Writing for Business Advice, Mike Parkes, technical director of self-assessment software provider GoSimple, outlines the common financial mistakes made by the owners of small companies, with advice on how to keep your cash flow positive.
Striking out on your own in business is a huge step, regardless of your professional background. You’re in charge of timekeeping, quality control and – most pertinently of all – financial stability.
Working as a freelancer or managing a small business is about balancing a skill-set with a full, panoramic view of your incomings and outgoings. If this isn’t achieved, a trail of sinkholes lies in wait to swallow your cash.
To help you save money at every turn, below are the ten financial mistakes that small business owners are all too often guilty of committing.
Extortionate rental fees
Moving out of the house and into office space can feel like the validation you’ve been waiting for, and having a dedicated work environment can certainly boost your professional image for meetings and the like.
However, commercial rents are increasing, meaning you could be paying over the odds. To mitigate the burden, consider sharing an office with a few other start-ups or freelancers, splitting the bill between you.
A lazy insurance plan
Insurance is essential for almost any business – employers’ liability, public liability and professional indemnity insurance are just some of the policies you might need. But be aware that the great premiums you secured initially won’t stick around forever.
When renewal windows open, use the opportunity to hunt around for better deals, or renegotiate your position with your existing insurer.
As your business grows, it’s natural that outgoings will too. You should expect that phone contracts, internet usage, water and electricity will rise with the on-boarding of new staff, but are these costs proportionate?
Bear in mind that the contracts you signed as a freelancer or sole trader might become unsuited to your business model as it evolves. So be prepared to review your outgoings at least once a year.
A thankless events schedule
For many professions, trade shows are a viable and worthwhile marketing tactic, a launching pad into the hum of the industry at large.
The problem is that a swathe of events companies capitalise on this general knowledge – often, they’ll pressure you to book a stall, and persuade you that nothing but their premium package will do.
Before you sign the dotted line, do your research to make sure you’ll be put in front of the right people, and that the likely footfall will generate a tangible return.
Similarly, it’s tempting to follow suit when your competitors are investing in advertising, whether that’s a feature in a magazine, video marketing, or social media campaigns.
However, tread carefully when pouring money into these mediums – are there ways to test the water before embarking on a full-blown campaign?
Consider, for example, measuring the response on your social media channels to pre-generated video content prior to investing in your own.
Digital marketing might make advertising more accessible, but it can soon become a sinkhole for your funds when left in the hands of experimentation.
Traditional marketing, however, carries its share of risks. In the quest for marketing products such as leaflets, posters and flyers to spread far and wide, make sure you’re balancing quality, cost and quantity.
An overassessment of how much you actually need, or a mistake on the part of you or your printer, can mean money down the drain for your venture.
On top of that, there’s the whole question of making sure printed media is netting a good return on investment by getting in the hands of the right audience.
Expensive accountancy fees
Accountants build a fortune on the premise that the self-employed, regardless of their talents, don’t have a clue about financial management.
Whilst tax deadlines and their submission processes can appear baffling from a distance, there are cheaper, smarter ways to circumvent their complexity than hiring an accountant, such as online self-assessment software.
Over-paying your tax bill
This brings us on nicely to your tax liabilities, which we bet you’ll have baulked at in the past. Doing your self-assessment on paper often results in missing easy tax saving opportunities.
Online tax assistance, on the other hand, can help you identify areas for tax relief, whether that’s the Gift Aid from charity donations, pension contributions, or viable business expenses over the year. So you’ll pay not a penny more than you owe to HMRC.
Ill-fitting technology solutions
While some applications have the potential to save money, others can act as a drain on our finances. There is little use in spending hundreds or thousands of pounds on software, hardware and technical support, only to find that it’s ill-suited to your business.
So before you invest in cloud storage, a customer relationship management (CRM) system or bookkeeping software, make sure it’s suitable and cost-effective.
Poor bookkeeping skills
Sending invoices, chasing payment and logging expenses are all part and parcel of your bookkeeping protocol. Paperwork may be at the bottom of your priority list, yet it’s the bread and butter of your accounts – losing receipts, documents and statements will bite when tax return deadlines come around.
Instead of running to a bookkeeper for your accounts, going digital with easy-to-use software can ensure that all important information is accessible, organised and kept securely online.
Narrowing these stumbling blocks down is difficult, as there are a whole range of other financial mistakes to be made that can snatch cash out of your pocket.
Mike Parkes is technical director of self-assessment tax software provider GoSimple
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