Areas to Manage to Prevent Business Failure

The Prime Minister recently made a plea for individuals to continue to set up their own businesses. It is common knowledge, however, that around half of businesses fail within a year and a very high percentage fail to last beyond the five year mark.

However, taking some time to understand a few of the key areas to get right when setting up a business, as well as being aware of support services of which they can take advantage, could make a considerable difference.

Cash Flow

Understanding and keeping on top of your cash flow is important. Late payments and unpaid services can result in poor cash flow management which in turn results in failure. Knowing how much you will owe in tax and national insurance contributions for instance is vital and having a detailed account book of all income and expenditure is a must.

Remember that there are services such as qualified bookkeepers who can help you manage this aspect of your business.

Paying Staff and Suppliers

An important part of running a business is keeping your employees happy, and nothing makes them happier than being paid on time. However, careful cash flow management is vital to ensure funds are available on time to meet the wage bill. The same goes for paying suppliers; fail to pay on time and you could face a frozen account which could lead to services being placed on hold that you need in order to run your business.

Planning

Lack of planning is a cardinal sin that will almost certainly result in a failed business. Knowing where your business is, where you want it to go and how it can get there are questions that you and any potential investor should and will want to know. A qualified bookkeeper will know the ins and outs of business plans so contact one for expert help and advice in putting one together.

Do not be one of the thousands of businesses that fail to stay afloat. Follow these simple rules and you’ll have a better chance of success.

Understand Basic Business Terms to Get Ahead

It is natural to feel confused when faced with a document full of figures and calculations. However, in business, everything revolves around numbers whether you like it or not: profit and loss, payroll, tax, National Insurance and general cash flow management and no matter how nervous you are in this area, if you are to get ahead in business, you need to take control.

Anyone who has seen Dragon’s Den knows that even the best entrepreneurs struggle on questions relating to finance and business figures: profit, turnover, gross profit and the like. Understanding these terms is vital so here are a few tips.

Turnover and Profit: What’s the Difference?

Your company turnover is the value of all your sales before costs are deducted. Profit is what you are left with after all costs are taken away. So for example if you sell £100,000 of goods in a year, your turnover is £100,000. But if you spent £50,000 on supplies, then your profit is £50,000. Remember the difference.

Gross Profit and Net Profit: A Further Complication

Do you know the difference between net and gross profit? Make sure you do otherwise your accounts may make interesting reading at the end of the tax year. In simple terms, gross profit is the total amount of money that your business makes before any deductions are made. You simply have to calculate everything that has been sold or returned a profit over the year and add it all together. To get the net profit, you take the gross profit and take away all your deductions, such as tax, wages, and national insurance. Once everything is deducted, what is left will be your net profit.

Newcomers to business often overlook simple terms such as these and unfortunately it can have a negative effect on their business. It also can make you look unprofessional if you do not know your figures. Local bookkeepers are there to help, so make sure you use them. Whilst hiring the help of a recommended bookkeeper will cost you money, they could save you a lot of worry, and actually save you money in the long run.

Cash Flow Warning Signs

Cash flow is probably the most important thing to keep on top of and understand in business. Whether a small sole trader or a large business, knowing where your money is coming from and going to is extremely important. There are a number of guides and helpful articles available outlining how to calculate and keep on top of your cash flow, as well as qualified bookkeepers who can control it for you.

But even with the help of a professional bookkeeper, business owners must be able to identify potential problems that can affect cash flow before it is too late.

Overstocking Goods

It might seem like a good idea, but over ordering stock can have catastrophic consequences for your business. Having stock that you cannot shift or sell on is a serious waste of funds and points towards poor cash flow management. Only order what you can sell: you can always order more as demand increases.

Poor Ordering and Invoicing Practices

Do you keep meticulously detailed invoices and accounts, outlining who has bought what, when they bought it, how much they owe and whether or not they have paid yet? If the answer is no then this must be fixed quickly. Understanding and getting on top of customer order details and payments is very important. If you have a chaotic ordering system then the chances are you will lose track of who owes you what and in the end you will lose money unnecessarily. Do not be afraid to chase debts, just make sure you know what it is you are chasing.

Invoicing duties can be outsourced to a professional bookkeeper so there is no excuse for poor management in this area.

This is just the tip of the iceberg. Business cash flow management is tricky but is a must. Get help from a qualified bookkeeper, be firm and get the right procedures in place!