Questions to ask yourself to get you through the Cost-of-Living crisis

Questions to ask yourself to get you through the Cost-of-Living crisis

Vast majority of businesses will struggle this winter. Do you know what you need to consider to go through these though times?

We have seen an increased number in insolvencies and people taking on additional work or second jobs to supplement their income. However, instead of working harder why not trying to work smarter?

Here are the questions you need to ask yourself to assess if you can survive the current economic climate.

1. Are you checking your bookkeeping data?

No, we are not trying to sell you, our services. We are trying to make you aware that your bookkeeping data can provide a lot of useful information about your business.

We know this is not your priority, as you are focusing on bringing more income in.  However, you can save time and money by getting access to this data in real time. How?

There are lots of apps available (some free to use), which allow you to scan receipts and create sales invoices as you go.

Are you recording the details of each sale, what you sold and how much you sold it for? Most importantly, do you record if you were paid on time or not? How much did that sale cost you (time, staff, software)?

Reviewing every transaction in real time means you will have meaningful financial information to measure how your business is performing in real-time rather than waiting until the end of the financial year.

 What are the other benefits of real time date reporting:

• Gain more control over what's happening in your business

Are you overspending on coffee or any other unnecessary costs? We know we did, and this is one of the changes we had to make. ☹

If you can clearly see your costs and where money is being spent than you can determine whether that cost is worthwhile. It will allow you to make more informed decisions about the money you spend.

Your monthly cash flow statement can show you the reality of when cash comes in and goes out. It helps you plan your expenditure more effectively and enables you to take steps to bring cash in more quickly.

• Plan for growth

You might be seeking finance or investment to grow. Robust monthly management accounts can reassure banks and investors that you have a firm grasp of your business.

Are your plans on track? Were you too ambitious or not ambitious enough? Comparing budgets and forecasts can help you assess these. In addition, these can be shared with your internal team and get them on board with your plans.

• Stronger position for year-end

If you track the numbers through the year, you won’t find yourself in a position of looking at the figures and wondering what went wrong. At the same time, you won't be celebrating an unexpectedly good year while simultaneously worrying about how you’re going to pay the resulting corporation tax bill.

2. Are you managing your Cash Flow?

This is all about the timing of money coming in and out of your business. If you don’t manage these timings, you might end up with a negative cashflow.

How can you manage your cash flow better?

• Analyse your customer portfolio

The vast majority of businesses have been hit by this crisis, and yes some of the customers might not be able to pay you at all. This is why you need to identify the accounts in your portfolio that may encounter further liquidity problems due to cost-of-living crisis. 

By assessing and categorising your customer portfolio, you can improve your collection strategy and where possible renegotiate the payment terms or introducing payment in instalments.

• Negotiate payment terms with your suppliers?‍

The vast majority of suppliers have standard terms that their clients don’t bother to negotiate. But, in these difficult times in particular, it’s worth studying them. 

However, it can be time consuming to try to negotiate with every supplier. Instead, you could identify the companies you spend most monies with as this will give you a better position to negotiate or even look for an alternative one which can give you a better deal.

This is a good time to consider if you can negotiate a better deal for yourself, with more time before you have to make a part or full payment.

     3.Do you have a plan for your tax liabilities?

If you are experiencing cash flow problems and have fallen into arrears you can negotiate a Time to Pay (TTP) arrangement with HMRC in order to pay the outstanding tax bills in instalments.

It can be used for Corporation Tax, VAT and PAYE arrears, but also when directors anticipate cash flow problems with upcoming payments, and it may help the company to avoid a late payment penalty if they miss the deadline.

However, HMRC will consider every arrangement on an individual basis and will also consider the company’s history of tax repayment. This is to ensure that directors are not deliberately trying to avoid meeting their tax obligations. 

     4.Are you claiming all allowable tax reliefs?

There are reliefs available which you might not consider. Take capital allowances for instance. These can be used to reduce you Corporation Tax liability for Plant and Machinery (computer equipment included) and until 31^st March 2023 you can deduct 130% instead of 100%. The timing for claiming this is important here. So far (November 22), we know that this additional relief called the super-deduction is available for qualifying items until 31^st March 2023. So, check – do you need to replace any equipment in your business?

    5.Have you checked if you could you benefit from voluntarily registering for VAT?

Although you don’t need to register for VAT until you reach the threshold, you might benefit from registering for VAT. How?

• Increased cash flow

Once registered you can claim back your VAT costs. If your set-up costs are high and include a VAT element, claiming that back can make a huge difference. You might be investing in IT, building an expensive website, or even hiring professional advisers or consultants. Reclaiming VAT for those costs can have a positive impact in those first months where you don't receive any income.

• Credibility in the marketplace

There is a perception that being VAT registered makes you look professional. As a VAT registered business, you might appear to have more credibility in the market and people will assume that your start-up is bigger than it is and has been around for longer.

• Winning more work

If you are a business-to-business start-up and planning on providing services for large corporations, being VAT registered could give you an advantage when applying for a tender. Some corporations may not want to work with suppliers that aren't VAT registered.

There are also other schemes which could benefit your cash flow such as flat rate schemes (more details here).

Tip: If you are only providing outside of scopes services – to overseas companies, then it might be beneficial to register for VAT (in the UK), so you can recover the VAT you incurred on your expenses.

    6.Lastly, have you checked if you are better off by hiring a Chartered Qualified Accountant?

Now more than ever you need that extra pair of eyes to understand what is really going on in your business and help you plan for any unexpected changes.

Don’t just leave it to chance, if speaking to a professional will prevent you from getting to the point where you have to close your business down, then why not do it?

We are available for any questions you might have on 0333 050 5658 or at hello@visionaccountants.co.uk