Tag: ltdcompany

4 Productivity Tips From 1 Accounts To Kickstart Your New Year

4 Productivity Tips To Kickstart Your New Year!

Posted on | by Jade Donno

Many people find it hard to return to work after the long Christmas and New Year slowdown, but the pandemic has slowed many people down to a halt. It may take longer than normal for some people to return to their usual productivity levels – but why stop at “usual” when things are unusual? Why not aim higher?

To help you do just that, here are 4 productivity tips to being as productive as possible when you return to work.

1. Know what you want to be different

Think about what normally happens when you start back at work. What tasks do you do that don’t really need to be done? What high-value tasks can you do instead? How much time do you usually have before things properly kick in and you’re very busy?

If you think about what you want to change so that you can start the year right, your intentions will be clear going into your first day and you’ll be far more likely to achieve what you want.

2. Identify the habits you’ll need to change

When you know your intentions (i.e. what you want to change), you then need to think about what action you will take. What steps do you need to take every day? Do you need to break bad habits that waste time and create new ones or do you just need to adapt them?

For example, if you want to develop a habit to do business development every day, try to link this to another habit that you already have. Something like, every morning after I get a cup of coffee and switch on my computer, I will do 10 minutes of engagement on LinkedIn.

3. Prioritise the right tasks

You shouldn’t have mounting emails or multiple requests from team members on your first day back, so use this time wisely. Prioritise the tasks that give you the most bang for your buck or the essentials that usually get pushed further and further down your to-do list. Plan your work for the next few months and start getting ahead.

You can even use this time to build those all-important relationships with your network. Phone up your best clients to find out how their Christmas went, let them know you’re back and to give you a shout if they need anything.

4. Don’t forget to look after yourself

Yes, looking after yourself is essential for productivity! The worst thing you can do is return to work and slot right back into the busyness and leave all those benefits that come with having a break behind. All that will do is result in you getting overwhelmed and potentially burning out after a few weeks or months. Instead, you should use this time to implement some self-care elements into your routine which you can carry on throughout the year.

Find out what works for you. Maybe it’s writing down a few things that you’re grateful for at the start of every workday. Maybe it’s going for a walk at lunch or the gym after work. Whatever helps you to focus when you’re working and switch off when you’re not, you need to make these a part of your daily work routine. What you’ll find is that you’ll keep that holiday feeling for as long as possible AND you’ll transition into a much healthier way of working where you’re far more productive.

Is it time to change the tax rules for Christmas parties?

Posted on | by Jade Donno

HMRC rules currently allow employers to spend up to £150 tax-free per employee per tax year, on events such as Christmas or summer parties. This has been the case since 2003.

The tax and advisory firm Blick Rothenberg has called on the government to double this amount to £300 as they believe the current limit is “massively out-of-date”.

The firm also states that increasing the limit to £300 per employee per year would help reduce the overall costs faced by employers and encourage them to provide employees with a ‘genuine thank you’ for all their efforts throughout the last two years.

Specifically, the raised limit would mean that in most reasonable cases, there would be no need for employers to report any taxable benefit-in-kind charge via a PAYE settlement agreement (PSA).

An additional benefit of changing the limit is that it would also provide businesses, particularly in the hospitality sector, with some ‘much needed support’ as they continue to try and recover from the Covid-19 pandemic.

The firm states that where employers need to cover the tax cost of a Christmas party via a PAYE settlement agreement, they can face an effective tax liability, including taxes and National Insurance contributions (NIC), of up to 107% of the core value of the Christmas party.

This can mean that the effective, cumulative cost to the employer of providing a Christmas party can easily in some cases be up to 200% of its headline, initial per head cost.

Robert Salter, a tax service director at Blick Rothenberg said: ‘Employees need to ensure that they avoid making some common mistakes, when it comes to budgeting for their Christmas party.

‘For example, the £150 value mentioned above is not an ‘allowance’.  Hence, if the per head cost of the event is above £150, the full value of the event becomes a taxable benefit and not just the excess amount over the £150 threshold. It can be a minefield.

The tax-free amount should really be increased, and the rules should be simplified.’

