Business Financial Management

During this section of the Business Start Up course we will explore the various options that are open to you in relation to Business financial management.

When you start up your new business time will need to be spent on financial organisation. Having the idea and drive to succeed is paramount in your success, however, poor or no financial management from the onset will adversely affect your business. The way in which you handle your finances will be critical to the success of your business. If you fail to keep on top of your bookkeeping or your bookkeeping is disorganised then the viability and success of your business venture will be compromised. Conversely, keeping bookwork up to date will help you through the lean times and allow your business to grow.

One of the most daunting things about starting your own business and giving up full time working is the prospect of looking after the company accounts.

What to do first

Before you even get your business underway talk to the local offices of the Inland Revenue and HM Revenue and Customs. Either call them or make an appointment to see them. Explain the details of your business plan and ask them what you need to do. They’ll provide you with advice, leaflets and a selection of forms - such as VAT registration - that you may need to complete before you begin trading.

This is important! If you start off with all the necessary information it will make the bookkeeping process much easier. It also helps to have a contact within the local offices that you can call whenever you run into any difficulties.

Business Bank Account

You will need a business bank account if you are running a business. You simply can’t survive without one. It is the focal point of your business finances, showing all the financial transactions of your business. A business bank account is where you pay money in, pay suppliers and your workforce, draw out petty cash and complete all of the other essential financial transactions involved in running a business.

If you’re a sole trader, this will keep your business account separate from your personal finances. Whatever type of business you run, it will be essential for calculating tax. A business bank account can in some cases give you access to support, advice and finance.

You will need to decide which bank to use. Before you start comparing different banks it’s worth knowing the products and services they may offer.

Bank facilities

- Deposits: Paying in cash and cheques.

- Withdrawals: Taking out cash through an ATM or at a branch.

- Payment by cheque: Use of a business chequebook, which can sometimes be personalised with your company logo.

- Automatic money transfers: Direct debits and direct credits.
Night safe: For depositing money when the bank is closed.

- Balance enquiry and statements: For keeping track of your finances.

Business Bank Account

Payment cards

Company debit card: This will debit an amount immediately from your business account. In most cases the transactions are free and there is no annual fee.

Company credit card: A charge card (such as Barclaycard or MasterCard) that can be issued to key members of staff. Repayments are made monthly from your business current account (usually interest free credit). There is usually a fee per transaction, an annual fee or both.

Borrowing

Overdraft and loan facilities: Short-term financing, subject to an application procedure. May also provide access to the Government-backed Small Firm Loan Guarantee scheme.

- Asset finance: Leasing and hire purchase facilities to enable you to buy equipment.

- Factoring and invoice discounting: Short-term borrowing against the value of unpaid invoices.

- Commercial mortgage: Funding to help you buy a business. Often up to 80% of the purchase can be financed by the bank.

Other features

- Deposit accounts: A lot of banks have business deposit accounts with higher interest than a current account for any reserve funds your business may have.

- Merchant services: If you want to accept credit and debit card payments from customers, you will need a merchant account. This is provided by a bank but to get one you will often need two years’ trading history and audited accounts. Once set-up, you will be charged an annual fee plus a percentage of every transaction.

- Insurance: The larger banks will often offer their customers insurance cover for business interruption, health, loan repayments and more.

- Support: Most of the larger banks offer resources and support to help you run your business. For example, you may be assigned a relationship manager who will offer business advice. The bank may also provide seminars, educational literature or bookkeeping software.

- Introductory offers: The four main banks offer special introductory offers to start ups. This is usually a period of free banking for 12-24 months. An Accountant - Do I need one?

An accountant will be another form of business advisor to you when you first start running your own business. They will be able to give advice on your business plan and the tax issues of registering a new business.

Some accountants offer bookkeeping services but if they don’t or if you wish to handle this yourself, you can get help with setting up manual or computerised bookkeeping systems. Most importantly, you need an accountant to assist on things like whether it is necessary to register for VAT or PAYE and the procedures involved.

An accountant will also give you financial advice and help with budgeting, cash flow and credit control, in addition to up-to-date information on any general or legal enquiries.

As your business grows

Whether you are starting up or a growing business, an accountant can advise you on the best way to arrange additional finance without putting your business at risk. Remember, an accountant isn’t just there to help you manage your money.

