Managing your business finance for success

Every business exists to make money and grow, and one of the essential ways is through good financial management.

Getting your business finance in order through good budgeting, accurate cash flow analysis and effective use of management accounting all share a single objective, which is to improve your business efficiency.

When your business is efficient, it can convert all the available resources to maximise output with ease, thereby delivering better products and/or quality services, increasing sales, improving staff morale, enhancing customer experience, to name but a few. As a result, your business will be in a good financial position to meet its financial obligations and have strong cash surplus to put back into your business for growth.

In this article, our small business management consultants at Tax Agility discuss how we can assist small business owners in London, Richmond and Putney to better manage their business finances for success.

Understanding your business and objectives

A client once commented that he quit his 40-hour a week job to launch a business that required him to work 80-hour a week. Highly driven, he was managing most tasks by himself apart from business finances which he turned to our small business consultants. His reason was simple – the best way to unlock any business potential is to get assistance from experts who can provide honest advice based on financial statements.

Essentially, he was looking for a management consultant who can help him to create accurate budgets and forecasts, giving him data that he needed to make informed decisions. Today, his financial performance is strong, allowing him to have an office with a team of staff. Growth is stable and consistent, adding value to his company and achieving success.

The path to success often starts with a realisation that you may be too overwhelmed with day-to-day tasks and diversions to look at your business objectively. This is why engaging a small business consultant makes sense, though the key is to find one who can take time to understand your business and aspirations.

At Tax Agility, we often kick-start a no-obligation meeting by listening to you first. It is only through listening, understanding, and looking at your business through a clear lens that will allow us to create strategic plans that can meet your financial goals accordingly.

Improving business finance

Every business is unique and consequently, there isn’t a standard recipe which every small business owner should apply when it comes to improving one’s business finance. Areas that we may discuss with you include:

  • Ways to eliminate redundancies
  • Ways to reach your cost and revenue targets
  • Improving return on investment
  • Using historical financial data to do forecasts and budgets
  • How to analyse budgeted versus actual results
  • Reviewing of management accounting
  • Reviewing of credit control and cash flow
  • Analysis of key trends in your business
  • Analysis of risk management

Key benefits of improved business finance

Regardless your areas of focus, our small business consultants always strive to deliver three key benefits to your business and they are:

1. Financial control

Knowing how to make money doesn’t necessarily mean knowing how to best manage the money you earn. Managing money requires disciplines and conscious choices. Take cash flow for example, not many small business owners have time to monitor the amount of cash the business has in the bank or check which customers have paid you on time. Yet when you need to make a purchase, you may not think twice. In this instance, our small business consultants help to reign in control by providing cash flow forecasts that can guide your decisions.

2. Informed decisions will spur growth

A series of good decisions equate to success. If your decisions are data-centric, they will create a positive impact on your business finances quickly, which will further strengthen your financial position. Here is an example – many entrepreneurs believe that borrowing is good, but borrowing without knowing your ability to pay it back is far from good and will quickly ruin your business reputation. Borrowing to spur growth, for example, is only good if you have a repairmen plan in advance, as well as knowing where else you can cut expenses and save.

3. Set, measure, optimise

At Tax Agility, we believe in setting KPIs and measuring performances that help your business to achieve its goals. Financial numbers from every week, every month, every quarter, every year should be tracked and measured. It is worth bearing in mind that even the best plan may lead to occasional bumps along the way, which is why optimisation is essential. Having our small business management consultants on hand to guide you can make all the difference.

Tax Agility can help to improve your business finance

At Tax Agility, we understand that small business owners have limited resources. Our aim is to help you transform the limited resources available to you into success by focusing on your business finances.

We believe in growing together with our clients – when you grow, we grow too. This is why our dedicated small business management consultants work cohesively with you to help build your business and take it to the next level. We use financial numbers and data to recommend changes, mitigate risk and improve profitability.

Most important, we provide fast, quality management support to small business owners without any hidden charges. Give us a call on 020 8108 0090 today because your business deserves the best opportunity to succeed.

Payroll consideration

A growing business requires staff with skills that can help your business expand further and faster. Your staff can consist of short-term contractors or permanent employees. Contractors are often cheaper, more flexible, and they tend to be specialists in niche areas like database development and network security which you only require from time to time. On the other hand, permanent employees are focused and loyal to your business; they are the people you can rely on to grow your business.

Employing permanent staff requires PAYE, National Insurance, a pension scheme, as well as other benefits your company provides. These are time-consuming administrative work. Instead of hiring a full-time payroll employee, a cost-effective option for many small business owners is to outsource the payroll function. At Tax Agility, our payroll services for small business are here to assist payroll preparation and compliance for you.

VAT

VAT is a complex subject and when a business experiences strong growth, it tends to involve international suppliers and customers. Trading internationally, meaning importing goods from and exporting goods to other countries, often leads to more questions about VAT.

If expanding internationally is on the card, the general guidelines for VAT are:

  • If you are VAT-registered, the suppliers from an EU country do not charge you VAT for goods that they sell to you. However, you must account for the VAT yourself.
  • Suppliers from a non-EU country do not charge you VAT for goods that they sell to you, but you will pay import VAT before customs release the goods to you.
  • If you are selling goods to customers in EU countries and they are not VAT-registered, you will be charging them the UK VAT. But if your customers are VAT-registered, you can then zero-rate (ie not charging VAT) on the goods you sell to them.
  • If you are selling goods to customers outside of the EU, you do not normally charge VAT.