The current system means that businesses do not have to report to HMRC or pay tax and national insurance on a party or social function if it is open to all employees, is an annual event, such as a Christmas party or summer barbecue, or costs £150 or less per person. If there are multiple events in the year it is still exempt from tax if the combined cost of the events is no more than £150 per head.

Blick Rothenberg states that if a company spends £100 per employee on a summer event and another £125 per employee on a Christmas party, the tax would have to be paid on the whole amount for the cheaper event rather than just the amount that takes the total up to the £150 per employee limit.

Salter concluded: ‘As Christmas approaches, it’s time for the government to show a bit of goodwill to firms, employees, and the hospitality industry.’

In December 2020, gift company Hampers.com’s survey of 500 businesses revealed that UK companies were expected to spend an average of £225 per employee for the Christmas season, which was 12% less than was recorded in 2019, when they spent £257 a head.

However, many catering and hospitality businesses have seen a slump in their December bookings for parties. This is said to be due to the rising cases of Covid-19 with many deciding not to attend an office party in order to be able to go home for Christmas.

On Times Radio this month, business secretary Kwasi Kwartang reassured people that it is still worth planning an office party, stating that he was ‘looking forward to having a Christmas party as usual’.

Last month, health secretary Sajid Javid stated that the public should take advantage of the free lateral flow test provided by the government and that if they are attending a Christmas party then they should take a lateral flow test before they attend.

Some companies are choosing to give their employees a gift instead of a Christmas party. Belfast accountancy and advisory firm Tilly Mooney Moore states that if companies are considering gifting then they must be aware of the tax implications.

The firm states that gifts to employees such as hampers will be tax free, provided they fall within the ‘trivial benefit’ exemption.

This applies when the cost including VAT does not exceed £50 per person, it is not cash or a cash voucher that could be exchanged for cash, it is not provided in recognition of past or future services by the employee, bears the name or logo of the business and does not include food, drink, or tobacco.

Where the employer is a ‘close’ company and the benefit is provided to a director, the total value of trivial benefits they can receive in a tax year cannot exceed £300.

In terms of gifts from third parties, such as suppliers or customers, employees can receive vouchers without tax as long as they do not exceed £250. This must be genuinely intended as a gift, however, and not provided in recognition for hard work.

We think this is an important discussion to have, especially as companies want to give their employees an extra treat for all their hard work during the pandemic.

Christmas picture

How to combat Christmas stress in your workforce

Posted on | by Jade Donno

Although Christmas is a magical time of year full of celebration and quality time with family and friends, it can cause stress too. Beyond just the pressure of gift buying and financial stress, the month is a lot shorter and there’s an increased pressure to meet deadlines, hit end-of-year targets, and attend additional social functions. And that’s not even mentioning the stress that comes with hosting people for the actual holidays!

According to the Health and Safety Executive, approximately 50% of all work-related illnesses in 2019/2020 were caused by stress, anxiety or depression. And that was without the stress that comes with the holiday season. Too much stress at work can lead to bigger problems for your employees – impacting productivity, morale, and wellbeing – so as an employer, you need to think about how you can support your team through this time of year.

To help combat Christmas stress (so that rather than burn out, your employees come back in January refreshed, engaged and motivated to get going), here is an essential checklist.

Your ‘combat Christmas stress’ checklist

1 . Plan Christmas-themed activities

If you have your team in one office, get everyone to decorate together. An easy group activity such as this can be very therapeutic. As well as decorating their own desks, you can also arrange festive activities such as Secret Santa, Christmas jumper day, and of course, the office Christmas party.

If you have a remote team, think about how you can bring the team together and nurture festiveness. Can you send the whole team gifts which will be opened together at the virtual Christmas party?

2. Help staff manage their workload

Time management is a big source of stress in December, so can you help your employees with this? Since the season has fewer work days but the same amount of work, help your employees plan ahead as much as possible so that their productivity isn’t affected.

Another option is to outsource or take on temporary staff over busy periods.

3. Maintain effective communication

Is everyone doing okay? Do your employees need anything from you to make this time easier on them? Make sure to increase your communication with your employees this season or at least maintain effective channels when things get busy.

