2023 is proving to be a tough year for many businesses so it is important to keep track of your finances on a regular basis. But what should you keep track of?
Whether you are in business or not costs have been escalating and you need to know how much your costs have increased overall as increased costs have a significant impact on your profit. You may just have basic overheads - rent, electric, telephone, etc - but you need to see how much these have increased year on year. If you sell goods the cost of purchasing or making what you sell and deliver to your customer will have increased.
Keeping your accounting records up to date in accounts software will enable you to look at costs month by month and year by year giving you an instant view of what has increased and by how much.
In addition to comparing costs you also need to look at what else you are spending on.
Our 3 tips for reducing your expenses
- Do you need/use everything you are buying?
- Could you find a cheaper supplier for any of your overheads?
- Are you paying for something which is the same or similar to something else you pay for?
When was the last time you raised your prices? Prices have to increase to cover the costs of running your business.
Within the software you use to maintain your accounting records you can separate your sources of income enabling you to review which is of most value to your business. When you allocate the costs which directly relate to each source of income you will instantly identify whether you are charging enough to give you a profit.
Of course some sources of income may be classed as a "loss leader" but too many of these mean you will be the one making a loss.
Our 3 tips for increasing your income
- Make sure you raise an invoice as soon as the job is done - don't wait until a later date as you may forget
- Make sure you charge for everything you have done
- Frequently review who owes you and follow up any late payments immediately - the sale is not made until you have been paid for it
Your net profit
This is your bottom line after all your allowable business expenses have been deducted from the income your business has generated. Every business owner is in business to make a profit but, of course, there will be occasions when there is a loss but these should be few and far between. The profit you make is there to cover loan or HP payments, the taxes due on your profits and the money you personally want to take from the company. If you don't have a profit you will be unable to make any of these payments.
Our 3 tips for increasing your profit
- Raise your prices
- Increase the number of customers
- Review and reduce your costs excluding anything which is not absolutely necessary for the running of your business
Your bank balance
Your bank balance doesn't tell you how well, or not, your business is doing. The bank balance will never correlate to your profit.
There are payments which come out of your bank which do not show in your Income and Expense account. If you are VAT registered there has to be enough in your bank to make the VAT payment each quarter. This is not a cost of running your business - you have just collected that tax from your customers for HMRC.
If you have a loan or have bought equipment on Hire Purchase you will have to make loan or HP payments each month. These payments are not costs of running your business. If you pay for personal items, take dividends or drawings these are not costs of running your business.
So your bank balance needs to be healthy enough to cover these payments.
Keeping accounting records
All business are required to keep accounting records by law but keeping up to date and accurate accounting records for your own benefit is just as important. Easy to use accounts software is readily available and can make light work of recording your income and expenses regularly which in turn will give you the information you need to review and compare figures frequently.
And if that is just not your thing or you don't have time for all that get in touch with us. This is what we do! Speak to one of our Bookkeepers on 01722 341820.