What happens as you grow?

Growing  your business is very exciting and there will be numerous challenges for you to face and numerous demands on your time and money – recruitment and staffing costs, marketing, premises, increasing sales, and more rules and regulations to comply with on employment law, HR, Health and Safety, pensions etc.  Number one on the list of issues to address though, should be managing your accounts: At the end of the day, it will be the money that dictates whether your new plans succeed or fail!

Up until now you may have been able to get away with just doing enough bookkeeping and accounting to keep your accountant happy and so that you don’t fall behind with your tax and compliance.  However, you now need to think of your accounts as being crucial to your business success and the source of all the business intelligence you need to allow you understand your business and make informed decisions to fuel your growth and development. 

The key things you need to think about then, are:

  1. Having a good, flexible and robust accounting system in place
  2. Making sure it’s set up to give you the information you need
  3. Making sure that it’s kept up to date and that you get into good bookkeeping habits
  4. Making sure that you review your figures regularly and make use of the information you gain from them


  1. Having a good, flexible and robust accounting system in place

A good accounting system is crucial to any business and most small businesses fail because they don’t understand how (and if) they’re making any money and how much they’re making!

As you grow it’s likely that you will need a more substantial system with extra functionality.  I would always recommend starting out with a good package that allows you to add to it as and when you need, but if up to now, you’ve managed with spreadsheets, or some other simple system, now would be a good time to look at something else. 

You will need something that includes budgeting and cash flow forecasting to make sure that you manage your cash flow and can pay for things when they need to be paid (and don’t run out of money!).  As you grow, your costs will naturally increase, in turn increasing the demands on your cash flow. (You will need to pay certain things every month whether you have the money coming in or not!)  Budgeting and forecasting will enable you to manage these demands and forewarn you of any potential issues so that you can do something about them.

The good news is that nowadays buying new accounting software doesn’t have to add to the pressures on your time and money.  Some of the newer online systems offer great flexibility and functionality and the ability to create a package that suits your business (rather than changing your business to suit your accounting package!), and they don’t cost the earth and are normally very quick and easy to set-up.

  1. Making sure it’s set up to give you the information you need

Once you’ve got a good accounting system in place you need to make sure that it’s set up to give you useful information about your business.  This is where nominals come into their own.  I like to think of them as pots or jam jars (my grandparents used to have a row of jam jars on their mantelpiece and each week they’d share out my grandad’s wage into different jars for food, milk, fuel etc, and this is just what you’re doing with your nominals) and you can have as many pots as you like to divide up your incomings and outgoings into whatever categories you need.  

For example, you may want to split your sales into different types, services or products, and you would set up a different nominal code for each.  You may need more than one expense account, to look at, for example, how much you’re spending on petrol or parking or train travel.  The more pots you have, the more you can build up a picture of what’s happening with your business and gain an understanding of where you’re spending your money, and where you can save money by doing things differently.  So, by analysing the different sorts of sales you may decided to push a particular product that sells well, or drop a product that isn’t selling well, or set targets for your sales team around the product that makes you the most profit.  And by looking at your expenses you discover that it’s costing you £25 to go to a regular meeting in Leeds by car, but that it costs £10 to go by train. 

And the good news is that there’s no right and wrong way of setting up your nominals – yes there are standard options, but it’s up to you to tailor them to your business, so that you’re getting the information you need, and you can change them, to look at something else, or add more whenever you need.

  1. Making sure that it’s kept up to date and that you get into good bookkeeping habits

It’s no use having a great accounting system though, that’s set up in exactly the right way, if you don’t use it regularly and keep it up to date – the information you get out of it is only as good as the information you’ve put into it, so it’s essential that you have someone who’s doing that for you.  Ideally, you’ll also need someone who’s managing your cash flow and making sure that you’re getting paid and that you’re paying your bills.  It’s unlikely that you’ll able to afford to employ someone to do this full-time, but depending on the level expertise you need, you could consider a part-time FD, an external bookkeeper or accountant, a credit control or debt collection service or even a virtual assistant for some extra help.

  1. Making sure that you review your figures regularly and make use of the information you gain from them

Whichever route you choose though, you’ll now need to make time for a monthly review meeting so that you understand your accounts, can make sure everything’s being done correctly and is up-to-date and so that you can make informed decisions.  At each review you need to be looking at:

  1. How much cash you have in the bank
  2. How much money is owed to you (aged debt)
  3. How much money you owe (aged credit)
  4. What your current liabilities are (VAT, tax, NI etc)
  5. What your turnover is to date
  6. Your profit and loss to date

And it’s important that you get this information in a format that it’s easy for you to understand and make use of.  If columns of figures aren’t your thing, then it’s easy enough to get graphs and visual reports, and most accounting packages nowadays should give you different options for how you’d like your figures presented.

If you get into this habit, then you’ll also always have the correct information to hand for your bank, investors or business partners as and when they need it.

 What mistakes do people make?

Aside from not recognising the value of their financial information and what it’s telling them, the most common mistake I see is with VAT registered businesses.  Any VAT that you receive isn’t your money – it is money that you’ve collected on behalf of the Government, and you must treat it as such.  Ideally keep it in a separate bank account, so that you don’t spend it!  Time and again, I see businesses who don’t have enough to pay their quarterly tax bill when it’s come in, and then get resentful at having to pay another tax that they can’t afford!

The second most common mistakes is that companies look at the total in their bank account and think they’ve got more money than they have because they haven’t considered what else they’re due to pay.  Your accounting software should give you the real figures.

And finally, the third mistake is that companies don’t do a bank reconciliation every month.  You need to think of your bank statement as a ‘control’ for your accounting information and a monthly indicator of your cash flow.  If it’s on your statement it’s 99% likely to be correct and that that particular transaction took place.  You can, therefore, use it to check your records in your accounting software and to remind you of anything you missed – perhaps someone you’ve forgotten to invoice, or a bill you’ve forgotten to pay or a transaction that you’ve forgotten to record.  That way you’ll know that your accounts are accurate and that the crucial business information you’re extracting from them is correct, and by checking everything every month, by its very nature it means that you’re looking at and understanding what’s going on with your money.

How To Get Yourself Out Of Trouble    

My 5 steps to getting yourself out of trouble are:

  1. Ring your suppliers and tell them you’ve got a problem and that you’re working to resolve it.  They may be willing to negotiate as knowing that they’re going to get some money is better than not knowing or not getting any!
  2. Shorten your payment terms and chase any money that’s owed to you.
  3. Contact your bank and tell them what’s happening and what steps you’re taking – again if you have up-to-date detailed accounts you can send them your aged debt and aged credit lists so they can see what you’ve got coming in compared to what you’ve got going out and then they can decide whether they’re willing to lend you money against that.
  4. Cut costs by using the different nominals you’ve created to give you a detailed breakdown of your spending – so instead of having 1 big lump called ‘Purchases’, you can see that you’re spending £200 per month on ink cartridges and you can look at ways of cutting that cost.
  5. Keep your accounts up-to-date at all times

As a general rule, if you owe anyone any money and are struggling to pay, it’s better to be up-front and talk to them about it rather than bury your head in the sand, because you’re more likely to find away to sort it out (even if it’s HMRC).

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