One of the most important things to communicate during this period is when everyone will be taking their holiday. Help your employees communicate this to each other and also to their clients! If everyone is clear who is off and when in advance, then things won’t build up right before Christmas and your employees can properly switch off without worrying about what they are coming back to.

4. Help staff reduce their financial stress

Financial stress is one of the biggest pressures during December, so think about the ways you can help your employees with this. Can you give your employees an end-of-year bonus? Or other financial rewards such as gift cards or vouchers? Can you recommend finance planning apps for budgeting? Or get a financial expert to come in and run a workshop on “holiday budgeting” or “how to avoid overspending”?

5. Encourage healthy eating and exercise

The holiday season is full of rich, unhealthy foods and drinks, all of which can reduce mood and energy and increase stress and anxiety. If you want your employees to come back in January healthy and raring to go, help them to make wiser food choices.

You can start by offering healthier food at the company Christmas party and encourage the team to compete over the holidays – who can eat healthier and log more steps? Maybe you can all do a food or exercise challenge together?

6. Check for signs of anxiety/depression

Is anyone displaying signs of social withdrawal, anxiety, depression or grief? Keep your eyes open for the tell-tale signs and be prepared to give extra support to these people.

Christmas and New Year can be a lonely time for people, especially for those who have recently lost a loved one, so be aware that some may need alone time while others may feel isolated and will need encouragement to get involved.

Other things you can do is to maximise natural light in the office and encourage employees to take vitamin D!

7. Encourage work/life balance

Can you offer your employees flexible hours or to work from home this season? If your employees can schedule work around their personal lives, you’ll see a huge difference in productivity and wellbeing. Even if it’s a simple as allowing people to work earlier and leave earlier, so they can take care of their children or finish their Christmas shopping. A good work-life balance is essential for mental and physical wellbeing.

Pave the way for a prosperous New Year!

The more you can reduce stress in December, the more productive the New Year will be, so help your employees. Help them manage their workload, their client expectations and their work-life balance. Think about how you can help to reduce their financial stress and always keep an eye out for anyone who is struggling.  If you do this, you will combat Christmas stress and you’ll have a full team who switched off during the holidays and have come back refreshed, motivated and raring to go.

 

What is a Registered Office?

Posted on | by Jade Donno

What exactly is a registered office?

A registered office is the address which your Limited Company is registered to. This is a legal requirement for all companies that are incorporated in the UK and you cannot form a company without one.

This address will be placed on the public record and will also serve as the legal postal address for letters from Companies House, HMRC, and all other government departments and agencies. It must be a physical postal address that is in the same UK jurisdiction in which your company is registered.

What is a correspondence address?

All directors and persons of significant control for your company will also have to provide a correspondence or service address. This serves a similar purpose to your company’s registered office in that it will be where HMRC, Companies house, and other government agencies send important post, and will be displayed on the public register. We usually recommend keeping the correspondence address the same as the registered office address, however it can be different it you wish.

Can I use my home address?

You can use your home address as your registered office, however if you rent your home you may need permission from your landlord. You should be aware that by doing this your personal address will appear alongside your company on the public register, so we do not recommend this for privacy reasons.

We believe that your company will also look more professional if you are not using your home address as your registered office.

Where else can I use for my registered office?

You are able to use anywhere as your registered office providing you have permission from the property owner. Here are a few ideas of spaces you could use:

  • Your own office space
  • An external company that provides this service.
  • Your home (although we wouldn’t recommend)

If you are a client of ours, you are able to use our office address. This is included in all of our limited company services.

Autumn Budget 2021

The autumn 2021 budget

Posted on | by Jade Donno

Small business owners hopes for some crumbs of comfort from the chancellor in his budget and autumn statement were dashed. The triple hit on small businesses coming from April 2022 is still very much happening.
Watch Paul’s response in this video or keep reading below.

The triple hit?

Hit 1

Corporation tax from April 1 2023 to increase to 25% for companies with profits over £250,000. Companies with profits under £50,000 will be taxed at 19%. Companies with profits between £50,000 and £250,000 will be taxed between 19% and 25%.

tom and jerry hitting each other
hit in the face

Hit 2

The dividend tax rate for basic rate taxpayers will increase from 7.5% to 8.75% from April 2022. Higher rate and additional rate taxpayers will see their dividend tax rates increase by 1.25 percentage points.

