The Importance of Cash Flow Management

Hopefully you experienced a brisk trade in December. With the increase in sales, you could find that your cash flow differs during this month compared to any other time of the year. Stay on top of your December cash flow by making sure that you follow these tips:

Stick to a Budget

With the till ringing at an increased rate and takings looking higher than expected, it is easy to get carried away and spend more than you usually would. But this could be dangerous and should be avoided. Ideally you would have already planned for this prior to the Christmas rush by drawing up - with the help of your local bookkeeper - a Christmas budget. By forecasting an increase in sales, you could have funds set aside that you know you can spend on more stock or expanding products or services if needed.

Consider Extra Expenses

At Christmas, profits should increase. But many businesses find that expenses and outgoings can also shoot up almost without warning. Paying staff for overtime, throwing Christmas parties, lost days through adverse weather conditions, increased heating and electrical usage; it all adds up. Avoid facing an eye watering bill by employing an outsourced bookkeeper, ideally all year round, to regularly check up on expenditure so they can warn of or even forecast in advance any potential problems.

Effective Invoicing

One reason cash flow becomes a problem during December is as everyone is so busy, invoices are often sent out late and, as people take time off work for the holidays, payments can become delayed for several weeks after Christmas. Make sure that you or your bookkeeper sends out invoices effectively and on time.

Outsourced bookkeepers are skilled at managing all aspects of cash flow management. By leaving it to them, the burden is removed from your shoulders, leaving you free to drive up sales as best you can before, during and after Christmas.

Business Expenses Advice for Small Businesses

There are certain times of the year when business expense claims become more common. Christmas is one such time. But what can be claimed as an expense? Are there different types of expenses? Follow this guide and you should not go far wrong:

What are Non-Taxable Expenses?

A non taxable expense is something that you or an employee buys that is for business use only. Often known as allowable expenses, these can be deducted from your end of year tax bill. But working out what can be claimed as a non taxable expense can be difficult. As a rough rule, things such as travel costs for business purposes, general running costs such as electric and phone bills, as well as premises costs such as renting an office can be claimed back. This is however by no means an exhaustive list, and from time to time it may become difficult to know whether one thing or another could be claimed back as an expense.

The best idea is to invest in a professional bookkeeper so they can keep a detailed record of all expenses you accumulate throughout the year. This way you will have a tidy and comprehensive list to present to your accountant at the end of the tax year, and then they can work out what can be reclaimed or discarded.

What can’t I claim as Expenses?

The basic rule is that you cannot claim anything that is for personal use. This means that you cannot claim your phone bill as expenses if you have used it for personal reasons. You cannot claim travel expenses on your journey to or from work, but you can claim back expenses spent visiting clients for example. Again, it is best to check with a professional to make sure you have the right to claim back what you think you are due.

Do I need to Keep a Record?

It is very important that a detailed record of all of your expenses is kept throughout the year and that it is kept up to date at all times. Everything must be recorded along with receipts and the relevant documents that prove the expense was business related.

HMRC can be very strict so it is best to use an outsourced bookkeeper to keep all of these records for you. They will know how to collate and present your expenses in a professional way and will offer you advice on what you can or cannot claim.

Make Sure your Business Can Cope at Christmas

It doesn’t take a rocket scientist to tell you that Christmas is for most businesses, both large and small, the busiest time of the year. Taking advantage of all of this increased trade is vital and the perfect way to start the New Year on a strong financial footing. In fact many businesses rely heavily on doing a roaring trade in the build up to Christmas.

Coping with the increased demand is very important otherwise there could be some serious consequences and a lot of money could be lost. But how can you ensure the Christmas rush goes as smoothly as possible?

Increase the Number of Staff

Extra demand means more hands will be needed. Employing more staff is the most obvious way to make sure there are more hands on the pump as it were. But what if you cannot afford to employ another member of staff? If this is the case, then look at ways of delegating time consuming jobs to others. A popular option is to employ an outsourced bookkeeper and pass onto them all the accounts and payroll responsibilities for a month or two. This could free you up and allow you to spend more time generating cash.

