A company's success hinges on sound money management. Financial missteps can lead to cash flow issues, unexpected tax liabilities, or even insolvency.
Whether you're a startup or an established business, it's important to understand how to steer away from common pitfalls. Here's a look at how to avoid financial mistakes.
1. Maintain accurate records
Poor bookkeeping can result in errors that may go unnoticed for months or even years. This can lead to significant financial issues such as incorrect tax filings, overpayments, or missed opportunities for cost savings.
To avoid this, make sure that income, expenses, and other financial data are recorded regularly and accurately. Accounting software can help streamline this process by automating much of the data entry, reducing the chance of human error. Software solutions can also integrate with bank accounts so that transactions are tracked in real time, and provide regular updates on the financial position of the business.
Additionally, businesses should also regularly compare bank statements with internal financial records so that they can flag any discrepancies. This will help to catch errors early, preventing them from snowballing into larger issues.
2. Monitor cash flow regularly
Even profitable companies can run into trouble if they are not adequately managing the money flowing in and out of their business.
Businesses should check statements as these provide a snapshot of the cash entering and leaving the business, helping to identify any potential shortfalls. They should also regularly forecast future financial needs based on expected income and expenses.
Reviewing payment terms with both customers and suppliers can help to improve cash flow too. For example, if you offer incentives for early payment or negotiate longer payment terms with suppliers, this can help maintain a healthy cash balance.
It's wise to keep an emergency cash reserve in place to cover unexpected costs or periods of reduced income, ensuring the business can continue to operate smoothly in difficult times.
3. Keep payroll processes in check
Payroll errors can be an expensive mistake, leading to tax penalties, dissatisfied employees, and even legal action. Given the complexity of tax codes and payroll regulations in the UK, ensuring accuracy in payroll processing is essential.
Outsourcing payroll to a specialist provider or using payroll software can help reduce the risk of errors. Regularly reviewing payroll records will also help reduce the risk of there being any mistakes that are missed.
4. Understand and plan for tax obligations
Businesses must pay taxes such as VAT, corporation tax, and National Insurance contributions. If you miss a tax payment or file late, this can result in significant fines from HMRC.
Plan for any upcoming tax liabilities by setting aside enough funds throughout the year. As a business owner, you can also take advantage of available tax reliefs and allowances, such as the Annual Investment Allowance (AIA) or Research and Development (R&D) tax credits, to minimise the tax burden.
Speak to a qualified accountant if you need to as this can ensure you're fully compliant with tax regulations and is not paying more tax than necessary.
