Now we are approaching the end of January, the New Year is not really shiny and new anymore. How are you getting on with keeping to your New Year Resolutions? Hopefully, it is going well, and you are adopting some great new habits in your business finances. But maybe, you haven’t yet made any resolutions. If you are in the latter category, we am going to suggest a great resolution that we believe is appropriate for all small businesses and that is to take a keen interest in your finances.
Whether you are self-employed, or running a small team of staff, you might process your own bookkeeping, you might have persuaded a family member to do that for you, or you might be paying an employee or professional. All those approaches are fine. The processing must be completed for compliance purposes (for VAT and tax returns) and to ensure you pay and are paid correctly. But do you actually take an interest, and review the numbers?
We find that many entrepreneurs view the business finances as an administrative burden and tend to slightly glaze over when we first mention the accounts, and then burst into life when we start to talk about the trade, and the technical aspects of the work. As a management accountants, we are clearly biased about finances and find them more interesting than the average person, but this year we are on a mission to make everyone else just a bit more interested!
However, it is not easy to suddenly get interested in a topic that you find inherently dull, just because someone tells you that you should. So, we are making a few recommendations here, to help create a new habit and to ease you in gently.
Regularly updating your business finance records can help you spot trends early.
In an ideal world, all businesses would review a detailed set of management accounts in a monthly board meeting. But the world is not ideal. Everyone is busy, and you may have demands on your time and your cashflow that makes this seem unrealistic.
So, let’s take the concept, stretch and simplify it, and take the best bits to make this an efficient and value-added activity. Aim for a financial review 4 times a year, to be triggered when your quarterly VAT return is ready.
You will already be preparing a VAT return, and aged debtors and creditors. Why not use these and then aim to give yourself just one additional report to look at. Either a cashflow looking at movements in the bank accounts and any loans since last quarter or run a profit and loss account for the quarter from your software.
A good way to review is to start by plotting trends. As a really simple example, we like to create a VAT return trend spreadsheet and record the output from every box, not just the amount of VAT to be paid. Then over a period of time, you will have a record of the sales and purchases for every quarter.
In order to review, compare the figures for this quarter to last quarter, and to the same quarter last year. Have they gone up or down, and most importantly why? If you don’t know why, then we recommend that you dig into your paperwork and find out why. The point of the exercise is to understand why numbers have moved and then to reflect on what you can do to keep them moving in the desired direction.
In a similar way, you can easily plot trends of your debtors and creditors, bank and loan balances each quarter to ensure that they are heading in the right direction. If the trends are generally downward, then it is time to make changes and find ways to make improvements.
If you are an owner-manager of a small business, you might find that the top can be a lonely place. Involving someone else in the review can be helpful in so many ways. As a management accountants specialising in owner-managed small businesses, we have been included in a great many of these reviews in our work and have found that we have brought the following benefits to the review
If you invite any decent accountant to your reviews, they should more than pay for themselves in terms of sharing business knowledge to aid your decision making. This isn’t ground-breaking, but it is important, and we hope that the above provides not only some inspiration, but also a simple approach that can really work for you.
If you'd like to talk to someone about your business finance, give us a call and book a consultation using this link: https://www.jrma.co.uk/contact/.
Looking for a bookkeeper but don't know where to start? Read our other blog on the qualities to look for in a bookkeeper: https://www.jrma.co.uk/top-3-qualities-to-look-for-in-a-bookkeeper/