Hit 3

In April 2022 all 3 rates of National Insurance Contributions (NIC) will increase by 1.25%. Then in April 2023, the 3 rates of NIC will reduce back down to their current levels and the new Health and Social Care Levy will come into place.
minion getting hit

As was leaked this week, small business owners have another hit to their finances….

Hit 4

The National Living Wage is increasing from £8.91 to £9.50 an hour from April 2022.What does this mean for your business? It means that your wage costs – both salary and National Insurance contributions – have increased significantly. We can help you understand what this means for your profits and how income you can safely take out from your business.

So what else was announced in the budget which is relevant for small business owners?

A reform of business rates

  • A new temporary business rates relief in England for eligible retail, hospitality and leisure properties for 2022-23. Over 90% of retail, hospitality and leisure businesses will receive at least 50% off their business rates bills in 2022-23.
  • The government is also freezing the business rates multiplier in 2022-23. This will support all ratepayers, large and small, meaning bills are 3% lower than without the freeze.
  • From 2023, a new business rates relief will support investment in property improvements so that no business will face higher business rates bills for 12 months after making qualifying improvements to a property they occupy.

A reform of R&D tax credits

  • The qualifying expenditure will now include data and cloud computing costs
  • R&D tax reliefs will at some point be only allowed to be claimed for activities taking place in the UK
  • Later on in 2021 the government will set out plans to tackle abuse of and improve compliance with the R&D tax reliefs later in the autumn

Other announcements relevant to small business owners:

  • The Annual investment allowance which was raised to £1m temporarily is now being extended to 31 March 2023. After this point, it will revert back to the £200,000 limit.
  • The Recovery Loan Scheme will also be extended until 30 June 2022 to ensure that lenders continue to have the confidence to lend to small and medium-sized businesses. Finance will be available up to a maximum of £2 million per business, supporting them to recover from the impact of the pandemic and to grow. The government guarantee will be reduced from 80% to 70% to encourage the lending market to move towards normality as the economy continues to recover.
  • Vehicle Exercise duty for HGVs has been frozen and the HGV road user levy has been suspended for another 12 months from August 2022.
  • Apprenticeships funding will increase to £2.7 billion by 2024-25 – the first increase since 2019-20. Part of this funding will include, by May 2022, a new enhanced recruitment service for small and medium-sized businesses to help them hire new apprentices. The £3000 apprentice hiring incentive for employers will be extended until 31 January 2022.
  • From 2023, the government will introduce exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, and a new 100% relief for eligible heat networks, to support the decarbonisation of buildings.
  • Simplification of the Alcohol Duty System. Drinks will be taxed in proportion to their alcohol content.
  • Pubs serving draft beer and cider will have their duty rates on these drinks reduced by 5%
  • Fuel duty is frozen at 57.95 pence per litre UK-wide for 2022-23
  • The duty rates on beer, cider, wine and spirits will be frozen for another year

How do I make more money without spending a penny!

Posted on | by Jade Donno

If you’ve lost clients due to the Covid-19 pandemic, you are not the only one. Countless businesses have lost a substantial amount of revenue, some of which have been forced to declare bankruptcy or shut their doors for good.

When we lose clients, it can be tempting to jump back on the sales horse and concentrate on winning new business. Of course, this isn’t wrong, but there are better ways to initially generate new revenue than trying to win more leads.

In this blog, we outline 6 ways to generate more revenue from your existing client base without spending a penny!

1. Prioritise the money you are owed first

Talk to the clients who owe you money and negotiate how they will pay their debts. You have already provided this service, so chasing up and agreeing on payment dates is the first thing you need to do. Next, bill any work in progress or completed work that has been invoiced.

If you need help getting your invoices paid then read our blog 10 ways to make sure your invoices get paid.

2. Review and start charging for your ‘freebies’

We all like to go above and beyond for our clients, but sometimes this comes at a cost. Review what you are currently giving away above and beyond the service your clients are paying for and start charging for it. Usually, this is an area where significant amounts of extra revenue can be found.

