Get your contractor company shipshape for the new tax year
Like it or not, one of the most important parts of running a business is managing the books, writes FreeAgent, an online provider of accountancy software for contractors. You probably didn’t go into business to track expenses and generate accounts - but the bills and the taxman always have to get paid!
So with the new tax year just starting, how can you ensure you dedicate enough time to managing your finances over the next 12 months without neglecting the rest of your business?
Here, FreeAgent’s chief accountant Emily Coltman explains how by dedicating just one hour a week to your business finances, you’ll not just save time on the admin work, but will also be able to look at some of the bigger-picture financial questions.
Create an hour-a-week checklist
Your starting point is to create an hour-a-week checklist, which will detail all the things that you need to review in your business each week.
1) Keeping up-to-date with your invoices
Invoices might be the key to getting paid, but it’s still amazing how many clients I’ve had who were too busy to send their invoices! Scheduling time to invoice every week is a great way to keep your cashflow healthy and teach your clients to pay promptly.
Consider making use of dedicated invoicing software to make sending invoices easier, and you could even set up recurring invoice profiles that let you invoice the same clients for the same amount every month. To save time chasing money, set up automatic invoice reminder emails that remind customers about overdue invoices.
2) Managing your bills
Keep track of the costs you’re incurring and pay your bills promptly to keep good relationships with any suppliers and stay on top of your cashflow. As part of your hour-a-week, set aside some time to go into your online banking site and pay any bills that are due for payment.
3) Check your bank transactions
Do you know what you spent your money on in the last week? Or the last month? And do you know which clients haven’t paid you yet?
If you don’t keep track of your bank account transactions, you will forget what you bought - and when your accountant asks you ten months later as they go through your bank statements, you don’t stand a chance of remembering what each cost was for! So use part of your hour-a-week to stay on top of your bank transactions to save yourself a last-minute scramble.
If you use an online accounting system, check whether you can import your bank statement directly into your accounts, which could save you time.
4) Check your projects are earning you enough
Try to quickly answer: which of your projects is your most profitable? What’s your best earner, even after all those taxi fares and special delivery postage costs? It can be hard to know if you haven’t recorded all of your costs.
Use part of your hour-a-week to tie costs back to any projects that you’re running to make sure that you have a true view of how much profit you’re making on each project. Once you have the full picture, you can make even smarter decisions about where to spend your time.
5) Learn one new thing about your business
What secrets is your business hiding from you? Once you’ve got all the admin out of the way, you can use part of your hour to turn detective and discover what’s hidden inside your accounts.
As a start, take a look at your profit and loss account for the last few months. Don’t panic, this really is just a sum of what your business earned and what its day-to-day running costs were. Did your income drop at a certain point in the year? Could you smooth this out by broadening your product/service range, or by invoicing your clients monthly instead of annually?
In addition to your weekly checklist, could you spare two minutes to make things even easier? Here are a couple of things that you can do every day to make your hour-a-week run-through even simpler:
- Record expenses as you go
How many receipts do you have in your wallet right now, waiting to be forgotten or lost? If you’ve got a smartphone, record an expense as soon as you spend the money, before you can forget about it.
Many online accounting systems are mobile-friendly and integrate with apps that enable you to take a quick snap of your receipt on your smartphone and upload it to your accounts - removing the need to keep your receipts. And yes, the taxman will accept the scanned receipt as proof of the expense! Just make sure to take a picture of both sides if there’s any information on the back.
- Track your time, even if it’s not billable
When’s the best time to track your time? As soon as you do the work, when the details are fresh in your mind! As soon as you finish a task, just take two minutes to record it, whether it’s billable time or not. Tracking non-billable time will give you a full picture of your profitability, and will help you make good decisions about where, precisely to invest your time.
What’s in an hour?
Remember, an hour a week is a small price to pay to get your finances in order - and using the time wisely could be hugely rewarding for you and your business in the future. It should even help you avoid the taxman’s rather steep fines escalator!