When you run your own business or you’re in charge of the finances in your workplace, finances can be stressful! We’ve put together our top 5 steps to stress-free business finance!
At Insight Finance Solutions, we believe that business finances gets to be easy, simple and most of all stress-free. We’d even say it can be exciting!
Now more than ever, in the age of simplicity and automation finances don’t need to be a burden.
The most important thing we advocate for every business owner we help is the number one rule: K.I.S – Keep It Simple!
We hope you’ll find the following five steps for making business finances easier and setting the foundations for growth:
1. Get the right business structure
2. Find a bank and payment provider you love
3. Get awesome at record-keeping and adopt accountancy software
4. Get the most out of your accountant
5. Pay yourself 🙂
1. GET THE RIGHT BUSINESS STRUCTURE
“Should I set up as a company or as self-employed?”
This is one of the most common questions we get asked, so what’s the difference?
Here’s a rundown of the key points to know:
Self-Employed
Key point: you and your business are the same thing i.e. there is no legal separation
Pros
- the easiest solution on startup because it’s easier to understand:
- you’re taxed under ‘income tax’ i.e. the same way as employment earnings so it’s more familiar
- it’s cost-effective as there are fewer setup costs outside of those directly related to your business e.g. equipment, premises etc
- there is less compliance i.e. you only get to register and comply with HMRC, most people can also complete their own personal tax return, or the costs of an accountant doing so are relatively low
- it’s easy to pay yourself from the business as you and the business are the same thing so all business assets e.g. cash and equipment belong to you
Cons
- it may not be the most tax-efficient structure, i.e. you may pay more tax than if you were a company as you will be taxed on the total profits made by the business, regardless of how much you actually pay yourself. Plus the tax rates are slightly higher on some profits than those of a company UPDATE: at the time of writing, we’re still waiting more information from Government on the proposed increases in corporation tax in 2023 which may impact decisions around the tax advantages/disadvantages of being self employed v Ltd
- because you and your business are the same thing, if the business is sued your personal assets e.g. house, car etc are at risk
Limited Company
Key point: you and your business are two separate legal entities
Pros
- the company pays tax on its profits under ‘corporation tax’ and you will continue to pay tax personally under ‘income tax’ but only on what you are paid by the company, not the full company profits as with self-employment
- it may be more tax efficient for both the company and you personally
- as you and your business are separate, your personal assets are not at risk. If the business is sued, the amount it can be sued for is ‘limited’ to the assets of the company
Cons
Mainly around compliance and cost:
- as the business is a separate entity, a ‘company’ it is required to be registered with Companies House. Getting the company set up and registered can incur fees
- information about the company is publicly available and can be accessed by anyone at any time from the Companies House website, this includes finance information
- getting the structure of the company right from the outset is important and requires some guidance as future changes can be costly to make
- company accounts are prepared in accordance with international accounting standards meaning they are more complex (and costly) to prepare. A qualified accountant will be required to prepare and submit them
- there are additional costs as two sets of accounts and tax returns get to be prepared and submitted: one set for the company and one set for you personally
- the money earned by the company belongs to the business and therefore isn’t yours to take as you please. A conscious payment structure is required
Summary
- setting up as self-employed is the easiest solution on startup because it’s easier to understand, more cost-effective and there is less compliance
- the caveat is if you are in a particularly ‘risky’ industry e.g. construction, making children’s playground equipment etc where the risk of being sued is potentially higher. In which case the protection of a limited company would be beneficial from the beginning
- most people start as self-employed as it’s simply less overwhelming and more cost-effective. It also gives you chance to get used to running a business and a much easier exit strategy if you decide it’s not for you
- on a day to day basis, very little is different, the main differences are to do with compliance and responsibility (most of which is just admin) accountancy costs and how to pay yourself from the business to which there are very simple solutions!
- the natural progression is to then ‘incorporate’ i.e. start trading your business through a company, once it has grown, you have built up confidence and any potential tax savings become even more beneficial
- running a company isn’t hard! It just requires more awareness and understanding and having some experience of running a business is definitely beneficial!
