losing sight of important business aspects.

We spoke to Lauren Cullen, a Licensed Insolvency Practitioner, to share her unique perspective on running a successful business. With over 13 years of experience in the industry, she has worked closely with many companies that have regrettably failed and required an insolvency procedure. However, she has also worked with a large number of companies that have been highly successful and used a solvent liquidation in order to release reserves to shareholders in a tax-efficient manner.

Here are Lauren’s five critical areas that all business owners should monitor.

 

Check the bank account regularly

Knowing how much you have in your account is essential to keep a healthy cash flow. There are bound to be times when cash flow is tight but if this becomes a regular occurrence then you need to seriously consider your options. 

Alarm bells should ring if:

  • the bank account is overdrawn or always at its limit
  • cheques drawn on the account are bouncing
  • the bank has refused to increase the overdraft or refused to provide a loan
  • in the case of a limited company, the bank is now asking for personal guarantees from the directors.

More reading: how can I maintain a good cash position?

 

Customers

Getting paid by customers is key to the survival of a business and I have seen all too often the knock-on effect of bad debts, normally when a business is overly reliant on one customer. Debt collection is a vast subject in its own right and too large to give it justice in this article, but here are some brief points to consider:

  • Keeping your bookkeeping up-to-date, monitoring how long it takes customers to pay and regularly chasing debtors should be done as a matter of routine.
  • Check the customer’s credit position when they place an order. If there are outstanding invoices then seek to get these paid before issuing further credit. If this is an ongoing issue with some customers you should consider seeking assistance from a debt collector. But you must be sensitive to the ongoing trading relationship.

More reading: how should I chase customers for payment?

 

Suppliers, Landlord and Employees (Creditors)

Paying creditors as they fall due should be the routine, but on occasion, this can prove difficult and it can be easy to fall behind.  

  • In order to save you from falling foul of this, regularly ask yourself:
    • Do I know the current position with creditors?
    • Am I paying creditors on time?
    • Are demands coming in for payment?
    • If the business requires stock, are deliveries delayed because of non-payment and therefore sales are behind?
    • Are suppliers requesting changes in credit terms?
  • One area I often find businesses struggle with is to set aside funds to pay the rent, as this is normally a quarterly payment. An easy solution to this would be to ask landlords to pay monthly instead.
  • Paying staff on time is paramount; the consequences of delaying this can be devastating as staff will sense financial difficulties, be concerned with their financial security and start seeking new employment. 

More reading: how do I operate payroll?

Not paying staff on time can be the final nail in the coffin for some businesses so remember – happy and content staff leads to more productivity and greater profits.

HM Revenue and Customs (HMRC)

It is easy to fall behind on filing returns with and paying HMRC. Especially if you are trying to juggle everything and have tried to save money by not employing an accountant

My suggestions are to:

  • Be meticulous about dates for filing returns and paying VAT, PAYE, Corporation Tax/Self Assessment tax, to avoid penalties and surcharges.
  • Seek advice from an accountant and they can confirm, based on your knowledge, the tasks that you can do and ones that it would be wise to pay them to do. 
  • If your business is registered for VAT, I also recommend that a separate bank account is used, so regular transfers are made in respect of VAT on sales. At the end of the quarter, the business will be able to meet the liability and have money spare, when taking into consideration the VAT on purchases. These remaining funds can then be saved towards paying your Corporation Tax or Self Assessment liability. 

More reading: Self Assessment tax returns for sole traders and partnerships

 

Management

Running any business is a management exercise on a monumental scale so regular reviews need to be conducted.

  • Take the time to review the financials and keep questioning ways to increase sales and reduce overheads.
  • You also need to consider the future of the business and plan ahead. Is competition in your industry increasing? What steps need to be taken accordingly?
  • If the business is registered as a company then directors also need to be aware of their drawings. Remember you can only take dividends if the company has distributable reserves, otherwise, your director’s loan account is increasing and puts more pressure on the company.

More reading: how do I measure success and growth?

 

Remember, seek advice early

As a Licensed Insolvency Practitioner, I’ve seen all too often business owners seeking advice much too late. Unfortunately, this often results in leaving no option but to close the business down. In the case of a limited company this would be a liquidation, but for sole traders and partnerships, the individuals, in turn, will find themselves needing formal insolvency procedures, at times going bankrupt.

Guidance must be sought at an early stage. Although the name may not suggest it, in recent years Insolvency Practitioners have been spending more of their time assisting in turning around and restructuring businesses, rather than just closing them. 

 

Lauren Cullen is an AAT Licensed Insolvency Practioner. If you have any concerns about your business, speak with your accountant or feel free to contact Cullen & Co for free and confidential initial advice on 0203 8877 200 or Lauren@cullenco.co.uk

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