Table of contents
Table of contents
Maintaining the financial health of a business can be a delicate balancing act. Even businesses making lots of sales can struggle with cash flow if there isn’t much financial management going on, and it can be all too easy to overspend.
In this article we’ll share some ideas for putting in financial management processes to help your business.
Making assumptions based on half-remembered figures is nowhere near as reliable as decisions based on cold hard facts. With that in mind, the first step should be well-organised financial records. It’s extremely boring, but that means every transaction in your business, such as invoices, expenses, and bank transactions, should be accounted for.
Every other aspect of managing your financial health will be based on these numbers! No pressure.
Every business is different, so an organisation with very few transactions may be fine reviewing its financial records on a quarterly basis. Others could benefit from looking at them more frequently.
Using your financial records and turning them into a more accessible format can help you to analyse what’s really happening in your business. That’s a good thing for lots of reasons, such as making it more efficient. We’ll include some examples below.
You’ve just been paid by a customer, and now your business account has £10,000 sitting in it. Hurrah! But – before you scamper off to buy the new equipment you’ve had your eye on – do you have any upcoming bills that need paying first? Are you putting money away to pay for general running costs? Do you need to reorder any other supplies?
If you’ve been keeping your accounts up to date, your financial records should be able to tell you this. It can also help you monitor regular spending too, so you can take a look at your outgoings and decide what’s essential, and what isn’t.
Some costs are unavoidable, but it’s worth remembering you can claim tax relief on any expenses incurred wholly and exclusively for business. These can be pretty much anything. Even down to the props you might need to buy for a social media campaign.
Businesses pay tax on their profits, so deducting expenses from your income reduces your overall profit and saves money on your tax bill.
HMRC aren’t afraid to issue penalty notices if you miss the deadline for submitting your tax return. Managing your financial records makes it easier to keep track of what your tax bill will look like, and minimises the risk of sending late or inaccurate tax returns. Plus you’ll be able to put money aside to pay the bill – which is also useful!
Regularly reviewing your financial reports means you’ll know how many outstanding invoices are waiting to be paid.
This is important because it will help you make sure your business really is making the profits that you expect it to based on its sales.
It’s also helpful for planning, so you can predict what funds your business can realistically expect to receive (and which customers don’t need another phone call!).
Using just one financial report is better than none. Reviewing a variety of financial reports helps you to look at different elements of your business so you have a more complete picture of what’s happening in each area. Each report will show you something different, which we’ll explain below.
Type of Financial Report
Balance sheet
Profit and loss statement
Cash flow statement
What It Shows
Your balance sheet shows a snapshot of your business’s financial health at a specific point in time. It normally includes a summary of assets, liabilities, and equity in the business.
Also known as an income statement, these look at total earnings, profits, and expenses over a specific period of time. This will show you if your business is actually profitable.
Cash flow refers to funds that move in and out of your business. Managing cash flow helps you make sure funds are available to pay bills on time. If you struggle with this, analysing cash flow will help find the cause of the issue. It could be down to overspending, or clients simply not paying when they should.
Finding ways to be more tax-efficient should be top of your list when you’re looking to cut tax costs. Like most things, it’s much easier when you know what to look for. For example:
Learn more about using Pandle to make business accounting easier. Create an account today and decide what to do with all the extra time you get back.
A creative content writer specialising across business, finance and software topics. I have a love for all things writing, and creating engaging, easy to understand content that helps everyday people!
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