Stay on Top of Cash Flow

There is no better feeling than receiving order after order as the countdown to Christmas begins. You send out items or sell them on the shop floor at such a rate that you are forced to order more and more stock. But be careful. Just because orders are up does not mean that you can necessarily afford to buy more stock than you usually would. Staff might be working longer hours and your payroll might therefore be more than it is during the rest of the year. Before you know it you have ordered too much stock that you cannot sell, as well as facing a large payroll bill.

Avoid this scenario at all costs. Use the help of a local bookkeeper to keep on top of your cash flow management system during the Christmas rush. With this taken care of, you can get on with other important tasks with the knowledge that no nasty surprises will be waiting for you in January.

Do not make any rushed decisions. Sometimes an outsourced bookkeeper who is separate from your company is the best person to entrust with your cash flow and pay roll duties when things get busy.

Prepare for the VAT Rise

As of January 4^th 2011, VAT will rise from 17.5% to 20%, bringing the UK in line with other major European nations such as France and Italy. Although businesses up and down the country will be bracing themselves for the effects to hit, what are you actually going to do to combat it? Has your business tweaked its plans and budget to help deal with the rise?

Most businesses might be wondering what this VAT increase will actually mean and what the options are. Consider the following ideas:

Let the Business Bear the Brunt

One option is to let your business shoulder the rise in VAT. By doing so, it is imperative that marketing and sales focus is increased so that the rise does not result in your business losing money. If you decide to take this option it is probably a good idea to contact a professional bookkeeper so they can go over your accounts and work out what level of sales increase is needed to cover the VAT rise.

Pass the Rise onto Customers

If it costs more to run your business as a result of increased VAT charges you may consider passing the rise onto your customers. Nobody likes to do this, especially if you have a number of loyal customers, but it may be necessary in the long run. You may be able to swallow the VAT rises for a year or two, but the pressure to do so year after year may be too much for many businesses. Management accounts are often the speciality of local bookkeepers so invest in their services to ensure all accounts are totally accurate throughout the year and that your business does not lose any profit made to tax at the end of the year.

There are contradictory claims in the business world presently as to what the best option is to take. Whatever you decide, remember to get your numbers and calculations right with the help of a bookkeeper. Do not underestimate the effect this rise could have on your business and your customers.

Avoid Staff Entitlement Confusion in Your Business

Whether a fresh recruit in a small family run business or the CEO of a large company, everyone needs time off for holidays as well as the occasional sick day. It is a right that you and your employees deserve and should use.

But if you run a small business, how do you know what your employees are entitled to? How do you pay somebody who is on maternity leave? What about sick pay – who qualifies and for how long? These are common questions that can be easily answered if you know who to turn to.

Holiday Rights

If you employ somebody who works full time, five days a week they are entitled to a minimum of 28 days holiday a year. But this is only the basic entitlement. For part time workers this needs to be calculated separately by taking into account how long they have been working for you and how many hours they work each week. It can take detailed knowledge of the rights of workers as well as a head for figures to calculate this.

A qualified bookkeeper will be geared up to help you in this area.

Sick Pay

Employees who are unable to work because of illness are entitled to Statutory Sick Pay. It is paid by the employer and can last for up to 28 weeks. Tthe standard rate of payment needs to be worked out and eligibility depends on the length of time the employment has lasted. The person who is sick needs to earn over £97 per week to qualify and must be ill for 4 days continuously before sickness payment can start.

According to small business experts, calculating statutory annual leave entitlements is a confusing area for most small business leaders. Remember that a local bookkeeper will be an expert in all matters relating to personnel and that it’s worth seeing what they can offer you in terms of outsourced assistance.

Shortage of Accounting Staff Affecting Small Businesses

Finding trained, qualified and reliable accounting staff is always difficult. No matter your sector, finding somebody perfect for a role that involves number crunching can be a real slog.

In fact, according to a survey of staffing in finance and accounting by recruiter Poolia, 38 per cent of employers have had problems finding the right person for the job in the past. This is worrying, especially as the survey also revealed that 30% of those interviewed were actually looking for an accounting or finance employee.

But why are accounting employees important and what should you do if you cannot find someone to fill the void?

The Problem: Payroll

Every business calls for some form of accounts or finance assistance; whether it’s to manage the payroll, take care of the bookkeeping or control the sales and purchase ledger.