3. Consider increasing your fees

You may be hesitant about raising fees during a recession, but ask yourself: when did you last do a fee increase, and how much more time are you having to spend with your clients to support them right now? If you’re doing a lot more for less, explain to your clients that you need to increase your fees to keep giving them the level of support that they need.

4. Analyse your current client portfolio

Look at your current client base and segment them into A, B, and C clients. A clients are your most valuable and tend to bring in the most business and/or they pay very well. B clients are good quality clients who usually make up the majority of your business. C clients are usually not in line with your business anymore or are low payers and/or are picky.

Using your analysis, identify which clients need more help from you and who could benefit from other services that you offer. Start increasing your communication with your A and B clients and ditch or convert your C clients.

5. Follow up with old leads

You can ring old prospects or existing clients to check in and see how they are doing. Due to the social restrictions during the pandemic, there isn’t going to be anybody that won’t appreciate you asking how they are. Make sure to catch up with your good referrers too!

6. Increase other marketing activities

What other marketing activities can you do that won’t cost a penny? One of the best tasks you can do for your business is to focus on increasing your online presence. Good ways to do this are to regularly post to social media and to start writing blogs. Read our blog about why you should be regularly publishing blogs for some tips.

This will enable you to stay in front of prospects and clients and it ensures that you are remembered when they are ready to buy your service.

7. Always focus on your existing clients first

Your clients already like you and trust you, so they will be a lot more willing to buy more from you. If you’re looking to increase your revenue during times of difficulty, always turn to your existing clients first. You may find that you don’t need to go out and find new business after all.

money

10 ways to improve your business cash flow

Posted on | by Jade Donno

For a business to grow sustainably (and to successfully make it through the financial bumps in the road), cash flow needs to be a priority. And not just when times are tough and cash is tight. Making sure that you’re maintaining an optimal level of cash on hand at all times; this is essential to success.

So how do you do this? To improve your cash flow in the immediate but also for the long-term, here are 10 essentials.

Know your break-even figure

You need to know what number you need to reach each month to cover all of your outgoings. Once you know this, you can make better spending decisions and keep your cash flow at its optimal level.

Create a budget and stick to it 

While profit is important, you also need to focus on spending. Create a budget to ensure that you’re making more on each sale than you’re spending – this can help you be more mindful about where your money is going and it can help you make impactful changes.

Build a cash reserve

Set aside any excess money you make every month into a business savings account. Financial experts recommend keeping 3-6 months’ operating expenses in a cash reserve, but you can decide how much you want to keep available.

Automate your bookkeeping 

Using software such as Xero and QuickBooks can help you improve your cash flow. You can send out invoices immediately, get your clients to pay via Direct Debit, reconcile payments easily, and generate reports with a click of a button.

Offer discounts for early payments

If you have certain clients who pay late and miss payments, offer them a 2-5% discount if they pay early. Not only does this incentivise them to pay, but it also ensures that you don’t suffer from dips in your cash flow too. Win-win.

Negotiate extended payment deadlines with vendors 

It’s good to set up extended payment deadlines in the event that you can’t pay what you owe vendors right away. For example, you could negotiate a 60-day turnaround for all payments or include a clause in the agreement that allows later payments a certain number of times in the year. While it may not be needed, it is good to be prepared in case you ever need to use this option.

Consider financing (when it makes sense)

Your focus should be building up a cash reserve for emergency situations like the Coronavirus crisis. This means that, in a situation where you have unexpected expenses or you need a large sum, you should consider short- or long-term financing options instead.

Consider leasing supplies, equipment, and real estate instead of buying

While leasing may end up being more expensive than buying in the long run, choosing to lease supplies, equipment, and real estate for a certain amount of time will help you to maintain a steady cash stream for day-to-day operations.

Seek advice from an accountant 

The best way to improve your cash flow is to seek expert advice. Whether it’s getting an accountant to advise you on spending and saving or hiring them to completely manage your financial matters, they will help you make the right financial decisions. After all, you have to spend money to make money!

Improve your inventory

What is your inventory turnover? Surprisingly, there could be a lot of cash tied up in your inventory so check your inventory regularly. Are you buying too much? If so, sell it at a discount and start buying less of it. This is something that your accountant can help you figure out.

