Cash Flow Forecasting: Why your Business Must Know the Future

As a small business, it is imperative that you are able to estimate your cash flow in advance so that you can be prepared for any unexpected expenses that may arise. You can achieve this by ensuring you are up to date with cash flow forecasting.

Cash Flow Forecasting Rules and Principles
By ensuring you have an adequate cash flow forecast, you will be able to foresee any rises or drops in your finances. A forecast will allow you to plan for any future borrowing of money as well as telling you how much excess money you may have at any given time. Additionally, cash flow forecasting can be very useful for a business if you require a loan, as many lenders will only consider you for finance after seeing a healthy cash flow forecast.

Aspects of a cash flow Forecast
A cash flow forecast works by clarifying incoming and outgoing expenses, detailing what your money is being spent on, to whom it is being paid and from whom it is being received.
The forecast will normally be set out for either a year or quarter in advance, and is divided up into weeks or months. For best results, choose a time when most of your outgoing expenses are fixed, such as salaries or rent payments.

It is essential that you base your original sales forecasts on realistic estimates. If you have a well established business, you could combine sales profits for the same period 12 months earlier with expected growth.

Your forecast should be an ongoing instrument and will need to be continually maintained and adjusted to fall in line with any long term changes to actual performance or market developments.

Professional Cash Flow Forecasting
Whilst a vital part of running your business, in reality cash flow forecasting can be a time consuming task. The best course of action is to place it in the hands of a professional bookkeeping company that offers a dedicated cash flow management service. That way, for a reasonable outlay each month, you can get to see exactly where you are with income and expenditure and so plan ahead effectively: something that is vital for the healthy growth of your business.

Saying NO to the National Insurance Contributions Rise

Businesses both large and small are more than familiar with the devastating effects the recession has had on the economy. But along with cut backs and job losses, the business community will now have to contend with a 1% National Insurance Contributions increase.

Is the National Insurance Contributions Rise Necessary?

With the recession in limbo, the Government is attempting to rectify the public spending deficit and pull us through the recession to ensure the economy returns to how it should be. To progress with this plan, they have announced a 1% increase for NICs starting in April 2011. This new tax rise is expected to raise £3 billion a year which will help consolidate public finances, according to a HM Treasury Spokesmen.

Hitting Small Businesses Hardest

The new tax increase is set to hit small businesses the hardest. Whist trying to survive in an already crippling financial market, small businesses will also have to find the finance to cover this new tax increase, or forfeit recruitment.

The Government’s plans have sparked outrage amongst business groups such as the British Chamber of Commerce, the Confederation of British Industry, the Retail Consortium, the Federation of Small Businesses and the Institute of Directors. These major groups are strongly opposing the increase, jointly protesting against it as they fear it could lead to job cuts and reduced recruitment and business growth.

These groups see this new plan as a “tax on jobs” which ultimately can jeopardise the upturn in the labour market and deter businesses from employing new staff. They feel that other, more favourable measures have been overlooked by the Chancellor, such as freezing Corporation Tax for small firms for example.

What does this mean for Small Businesses?

Because of growing overheads for small businesses, it is claimed by the FSB that over 57,000 jobs in small businesses could potentially be lost. It is also thought that 12% of employers are considering recruiting less staff, and 8% propose they will need to cut jobs, according to the Chartered Institute of Personnel and Development.

What can be done?

John Wright, the National Chairman for the FSB believes that small businesses can play an important part in helping to overturn the NICs rise by signing a petition which calls for the Government to take more notice of the support small businesses need during such difficult times. To access the petition, visit: http://www.no-nics-rise.co.uk/.

More Cash Flow Tips: Get your Clients on Standing Orders

Good cash flow is imperative to businesses survival. One of the most common problems affecting cashflow is late or sporadic client payments. The most effective way of avoiding this problem is by encouraging clients to make their payments by standing order or direct debit.

