Don’t let the taxman ruin your business
There’s an old saying:
“Turnover is vanity. Cash is sanity.”
One of the biggest reasons businesses go under is because they run out of cash. And one of the biggest payments a business has to make which lands them in hot water is the money they have to hand over to the taxman.
So just exactly why is this?
Well, let’s look at VAT as an example.
You happily invoice your customer £1000+VAT, so that’s £1200 that’s landed in your bank account and you think your cash flow’s all hunky dory. But what so many business owners forget is that £200 of that isn’t their money – it actually belongs to the taxman.
However, what’s even worse is sometimes the business owner knows that they have to pay the £200 to the taxman. But they’re a ‘bit short’ this month so they then end up ‘borrowing’ the £200 to tide them over.
“So what’s the problem?” you’re probably thinking. “They’ll put the money back when the VAT’s due.”
Unfortunately the harsh reality is often very different. Unless you keep tabs on your finances properly, they’ll run away from you more quickly than Usain Bolt.
Throw in your other tax liabilities, plus interest and penalties for non-compliance and it’s a recipe for disaster.
Now whilst it’s not your fault that the taxman doesn’t take a nice monthly payment from you for your taxes (although he can for VAT if you use annual accounting), it’s still important to take ownership of the numbers in your business.
Unfortunately, the taxman isn’t there to help you organise your finances – you need to do it yourself.
And one of the simplest ways to manage your tax liabilities is to have a separate bank account for them.
And then that way you don’t touch the money in those accounts under ANY circumstances.
Or the other alternative (if you don’t want to open a savings account for the taxman), is to create a cash flow for your business.
And, as your business gets bigger, this is really the ONLY way to go.
Because a cash flow forecast is a fundamental management tool for a business. It’s the way you can factor your future bills into current decisions. And this helps you avoid spending money that is earmarked for other bills.
It needs discipline, particularly for new and growing businesses, and is a difficult change in mindset for a business already experiencing tight cash flows.
But it is the only way in which the situation will be brought under managed control.
So whether you’re a start up or an established business, why not create or update a cash flow for your business?
It will take a bit of work though eventually it will help to bring your business back under your control with more effective decision–making. It will also help to avoid any unnecessary financial costs and (maybe most importantly!) reduce your blood pressure!
Now of course, having a cash flow forecast helps, although this doesn’t solve the problem if you’re pricing’s too low or you’re not generating enough sales.
This is exactly the reason why we give all our clients free access to the Business Growth System. This is specifically designed to help you achieve more from your business.
So if you’re interested in discovering more, just drop me an email. Or if you’d like to sign up to our risk-free 90 day trial, simply click here.
And in the meantime, if you’d like our help preparing a cash flow (or any other business advice for that matter), feel free to get in touch.