Resetting Business Finances in Challenging Times

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The current economic uncertainty is taking a toll on many UK businesses, with over one in five reporting a negative impact on their turnover, according to a recent report from the Office of National Statistics. In times like these, resetting your business finances is crucial to staying afloat and navigating through the turbulence. This process involves assessing your current financial situation, creating or reviewing your cash flow forecast, finding ways to cut costs, and making a plan to deal with upcoming payments, such as your tax bill. By taking these steps, you can strengthen your financial position and weather the economic storm. If you need expert assistance, “Tax Accountant” offers accountancy, taxation, and support services to help you achieve your financial goals.

The Importance of a Cash Flow Forecast

Understanding Your Financial Health: A cash flow forecast is an essential tool for assessing the nature and scope of your business’s financial problems. It provides an estimate of the cash your business expects to receive and payout in the future based on past performance. By creating a cash flow forecast, you can identify future periods when you may be low on cash and plan accordingly.

Creating a Cash Flow Forecast: If you don’t have a cash flow forecast in place, don’t worry – it can be prepared in just a few simple steps. First, decide on the time period you want to forecast, which can range from a few weeks to several months or even years. If your business has been operating for several years, you can use past sales data to make more accurate predictions. However, if you’re a relatively new business, it’s best to keep your forecast period shorter, as you may not have enough data to make long-term projections.

Calculating Total Income and Expenditure: To create your cash flow forecast:

  1. List all your expected income for the chosen period, primarily focusing on your sales.
  2. Use invoice due dates or payment clearance dates rather than invoice send dates to ensure accuracy.
  3. Include other income sources, such as grants, loan payments, and tax refunds, to determine your total net income.

Next, list all your outgoings for the same period, including expenses such as assets, loan payments, rent, tax bills, investments, and wages/salaries. Add up all your outgoings to calculate your total net expenditure.

Determining Your Cash Flow

The final step is to calculate your operational cash flow by subtracting your total outgoings from your total net income. A positive cash flow indicates that more cash is coming in than going out, which may allow you to invest in or grow your business. On the other hand, a negative cash flow means you’re spending money faster than you’re getting paid, which can be a cause for concern if not addressed promptly.

Improving Your Cash Flow

Encourage Early Payments: If your cash flow forecast reveals that you’re facing cash flow problems, there are several strategies you can implement to improve your financial situation. One effective approach is to encourage your customers to pay early. This can be achieved by making deliveries as soon as possible, sending invoices right away, and requiring a deposit for large orders. Offering flexible payment options, such as credit cards, debit cards, and PayPal, can also make it more convenient for customers to pay promptly.

Chase Late Payments: Don’t hesitate to follow up on overdue payments. Send a polite reminder to the customer about 48 hours after the payment due date and ask if there are any issues with the invoice or if they need anything else from you to expedite the payment process. Establishing late fees can also encourage customers to pay on time. For example, add a 2% interest charge for each day the payment is late once an invoice is thirty days overdue.

Assess and Sell Unnecessary Assets: Another way to boost your cash flow is to assess your assets and sell any that you no longer need. This can include old equipment or excess stock. In addition to generating cash, selling unnecessary assets can also help you save on additional costs, such as insurance and storage fees.

Consider Leasing Instead of Buying: If you need to invest in new assets, consider leasing instead of purchasing them outright. Leasing allows you to access the latest equipment without having to pay the full cost upfront, thus preserving your cash reserves and avoiding the need for a loan. Additionally, interest rates for equipment rentals are usually fixed, making it easier to incorporate these payments into your cash flow forecast accurately.

Cutting Costs and Negotiating with Suppliers

Identify Areas for Cost Savings: When facing financial challenges, it’s essential to find ways to cut costs wherever possible. Start by making a list of products you regularly purchase and shop around for cheaper prices. If your business doesn’t absolutely need something, don’t buy it. You can also ask your suppliers if they can reduce their prices, especially if you’re a loyal, long-term customer.

Negotiate Better Deals with Suppliers: Before negotiating with suppliers, research the wider market to gauge how competitive their prices are. Determine your ideal price point, but ask for an even lower price than you expect to get. Some suppliers may offer discounts if you can pay in cash upfront, so be prepared for this possibility and ensure your cash reserves allow for it.

Try to secure a fixed price from your supplier over a set period, such as six months or a year. This can give you confidence that the deal will positively impact your cash reserves. Remember to remain friendly and respectful during the negotiation process, as your supplier is also running a business and may not be able to make deals that hurt their bottom line.

Saving Energy and Money

Reduce Energy Consumption: Reducing your energy use is another effective way to save money. Ensure that machinery and lights are switched off when not in use. Lighting typically accounts for over 20% of the energy used in commercial buildings, and it’s not uncommon for lights to be left on unnecessarily in corridors, meeting rooms, and storage cupboards. Place signs reminding employees and cleaners to turn off lights when leaving a room to help cut energy costs.

With the UK in the midst of a two-year energy crisis and wholesale electricity prices reaching record highs, energy conservation is more important than ever for businesses. Unlike households, businesses are not protected by the recent Ofgem energy price cap, making energy-efficient practices crucial for saving money.

Dealing with Your Tax Bill

Claim Every Eligible Expense: When it comes to your tax bill, it’s essential to keep it as low as possible by claiming every eligible business expense, no matter how small. As long as the expense was solely used for the everyday running of your business, you can claim it. This includes items such as office equipment, travel expenses, and marketing costs. However, you cannot claim expenses that were used for both business and personal purposes.

Keep Accurate Records: To ensure HMRC accepts your expense claims, maintain accurate records of all your business expenses. Keep physical and digital receipts, and consider recording your expenses in a spreadsheet that you update throughout the year. This will make it much easier to reference and input your expenses when filing your tax return.

Time to Pay Arrangements: If you are unable to pay your tax bill on time, you may be eligible for a Time to Pay arrangement with HMRC. This arrangement typically allows you an extra six months to make the payment in staggered instalments, with the possibility of extending the term up to twelve months. No additional charges will be added to your tax account balance during this period.

To qualify for a Time to Pay arrangement, you must owe £30,000 or less, have filed your last tax return, and have no outstanding debts or payment plans with HMRC. You’ll also need to provide a strong case demonstrating that you deserve this arrangement, including a realistic estimate of how much you can afford to pay and over what time frame. Present HMRC with your cash flow forecast for the next six months and detail the cost-cutting strategies you’ll implement to help you make the payments. Be careful not to over-promise your payment amounts and ensure you can stick to the plan before agreeing to it.

When your business faces tough times, it’s crucial to prepare a cash flow forecast, cut costs, strengthen cash reserves, and manage your tax bill to take charge of your financial situation. These steps can help you navigate economic turbulence and look forward to better days ahead.


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