Useful links
HMRC—Self-employed https://www.gov.uk/working-for-yourself
HMRC—Setting up a company https://www.gov.uk/limited-company-formation
Companies House – https://www.gov.uk/government/organisations/companies-house
2. FIND A BANK & PAYMENT PROVIDER YOU LOVE
You’re going to spend a lot of time working with your bank, they’re a key part of your business and it’s important that you feel supported by them and they are in alignment with your values.
Being able to say ”I love my bank” will immediately make doing business a whole lot easier and maybe even make it
more fun!
Why set up a separate business account?
- it makes managing your cashflows so much easier! Whilst personal and business finances are in the same ‘pot’ the water is muddy, it’s challenging to know what’s going where, what you require personally and what the business requires. Having a separate business account, in our opinion has the biggest impact on bringing clarity to your finances
- it’s the most important step in automating managing both personal and business finances so it becomes effortless!
- it‘s required if you wish to use accounting software
- it‘s a necessity if you are a company, putting this structure in place from the beginning even whilst self-employed makes the transition to becoming a company much less challenging and sets a solid foundation and intention for growth
Who to talk to and what to look for…
The bank you use personally is usually the best place to start.
It is a much simpler process to open a new account as they already know you and have therefore completed their ‘due diligence’ i.e. know you as a customer. This makes it less time consuming to set up.
Be aware the process can still take up to six weeks, with a lot of form filling. It’s definitely worth a chat, but it’s not the only option.
The alternative is to say hello to app banking…simple, easy and puts you in control of EVERYTHING from your phone. Accounts can be opened by downloading the app, filling in the details and wait for verification which usually happens within a few days, if not hours.
The apps also have built-in insights which allow you to track incoming and outgoings which give you super simple feedback on spending habits and allows you to manage your cash flows so much easier. Ever find yourself asking ‘where’s all my money gone?’ – imagine having the answer at the click of a button!
Top-rated app banks are:
Starling Bank www.starlingbank.com
Tide www.tide.co
Monzo www.monzo.com
No matter if you choose the more traditional bank or app banking, there’s no reason for you to pay any fees on a business account at least for the first year, if not indefinitely.
Most app banks don’t charge at all, most traditional/high street banks offer at least a year of no fees. And the universal switching service means the new bank handles the transfer from your existing bank making it stress-free for you! Happy days!
Get a Brilliant Payment Provider
Whilst WorldPay, PayPal and SagePay are three of the biggest payment providers in the UK, they also have the most complex fee structures (often the highest fees too) and poor customer service making them a headache for small businesses.
There are heaps of alternatives that offer simple, transparent fee structures and awesome customer service as their whole ethos is around supporting small businesses and making YOUR life simple.
Here’s our top 5 payment providers:
GoCardless
Amazing direct debit system
Stripe
Awesome for card payments from online platforms e.g. websites
iZettle
Easy card payments, bookkeeping tools and sales reports.
SumUp
Affordable card payments with no hidden fees and contracts.
Square
The all-round card solution! They offer everything including in-person card payments, point of sale options and virtual terminals i.e. cardholder not present (telephone) payments.
3. GET AWESOME AT RECORD KEEPING & SET UP SUPER SIMPLE SOFTWARE
However you choose to structure your business, you are required to keep copies of invoices and receipts as supporting documents in the event of a tax investigation.
This is more essential for limited companies because companies tend to have more people interested in their results e.g. finance institutions such as banks and other lenders, shareholders etc and so a clear paper trail is required.
Records can be recorded in hard copies i.e. the old skool way of keeping them in lever arch files. However, there are now easier and more time-efficient solutions (and space-saving!).
Cloud Storage
With options like GoogleDrive, Dropbox and iCloud, you can simply upload documents and pictures directly from your phone and computer, then destroy the original copies.
App Integrations
There are also apps such as Receipt Bank, AutoEntry and HubDoc which allow you to upload receipts and invoices directly to your accounting software saving even more time!
All of these solutions can be completed in ‘real time’ i.e. processing them as they happen, meaning it’s easier to keep on top of your record keeping.
