Although the economy looks to be slowly recovering the economic environment is still extremely challenging, and as such the last things that small business owners can afford to do is make financial mistakes.
Top ten financial mistakes to avoid:
1. Forgetting about Tax
It's easy to get carried away and forget to build tax into your financial forecasts and budgeting. Make the trip to your accountants less frightening by ensuring you know how much tax & National Insurance you expect to pay, and making provisions for it.
2. Ignoring the Authorities
Even if you are setting up as a sole trader, you should notify the Revenue and Customs (HMRC) immediately. Penalties are payable if notice is not given within a certain timescale. The rules on financial penalties changed on 6 April 2009, so don't be caught out by out of date advice. See the HMRC website (www.hmrc.gov.uk) or phone the newly Self Employed helpline on 0845 945 4515.
There will be more to consider if you are setting up a limited company, so make sure you get the right advice.
3. Being too Cheap
Value yourself, your products and services. It can be hard for new businesses to compete on price as existing competitors may find it easier to undercut you, or have a larger client bank to work with. Try other ways of making your product or service attractive to new customers.
4. Underestimating your Cash Needs
It's often said that ‘cash is King', but it is so important it is worth re-iterating. Make sure you have sufficient levels of working capital. Many businesses fail, not because they are not profitable, but because they lack cash.
5. Thinking you are Invincible
New businesses often rely entirely on one or two people, and little thought is given to what would happen in the event of accident or illness. Plan for the unexpected and make use of insurance where appropriate. If you are a partner or a company director make sure you protect your business in the event of a partner or a co-director becoming ill or dying.
6. Disregarding your Working Capital
Even in the current low interest climate, there are reasonable returns to be had on your working capital. Keep the funds held in your current business account to a minimum and make sure you are maximising the interest payable on your deposit account. With many business deposit accounts paying very little interest and significantly better returns available elsewhere you could be missing out.
7. Blind Optimism
When forecasting your sales levels, make sure you are realistic. Build in factors such as delays in payment - particularly where you are offering credit to customers - and bad debts.
8. Dismissing Contingency Planning
Every business should budget for a contingency fund. It could help get you out of a scrape, or more importantly provide valuable funds for a new business opportunity.
9. Being afraid of Financial Reports
It's easy to be afraid of the jargon, but reports such as your profit & loss account, sales forecast and cashflow analysis, should be an essential part of your day to day business, and are not difficult to understand. Find a course to help brush up on these skills.
10. Get Advice when you Need It
Never enter unknowingly into a contract - always get advice if you need it first. There's a lot of general advice available free, and, like us many professionals offer a free initial consultation. If not, good advice often pays for itself.
For more information please visit www.jfsolutions.co.uk