What are Standing Orders and Direct Debits?
A standing order is customers’ instructions to their bank to pay a fixed sum of money to a named beneficiary on a regular basis for either a specified amount of time or until cancelled.
A direct debit requires the beneficiary to claim the money for the payment. The client must give their authority to enable you to proceed.


How are they set up?
Standing orders are set up by your client by instructing their bank to pay you the agreed amount of money on a regular basis, usually on a specific day of each month. These standing orders can be set up for a specific period of time or until otherwise notified by the client.
Direct debits, on the other hand, require you to obtain a completed direct debit mandate from your clients stating bank details, payment details and payment due dates. This signed confirmation of authority is then returned to the bank where it is processed by the BACS system.


Standing Orders or Direct Debit: which to choose?


Standing Orders
Standing orders are easy to set up with payments being sent directly into your bank account on a regular date, meaning no late payments. Because the client is responsible for setting up the standing order you save time and money.
However, as the standing order is organised by the client, this payment method can potentially become unreliable, should your client ‘forget’ to arrange payment. Also, should the amount payable change, this will need to be updated by the client, which again may be subjected to delays.


Direct Debits
Direct debits are set up by you, the beneficiary. As soon as a direct debit form has been completed and returned by the client, you can submit it to the bank for it to be set up. You will have the advantage of being able to claim the payments instead of waiting for them as well as claiming any new amounts that are due automatically once the client has been notified of the change.


On the down side, some banks may consider your business too small to justify making you an originator of direct debits. Also, as with standing orders, direct debits can be cancelled at anytime by the client. Most importantly, human error can occur, which may result in wrongful payments or no payments at all.


Why use Standing Orders/Direct Debits to Improve Cashflow?

Recent studies have shown that the use of standing orders and direct debit by consumers is on the rise. With internet access being more available, online banking is becoming increasingly popular, making standing orders and direct debits easier to set up, maintain and monitor.
The main benefit of requesting this payment method is that the right payments are made at the agreed times saving you money and time, eliminating the need for chasing payments each month if they are not forthcoming.

If the system is set up correctly, you can be sure to receive your payments without delay. By offering discounts to clients who pay via standing order or direct debit, you can potentially increase your cashflow, and by offering increased credit terms, you can help clients manage their payments more easily whilst at the same time boosting customer loyalty.

Cheques: Is the End Nigh?

Did you know that you may not be able to use or accept cheques for much longer? If the Payments Council has its way, central cheque clearing in the UK will cease at some point in 2018, so we could all be ditching our cheque books in eight years time.

The Payments Council was set up by the government in 2007 to ensure efficiency and integrity of payment methods in this country, and set future strategy for them. Its recommendation to set this target date is currently being looked into by the Treasury Select Committee. A final decision will not be made until 2016.

The cheque system has been in use since the 1700s but nowadays we have many other payment methods available, and it has gradually become less and less popular. It will be dealt another blow in 2011 when the cheque guarantee card system is withdrawn: another decision of the Payments Council.

Many small businesses still accept cheques from their clients. If you are among them, you need to be aware of these policies. You must have other methods of receiving payments set up, and it would be wise to get going on this early. Make sure these alternative methods are easy for your customers to use, and encourage them to start doing so as soon as possible.

In any case, cheque payments can be a burden for the smaller business, causing payment delays by being lost or held up in the post or wrongly made out; and then of course there is the clearing time.

So why wait until the end of the cheque to put an end to it for your small business?

Business Insurance: What do I need?

Are you sure you have all the insurance cover you need for your business? You can only answer this question when you have assessed all the potential risks.

If you work from an office based in your home, or have separate business premises, you’ll have Buildings and Contents Insurance. Would this cover everything you would need to replace in the event of fire or other disaster? Make an inventory of every item you couldn’t do without and their replacement cost, and make sure your contents cover is enough.

