When running a business, you may need to wear quite a few hats: a time manager, a product or service marketer, a team manager, or a cashier – you name it. Such a multitude of roles can get overwhelming. Despite this, know that there are tasks that you alone can do. One of them is cash flow management – the job that involves keeping track of the money.
In this article, we’ll cover some strategies for managing the profits in your business and making sure that you don’t pay any more tax than you are legally liable for.
IN THIS ARTICLE
Have a system
Manage your cash flow
Manage your expenses
Understand that paying tax is an inevitable part of your business. A tax bill means that your business is profitable, which is a positive thing. The more your business grows, the more income comes in. This means the more tax you are liable to pay. In this case, one of your top priorities as a business owner is to get a handle on how to best manage the money for the best outcomes.
HAVE A SYSTEM
One of the simplest ways to manage your business’ money is to have a system that is set up correctly from the start. This means keeping receipts and invoices and capturing the details in a cost-effective and easy-to-use way.
For example, your accountant may suggest you set up an online accounting software package along with a receipt capture add-on so that you can:
- Email invoices directly from your software while you are on the job
- Forward receipts to the expense capture add-on that feeds straight into your accounting software
- Set up rules so that regular expenses are automatically categorised
Getting your expenses recorded and your invoices out to your clients as soon as possible means you will have more time to spend doing the money-making activities in your business and ensure that you are in the best position to be on top of your cash flow. If you have a system, you can save time and give your business the best possible opportunities to succeed and grow.
MANAGE YOUR CASHFLOW
When running your own business or just working for yourself, you must manage your cash flow to pay your suppliers on time and meet your tax obligations. Once you have been keeping track of income and expenses for a while, you will get a feel for the cash flow cycle for your business.
Ensuring that you have enough money set aside as a buffer for low-income periods or to cover your tax obligations is a great start to managing your cash flow. You can achieve this by having a separate account apart from your everyday working account. Your accountant can help with cash flow analysis and understanding how much tax you will have to pay. This means that you can set aside the right amount of funds regularly. Making sure you have funds to pay your business liabilities on time means you won’t incur penalties or interest.
MANAGE YOUR EXPENSES
Running a business will always mean incurring expenses. These expenses should be under control to make sure you are making a profit and growing your business over time. By regularly reviewing your expenses, you can often see greater efficiencies and be proactive in managing your business spending.
Here are some ways you can streamline your expenses.
1. Reduce your overheads
Overheads are the unavoidable costs of running your business or supplying your service or product. Overhead costs include rent, electricity and water, telephone, internet and wages. Take a close look at your regular recurring overhead expenses and drill down to see where you can reduce costs. Do you need to utilise an office or workspace as big as you have, or could you downsize? Do you need the number of staff you employ, or could you reduce your payroll overhead expense? Are there alternative suppliers for your utility or communication costs that can save you money?
2. Monitor your operational expenses
The higher your cost of goods sold (COGS) or operational costs are, the smaller the profit your business makes. Regularly reviewing and looking for ways to reduce your COGS helps ensure that you operate your business as leanly as possible.
Ideally, you would do this without impacting the quality of the goods or services you provide. So understand what costs go into your COGS in your profit and loss statement and analyse how you might operate your business by reducing these costs.
3. Look for cheaper suppliers
Often, the cost of goods sold by suppliers has been supplying your business for a while. However, it may be worth researching and considering whether you are getting the best deal. Shop around and negotiate for reductions in costs or better terms to improve your cash flow.
4. Keep tabs on your staff expenses
We all want our staff to do a good and efficient job, so allowing them to buy goods or raw materials with the business’ money makes sense. However, these costs can get out of control, so it might be good to impose spending limits and to have a clear expenses policy. Tools like Divipay help you set staff spend limits, track expenses and pull your staff expense information to your cloud accounting program for processing.
5. Understand tax deductions and tax reliefs
Many business owners don’t understand the tax deductions and other benefits that are available to them.
For example, if you can demonstrate that you are involved in innovation and research and development within your industry, you may be eligible for research and development tax credits.
6. Structure your affairs to minimise tax
Tax legislation is constantly changing, and your accountant can provide advice on the best way to arrange your affairs to minimise your tax and only pay what you should. There could be better ways to structure your business affairs, so you pay less tax. Some areas where you could save tax include appropriate tax structures, vehicle ownership or purchasing, family income allocation, loan refinancing and employee benefits.
Managing your small business doesn’t need to be complex. Ask your accountant for help to set up a system that takes the headache out of managing your finances. Regularly review your cash flow and expenses and take your accountant’s advice on the tax and financial implications of your current and future business plans. This will help put you in the best position to improve your profits, reduce your tax and grow your business.
This article is for general information only. It does not make recommendations nor does it provide advice to address your personal circumstances. To make an informed decision, always contact a registered tax professional.