Whether you’re a newly formed business, or an existing SME struggling to get the growth you hoped, getting the basics right is your best chance of building a strong foundation for business growth.
12 tips for business growth
One of the biggest mistakes a business can make is when it views accounting and bookkeeping as a compliance exercise.
If you want to build a strong, successful business, financial management needs to be core to everything you do when it comes to business growth.
#1 – Make sure you’ve got a plan
First, you need to ensure you’ve got a plan. It doesn’t have to be detailed but you need to know what you’re aiming for, what you need to do to get there, how much it’s going to cost, how much income (or funding) you need to cover these costs and how you’re going to get this income or funding. In the words of Benjamin Franklin “By failing to plan, you are preparing to fail”.
#2 – Draw up a budget
Next you need to put the above into a budget (or forecast). Be realistic about what the costs will be and what revenue you’ll make. When doing this, you can also work out what your break-even point is – this is the point where you make neither a profit or a loss – typically the sum of your costs, although a bit trickier to work out when you sell products. The advantage of doing this is you know what revenue you need to make every month.
#3 – Re-forecast regularly
Know the difference between a budget and a forecast. A budget is set at the beginning of the year as a mark in the sand as to where you’re aiming for but as costs or revenue change, your budget will quickly become out of date. It’s therefore a good idea to re-forecast on a regular basis to ensure you’re comparing with a more up to date forecast. This just means taking a copy of your budget and amending it to reflect new information that has come to light.
#4 – Use accounting software
Ensure you’ve got a good system to keep track of your revenue and expenses. At any point in time, you need to know how you’re doing in terms of revenue, expenditure and profit, as well as knowing who you owe and who owes you. Although you can use a spreadsheet to track your spend, it will always be out of date. Using an accountancy package like Xero or QuickBooks will allow you to “snap & add” your receipts as you go using the camera on your phone – helping you keep things up to date.
#5 – Get in a bookkeeper
Recognise when it’s time to outsource. It’s all well and good saving money because you don’t need anyone to do your bookkeeping, but if you never have the time or inclination, you get it wrong or you end up doing this at the expense of working on new business, then it’s a good idea to save money elsewhere an invest in getting help from someone who can keep on top of this for you.
#6 – Set up a monthly actuals report
Make time to compare actuals to budget/forecasts. This allows you to find out if you’re spending more or less than you budgeted/forecast. This is when it pays to get an accountant onboard. Even if it’s just asking them to set up a monthly report for you to review in your accounting software. Believe me, it’s money well spent. If you can’t afford this, software packages such as Xero and QuickBooks allow you to add your own budgets/forecasts and produce reports to compare your actuals to budgets or business growth forecasts. If you don’t take time to do this, you miss the opportunity to act when you need and when you do, it could be too late
#7 – Keep track of cashflow
Many a profitable business has folded simply because it runs out of cash. There are lots of cashflow forecasting packages on the market, but invariably a good old-fashioned spreadsheet is the most useful for small businesses which need to keep track of cashflow on a weekly basis. A ten-minute job every Monday will help ensure you know when to expect money in and out and allow you to react promptly when cash is tight.
#8 – Manage your cash
In addition to tracking your cash, learn to manage the cash better. Make sure payment terms work for you. If you’ve got regular payments that need to be made on a monthly or fortnightly basis, allowing a customer to have payment terms longer than this is going to put pressure on cashflow.
#9 – Run credit checks
Do your credit checks and if need be, ensure all new customers have to pay upfront or payment on account.
#10 – Invoice promptly
If you are working on a large project, agree a regular payment plan so you receive money as you go.
#11 – Chase invoices promptly
Ensure your invoices are chased promptly. Lots of accountancy packages allow you to build this in so reminders can be sent to customers to prompt timely payment before you need to intervene.
#12 – Don’t be too hasty to pay suppliers
Don’t be too keen to pay all your suppliers the minute they submit an invoice. Of course, it is important to help other small businesses, but if they’ve given you 30-day payment terms, then they are okay not to be paid any earlier.
More business growth tips
- Ask the right questions
- Don’t just go for the cheapest accountant or bookkeeping. Choose someone who makes you think – someone who challenges you
- Automate as much as you can. Accounting package – keep track of expenses as you go. Don’t necessarily go for the cheapest package. Make sure you have an automatic bank feed and can keep track of your expenses as you go with features that allow you to snap and add receipts when you’re out on the go
- Keep a copy of your records. If you update all your receipts into your software package, try a copy of these receipts and invoices in your own files. That way, you don’t lose all your records if you decide to change software provider
- Increase your prices on an annual basis
- Avoid scope creep. This means a project you’re working on or subcontracted to do, growing out of all proportion to what was originally envisaged
- Know what your tax liabilities are and when they’re due. This should never be a surprise
- If your business is making a profit, you will have to pay corporation tax. Admittedly it won’t be due until nine months and one day after the end of your current financial year, but if you’re not putting aside 19 per cent of taxable profit on a monthly basis, then you’re going to have a cashflow issue when it’s time to pay your tax
- If you’re registered for VAT, put aside the VAT you charge to customers on a monthly basis in a separate savings pot and set up a direct debit or your VAT payment (also especially useful if you get a VAT reclaim)
If you’re not registered for VAT, keep track of your monthly 12-month revenue. If you exceed £85,000 in any rolling 12 months (not just your financial year), you will need to register for VAT without delay
- Set up a direct debit for your PAYE/National Insurance liabilities so you’re never late
- Add all your taxes to your business Government Gateway account so you can always see your liabilities at a glance
Kate Gloudemans is co-founder of Sprout Consulting, which provides accountancy support services and strategic business advice to ethical, sustainable and purpose-led businesses
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