Financial New Year’s Resolutions for SME Owners

As an SME owner, January represents a clean slate. It's the perfect opportunity to sit down and reflect on the previous year before setting the tone for the next 12 months.

It's crucial to consider your yearly budget, and establish how you can make savings that will add up throughout the year. With that in mind, here are four money management tips for small business owners to act on in January.

1. Free up your time

For any startup or small business, it’s essential to divide time between keeping the day-to-day running smoothly and managing the bigger picture, such as planning for the next phase of growth. As such, outsourcing marketing, IT, bookkeeping or payroll can all help to free up your (and any employees’) time and provide continuity, operational expense control and a degree of risk management. 

If you have limited budget, consider outsourcing in an area where your current team struggles, as this will give you the highest ROI. It can be difficult for any passionate SME owner to hand over control of particular business functions to freelancers or agencies, but keep in mind that the quality of work, cost of delivering work, and your free time could all be better off in the long run.

2. Manage cash flow

One of the main reasons why SMEs fail is because they don’t properly manage incomings and outgoings. But there are steps you can take to safeguard your cash flow and avoid falling victim to unbalanced books:

• Always keep your eye on the ball to identify any potential cash flow issues before they become a reality. 
• Financial forecasting is key to effective cash flow management and planning ahead to ensure your accounts have enough to cover outgoings as they are scheduled. It's also well worth setting clear payment terms with late penalty charges for both customers and suppliers.
• Lean on technology as much as possible when it comes to your cash flow; cloud-based accounting software can give you a bird’s eye view of your finances and allow you to delve deeper with just a few clicks. 
• There are also plenty of apps specifically designed to make accounting and expenses tracking simpler, like FreeAgent, QuickBooks or Xero.

3. Get what you’re due

There are several forms of tax relief open to startups and small businesses, yet many businesses have little understanding of the tax entitlements they are eligible to receive. Here are a few examples to consider:

• If your company has brought an innovative product or service to market, you could be due money from the government in the form of a R&D tax credit, given to you as a cash payment or a lower corporation tax bill.
• If a uniform is important for your brand image or helps to protect your staff on the job, both you and your employees could be due a tax deduction. As an employer, you must keep accounting records for all uniform purchases. Be sure to let your team know they can make individual claims for a rebate on the cost of uniform maintenance. 
• Many SMEs aren’t aware that the benefits of voluntary VAT registration can be enjoyed even if your turnover is lower than the £85K turnover threshold. The simple option is the Flat Rate Scheme, making VAT payable as a single fixed percentage of gross turnover. If you want a more accurate figure, keep all invoices which are raised and paid to complete accurate tax returns every quarter.
• You may have just had your Christmas staff party, but it’s worth remembering if you’re a limited company you can have a tax rebate on the cost of the party, with the caveat that the cost-per-head is under £150.

4. Attract investment

The Seed Enterprise Investment Scheme, or more commonly known as SEIS, is an indirect tax relief which can benefit small businesses by making them more attractive to potential investors. In 2015-16, 2,225 companies received investment through SEIS, but it’s still not widely-known.

As a way of fast-tracking your business to the next stage of growth, SEIS could offer a lifeline for those finding access to finance difficult by offering investors tax relief on Income Tax, Inheritance Tax and Capital Gains Tax.

However, there are certain criteria which need to be met: 

• You must have fewer than 25 employees.
• You must have less than £200,000 in gross assets.
• You can’t have received investment through the Enterprise Investment Scheme (EIS) or from a venture capital trust before.

If you do qualify, your business could raise as much as £150,000 over three years through the SEIS scheme. 

About the Author

Tony Mills is the director of Online Tax Rebates, one of the UK’s leading online tax consultancy services, claiming on behalf of hundreds of thousands of taxpayers for entitlements such as uniform maintenance, professional membership and subscription fees.