Payroll

If you are struggling to complete the payroll every month you will need to employ someone who can. This could be an accounts manager who you employ to carry out this type of work. Alternatively, it often works out cheaper and more reliable to outsource this work to a local bookkeeper.

Cash Flow

Knowing how much money is coming in and going out is a vital part of any business. Fail to get a grasp of this and your business may not survive for as long as you envisioned. Ideally, you should have someone on board whose job it is to keep on top of income and expenditure so each month you know just where your business is and how healthy the accounts look.

Again, do not despair if you cannot hire a full time member of staff to take care of it. A local bookkeeper will have many years experience in doing this kind of work and can do so offsite on your behalf. Sometimes they even provide a special service for sole traders and owner managed businesses that have little time to do anything but work and earn money.

Look out for an outsourced bookkeeper if any of these problems are currently affecting your business. Remember that you are not alone – there are services out there that can help you.

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!

The Importance of Keeping the Cash Flowing

Anything that disrupts a business’ cashflow is a serious problem that needs to be solved quickly. But, although they are more likely to be affected by late payers than large companies, many small and medium sized businesses do not take positive action against debtors.

There are a number of reasons for this:

Fear of losing customers

A large company will probably be better off without its late payers. In contrast, a small business that relies on only a handful of customers for most of its income will be reluctant to risk offending them.

No credit control system in place

Credit checks on new customers, prompt invoicing, timely reminders and a clear strategy for dealing with late payers are all common practices in large companies. Many smaller businesses deal with each problem as it arises and might treat individual late payers in different ways: with varying results.

Lack of staff / time

Large companies employ qualified credit controllers whose only role is to ensure that payments are received on time. In a small business, responsibility for invoicing, collecting and monitoring payments might fall on people who have several other duties to fit into a busy day. Late payments can go unnoticed and the person who eventually spots them might not know what action to take.

Chasing late payers is time-consuming, especially if the culprit is difficult to contact and doesn’t respond to polite requests. It’s a task that can easily slip to the end of a long ‘to do’ list. An experienced bookkeeper could always provide the support you need in this department.

Whatever the reasons – or excuses – for late payments, the consequences for a small business owner are the same. Money, which is rightfully yours, is not available to pay your own bills or invest in growing your business. In the worst cases, you could end up in debt or even lose your business.

Can you afford to ignore late payers? If not, using the services of a qualified bookkeeper, experienced in credit control, could be one business expense that will pay for itself many times over.

Why you should Keep your Business Plan Up To Date

Every business, no matter how small, needs a business plan. It’s an essential tool if you need a loan or want to attract a business partner, but its usefulness doesn’t end there.

In the early days, a plan that includes a description of your business, its goals, strategies to achieve those goals, assets, competitors and detailed financial information will help to turn vague dreams into a realistic enterprise. Thoroughly researching facts and figures to include in your business plan will highlight potential problems and spark new ideas. Remember to seek help from a bookkeeper for extra support if necessary.

Once the business is up and running, many business owners put their business plan aside and forget about it. This is a big mistake. No matter how busy you are, occasionally reviewing and revising your business plan allows you to look up from the day-to-day details of your business and see the whole picture again. In particular, it should make you ask some of the following questions:

• How close are you to your original goals?
• If those goals are in sight, what next?
• How accurate were your financial forecasts?
• If you’re struggling to meet targets, what’s going wrong?
• Are you still enthusiastic about your product or service?
• Has the market changed?
• What are your competitors doing?
• Have you reacted to customers’ feedback?
• What can you do to improve anything you’re unhappy with?

Nothing stands still in business, and it’s impossible to plan for the unexpected: a new competitor suddenly appears, you win a big contract, or new government regulations mean you have to redesign your main product. Anything that affects your business, for better or worse, should be added to your plan. You can then make adjustments where necessary and use that information to steer your business on a different, but still successful, course. If you do not have the time to create a business plan yourself, you could always get an outsourced bookkeeper to do it for you.

Research Highlights the Importance of Holidays for Business Owners

New research from business comparison service Make It Cheaper has indicated that 29% of business leaders are reducing their holiday time this year, citing financial worries and lack of trust in their staff as the main reasons.