They also allow your accountant easy, real-time access to your records so no more posting off envelopes of receipts at the year-end! Yey!! A decent accountant will assist you in finding the best solution for you.
6 reasons to consider accountancy software
- It’s user friendly: gone are the days of grey, dull and boring accountancy software that only qualified accountants understand and can use. Accountancy software is now, fresh, bright, easy to use and designed for you – the business owner, not just accountants.
- It’s in real-time: you can link your business bank account via online banking enabling bank transactions to be downloaded directly into the software so it’s continuously up to date. No more sitting for hours trawling through bank statements on a weekend or at the year-end!
- Instant access to reports: because everything is in real-time, you can access the built-in reports immediately, to see what’s happening in your business now, rather than waiting for your year-end accounts and finding out in 9 months time. Let’s be honest, knowing you’ve overspent 9 months after it’s happened doesn’t help anyone right? But knowing about it as it’s happening makes a huge difference, particularly if you’re often asking ‘where’s all the money gone?!’ This alone will give so much clarity and assist immensely in managing and growing your business.
- It’s cheap as chips!!: the average monthly cost for a standard package is £20/mth – that’s it! So it’s not going to break the bank and the benefits will far out way the cost.
- Less stress for you: because of the real-time bank feeds, all of the information required for tax returns will be available straight after the year-end. No more digging out bank statements and records at the last minute!
- Less stress for your accountant: all the information they require is already in the software which they can access at any time during the year! So no waiting on you to collect all of the information and send it over to them! And no excuse for them not getting your accounts done straight after the year-end! 😉
4. GET THE MOST OUT OF YOUR ACCOUNTANT
Key information is required to run your business and we believe your accountant should provide certain key information and go through this with you monthly.
Cashflow, cashflow, cashflow!
Whether you’re just starting out, or a large corporation like BT, M&S or Boots, cashflow is key to running and managing a business.
Every single business will experience cashflow issues from time to time (even the biggest and most established), particularly during periods of growth and investment. It’s not something to try and avoid, it’s more about learning how to manage cashflow effectively.
Cash flow management is a skill that we learn, it’s not something we’re born with. And it’s a skill best learned on the job!
It takes time to build confidence and find the tools which work for you — even for qualified professionals. Having confidence doesn’t mean we don’t still face challenges, we simply have the knowledge, understanding, experience and tools to navigate our way through it.
The point – give yourself a break, take the pressure off and allow yourself to view this as a journey of learning a new skill and not something which you ‘should just know’ or be afraid of.
The sooner you nail cashflow management, the sooner your business will grow because our perception is that if we find it challenging whilst running a ‘small’ business, this challenge will only increase with growth. You will therefore subconsciously prevent your business from growing.
So what are the key tools for managing cashflow?
Cashflow Management
It’s vital to know what’s coming in, going out and when. A ‘rolling’ cashflow will therefore be super useful for day to day/month to month cashflow management.
Its purpose is to ‘predict’ your bank balance over a given period, say 3 months, based on the timing of income and expenses. The benefit is that most cash flow issues can be managed through:
Timing
Amending the timing of payments in alignment with when money comes in each month.
Awareness
Knowing when a cash flow shortfall is due to happen and by how much is often enough to take action and resolve it, the not knowing how much and when is often what causes anxiety.
Communication
Most people/businesses will assist you in finding a solution if you communicate with them openly. You’ll be surprised at how supportive people can be, at the end of the day, all they’re wanting to do is manage their own cashflows, so if they know the situation, they can respond accordingly.
Cashflow Forecasts
Forecasts allow us to look into the future and plan long term, say 12 months. The purpose is to scenario plan i.e. play and see the financial impact of your ideas!!
• Want to take on a new venue but not sure how this will impact cashflow?
• Want to put some more classes on but not sure if it’s worthwhile?
• Want to pay yourself more?
• Are you about to register for VAT but not sure what the impact will be? Then this is your tool!
Management Accounts
Whilst cash flows are awesome for looking into the future, we first get to know what’s been going on in the past in order to prepare them accurately. They’re also not what we use to calculate tax, so this is where management accounts come in.
