How to keep your business finances in order in 2021
This article is by Lucy Cohen – who is the founder of Mazuma Money.
Businesses globally are still picking up the pieces after the initial devastation the pandemic created during 2020. And while we still aren’t out of the woods yet, most business owners are heading into 2021 with a much more optimistic view of the future.
However, one pressure point which many are still concerned about is managing and maintaining finances in such a volatile time. Despite the vaccine roll-out, the increase of consumer confidence and signs that the second peak is over, it’s hard to ignore the overwhelming sense of the unknown that still hangs over us all.
While there’s no crystal ball to say when this will all be over, there are a few things business owners can do to help maintain steady cashflow and put themselves and their business on firmer ground in 2021.
Don’t be afraid of your finances
Many of us are filled with dread when it comes to having to look at our bank balance. Whether using an app or going into a branch, it’s not uncommon to be filled with apprehension at having to face that figure. But I can’t stress enough how important it is to get to know your bank balance, your outgoings and your incomings inside out.
As a small business owner, I got into the habit of logging onto my banking app every morning before I start my day. Not only does this remind me what might be outgoing on that day, but it also means I can double check that there haven’t been any nasty surprises overnight such as fraudulent activity. By doing this, I feel a lot more in control and, in turn, less anxious.
Organise your finances in a way that works for you
There are so many ways to keep your finances in check that it can be overwhelming to know which one to choose. When it comes to organising your money, it’s vital you do so in a way that suits you. Just because all your friends have the latest app doesn’t mean you have to follow suit, especially if you find old-fashioned Filofaxes and highlighters much easier to use.
Finding what works best for you and your business will mean a lot less stress and, you’re much more likely to keep on top of it all.
Be stricter with your invoices
When you’re a small business, your livelihood depends on receiving payments from consumers. But, as many will have experienced, getting that money on time doesn’t happen very often, and this can be a real strain on your wellbeing and mental health.
This year, to avoid this issue, implement a ‘50 per cent up front’ policy. Not only will this help to keep cashflow steady, but it will also weed out the time wasters from the genuine consumers who want to buy your product or service, saving you a lot of money, time and resource.
Pay yourself first
Once you finish the month and you’re ready to pay different suppliers, services, family accounts and savings accounts, don’t forget about the most important person to give money to – yourself.
We can get so caught up with using our earnings to prepare for another month of work and life that it’s easy to bypass our own bank accounts and reap the rewards of our hard work. To avoid this, pay yourself first and worry about the rest afterwards.
Be generous with your reserves
For those who are self-employed, savings are your most important asset. Not only do they give you contingency in tighter times or when unexpected costs pop up but, they also allow you to take time off when you need, or want, it. Whether you become ill, or if you decide that you’re going to go away on holiday, having savings is crucial to ensure you can do those things.
Ideally, you’d be looking to put away 30 per cent of your earnings every month to give you a comfortable cushion.
Do your tax return early
Tax returns are often put off for as long as possible, placed at the bottom of many to-do lists. Before you know it, it’s January 1st and you’re panicking to submit it and left with only a few days to pay your tax bill, which is perhaps larger than you were expecting.
The simple solution is to do your tax bill as soon after the 6th of April as you possibly can. Not only does this mean you can tick this specific business task off your list quickly and efficiently, but you also know how much you need to pay by the following January, avoiding any nasty surprises and giving you plenty more time to save if need be.
As we know from the past year, the coronavirus pandemic is anything but predictable. As a business owner, try to plan for a variety of scenarios that may occur over the next 12 months.
From the potential of furlough being extended to another lockdown or, on a more positive note, a reopening of the country and a sudden uptick in demand. Have you saved enough money for all eventualities and have you explored the help and options available? There’s no such thing as being too prepared.
Money is never an easy subject, and while it may feel easier to ignore it and hope for the best, this may land you and your business in hot water. Make 2021 the year where you enjoy keeping control of your money and watch your business flourish.