While it’s obviously very important to improve your cash flow right now (thanks Coronavirus), it is also essential for your business to have a healthy cash flow all year round. Keeping a robust cash flow takes vigilance, but it will help protect your business during turbulent times, not to mention, it will also help you sleep soundly.

laptop with title on

How to prepare your virtual teams for the long haul

Posted on | by Jade Donno

The pandemic may have forced hundreds of businesses to convert from co-located teams to 100% virtual teams in a matter of days, but that was just temporary, right? That’s what many of us thought. For a while there, it was just about getting through the next couple of weeks and then months, but now, another lockdown is here and it’s time to face reality. It looks like working as a virtual team is for the foreseeable future, and again, we are without a playbook for when things will return to normal.

So how do we do it? How do we accept the new reality and start preparing our virtual teams for the long haul?

Step 1: Identify the most critical team problems

At first many people were working remotely for the first time, and in a time of crisis. Most businesses focussed on “making do” until they could return to normal, but to prepare for the long haul, you need to review any issues you have and identify necessary changes.

What poses immediate, serious threats to team survival? Are the team’s objectives still relevant or at odds with reality? Is your team culture and cohesion as strong as it should be? Are team members struggling due to a lack of psychological safety?

Step 2: Address these issues

To ensure that your team members are working as productively as they do in the office and in line with the current reality, you need to immediately address the issues that you identify in step 1.

For example, if the biggest issue is that your team’s objectives or work are no longer relevant to the current reality, re-prioritise their work to something that matches the new overall goal of the business. If it’s cohesion that’s a problem, try mixing personal chat threads with business ones and run a quarterly non-work-related workshop where everyone can bond on a deeper level.

Step 3: Focus on long-term care

Step 3 is the most important step in preparing your virtual team for the long haul, as without it, issues will just arise again as people start to struggle. As we said previously, people are trying to work through this crisis so you need to focus on their long term care. You need to be thinking about how you can keep them healthy and avoid these relapses.

A few ways that you can switch on your long-term care mode is to:

  • Always give clear and concise goals and work briefs.
  • Help team members know their role within the team and how this relates to the overall business goal.
  • Foster psychological safety.
  • Hold regular one-on-ones with team members to make sure they are healthy and to prevent burning them out.
  • Communicate as much as possible and make sure that each individual knows what is expected of them.

Think ongoing attention and preventative care

To prepare your virtual teams for the long haul, you need to regularly check-in on the health of your team members. If you do this, then you can identify any issues or symptoms of a struggle early; both of which will help you to give them the attention and care that they need to prevent these from escalating into bigger issues down the line.

It really is that simple: identify issues, address these issues, and make a routine to provide the support needed to prevent these issues from arising again.

How to recharge your batteries

How to recharge your batteries

Posted on | by Jade Donno

Whether a post-lunch slump or screen fatigue, we have all experienced an energy drop during our working day.  For a quick recharge, try some of these tips to increase your energy levels without that caffeine fix!

Tip 1 – Keep Hydrated

Dehydration is the most common cause of fatigue and when working on an all-engrossing piece of work, we can often forget to keep our fluid levels topped up.  When experiencing fatigue, drink a small glass of water and take a glass (or refillable bottle) back to your work area to keep you topped up for the rest of the day.

Tip 2 – Make a playlist

Whilst many have a playlist to help them with exercise, we don’t do the same for working.  Create a playlist that you find energising for those times you need a boast and consider a playlist as background to help maintain energy levels whilst you work.

Tip 3 – A breath of fresh air

Whether a short walk or more rigorous exercise, even 10 minutes outside and away from your desk will help restore energy levels.  If possible, being outside in a green space is even more beneficial.

Tip 4 – Change your focus

If you are finding a task draining then temporarily swap to a task that gives you energy.  Alternatively, rethink how you are tackling the task, is there another way that you would find less draining?

Tip 5 – Try a brainteaser

Sudoku, brainteasers, quick quizzes, crosswords, dingbats; the options are endless.  If you are someone who enjoys a puzzle then taking a short break to indulge in this hobby is likely to recharge your batteries and enable you to return to that task with renewed vigour.

