Staying on top of your finances

Staying on top of your finances

Lee Murphy, Founder of Pandle, looks at how to keep on top of your finances.

It is a common theme; you have worked hard all week and now is the time to sit down and do some sums and balance the books. Why not put it off for another day? Knowing just how much money you have in the business account is vital regardless of the size of your business.

The plumbing and heating trade is littered with stories of those who have done a good job only to have to wait months for payment, if at all. Keeping track of who has or hasn’t paid is essential for the health of your business, especially when you consider you may have to pay for supplies up front for the next job.

Paying attention to your books will give you the knowledge you need to make sure your business stays in the black. This means that when the taxman comes calling, or your van suddenly breaks down, you can be confident you have enough money set aside.

There is no reason to be baffled by numbers, there is plenty of support available – much of it online for free. If you are just getting to grips with the books and are not sure of where to start then read on for some straightforward and practical advice on how to ease the strain of doing the books.

Beware of nasty surprises
Cashflow problems, such as too much money going out and not enough coming in, are a serious danger to small business owners and the self-employed, with recent research showing over 70% of small business owners see it as their biggest threat.

Take the time to do a regular cashflow forecast. Knowing exactly how much you are owed, and what you have to pay for will give you a clearer understanding of your financial stability. You will have the knowledge you need to make informed choices about your business, such as assessing the financial viability of future jobs, or whether to continue to accept new business from a client who has haggled prices to rock bottom rates.

Knowing how much you have in your business account goes hand-in-hand with staying on top of your personal finances. It’s no good mixing the two, taking from the business account to pay for a new family car could well mean you don’t have enough cash for the taxman.

Let software take the strain
If doing the books and checking payments and expenses are being handled properly takes too much time, then it is worthwhile looking online for cloud-based applications and bookkeeping tools that can do the job for you.

Many of them are free and do lots of things automatically, such as send reminders to late payers. Pandle, for example, also gives real time cash reporting and forecasting so that you can easily spot current or future cash flow problems and react.

Getting paid
While most customers settle their bills without fuss, every heating and plumbing professional has heard stories of non-payers – or experienced them first hand.

Be up front with customers about your payments policy and ask them to sign it in advance, so it becomes an enforceable contract. You may want to include details of penalties for late payers, or, to entice early payment, offer discounts to clients who pay on time.

Cutting your debtor days – that is how long you wait to get paid – is worth considering, especially if it is a bigger job. A large commercial client who has hired you on a contractor basis may take 60 or even 90 days to pay you (or, in the case of failed construction giant Carillion, 120 days), leaving you with food and bills to pay for with nothing coming in. Remember: the longer a bill is left unpaid, the lower the chance of getting paid at all. By sending automated payment reminders, our research shows you can significantly cut your debtor days.

Invoicing customers and making sure they have all the information needed to pay you is a no-brainer. If you chase a customer for payment when the invoice has been sent to the wrong address, it simply makes you look unprofessional.

As well as having the customer name and address right, your invoice should include your business details with the correct VAT registration number, any purchase order number and bank details. Also, be clear about who you are sending it to so you know where to chase.

The price is right
While it may be tempting when work is quiet to cut prices to win new custom, heavy discounts will hit your profit margin hard.

When pricing up a job, be sure to factor in all the materials, the labour and any additional costs, including your own profit, so you don’t end up accidentally working for free. If a client is quibbling over price and your margins are being obliterated, it’s time to move on to the next job.

Your business success is down to you. Using online tools to assist you in staying on top of your bookkeeping will keep you armed with the knowledge you need to make sure both the customer and the price is right.

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