Ten financial resolutions for a small business

Here are some top tips to keeping your small business finances in the best possible shape this year.

Running a small business can be challenging at times, particularly when it comes to finances. With the new year underway, here are ten financial resolutions that will help you keep your finances in good shape.

1. Create a realistic budget

If 2016 was your first trading year or you’ve only just started scaling up, you might not have a budget already in place. But once you’ve got an idea of what an average month looks like, it’s a good idea to create a pragmatic budget to set out a plan for the financial year ahead. If you’ve already got a budget but it needs constant adjustment, revise it for the new year, and resolve to stick to what it lays out.

2. Tackle bad cash flow

Negative cash flow can create serious problems for smaller businesses. Make it a new year priority to crack down on bad cash flow and late-paying customers, to keep things ticking over smoothly. This could include negotiating shorter payment terms with customers, considering invoice factoring, or looking into credit control automation.

3. Investigate accounting software

There’s a huge range of accounting and payments software available these days, which means it has never been easier to stay on top of your financials. Some of the products are focused on particular areas of the business like payroll, and others are an all-in-one solution that also include expenses, accounts receivable, and accounts payable, to give you a holistic view of your business’s finances. Some of these software packages will help you tackle cash flow issues too, with features like automatic payment reminders.

4. Stay within your credit limits

Many small businesses find overdrafts, business credit cards or revolving credit facilities useful to use as a cash flow buffer, but it’s important you’re not exceeding their limits. Doing this can have a detrimental effect on your business’s credit rating, and second, it can also harm your chances of getting another kind of business finance such as a growth loan.

The reason is that if you’re regularly getting close to your credit limit, it’s normally a sign of cash flow difficulty — in an ideal world, the business would always have a cash reserve in place. Of course, this isn’t an ideal world, and unexpected costs can knock your financial plans off course — but if you’re regularly getting close to your credit limit or using an unplanned overdraft, it’s often a red flag for business lenders.

5. Put money aside for tax bills

Along the same lines, it’s very important you have a financial plan in place to pay your tax bills. The type of tax you pay, and when you have to pay it, depends on your business — so your budget needs to take your individual situation into account. But you’d be wise to stay in HMRC’s good graces, because they’ve been chasing overdue tax more aggressively lately, even issuing winding orders in some more serious cases.

6. Get ready for pensions auto-enrolment

The government is rolling out mandatory pensions auto-enrolment, which affects many businesses even if they only have a handful of employees. This means that many firms will have to offer a pension scheme for the first time and make contributions for each eligible employee — which could have a significant impact on your running costs.

7. Regularly check your personal credit

When a small business applies for finance, the directors are much more likely to be involved personally, so it’s a good idea to keep your personal credit rating healthy if you might want a business loan in the future. Even if you’re not offering a personal guarantee, with a smaller business the lenders will want to look into the directors involved because they’re more likely to have an active day-to-day role. So keeping your personal credit in good health might also have a positive impact on your business.

8. Stop mixing personal and business expenses

Related to the resolution above, it’s a good idea to make the effort to separate your personal and business expenses. Lots of small businesses start organically, perhaps transitioning from sole trader to limited company in the process, but having mixed-up financials makes it very difficult for lenders to see your business profile clearly.

9. Keep up-to-date accounts

There are lots of arguments in favour of keeping up-to-date management accounts, but the most important are that they’ll give you a clear view of where you are, and they’ll help you get business funding quickly if you need it. Although many firms wait nine months before filing accounts, if you file them within a month or two you’ll always have a fairly recent snapshot of your business to present to a lender if you require funding.

10 Regularly check your funding options

A few of these resolutions focus on your ability to borrow money — because small businesses often find a working capital injection is just what they need to take it to the next level and grow. If you’re keeping your financial house in good order, it’s worth reviewing your funding options every so often, so you know what you’re eligible for if you suddenly need funding to go after a new business opportunity.

Conrad Ford is chief executive of Funding Options.

Further reading on financial management

Conrad Ford

Anastacio Raynor

Conrad Ford is founder and CEO of Funding Options, an online marketplace for UK business finance.

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Financial Management

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