Making a strategic plan for your business finances is important for many reasons. It can help you make the most of your money, grow your business, and avoid financial problems down the road. A good financial strategy can also make it easier to get funding from investors or lenders.
You don’t need to be a financial expert to create a solid plan for your business finances. However, there are a few key things you should keep in mind as you develop your strategy.
1. Know your tax obligations
The last thing you want is to get behind on your taxes and end up owing the government a large sum of money. You must register your business with the tax office and file a return every year.
You will need to pay VAT if your business turnover is more than £85,000 a year. VAT is charged at different rates depending on the type of goods or services being sold. The standard rate is 20%, but there are reduced rates for some items, such as books and children’s clothing.
You may also need to pay other taxes, such as corporation tax, if your business is a limited company. Depending on the size and profits of your company, you might pay a lower rate of corporation tax.
2. Understand your financial statements
Your business’s financial statements show how much money is coming in and going out of your company. The three most important financial statements for small businesses are the balance sheet, income statement, and cash flow statement.
The balance sheet shows your business’ assets and liabilities at a specific point in time. A business’ income statement shows revenue and expenses. The cash flow statement shows how much cash is flowing into and out of your business.
You should review your financial statements regularly to track your business’s progress and look for areas where you can improve. If you’re not sure how to interpret your financial statements, you can hire an accountant or bookkeeper to help you.
3. Create a budget
A budget is a road map for your business’s finances. It can help you track your expenses, manage your cash flow, and make sure you’re not spending more than you’re bringing in
Creating a budget may seem like a daunting task, but it’s actually pretty simple. Start by listing all of your income sources and expected expenses for the month. Then, track your actual income and expenses. And don’t forget to account for unexpected costs, like repairs or new equipment.
If you find your expenses are exceeding your income, you’ll need to make some changes. You may need to cut back on some costs or increase your prices.
4. Make a plan for growth
Every business should have a plan for how it will grow its revenue and profits. This could involve expanding into new markets, launching new products or services, or increasing your marketing efforts. Whatever your plans are, make sure they’re realistic and that you have the financial resources to make them happen.
You should also invest in knowledge. Learning about new trends in your industry can help you make better decisions about how to grow your business. And staying up-to-date on changes in the business world can help you spot opportunities for growth.
You can find plenty of resources to help you develop a growth strategy, including books, websites, and articles. If you’re not sure where to start, CPD courses for accountants can help to develop an awareness of the latest thinking and approaches in business strategy.
5. Keep track of your credit score
You should check your credit score regularly to make sure it’s accurate and to look for any red flags that might indicate identity theft or fraud. You can also take steps to improve your credit score, such as paying your bills on time and using a credit monitoring service.
A good credit score can save you money on loans and make it easier to get approved for new lines of credit. A bad credit score can make it harder to get a loan and may even lead to higher interest rates.
You can get your credit score from any of the major credit reporting agencies: Equifax, Experian, and TransUnion. You can also get your credit score from some banks and credit card companies.
6. Reduce your spending
From the cost of goods or services to the overhead costs of things like rent and utilities, it’s easy to let spending get out of control. Even if your business is doing well, a cent-savings here or there can make a big difference.
Review your expenses regularly and look for ways to cut costs. You may save money by renegotiating contracts with suppliers, switching to cheaper office supplies, or automating billing and payments.
It’s important to be proactive about your business finances and take steps to improve your financial situation. Take your time to understand the basics of accounting and finance, and don’t be afraid to seek help from professionals if you need it.