Worryingly nearly 60% of those who were interviewed said that they recognised the risks of not taking time off work at some point during the year and openly admitted that they fear that they could be affected by stress or exhaustion.

Lack of Trust

Many small business leaders and sole traders fear that their business may suffer if they leave the business in the hands of someone else and take time off for themselves. Being able to leave the business in the capable hands of a trusted employee is a luxury that many believe they do not have.

If this is something you can relate to, it is important to remember that a lot of the admin side of the work can be outsourced to a professional bookkeeping service that can keep on top of the financial and accounts side of your business whilst you are away. Do not ignore these types of services, as they are there to help in situations such as these.

An Importance Balance

It is important that there is a balance between work and leisure time. If you are tired or worn out you will not be able to perform to the best of your ability and ultimately this could harm the business more than taking the odd holiday throughout the year.

Professional Help

Seeking help and advice from professionals is vital for every small business. If you genuinely believe that you cannot leave the business in the hands of an employee, using an outsourced professional office assistant service is the best answer. These services can take the strain and leave you free to relax and enjoy a well earned break.

Exploring the bookkeeping services out there that are designed to help small business in a similar position is vital to the long term success of your company.

The Different Ways of Paying your Staff

Paying staff a fair wage on time is a vital element of business, no matter the size of a company. Failure on the part of the employer to pay staff can have catastrophic consequences for employees, many of whom rely heavily on being able to get paid so that they can keep on top of bills themselves. If your business struggles to pay staff on time, the problem must be rectified by looking at local bookkeeping service that will be able to assist you each month.

But what is the best way to pay staff? Is it more advantageous for your business and staff to pay hourly or a salary? Are there business advantages of paying one way or another?

Paying an Hourly Rate

An hourly rate of pay means that your staff will be paid a set amount for each hour that they work. There are many advantages to this method. If for some reason an employee does not complete a full week’s work, they do not need to be paid. Also, if a staff member is not required to work in certain periods of the year, you will not be left paying for a member of staff that you do not actually need. This method allows for flexible hours to be worked and is relatively easy to calculate.

On the other side of the coin however, paying an employee hourly requires their monthly hours to be calculated manually each month.

An experienced bookkeeper will be able to keep on top of hours worked and make sure that your staff are paid on time and exactly what they are owed. These services can save you valuable time so are worth investigating.

Paying an Annual Salary

Paying an annual salary is perhaps the easiest way of paying staff. Paying a salary is easy to calculate: a fixed annual amount is evenly spread over the payroll months. Due to its simplicity, it is time friendly and saves on administrative costs. Employees also benefit from knowing exactly how much they will receive each month, allowing them to plan ahead financially.

However, the problem of a salary is it does not take into account overtime. Working out and then paying overtime can take away some of the time saved by having a salary pay scheme.

Additional Help and Advice

Paying your staff is extremely vital. Whichever way you pay your staff, it will take up a considerable amount of time each month. One way to overcome this problem is to employ an outsourced bookkeeping service who will take away the hassle of multiple calculations and working out tax and National Insurance contributions. These services can make a huge difference for pushed employers.

How to Get Your Bank Lending to Your Business

Loans awarded to small businesses are being slashed according to figures released in the past week (12th August 2010). Despite banks such as RBS and Lloyds recording monster profits, they are being accused of not supporting Britain’s 4.5 million small businesses. New lending to this sector has fallen from an average of £991million a month in 2008 to £564million in 2010 - down 43per cent according to figures published in the Daily Mail.

But there are ways in which small businesses might be able to secure a business loan from prudent banks. Presenting themselves as a reputable business that is on a sound financial and business ground will go a long way to securing the funding required. But what are banks looking for in a business in order to award finance?

Solid Customer Base

If your customers are themselves good, reliable businesses then the banks will feel secure in knowing that they will be unlikely to default in payments to you, and in turn you will not default on repaying them. It is well worth investigating a good bookkeeping service who can keep a detailed record of all your customers and the dealings you do with them to present to your bank.

