Accounting for your new business in 2021

Without wishing to rehash all the 2020 cliches, it’s fair to say that it was nothing if not memorable! Indeed, whilst it was the most challenging year for many, it was also a year that saw the creation of record numbers of new businesses. In fact, according to research by estimates suggest more than 85,000 new businesses were created in the UK in 2020.

Author: Simon Murrells   |   Date: 22nd January 2021

Many of those new businesses were created as a result of redundancies, coupled with a challenging job market and high levels of furloughed staff which led to people taking the plunge and setting up their own businesses.

Highest new business growth areas in 2020

According to SHL’s research, some of the highest growth areas for new businesses were:

  • E-commerce         up 88%
  • Clothing         up 55%
  • Medical goods     up 176%

It’s probably not a surprise that these were amongst the growth areas when you consider the huge shift in our lifestyle and shopping habits from March 2020 onwards.

If you’re one of those new, 2020 startups, what do you need to do now, in the early part of 2021, to ensure your business thrives this year and long into the future?

Read on to find out.

Creating financial structure

If you started your new business in 2020, it’s highly likely that you either;

  • Were already planning to launch a business and had developed comprehensive plans – many of which may have gone out the window when Lockdown 1.0 hit the UK; or
  • You did so in response to events caused by the pandemic and so launched quickly and with minimal planning in order to not ‘miss the boat’.

Whichever applies, or is most closely aligned to you, there is a strong likelihood that you were so focused on your products, services, website, marketing or route to market, that you didn’t pay sufficient attention to the financial controls you were putting in place.

Now it’s time to get your house in order. And where better to start than with your money!

Firstly, let’s put your mind at rest. Most small business owners are not trained bookkeepers, accountants or tax advisors. In fact, most new small business owners are experts in delivering a set of products or services and have very little knowledge of running a business. It’s something you learn as you go along – sometimes through making mistakes!

The trouble with learning to manage your finances that way is that it can cost you dearly!

That’s why creating a sound financial structure for your business is an important first step. Here are some key things that you need to consider:

  • Managing your cash flow so that you know where & when money is coming in from as well when & where it is going out.
  • Where is the actual money? If you don’t have a business account then what is ‘yours’ and what belongs to the business?
  • Keeping appropriate records that allow you to track invoices and payments now as well as provide the information you will need for your tax returns later.
  • Remembering to save for your tax liabilities.
  • Ensuring that you, and your business, is properly registered for tax and National Insurance purposes.

Many business owners find the easiest way to do this is by using a cloud accounting software service and/or retain the services of a bookkeeper.

Keeping on top of the books

Whilst you don’t have to use a bookkeeping service, if you are inexperienced in managing business finances it’s easy to make mistakes, forget to allocate regular time to ‘do the books’ and lose track income and expenditure.

To decide if you would benefit from retaining a bookkeeper, work out the value of your time and then compare it to the cost of retaining an experienced and qualified bookkeeper. More often than not you’ll actually save money by letting someone else take care of the bookkeeping whilst you focus on delivering your business.

Whether you have a small team or your business is ‘just’ you, using a bookkeeper can save you time, hassle and sleepless nights.

Systemise your business

In every business there are repetitive tasks. To run a financially stable business take the time to systemise as much as possible so that repetitive tasks are either done automatically, or take minimal intervention by you.

For example, connecting your ordering or payment gateways to your accounting and CRM software will remove the need for you to key in data in different places. It also reduces the risk of error which in turn improves customer service and satisfaction.

There are virtually limitless options for business automation these days and the beauty is, many are reasonably priced making them affordable to even the smallest of startups. Leverage your time well now and you’ll be in a great position to grow your business.

Prioritise planning

It’s easier said than done, but keeping your new business on track depends on you and your ability to plan.

From planning your marketing to planning your stock control, time management or investment, you have to take time out of working in your business in order to work on your business. Set clear growth goals that allow you to measure your progress, this will help you to keep one eye on the cash flow projections so that you avoid the common trap of many new businesses – lots of business but not a penny of cash.

Even highly profitable businesses run into trouble if they focus too much on the numbers but not enough on the money .

Analyse your business’ data

You’d be surprised how often I hear clients tell me about their legendary ‘gut instinct’ that never fails to correctly identify what aspects of their business makes them the most and least money.

You would probably also be surprised how often a full analysis of their data tells a very different story. And the fact is, you can’t argue with the evidence.

Drilling down into reliable data helps you to identify where and when you can make switches that will improve your profitability, you can consider the viability of special events or discounts and you can spot where you are losing money, including in completely avoidable ways.

And the real beauty is, that systems like ProCloud BI sit nicely alongside your existing systems and quietly interrogate the data.

Test, measure and tweak

This advice is relevant whatever business you are in. Never coast along without testing the results of what you are doing. As I said earlier, you can’t argue with the evidence to leave your gut instinct at the door and have processes in place to measure the effectiveness of all your business activities.

For example, if you provide a service to people, measure that time you spend on that work. You  would be shocked how many businesses fall into the trap of overservicing clients – usually in the name of providing a great customer experience. Use a time tracking tool so that you know exactly where you are spending your time and if scope creep or over servicing is happening, take action.

Another example is testing your lead sources. Do you run digital adverts? Keep an eye on what they are costing you and the leads they generate. There’s no hard and fast rule for what constitutes a good ROI as it depends entirely on your business. But you must know your lead generation sources, the cost of keeping those channels open and the conversion rate of leads from them.

Never be afraid to experiment. The absolute benefit of running your own business is that, unlike in a job, you get to call the shots. If the evidence is telling you that things aren’t working, you have it within your power to mix it up a bit!

Regular reporting

Depending on your business structure, the need for reporting will vary. For example, if you have a Board of Directors or an investor it’s highly likely that  you will need to provide more frequent reports that track the progress of the business.

But even if it’s just you in your business, it’s important to take regular reviews of your progress from time to time. There are many business and mindset mantras that are all about the future, but taking time to look back and see how far you’ve come, what you’ve achieved and what lessons you have learned along the way can be equally powerful – especially if you are having a moment of doubt or going through a trying period in your business.

Never be afraid to ask for advice

At the risk of sounding patronising, the final piece of advice for this article is, don’t be afraid to ask for help. Nobody knows it all and taking professional advice on a subject that is bothering you can often save you time and heartache.

Burying your head in the sand is a shortcut to disaster!

You can usually secure free initial consultations with reputable professionals on almost any given topic and many have free guides that contain really valuable information to help you with specific queries.

And whilst we are on the subject of amazing, free advice – click this link to download your free guide – Six Steps to Strong Sustainable Growth. Packed with actionable advice to help you continue to grow your new business in 2021 and beyond.

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