For solid VAT advice, sector-specific VAT issues, completion of VAT returns, and other VAT concerns, talk to one of our VAT service team for small business today by calling 020 8108 0090.

 

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This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.


How to value your small business

Value concept

Find out how to value your small business with the help of our small business accountants.

There are many reasons why a small business owner may wish to know the true monetary value of their business. Among them, putting a business up for sale, attracting investors and valuing shares for tax purposes are the three most common reasons.

In London, opportunities abound when it comes to selling or buying small businesses. Accordingly, many small business owners want to know how to value their business so they can set a maximum selling price accordingly. On the other hand, many entrepreneurs who are ready to capitalise on an established business also want to know the true value of a business to make sure they do not overpay.

At Tax Agility, our small business accountants are fortunate to work with parties from both sides in various transactions and experience the dynamics first-hand. We assist small business owners who want to sell, while in other cases we also advise entrepreneurs who want to buy a business and expand. In this article, we will focus on business valuation, in particular:

  • What information is used in a business valuable
  • Different valuation methods

What information is used in a business valuable

A client once told us that he had been advised that the most cost-effective way to value a business is to get an accountant to review the financial figures and then place a price on the business. Essentially, he was told to avoid formal valuables as they are expensive and buyers would likely make their own assessment anyway.

He was mostly right in the sense that accountants and financial figures are key when it comes to valuing a business, but the most important part is actually getting a qualified accountant who can take time to understand your small business and the full breadth of its operations. In other words, you need an accountant who can spend time to understand your management policy, the industry and the competitive landscape, along with financial statements. Ideally, the accountant should also help you to improve the value of your business before placing a price that truly reflects the worthiness of your business.

To give you an idea, here are the seven essential aspects a good accountant should take into consideration when valuing your business:

  1. Financial information – present and historical financial statements will be required to address a host of concerns. Profitability and cash flow, liabilities and assets, stock value and book value are among the many items which will be examined in great detail.
  2. Intangible assets – intellectual property, copyrights, brand recognition, and other non-physical assets will also be reviewed carefully.
  3. Management – finding out if the business has a dedicated team and is not over-dependent on key staff.
  4. Legal information – anything from compliance to any present legal proceedings against the company or the company is pursuing.
  5. Competition – market share, competitors, barriers to entry, other similar businesses on the market and other economic factors which can impact the business will be analysed.
  6. Future outlook – as business landscape evolves, the company’s short-term and long-term outlook will be scrutinised.
  7. Circumstances surrounding the valuation – if you are looking for a quick exit due to changes in life goals, then the perceived value is likely to be reduced.

Different valuation methods

When it comes to valuation a business, private companies aren’t listed on a public stock exchange and therefore, finding the value requires some work. Here are some of the common valuation methods used in London and the UK.

1. Earnings multiples

Earnings multiples determine a business’s ability to generate profits and use the figure to set the selling price. This formula is largely based on an industry-based average. For example, if your business makes post-tax profits of £200,000 and the industry-based average ratio is 3, then your selling price could be £200,000 x 3 = £600,000.

It must be said that there is no ‘fixed’ average ratio. It depends on the industry you are in (some industries have a higher average ratio than others) and the complexity of your products and services. Having said that, this method is common for valuing a small business that has been around and making profits for a number of years.

2. Discounted cash flow

Discounted cash flow looks at the estimated profits a business will generate and the likely value of the business at the end of as assessment.

The concept of discounted cash flow assumes that money is worth less in the future and it is today, after interest and inflation rates. To make this formula work, usually data from your past financial statements will be used to predict the future income.

This method is most appropriate for a mature business with a strong client base. It also works well for a business launching a new product with excellent future prospects.

3. Asset-based valuation

Asset-based valuation refers to the value of assets after subtracting business liabilities, without taking into account your business’s future earnings.

This method is most appropriate for a business with substantial tangible assets like property and machinery, as well as intangible but valuable assets like patents, goodwill, copyright, intellectual property, brand recognition and customer lists.

Apart from goodwill which is generally based on the calculation of a residual value, intangible assets are hard to value and a good accountant should use a number of established formulas which may include:

  • relief from royalty
  • excess earnings
  • incremental income
  • comparable transactions
  • replacement cost

4. Entry cost

Entry cost is the estimated cost a buyer would have to invest to set-up a similar business. This formula tends to include:

  • Employee recruitment and training
  • Upfront asset costs and continued maintenance
  • Product development (research and development)
  • The cost of establishing a business’s reputation and its customer base

Which method you should use depends on your circumstances. Most small business owners offload this valuable process to a capable small business accountant.

Tax Agility can help to value your business

At Tax Agility, we look after our clients who are small business owners in London, Putney and Richmond. While we assist clients with the day-to-day tax and accounting work, our ultimate goal is to increase the value of your business by identifying its growth prospects. This way, when you are ready to value and sell your business, you will be cashing in on your reputable business and its success.

If you’d like, our small business consultants can work closely with you to take your business to the next level. We do this by reviewing:

  • Annual business plans, forecasts, and projections
  • Management accounting complete with regular overview information
  • Review of credit control and cash flow
  • Attend important business meetings
  • Strategic plans for business acquisitions and disposals
  • Advice pertaining to capital structure and business valuations

Call 020 8108 0090 or get in touch via our contact page to arrange a complimentary, no-obligation meeting with our small business accountants or our small business consultants today.

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This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.