As the clock ticks towards 01 April 2024, businesses across the nation are bracing themselves for the significant minimum wage increase set to come into effect. With no accompanying support from governments in these challenging times, the burden falls on the shoulders of businesses to adapt and plan effectively.

The Rise of Minimum Wage

As with every year, April 1st marks a pivotal moment as the minimum wage sees a substantial increase. Workers aged 21 and over will be entitled to the National Living Wage where currently it was workers aged 23 and over. While the intention behind such adjustments is to uplift low-wage workers and tackle income inequality, the reality for businesses is starkly different. For many, this hike presents a formidable challenge, with limited government assistance.

We are well in to 2018 and the financial year is coming close to its end. You should have an indication of how you want to take your business going forward. In our previous blog we talked about goals and achieving them with your strengths and opportunities. This time around we talk about the best ways to expanding your business.

We are finding this is the time of year a lot of our clients are needing budgets and cashflows. A detailed cashflow can inform you when cash is available to spend or if cash is running low ahead of time. Knowing this ahead of time can avert any crisis and indicate to you when action is needed so you are well prepared.

Knowing your cashflow needs at least a year in advance will give you a more accurate picture of your finances. Regular maintenance of this important as you don’t want to rely on old figures in this ever changing environment.

Budgets are equally as important as a cashflow. If you have expansion plans in mind, then you need to master your budget. Are you looking to get a second office? Or are you looking to get a bigger office?, do you need new equipment.   Having an up to date budget can give you clarification on which may be the best way to expand your business. Budgeting is also a great way to indicate where overheads may need to be cut down. You may be over spending on some things but then neglecting the investment in other departments of your business. This is where a budget will help balance your business.

With any expansion plans you may have, you’ll need the cash to back it up. There are many ways to obtain the finance, but the most conventional way is to get a bank loan. With your cashflow and budgets shiny and polished will keep the bank manager sweet. You can then enforce your plans to expand and grow!

Our busiest season has passed with the self-assessment deadline and now it’s the season of love. With love in the air, its time to make your business your valentine. Take the time to make a plan of action for your business. What do you want to achieve in the next 12-18 months?

Are you looking to expand your business and grow a larger list of customers? or are you trying to cut back on the amount of expenses your business pays out ? These are all goals that should be in the clear to you. Write down your plan of action, top tip, something that is written down will be more likely to be achieved than something that you have stored in your mind.

Having it written down and somewhere in sight will give you the reminder and motivation to try and achieve this. Think of the strengths and weaknesses of your business. Refresh and re-train on yourself in terms of, what are your strengths, work on weaknesses to learn and help achieve your goals.

Loving your business will give you opportunities to take it to the next level. However, with opportunities you also must weigh up the risks. This is where you need a forecast for your business, a cashflow can help make the deciding factor whether its time to hold back and watch the spending, or if there is spare cash around to invest back in the business.

We are at the start of 2018.   Make it a good one.

Improving your credit score

We are seeing an increasing number of our clients looking for mortgages and loans with their banks. It’s a good thing because it means that our client base is looking ahead at moving home, moving up the ladder by getting a more expensive house, or expanding their businesses.

As owners/directors of a business, your business and personal lives cross over, so these tips to get that dream house or expanding your business to meet your strategic goals will be similar.

The banks and finance houses look at a number of things when deciding whether to loan you money.

Can you pay it back ?

Do you meet their risk assessment criteria ?

What assets do you own ?

As a soletrader or Director of a Limited company your accounts to a bank are just as important as the personal income you are taking from the business.

They generally look at three years accounts, wanting to see that not only is the director taking an income, there is a defined growth year on year, the director is not taking out the complete amount of disposable profit, and keeping the balance sheet positive. This also needs to show year on year growth.

There are two main figures which are of high importance on a balance sheet ive discussed previously, the Net Current Assets, which is an indication of working capital, or cash in the business. The other figure is the overall total balance sheet value, this again needs to be positive.

The more money you wish to borrow the stronger the balance sheet and directors income needs to be.

This is not an overnight task but needs to be planned ahead over a period of time, but by putting in some self restraint and leaving funds or assets in the business you are over time improving your credit score.

Another scoring technique the bank uses is the amount of credit the company is taking and asking for. Whether is through credit with suppliers, a credit card, or a short term loan, ie overdraft. The bank will be checking your records demonstrating that you are being given credit by 3rd parties and are paying it back on time and within the terms of those agreements.

We have a number of clients who have been able to self sustain their businesses by not needing to apply for credit. This will unfortunately go against you if you are looking to expand. You need to be applying for credit every so often so that your credit history is gaining information. Even if you don’t need the money, and don’t want to pay any interest. You can apply for a credit card and just make sure you pay it off at the end of the month, you are naturally improving your credit score just by applying for the credit.

If you have an overdraft already in place its worth having a meeting with your bank manager keeping them informed of your plans for the future. We as a business put it into our routine to have a meeting every six months. As a company did this recently not only did the bank provide us with a larger overdraft than we had originally asked for, but as we had built up a good credit score, and were considered low risk to them they reduced the interest rate voluntarily by half for a much larger credit facility. It is definitely worth staying in touch with your bank manager.

Your own operational processes within the business. If you are giving credit to customers, make sure you are keeping on top of chasing the debt. Keeping your cash inflows at regular intervals this means to a bank that you are very active and have good controls in place, making you low risk to them. Next time youre reading your bank statement take a look and check not only the value of the cash inflows but the number of transactions. Frequent transaction is gold dust to a bank you are demonstrating large activity.

The cash outflows, if you are using an overdraft be sure to come out of the overdraft and into positive at least once a month. And never go over the overdraft. You will be penalised badly by the bank for doing so and can even have a much needed resource taken away. Remember an overdraft is very short term, it can be recalled and cancelled at anytime. I hope you find this article useful and use it a planning tool for your future, both personal and professional.

This blog is intended for information purposes only and is only advice from past experience, you may have other suggestions of your own. It is not intended to be used to make all of your business decisions but as a guide only.

The Art Of Cashflow Management

Point 1

Always be aware of what you have in the bank Account

Point 2

Put together a short term cashflow 3 months and a longer term one 12 months

To put together the cashflow statement

Sales Income Put all you known sales turnover from your diary into the forecast Unknown your new sales turnover, use last years figures to guide you, in the absence of last year, use a realistic sales turnover.
Don’t forget VAT and keep it separate, as this money belong to the Inland Revenue
Other Income ie bank interest, dividend, insurance refunds.

Costs Cost of Sales this can be based on your average margin percentage

Overhead costs

Fixed and variable

Ie rent, heating, salaries, office costs
Bank loans and capital
The VAT return and Paye

Point 3

Update this daily or weekly, with actual figures, this will allow you to see in advance how your cash is being spent, and also if you need to fund the business. Or used for Capital expenditure and taking on staff. It’s a great predictor for being able to do operation things.

Point 4

If you see a dip in funds, make sure you know in plenty of time, as a six week window may not be able to be filled, whereas a 3 to 6 month window you can plan ahead, and build up cash funds to cover you over the slower time.

Point 5

Use other sources to save on cashflow Gain credit with suppliers Get your capital expenditure leased, or obtain a bank loan. This will also improve your credit score. You score goes up, when you are able to get credit.

Point 6

Keep this on track at all times, even when you are in a cash rich, situation. You might be wasting your money on low interest schemes. Look at saving in other areas.

Let it be used against bringing your tax bill down, investments in EIS schemes, Pension contributions.
Further investment that will give a better return. Capital expenditure. Website development.