A Well Presented Business Plan

With the help of a local bookkeeping service, create an easy to read, straightforward business plan that lays out exactly where the business is, where it is going and how it can get there. This will make the business look professional and will show the lenders the sound financial position of the business.

Approach the Banks in a Strong Position

It is important to plan ahead in business. Remember that banks are risk averse and are much more likely to lend with the business in a strong position rather than one acting out of desperation. Banks will be happy to lend, in theory, to businesses that are showing growth or a potential for growth.

If these three rules are followed, the chances of banks lending to your business should be increased. All of this can be achieved, especially with the help of a qualified bookkeeper who will be able to provide quality management accounts so that you and in turn the lender will know exactly where your business is and where it could go financially.

With banks being prudent during this economic downturn, make sure your business ticks the essential criteria boxes for which the banks will be looking.

Recognising When Your Customers Are in Trouble

The fewer customers you have, the more it will affect your business if one of them flounders and sinks. You won’t always be told about this until it’s all washed up and you are left with a bad debt and a big hole in your income.

Clues

Have your bookkeepers told you that their payments have been getting later? Have you tried to call your contact and found the person is always in a meeting and never rings you back? If you do get to talk to them, do they seem distracted and evasive?

Perhaps their cheques been unsigned or contained errors so they’ve had to be sent back and reissued, delaying the moment the cash is removed from their account. You or your staff might have picked up rumours going around about them.

Seeing How the Clues Add Up

If your instinct tells you that something is wrong, it’s time to research their financial status. Talking to them isn’t likely to be enough to allay your fears, so your first port of call could be the Companies House website, where you can see the accounts they have filed. But remember that these will not give the whole picture as they won’t be completely up to date.

The most current information will lie with the credit agencies. You have to pay for the services of the likes of Experian or Equifax, but their information is reliable and useful. If you don’t have time for tasks like this, why not ask you bookkeeping service to do it for you?

Reduce the Risks to Your Business

With this information, you can decide whether to reduce the credit you allow the customer, offer them different payment terms, or sever the connection altogether. There are many ways to reduce the risks of not receiving payment for the goods or services you supply.

Fewer Strands in the Tax Spaghetti Bowl

According to George Osborne, our recently appointed Chancellor of the Exchequer, Britain’s tax system is one of the most “complex and opaque in the world”. It is so difficult to sort out that he has likened it to a bowl of spaghetti. Most people would agree with him, and we can all breathe sighs of relief at his announcement that he will simplify it.

Our Complicated System

It’s currently bad enough for bookkeeping professionals to keep their heads around it, so there’s not much hope for the rest of us if we try to go it alone. You only have to glance at the home page of the HMRC website and see the lists of tax areas for individuals, employers and businesses.

Notice that the last item of every list is a link to more topics. We have to get every one of those areas right or be liable for hefty penalties.

The Job of the Tax Simplification Office

Sorting out the mix, while ensuring the treasury coffers can do their job, will not be an easy task for the Chancellor’s team in the Office of Tax Simplification that he is setting up. It will take a while, and won’t happen all at once.

We can probably expect rafts of ongoing changes over a long period of time. So how do you cope with that, and what do you do in the meantime?

Who is on Your Team?

The answer, of course, is to have your own team. But do you want to employ people full time to spend all their days keeping themselves up to date on the regulations as they change, and making sure you stay compliant?

You’ll find it much more cost effective to have outsourced bookkeepers and tax advisers on your team. They will keep up to date in their own time and only charge you for the hours they spend assisting you.

Business Survival in Hard Times

The business world is about to get even tougher. Everyone is talking about it. The coalition government has announced where their levels of support will drop. Public sector building and maintenance projects have been abandoned. Responsibility for managing public services with less devolves down.

Contracts will be terminated. Less work will be done. Fewer materials will be needed. Fewer goods will be purchased and distributed. Competition will get fiercer. Not many businesses will be unaffected.

Being Prepared

Now is the time for an in-depth review of your business plans and cashflow forecasts. Why not meet with your bookkeepers and office managers for a brainstorming session on potential problem areas and where costs might be reduced? You could find it well worth the cost of the time and effort involved.

Consider your customers and their survival chances. Your own could depend on theirs. Will they need to reduce their orders? Will they be able to pay your invoices? Do you need to amend your terms or their credit status in your company?

