09/09/24
Getting through the first year of owning and running your business is going to be an exciting and gruelling challenge. There’s no way to sugar-coat it: it’s going to be hard work!
Finances are an aspect of your business you’re going to have to be on top of from day one, and in truth probably long before that as well.
Starting a business in the UK takes preparation, dedication, and a huge amount of effort. If the end result is successfully building something of your own, and hopefully, a stable revenue stream to boot, then it’ll all be worth it!
Here are some handy hints and tips to help you navigate the crucial first year of running your own business.
Make a business plan
Surviving as a business relies on a few foundational things, one of which is a financial plan to help you weather the first few months with some idea of what your finances will be ahead of time.
Creating a comprehensive business plan to project your finances up to a year is helpful but it isn’t always necessary. Your need for a business plan largely depends on the state of your finances when you begin your business.
If you are able to start with a substantial fund behind you already, a financial plan won’t be as vital, since you will have time to build a client base and the ability to simply wait until you’re able to build up regular customers.
If you aren’t that lucky, and need to account for every penny, then a business plan becomes much more essential. No matter your starting financial situation, it certainly won’t harm you to spend some time creating a financial plan, after all, no one likes to lose money!
When it comes to creating the plan itself, be as conservative with your estimates as you can while being realistic. In general, it’s better to underestimate profits and overestimate expenses, helping to ease your expectations for the first few months.
Separate personal and business finances
When you begin working for yourself it can be easy to forget there should be a clear delineation between money earned for your own use and money earned for the business.
If, before you began your new business endeavour, you worked for a regular wage, the switch to business ownership can be quite jarring. We would recommend deciding on a wage for yourself and then taking that out of your business’s income, leaving the rest for reinvestment back into the business.
Pay the monthly salary into a personal bank account as if you were being paid by a company you worked for, rather than one you run. It is a bit of a psychological trick, but it will give you better self-control with your finances and give you an improved chance of sticking to your business plan.
There are also tax implications, with tax benefits for small companies that retain profits in the business itself rather than paying the business owners.
Keep financial records to track expenses
Accounting for all of your expected outgoings is a tough challenge for any business. Ideally you would do this as part of your business plan, though there are likely to be expenses you simply won’t be able to account for ahead of time.
Expenses to account for include:
- Outgoing wages – Living is an expensive business. Most of the money you earn will go towards yours, and your staff’s living expenses such as mortgages, bills, and food.
- Tax – Two things are certain in life, and tax is one of them! If you’re a sole trader, you’ll pay income tax; if you’re going to set up a company, you’ll pay corporate tax. We’ll discuss tax in more depth below but to get a better understanding of your expected tax burden, get in touch and one of our experts will be happy to discuss taxes and the various schemes that exist to help those running small businesses.
- Business location – This depends on your business. If you are planning on running a company that needs a central hub from which to operate, a stock warehouse or office, this can incur a substantial monthly expense. However, if you are planning on becoming a sole trader you may be able to avoid this altogether. Becoming an estate planner with CTT Group’s Be Your Own Boss programme for instance, allows you to work completely remotely so this will not be something you need concern yourself with.
- Stocks and/or supplies – Once again this will depend entirely on the type of business you’re planning on running. Buying in stock based on projected sales requires somewhere to keep it, and also a financial plan for those times when the stock doesn’t sell. Suppliers and contractors are running their own businesses and will incur expenses to take advantage of their services as well.
- Financial services and insurance – You need your business to run smoothly, especially in the first year. To make this happen, you will need to employ the services of a solicitor and accountant. CTT Accountancy is experienced in helping those with small businesses, dispensing unbeatable services and supporting you through tough times with sound advice. As well as these services you’ll also need to invest in some form of business insurance which, depending on your business, could be compulsory.
- Marketing services – What’s the point in creating your amazing new business if no one knows about it? That’s where a marketing agency comes in. They can support you by developing your website and handling a marketing campaign to get your name out there and build some hype for your business. This expense can sometimes feel unnecessary but even a moderate investment will end up paying dividends in the future of your business. Growing a customer base takes time; use the experts to target your potential clients directly; they’ll know where and how to get your customers’ attention and direct them toward you, which is invaluable.
Prepare for risks with a contingency plan
Hope for the best, prepare for the worst. Predicting the future is hard; without access to a crystal ball, some educated guessing is the best you’ll be able to do.
By carrying out a dramatically titled ‘disaster plan’ you essentially give yourself a safety net in the event that the worst happens. Imagine the worst-case scenarios for your business (you lose an important client, a supplier goes bust, sales start plummeting) whatever it may be, and create a financial strategy that incorporates these instances into it.
This stress-tests your business, enabling you to see how well you would cope if any of the events occur. Armed with this information you then create contingency plans, things you can do to deal with these happenstances.
Most of these contingencies will take the form of having enough money to weather the storm, as it were. An unexpected event, no matter how bad it is, will usually result in only a temporary problem which will be resolved in time.
To this end, ensuring you have savings to fall back on, or are able to take out a business loan will be essential to ensure you can get through that rainy day.
The best accounting software to keep on top of invoices
It is essential to keep track of invoices, both those you need to pay and those for your own business.
The busier you get, the more difficult this becomes and with any successful company, growing to increase your revenue and reach your business goals is extremely important; with this comes more and more paperwork, so how do you deal with it?
Using accounting software to ensure you can easily handle your business finances is a must for any company, large or small. There are several different programs to choose from, each with their own benefits and unique use situations.
Our article on the best accounting software for small businesses looks at all of your options and breaks down the pricing, features, and ideal users.
There are 6 accountancy programs most widely used for small businesses. They are:
- Xero
- Zoho Books
- Oracle Netsuite
- Sage Intacct
- Intuit Quickbooks
- Freshbooks
Each of these are useful and we can help advise you on the best software to match your business needs. By working with us, we can also offer you up to 50% discount on certain software. Our accounting services are designed to help you manage your finances, giving guidance on the Make Tax Digital (MTD) initiative and ensuring you comply with tax law as well as keeping you from over or under-paying on your VAT.
Be aware of your tax responsibility
If you need to submit a self-assessment for your taxes, being aware of the amount of tax you need to pay ahead of time is going to be advantageous.
No one likes to get an unexpected tax bill. Depending on how much you earn year to year, your tax payment could change quite drastically.
The deadline for a self-assessment tax form is the end of January. If you can, put aside the bulk of profits until then so that you are able to pay whatever is owed without breaking a sweat.
Making your organisation tax-efficient is often a strategy many small businesses need to engage in simply to be able to continue functioning through the first few years. Using an accountancy service (such as CTT Accountancy) is a great way to learn about the various government schemes and tax rules created to benefit sole traders.
Annual financial audits
Your business expenditures will require regular reviews to make sure you aren’t paying too much for the services that help you run your company.
If you don’t keep an eye on it, charges can spiral out of control. By reviewing these outgoings at least once a year, you’ll be able to switch energy or internet providers to get a better deal or simply renegotiate terms with existing providers.
Being constantly aware of your incomings and outgoings is part of life as a business owner. Why not get a little help from people whose speciality is to make your finances run smoothly so you can concentrate on making your business run smoothly?
CTT Accountancy is passionate about giving you the best personalised service and is as invested in seeing you succeed as you are!
Check out the 7 benefits of working with a personalised accountancy service and decide for yourself if you think you’d benefit from using one of our accountants.
Give us a call now to have a chat with one of our team and learn how we can help you.
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