When you start a business, you can often get caught up in the day-to-day running and forget about all the important back-office tasks. These include everything from paying employees, sorting payslips, settling supplier invoices and credit card bills and end of year tax returns; so its important for small business owners to have some level of financial literacy to help get ahead of the competition.
If you decide to set up your own business, it’s likely that the main reason is for the potential financial benefits and profit you could look to turn — so it’s important to understand how the money coming in and going out of your business works. Bad decisions that are made due to a lack of knowledge could have a detrimental impact of your profitability.
It might be a good idea to take a beginner’s business course to help you with the basics when you’re starting out. You might need to fund the training through your personal finances, but you can recoup the costs once your business is up and running.
Understanding cash flow
Ask yourself this very important question — do you know how money moves through your business? You’ll need to know when to expect income and when your bills are due, for example, supplier invoices, rent for your premises, council related bills and utilities. If possible, you should match up your income with when you’re due to pay money out of your business.
It’s also a good idea to know whether you’ll be paying your employees every month or every two weeks, and consider setting aside an emergency fund to keep you covered in case some months are less profitable than others.
Understanding your taxes
Taxes are a funny thing and can be difficult to understand, so it’s good to get an idea of what to expect before you start your business. Are you paying yourself a salary and if so, how much will it be taxed? If you’re self-employed, you will need to set aside money to pay your NI bill at the end of the year and what about payroll tax (PAYE) for your employees? While this can all be confusing, the UK Government website has a wealth of information about what to expect when you start a business.
How can this knowledge help you get ahead of the competition?
Being clued up and having a basic understanding can help your business two-fold: employers who have this knowledge are more likely to have a smoother running operation. Your employees and suppliers will be paid on time, every time, which means less financial stress for those who work for you. Don’t forget that having a happy and more content work force (including you) means less time off due to stress-related reasons and a more productive, more profitable business overall. Here is a discussion about guarding mental health during the COVID-19 pandemic.