If you have employees, you will need Employee Liability Insurance in case anyone makes a claim against you following an accident at work. Legally you must have at least £5 million of cover. If other people ever visit your premises or are involved in any service you provide, you also need Public Liability cover.

If you have company cars or your business involves delivering or transporting items, all vehicles will have insurance. You may also need to get Goods-in-Transit cover for your own or other peoples items carried in them.

What if something happened to a vehicle and you couldn’t make your delivery on time? Some breakdown service providers offer a continuation contract as part of your cover. If any of the items you carry are classed as hazardous goods, you need specialist breakdown cover as their vehicles will not be included in a general service where engineers are not trained to deal with them.

Professionals like accountants or consultants should also have Professional Indemnity Insurance. This covers any legal costs and loss of earnings if a client claims you’ve made a mistake or not fulfilled a contract.

Consider all the ‘what if’ scenarios that could possibly happen, and then think about the insurance you’ll need to cover those scenarios. What price peace of mind for the success and protection of your business?

Top Tips for Online Banking

All institutions that offer online banking services work hard to ensure security and many of us take advantage of this relatively new and very convenient way of managing our financial affairs. But criminals are always looking for ways to access accounts, and your bank needs your cooperation to keep your money safe.

Follow the general rules for keeping your own computer safe, and take heed of these top tips for real confidence in online banking:

1. When you are completing online transactions, check out the URL. It should begin with ‘https’ which means the site is ultra secure compared to one starting with just ‘http’.
2. Beware of emails that appear to come from your bank. Spammers can be clever at imitating them. Never reply to requests for your login or other security details. Your bank would never ask for these on an email.
3. If you need to learn more about the types of scam relating to online banking, check out http://www.banksafeonline.org.uk/. And you can report any scam emails you receive there as well.
4. Never click on a link in an email that claims to take you to your bank. Far better to do it the long way round by accessing your account via your browser if you need to check something.
5. Log in to your account at regular intervals and check the transactions listed. Ninety-nine times out of 100 all will be well, but if you find anything that shouldn’t be there, it will be easier to deal with sooner, rather than later.
6. Be careful about your PIN and your password. Don’t give them to anyone, and if you have to make a note of them, do it in code.
7. Remember to log out of the online banking service before you leave your computer.

Following these tips will help you stay safe online, and will keep your personal and business finances secure.

Checklist for keeping on the right side of HMRC

A small business owner may have three fronts to cover to keep HMRC happy. Tax can be a minefield for the unwary. Here is a checklist to help you through. Where your knowledge and experience is not enough, don’t hesitate to get professional help.

Business tax

1 Register for tax on start-up. You’ll be penalised if you haven’t done this within three months.
2 Decide when to register for VAT. Once your turnover reaches the current threshold, you have no option but to register. Before that, does your business need to look well established to penetrate the desired markets? Or will it help you get customers if you can keep prices down by not charging VAT? Looking at your start-up costs, how much VAT you could reclaim if you were registered? Consider all factors before deciding.
3 Get familiar with VAT rules. Always submit your quarterly returns and payments on time.
4 Depending on what kind of organisation you have set up, you may have to pay corporation tax. This payment will be due before the deadline for submitting your tax return. To be safe, complete the return and submit it early at the same time as the payment.

Employment tax

5 If you have employees, once they earn a certain amount, you have to deduct tax and National Insurance Contributions from their pay, and pass them on, together with any employers’ contributions due. Find out how to do this and make sure you pay on time, so you avoid interest charges.
6 Make the regular form returns on time, including the annual ones due by May 19th each year.
7 Issue P60s to relevant employees by 1 June each year.
8 Find out your responsibilities in regard to, sickness, maternity and other special benefits.
9 Check the tax aspects of company cars

Personal Tax

10 Always file tax returns and pay on time to avoid penalties.
11 Plan for the payments by putting money away. A special account is a good idea.

General

12 Check your tax bill. Human error can creep in, even from HMRC.