Once you have the finance in place there needs to be some control to ensure growth of your business is handled in the right way. Many of your concerns will be financial - adequate working capital, good stock control, invoicing and so on - so an experienced accountant’s advice will be invaluable in such matters. Also, an accountant will be on top of all the current taxation issues. Taxation is a large business expense and an accountant can effectively minimise these costs.

VAT

For all businesses whose annual turnover exceeds a certain amount (currently £61,000, but this could change in the Budget), VAT quarterly returns must be completed and sent to HM Customs and Excise along with any payment due.

The VAT forms are very simple - just a single page, in fact - and usually work in the company’s favour. This is because although you must pay VAT on any income generated, you can claim back VAT paid on some goods and services, such as office supplies, vehicle servicing, fuel and so on. So the extra accounting is definitely worth it and even companies whose turnover is less than the VAT limit can still register voluntarily. Not all products and services attract the standard 17.5% VAT rate, so it’s worth contacting your local HMC&E office to request one of their introductory videos, which will explain the basics of VAT accounting.

Keep yourself up to date with the latest VAT information and rates by listening to the Budget. This will be done by your accountant/bookkeeper but it is good for you and your business to be aware of this information.

Remember you are expected to account for every business-related penny spent and you are expected to show each month’s profit/loss and income/expenditure in sufficient detail so that the tax can be clearly calculated. For all businesses whose annual turnover exceeds a certain amount (currently £61,000, but this could change in the Budget), VAT quarterly returns must be completed and sent to HM Customs and Excise along with any payment due.

The VAT forms are very simple - just a single page, in fact - and usually work in the company’s favour. This is because although you must pay VAT on any income generated, you can claim back VAT paid on some goods and services, such as office supplies, vehicle servicing, fuel and so on. So the extra accounting is definitely worth it and even companies whose turnover is less than the VAT limit can still register voluntarily. Not all products and services attract the standard 17.5% VAT rate, so it’s worth contacting your local HMC&E office to request one of their introductory videos, which will explain the basics of VAT accounting.

Keep yourself up to date with the latest VAT information and rates by listening to the Budget. This will be done by your accountant/bookkeeper but it is good for you and your business to be aware of this information.

Remember you are expected to account for every business-related penny spent and you are expected to show each month’s profit/loss and income/expenditure in sufficient detail so that the tax can be clearly calculated.

Accountancy software

Buying an accountancy software package can slash the amount of time and effort you put into managing your finances. In the early stages you could use the services of a freelance bookkeeper or your accountant, as mentioned above, who will have the software and keep your books up to date on a monthly basis for a fee.

The top 10 financial management tips and advice:

Financial Management Tip 1
Talk to the local offices of the Inland Revenue and HM Revenue and Customs. Either call them or book an appointment. If possible do this before you start to trade as this will save a lot of complications at a later date.

Financial Management Tip 2
Get yourself a business bank account. Look around at what’s on offer and use all the facilities the bank has to offer you - you can never get too much advice.

Financial Management Tip 3
Right from the start, keep records of payments and sales etc. Keep all your receipts as, again, failing to do this can cause problems for your business accounts in the future.

Financial Management Tip 4
Get yourself an accountant and book an appointment to see them. They will give you advice and information on all your business accounting matters.

Financial Management Tip 5
Get yourself a freelance bookkeeper to keep your accounts in order on a monthly basis. This will save you the time you would spend doing it yourself and free you up to drive your business forward.

Financial Management Tip 6
Keep up to date with financial business matters, from VAT to corporation tax. Although your accountant will know all this information, it is beneficial for you to know it too so that you can plan and budget your finances in order to develop your business.

Financial Management Tip 7
Know your business. Know how much profit percentage you make and how much you turnover. Again, this will enable you to move your business forward or budget where needed.

Financial Management Tip 8
Keep paperwork. Keep all paperwork to do with the financial side of your business, even if you think it is not relevant. It is better to have some irrelevant paperwork than to be missing the records your accountant or bookkeeper will be chasing you for.

Financial Management Tip 9
Make sure you put by money each month to cover any future VAT bill or corporation tax bill. This will prevent you from receiving that large tax bill that has not been accounted for.

Financial Management Tip 10
Although the financial side of the business is extremely important, do not spend hours and hours on it (use your bookkeeper/accountant). The important element of your business is your entrepreneurial skills, and moving and developing your business on to bigger and better things.

To move on to the next section of the Business Start Up Course, entitled 'Growing a Business, please click here.