Your personal financesBefore considering how much money your business needs to generate in order to thrive, you need to think about how you are going to survive while you wait for customers to pay you. The amount of research, and market and product development that may be needed could mean it will be months or even longer before the business is able to trade effectively and provide you with a full-time income. Answering the following questions will help you to understand how you might manage during this period: - Will I be working full time in the business?
- Will I have another source of income, or savings to fall back on?
- Do I need the business to provide a full-time income from the start?
- What is a full-time income?
- How much do I need to live on every month?
- Do I know anyone who can give or lend me money?
- Do I know someone who has money who might join me or buy into the business?
- How quickly do I think I can generate sales?
Once you have understood your personal financial needs, you need to work out how you will control the finances that directly affect your business. back to top CashflowOne of the most stressful aspects of self-employment as compared with being employed is that you cannot rely on a regular salary being paid into your bank account. Good cashflow is defined by a pattern of income and spending that allows a business to have cash available to pay bills (and wages?) on time. Never spend or buy unless you have to (consider leasing). back to top ProfitsCheck whether your prices are sustainable. Is it better for you to work with higher margins and fewer customers? Know your break-even position and how it changes with differing volumes of different products and services. back to top OverheadsKeep overheads to a minimum. If you need stock, hold the minimum needed. Paying out for stock is a rapid way to run out of money. back to top CreditOnly give credit when it cannot be avoided. Beware of new customers asking for credit: check their credit/ payment history with other suppliers and credit reference agencies. back to top InvoicingCreate a system that ensures invoices are correct, sent to the right person and followed up ‘before’ they are due for payment. Know when you can expect payment into your account. back to top Bank accountsMaintain a good relationship with your bank by keeping them informed. This may help if you need to raise money urgently or go overdrawn at short notice. back to top TaxationAs a business owner, you may be liable for several different taxes, including: income tax; corporation tax; VAT; stamp duty; and business rates. Go to HM Revenue & Customs (HMRC) to find out more about what taxes will apply to you, how to calculate them and when to send your tax return to them. Items such as travel, telephone costs, postage, office supplies, accommodation and equipment can all be set against tax, and this often applies to heating, lighting and other utilities, too. One of the main reasons why even the smallest businesses hire an accountant is to ensure that tax payments are minimised and benefits fully exploited. back to top Registering for VATIf you supply goods and services with a value above an annual threshold (currently £67,000), you must register straightaway for Value Added Tax (VAT) and pay it throughout the year at fixed intervals. Failure to do so incurs a fine which accumulates the longer the tax is unpaid. You may gain a tax advantage by registering voluntarily, even if your turnover is below the threshold. Additional VAT is payable on imports and exports. Levels vary according to the nature of the goods and the countries involved. back to top Book-keeping and accountingMeticulous record keeping is vital both to keep track of your business finances and to provide related evidence to HMRC, who will then calculate taxes you need to pay. HMRC and Business Link run short courses across the country covering most finance-related issues. You will also find many simple templates both on these websites and on the websites of several high street banks that you can easily adapt. back to top Getting in and out of debtIt is likely, but not inevitable that you will need to take out loans both to start your business and, later, to expand it. If you follow the suggestions above and in the section on Starting up, you should avoid the worst problems. If you get into difficulties, seek help straightaway, not when you are going under. Banks, accountants, tax personnel and business advisers may all be able to come up with strategies to get you out of trouble or avoid it altogether.
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