SME Tools: your financial fitness checklist

Whatever plans you may have for your business, staying on top of the finances is essential to achieving your goals. So what key areas should you be paying attention to?

This article was originally published on 20 March 2020. The article has since been updated on 24th October 2023.

1. Invoice promptly and accurately

“Getting money in on time is essential for your business to survive but owners often let this slip,” says Mike Watson, an adviser at Business East Sussex. “But if you are sloppy about invoicing your customers you shouldn’t be surprised if they become sloppy about paying you. If your business can support it, hire someone qualified to do the invoicing for you.

“If the invoicing falls to you, block out time in your diary every month when you can shut your door and take your phone off the hook so that you can do the job properly.”

2. Invest in accounting software early on

Alina Cincan, managing director and co-founder of Inbox Translation, says: “I wish I had applied this piece of advice myself, as this is one mistake I made – definitely in terms of time lost.

“Sure, spreadsheets are a great tool, but adding every invoice, expense, and bill manually takes time and it’s easy to make mistakes. With accounting software, matching transactions became a breeze since bank feeds are automatically imported. It only takes me a few minutes every day and I can be certain all is correct.”

Cincan adds: “The software I use can also be set up to send automatic payment reminders to forgetful clients. This means that you are always on top of your finances and don’t let invoices slip through – and there are no awkward conversations with said clients, as the software does it for you.”

Accounting software FreeAgent is included for our business banking customers as long as they retain their bank account. Specific account eligibility apply.

3. Meet your deadlines

It might sound simple, but a lot of small business owners fail to meet important deadlines, whether that’s an HMRC deadline or one from a customer or supplier,” explains Rick Smith at consultant Forbes Burton.

Late submission of accounts to Companies House may accumulate fines of up to £7,500 but this depends on how late the accounts are and whether it is a public or private company.

He adds: "Missed tax deadlines will accrue HRMC fines with the possibility of prosecution. There is also the self-assessment tax return every January, with fines accumulating after the missed deadline. Taking steps to avoid these penalties will relieve you from stress and ensure that you avoid personal liability.”

4. Learn how to calculate return on investment (ROI)

Erica Wolfe-Murray, entrepreneur and business coach, says: “A simple equation will help you calculate whether the money invested developing a new product or on your marketing spend generates the anticipated returns.

No business can achieve success if it’s paying out more to suppliers than it’s netting in sales each month from customers, so ensure you regularly check your gross profit level against sales

Samuel Leach
Director, Samuel and Co Trading

The return is the value of any payback minus the original investment cost – divided by the investment cost, and then multiplied by 100 to give a percentage ROI figure.

So, Wolfe-Murray explains, if a business could generate £5,000 of payback from a £500 investment, the ROI would be 900% – signalling that the investment would be very much in the business’s best interests.

5. Ensure supply chain safety

Wolfe-Murray adds: “Your supply chain is critical to your business. You need to be able to trust them to deliver what you want, when you want, to a standard you want, so protecting this is vital.

“Ensuring your upstream suppliers have a code of trading with you is just as important as ensuring your clients have contracts with you. Develop a supplier’s contract that covers quality control, delivery times and payment terms, as well as what happens if they mess up and any consequential losses or impact. Be clear about who will be responsible for trading losses.”

6. Ask the specialists

NatWest business customers are entitled to a free Health Check , provided by an experienced relationship manager. This could help the business identify any financial issues they could be focusing on, as well as uncover new growth opportunities.

The Health Check could also offer insight into how best to manage risks and protect businesses against potential trading problems in the future.

7. Investigate grants as a funding option

Watson says: “Although not always well promoted, there are a number of grant schemes available to UK-based SMEs. Many of them operate on a match-funding basis and, to qualify, the applicant needs to demonstrate the economic and/or social benefit of the project.

“Separately, there are myriad options for raising external finance, ranging from the traditional [overdraft] to the newer [crowdfunding]. To have a chance of successfully sourcing the right package, you need to be clear about why you need the money and how you will use it.”

8. Check outgoings against income

“No business can achieve success if it’s paying out more to suppliers than it’s netting in sales each month from customers, so ensure you regularly check your gross profit level against sales,” says Samuel Leach, director of Samuel and Co Trading.

“The benefit of tracking this KPI [key performance indicator] over time is that you can easily quantify how much money you’re keeping against the amount paid out to suppliers. As businesses retain more money, gross profit margin increases. But a decrease in gross margin as a percentage of sales could indicate that a business is overspending on its supplies.”

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