Top Finance Tips For Small Businesses
We understand that running a business can be tough at times, and small business owners, in particular, will find themselves doing many different jobs all at once, from managing sales, customer service, marketing, and finance.
We want to help all of our customers succeed in their business, so we’d like to pass on the tips and advice that have helped CheaperWaste grow. So, we asked our Finance director Chris Penfold, to compile his top finance tips for small businesses. Chris has been Finance Director at CheaperWaste since 2015 and has over a decade’s experience in managing the finances of small and growing businesses.
Prepare a budget
One of the first things you should do is to prepare a budget. This will help you keep track of your finances throughout the year and will help you plan your business activities. Key points to remember when creating a budget is:
- Check your income sources and work out how much money you are bringing in every month, these can be savings, hourly earnings from another job or funding.
- Determine your fixed costs. These are the expenses that are created each month that tend to be the same month in month out. These types of costs are usually your rent/mortgage, salaries and utility bills.
- Include variable expenses, these are the items that don’t have a set cost. These can be scaled up or down depending on the state of your business, these can include costs of materials, travel costs, advertising or other marketing costs.
- Try to predict ‘One time’ spends, this one can be a little difficult, but try to factor in your one-time purchases, such as the possibility of replacing broken or old equipment, replacing office supplies or furniture.
- Finally, bring it all together in as simple or detailed summary as you are comfortable to use.
- Review what the budget tells you, for example, are your expenses constantly higher than your income. If so, is there a solution to either increase your income or reduce any costs. Also, are there short terms pitfalls in your cash you will need to cover, perhaps using savings or will you need a loan. The sooner you spot any issues the more time you are giving yourself to fix the problem before it affects your ability to trade.
- Use your budget to regularly compare your actual cost to, so that you retain control of profitability and aware where you might start to make a loss.
It may seem like a daunting task, but it will benefit your business in the long term.
Improve your credit rating
The main motivation to improve your business credit score is that it will affect the amount of financing your business can secure. A higher credit score means you can borrow more money and a lower credit score could prevent you from borrowing any money at all.
Some ways you can improve your credit score include:
- Pay your bills on time, this one might seem obvious but if you do not pay your bills on time, your credit score will suffer, and your business will be seen as a debt risk.
- Establish credit accounts with your suppliers. If you have contracts with certain suppliers and you use their services regularly you should try to set up a credit account with them, this will improve your credit score (if you pay on time). Also, you won’t have to remember to make a payment each month.
Set up an emergency fund
There are always unexpected costs incurred when you are running a business; you may have to make repairs to your business site, or you may find yourself unable to work and need to take on additional short-term help. Whatever the reason we would (ideally) recommend that you should have three months living expenses as an emergency fund that would help see you through difficult times.
Always have the right level of insurance
It is a legal requirement for businesses who employ staff to have employer’s liability cover, but I would always advise small businesses to take additional insurance (depending on their business type) so that they can be prepared for all circumstances. I would recommend the following at the very least:
- Buildings insurance, if you own your commercial property you must protect it as you would your own home. This will cover damage to your property in the event of a fire, flooding or other terrible occurrences.
- Liability insurance, this will cover you against the cost of claims made against your business. This could include bodily injury or property damage.
Getting the right cover will give you peace of mind and can end up saving you money in the long run if the worst were to happen.
Check if you’re eligible for funding
There are lots of regional and national initiatives designed to help small businesses grow, over-come threats and develop new working systems, and funding can range from £500 to £500,000. The eligibility and criteria for each grant scheme differ but typically the more funds you ask for, the more complex the conditions and the process of applying will be.
You may also find that many grants are match funded. This means that to be eligible you will need to raise funds internally or externally and provide 10-70% of the overall project cost (the grant providing the rest).
Here is a handy list of available funding schemes, https://entrepreneurhandbook.co.uk/grants-loans/
Don’t mix business and personal expenses
Business owners can often find themselves in an accounting mess because they have mixed up their business and personal costs. I’d always advise keeping your business costs and personal spending separate from each other.
Where possible always have a separate business account with a debit card that can be used for business costs. This will make it much easier to track your spending and make sure you are sticking to your budget, and don’t be tempted to pay for non-business things out of the business account just because that is where the money is and it is convenient. This will cause problems down the line when you come to file your taxes.
Hold regular audits
While this might be a little daunting, conducting regular internal audits (either completed by an employee or an accounting provider) will provide you with an objective and independent evaluation of your business finances. This will help you to identify any areas that need to be improved so that you can avoid problems in the future.
Seek finance and payroll assistance
Understanding the complexities involved with dealing with finance can be challenging, and I would recommend that all small businesses enlist professional advice from an accountancy firm, especially if they are employing staff. Accountancy services are available for a relatively lost cost and will give you peace of mind that you are legally compliant. However, if you would rather handle the accounts and payroll yourself, there are some fantastic guides available from HMRC and ACAS.
Make customer payments easy
Try to make it as easy as possible for your customers to pay for your goods and services, most consumers are carrying less cash around with them and expect businesses to be able to take payments electronically. For example, research by Santander in 2013 confirms that small businesses are losing out through a lack of cashless options, highlighting that a third of consumers avoid businesses that fail to take card payments. Make use of available technology including the ability to take card payments. This will encourage consumers to buy from you and will make your life easier.
Our sister company CheaperPay offer card payment facilities to all types of businesses including online payments, phone payments, card machine (face to face) payments or a combination of the three. Click here for more information.
We hope you find these tips helpful, please contact us if you would like to know more about the services offered by CheaperWaste and the CheaperGroup.