Money and your small business

Running a business means you need to wear quite a few hats; Managing your time, marketing your products or services, managing your employees, doing the work and keeping track of the money!

In this article we’ll cover some strategies for managing the profits in your business and making sure you don’t pay any more tax that you are legally liable for.

Understand that paying tax is an inevitable part of your business – having a tax bill means that your business is profitable and that is a positive thing. The more your business grows and the more income coming in, the more tax you are liable to pay so 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 system set up correctly from the start. This means keeping receipts and invoices and capturing the details is the most 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 which 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 cashflow. Yes, having a system is about saving time but it also means you are giving your business the best possible opportunities to succeed and grow.

Manage your cashflow

When you are running your own business, or even just working for yourself, it is important that you manage your cashflow to ensure that you can 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 cashflow cycle for your business. Making sure you have enough money set aside as a buffer for low income periods and also to cover your tax obligations is a great start to managing your cashflow. This can be easily achieved with a separate account apart from your everyday working account. Your accountant can help with cashflow analysis and understanding how much tax you will have to pay meaning you can set aside the right amount of funds on a regular basis. 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 and it is important that your expenses are kept under control to make sure you are firstly making a profit and then over time growing your business. 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:

  • Reduce your overheads – these are the unavoidable costs of running your business or supplying the service or product your business produces. Overhead costs can include expenses like 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?
  • Monitor your operational expenses – the bigger your cost of goods sold (COGS) or operational costs are, the smaller the profit your business makes. Regularly reviewing and hopefully reducing your COGS where you can so that you are operating your business as leanly as possible makes a great deal of sense. Ideally, you would do this without impacting the quality of the goods or service you provide. Understand what costs go into your COGS in your profit and loss and analyse how you might operate your business by reducing these costs where you can.
  • Look for cheaper suppliers – often your cost of goods sold suppliers have been supplying your business for a while but it may be worthwhile doing your research and considering whether you are getting the best deal. Shop around and negotiate for reductions in costs or better terms to improve your cashflow.
  • Keep tabs on your staff expenses – we all want our staff to do a good job and be able to do their job efficiently so allowing your employees 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 also have a clear expenses policy. Useful tools like Divipay for example help you set staff spend limits, track expenses and pull your staff expense information through to your cloud accounting program for processing.
  • Understand tax deductions and tax reliefs – many business owners don’t understand the tax deductions and other benefits available to them. It is worth exploring what tax reliefs, grants or other initiatives your business may benefit from. 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.
  • 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 affairs so that 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 cashflow and expenses.  Take your accountant’s advice on the tax and financial implications of your current and future business plans to put you in the best position to improve your profits, reduce your tax and grow your business.

How we can help

At Bristax, small business tax accounting is one of our specialist areas. Our expert small business accountants would be happy to speak or meet with you to discuss your situation. We’ll take the time to understand your circumstances and provide advice that maximises your financial position.

Contact us now.

This article is for general information purposes only and has not been prepared with reference to the circumstances of any particular person. You should seek your own independent financial, legal and taxation advice before making any decision in relation to the material in this article.