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.