Tip 6 – Talk to someone

Having a call or video call with someone who has a positive outlook can help boost your own energy levels as well as ensuring you keep in touch with those that matter.

Tip 7 – Give yourself a reward

If you have a task that does not allow you to try any of the above techniques (due to tight timelines) then give yourself a reward for completing it.  From taking the rest of the day to do a task you enjoy or even taking some time for yourself to that cupboard treat you have been resisting all week, a reward can renew energy through the added motivation it gives.

Additional Tip – Being mindful of your energy levels and the energy needed for particular tasks

Understanding your own body clock and those times of the day where your energy is at its highest and when it drops and tackling tasks that suit those energy levels will help reduce mild fatigue that is often experienced.

 

numbers

What are the key figures I need to manage my cash flow?

Posted on | by Jade Donno

Running out of cash is one of the biggest reasons that businesses fail. It’s not surprising really, as forecasting your cash flow can be tricky, not to mention that there are so many variables that determine how much is needed for operations, how much money you have coming in, and how much money you actually have to spend. Like we said, tricky (and a recipe for a headache).

While it is difficult, cash flow planning is absolutely essential to the success of a business. It ensures that you have the cash flow you need to not only survive, but thrive, and in any market or economy. As you can imagine, this is the dream for every business right now – to know that they are okay and that they can make payroll and keep up with the bills – in the midst of the recession.

To be in this position, you need to start cash flow planning or forecasting and here are the main 4 numbers that you need to know.

1. How much cash is in the bank 

It is crucial for a business to always know how much money is in the bank, but what makes a business successful is knowing how long that money will last based on their current spending.

Just take the many businesses who were forced to close due to Covid as an example. They might not have generated adequate cash to meet monthly outgoings (e.g. rent, paying suppliers, paying employees, buying raw materials etc) for most of this year. So how have many of them survived?

Through cash flow planning, many businesses know exactly how long they can survive before they go bust. Due to this knowledge, they’ve been able to plan ahead and make better business decisions to improve their position throughout the year.

2. Turnover (revenue and stock)

Knowing your turnover or gross revenue (e.g. the total amount of money you’ve brought in from sales) is obviously a key number to know, but when it comes to your cash flow forecasting, things like stock turnover are also essential.

Stock turnover is the rate at which you keep and use all of your stock after you have purchased it. You might not think that this number is essential to know, but stock can actually hide a lot of problems and issues within the business that you wouldn’t otherwise see if you weren’t looking.

Imagine you have been buying too much stock. Imagine the money you have available that is just sitting there. By looking at metrics like this while cash flow planning, you can know whether or not you should be buying more or less stock at a time and what effect this will have on your profitability.

3. Cost of sales

While revenue is an essential number to know, cost of sales is even more critical. Why? Because if making those sales cost you more than the money you brought in from them, you are actually making a loss and are heading for some major cash-flow problems.

Even if your business is growing, this doesn’t mean that you are heading in the right direction, so pay close attention to this number when cash flow planning. What costs are involved in making your sales (e.g. the cost of stock if you sell tangibles or the cost of labour if you sell services etc)?

A small decrease in the cost of sales can have as much impact on gross profit as a large increase in sales, so that is why it is so essential to know this number. If you’re aware of these costs, you can either negotiate with suppliers for better prices or tighten up work processes to reduce labour hours.

4. Net profit

Net profit is the ultimate measure of a business’s success. It is your bottom line, i.e. everything you’ve made after you have subtracted all direct and fixed costs.

So why is this important for cash flow planning? The net profit margin helps you to see whether you are generating enough profits from your sales and whether operating and overhead costs are being contained. If you’re not doing either, then you should know where and how you need to make adjustments.

Don’t confuse cash flow with revenue!

Revenue is only a measurement of a one-way inflow of money whereas cash flow demonstrates all movement of money through your business (e.g. income, outgoings and existing cash in the business). That’s why cash flow forecasting is so essential, as you can use it to track your business’s financial health while also planning for any expected peaks or dips in business in the future.

So many numbers besides revenue indicate profitability, so you need to manage them ALL right before you can be sure that your revenue growth is cause for celebration (not commiseration!). Isn’t that what we all need in the current climate?