Will they test the market to see whether other suppliers are cheaper? Are your prices going to be driven down in order to compete?

Back Office Help to Cope

Keeping your financial records up to date is going to be even more crucial. If you outsource this aspect, make sure your outsourced bookkeepers understand how important it is for them to flag anything unusual and look at the implications of the figures they are processing. Then they can warn you if they see problems looming.

Let them know that you are open to their suggestions. Because they have multiple clients, they will have experienced many problems that could be similar to yours, and seen how they were overcome. That experience could be invaluable to you.

The Payroll Basics

Payroll is an important task that must be completed accurately and on time. An inaccurate payroll system could mean that staff go unpaid and taxes go undeclared – potentially costing your business money in unnecessary fines and penalties.

There are many payroll systems – by hand or by an in house computerised system to name only a few. Whatever the system in place, there are a few key basic procedures and rules that businesses should be aware of and understand.

Registering With HMRC

If you are a new employer, then the first job you will need to do is register as new business with Her Majesties Revenue and Customs (HMRC). You will be sent a series of information books and guidelines on how to correctly operate a PAYE (Pay as you earn) system and how to calculate National Insurance contributions for your employees.

Tax Deductions

Once the business is registered with HMRC it is necessary to calculate how much tax each employee will be required to pay. This must be calculated accurately and must take into consideration the tax code of each employee, as tax free periods may be apply.

Statutory Payments

As an employer there are several payments that you will have to pay from time to time. Payments such as maternity and paternity leave and sickness pay are required by law. Do not overlook these requirements. Read any information that is sent form HMRC regarding these statutory payments.

Penalties and Fines

As with most tax issues, there are stiff penalties for those who choose to ignore the rules. HMRC can and will impose penalties businesses that do not comply with the necessary regulations. Remember to keep all the necessary records as outlined in the guidelines. Failure to operate the PAYE system or National Insurance contributions correctly can lead to fines being imposed, as will the failure to present all of the required forms on time to HMRC.

This whole process has proved to be confusing and time consuming for many small businesses and sole traders in particular. If this is the case, the best course of action is to consult a book keeping service that can set up and mange a payroll systems for all types of businesses, both large and small. This way, all the payments and tax returns will be taken care of each month by trained and experienced bookkeeping professionals, leaving employees paid and the HMRC happy.

The Importance of creating a Budget

There is a fine line between success and failure, as the saying goes. For businesses, especially of small and medium size, this line can become even finer. One way of making sure that financial mismanagement does not cost you your business is by having a budget that is rigorously followed and professionally created.

Creating a budget is vital. But how does it help businesses?

Setting Targets

By establishing a well researched and clearly outlined budget, businesses can set targets and goals for achieving a certain level of income, whilst at the same time monitoring expenses. It requires the business to look ahead into the future and understand, for example, how much produce or products needs to be sold per month for the budget to be met. Budgets work hand in hand with targets and many businesses find that it is only once a budget is created that accurate goals can be achieved.

Helps understand Cash Flow

A budget allows the business leader to understanding the company's cash flow, which is an essential task that is often overlooked. By failing to get to grips with financial records, a company could face bankruptcy, simply because they have failed to understand where their money is coming from.

By monitoring cash flow, companies can for example get to know which clients pay quickly and who doesn’t, allowing for additional pressure to be placed on the slower clients so that the funds are invoiced on time.

Controls Costs

It is vital that businesses know how much they are spending and on what. A budget allows for limits to be set on costs. By breaking down costs and actually seeing where the money is going businesses usually find that savings can easily be made. It is important to address any areas of concern immediately to stop the business haemorrhaging money it cannot afford to lose.

An Unavoidable Process

Budgets are an important element for every business. Skip this essential task and there will be trouble in the future. Every business, whether big or small, must live within its means and know where every penny comes from and goes to. Small businesses and sole traders in particular however may find that budget creation is a time consuming or confusing task.

If this is the case there are professional services that can help you and they would be a sound investment. To trained bookkeeping and accountancy professionals this is an easy and simple task. Investing in help could save time and, in drastic circumstances, the business itself.