If you’re considering making a fresh start during the new tax year, are there any bad accounting habits that you could address to make running your business easier?
Now is the perfect time to put in place a few plans in place to help you run your business better over the next 12 months. With that in mind, here’s the top five resolutions you can make right now, to help you achieve success over the coming year.
1. Claim all your expenses, however small
Research carried out by FreeAgent in 2016 found that nearly £250 million worth of expenses with individual values of £10 or less were being unclaimed by UK micro-business owners every year. The research also revealed that a further 14% said they wouldn’t bother claiming expenses if they were worth less than £5, suggesting that the overall amount of expenses actually being unclaimed across the UK could be even higher!
However small the expense, it’s money that’s rightfully yours. If you can get into a good routine when it comes to capturing expenses then you can make sure you’re not slowly losing precious pounds. Make sure you log your expenses regularly into your accounts so you don’t risk forgetting about a receipt.
Look for tools that can help you manage your expenses on the go. Some online accounting systems, such as FreeAgent, enable you to take a photo of a receipt with your mobile phone and upload it directly into your accounts. This could really help you keep on top of things, especially if you tend to just stuff your receipts into a shoebox and forget about them!
2. Start charging your customers enough
When you’re starting out in business or if your business is small, it can be all too easy to set your prices lower than you should, because you worry that you won’t win customers if you charge too much. Some new businesses even charge such low prices that they don’t make any profit at all.
While it’s understandable to be nervous about winning new business, underpricing yourself clearly isn’t a sustainable strategy. It’s important to make sure that you charge what your service or product is worth – and that the price you charge doesn’t impede your business’s profitability and growth. Think of the time and energy you’re saving your customers, as well as what they’d pay to a competitor. Review your profit margin for each project you work on and for your business as a whole. Consider which areas of your business are the least profitable and may require you to raise your prices. Remember that if you want to grow your business in the future, it’s likely that you’ll need to make a profit on your sales, so make sure your prices reflect this.
3. Resolve to collect your cash faster
Many small business owners are reluctant to chase late payments up promptly, perhaps because they’re worried about offending their clients. However, it’s important to remember that you need to get the cash if you’ve done the work!
Try setting clear payment terms and make sure your customers know when they have to pay you – and then stick to those terms! You can actually legally charge 8% interest plus the Bank of England base rate on invoices that are over 30 days late, and you’re also entitled to claim debt recovery costs of up to £100 for the inconvenience. Of course, you can give your customers more time to pay if they’re in genuine difficulty, but if you have clients who repeatedly fail to pay you on time you may need to raise this issue with them.
More tips for getting on paid on time can be found here.
4. Get ahead of your tax deadlines
The life of a small business owner is incredibly busy and, at times, it can be easy to lose track of what you need to be doing. But when it comes to your tax responsibilities, this is a dangerous predicament to find yourself in. If you miss the deadline for filing your VAT return, for example, you may receive a penalty from HMRC and could even be charged more if you’re late again in the future.
Don’t fall into the trap of neglecting your tax deadlines! Failing to file and pay on time can cost you interest, surcharges and penalties. It also means that you could be more likely to be selected for an inspection by an HMRC officer.
Make sure you know exactly when all your deadlines are, and that you file all your tax and VAT returns and pay your tax on time. If you can’t pay, be sure to contact HMRC in advance of the deadline. They may give you more time to pay or allow you to pay your tax in installments, but you won’t know unless you ask!
5. Simplify your bookkeeping
It’s important to stay on top of your business books so you know exactly how much money you’re making, how much tax you owe and which customers you need to chase for payment. But it’s also easy to make bookkeeping more time-consuming and complicated than it needs to be.
For example, you might only input your bank transactions every few months, which means it’s an all-weekend job when you finally get round to it. Or you may be using complicated desktop software or spreadsheets that aren’t really fit for your needs and leave you frustrated when specific tasks go wrong or take too long to complete.
As the new tax year approaches, start working smarter when it comes to your books. Block out one hour a week in your diary and use it to stay on top of your invoices, chase up those clients who haven’t paid you, manage your bills and reconcile all the unclassified bank transactions in your accounts. You’ll then be able to see accurate, timely information about your business which you can use to make informed decisions about what direction to take next.
Also, don’t be afraid to look for additional help with your bookkeeping. You may find that investing in a cloud accounting system makes it easier to input your financial information, forecast your tax and manage your invoices, so you’ll be able to spend less time on data entry and more time on running and growing your business.
Make this the year that you get your small business finances sorted once and for all! FreeAgent’s award-winning online accounting software is specifically designed for freelancers, contractors and small businesses, and helps you nail the daily admin, relax about tax and see the big picture when it comes to your business finances.
FreeAgent are happy to support The Dot’s creative community by offering an exclusive 10% discount! Go to www.freeagent.com/partners/thedots to claim your discount (and try FreeAgent completely free for 30 days - no credit card required).