At a minimum, management accounts will show two things:
1. Profit and loss account
2. Balance sheet
Get to know both inside out as they will show you a true picture of where you are now which is important when we’re putting together a map of where we’d like to be (via the cashflows). Together with the cashflow tools, these reports will provide you with clarity and confidence allowing you to plan and make decisions much more effectively! They also allow an accurate tax estimate so no excuse for not know what your tax position is in real-time! You can then start putting monthly amounts aside to save for VAT and income/ corporation tax payments! Yey!
Please remember this— your accountant is someone you get to feel easy speaking with. They are there to serve you and you are not being a pain asking them for this information and for them to explain it to you so you understand. Their role is to support you and your business, not just churn out year-end reports.
This is YOUR information about YOUR business and it is their duty to provide it to you and ensure you understand it and can make confident decisions based on it.
5. PAY YOURSELF
Are you paying yourself?
The reason we’ve left this to the end is not that it’s the least important, quite the opposite in fact — but because we want to leave you with a personal note from us.
We feel this is the most challenging aspect and ‘unknown’ area for business owners – “what do I pay myself?” As a result, many business owners pay themselves nothing or feel guilty when they do and it simply breaks our hearts.
We know first hand that it can feel challenging, like a tug of war, but here’s the deal: you are investing your time, energy and money into this business and you get to be rewarded. No excuses. We know that growing a business and rewarding yourself will be a balancing act, particularly in the early days but that doesn’t mean you don’t pay yourself anything. What we mean by a ‘balancing act’ is that you will at times decide to cash surplus back into the business e.g. new equipment, new premises, new team. At other times you will decide to invest pay yourself more.
So we’re going to share with you what we did, so you get an example of how it can look:
“Helen Crapper, founder of Insight Finance Solutions here and I started out simply aiming to cover business expenses with business income – BIG celebration when that happened!
I’m being serious! In February 2019, Xero completed a study reporting 49 per cent of UK businesses were cashflow negative—so it really is a big celebration!
Then I aimed to consistently pay myself £50 per month and set up a monthly standing order to ensure it happened.
Since then I’ve grown the business and my personal income on a stepped basis i.e. each time there has been surplus cashflow in the business I’ve made a conscious decision about what gets to happen with it and that comes down to feeling.
If there is an ounce of resentment towards what I’m paying myself, the decision is made for me – it gets to come to me as resentment is not the energy to run a business from. If I feel good with the ’salary’ I’m paying myself then the surplus cash goes back into the business. It’s important to note that ‘feel good’ and ‘paying myself my worth’ is not the same thing. Am I paying myself my full worth right now? No I’m not, but I’m good with that as I know that I’m playing the long game i.e. I’m looking to create a long term legacy and lifestyle, not something which funds the latest Jimmy Choos.
The next step was to get clarity on my personal finances. Whilst there were many reasons why I left the ‘employee’ world, one thing I did like was knowing when I was going to be paid and how much and I wanted to recreate that.
Getting clear on my personal finances allowed me to set up a monthly ‘salary’ standing order from the business in order to ensure my home life ran smoothly.
It also allowed me to plan my business finances better as payments to me became more predictable.
My biggest tool for putting all this in place is a book called The Barefoot Investor as I love that the author, Scott Pape, broke the process down into steps so it didn’t feel overwhelming.
The beauty is that I’m in control of when I get a ‘pay rise’ (rather than when someone else!) and all I do is amend the standing order amount. Simple!
And remember, paying yourself a monthly salary sets the intention that you too are a priority, just like the rest of your team and business expenses.”
LET’S HAVE A CHAT
Whether you’re just starting out in business or you own a multi-million dollar company we can help your finances become stress-free and even fun! (Yes, we said it, we make finance fun!).
We operate a little differently from most accountancy firms and are adopters of modern digital technology to save time and systemise.
If you’d like an accountancy firm to help you understand your business and personal finances better, help you create a more positive money mindset and feel in control of your finances then let’s have a chat.
We offer a no-obligation informal chat usually over Zoom/Skype or the phone. We can get to know a little about you and your business and see if we’d be a good fit to help you get in control of your money and prepare you for growth.
To arrange a call please get in touch.