So why not get on with some Spring cleaning? Here are some top tips from FreeAgent’s Chief Accountant Emily Coltman FCA, to help you brighten up your books and get your business set for fresh new growth in the months ahead.
Chase up your old debts
It can be a major headache for a small business when customers don’t pay on time – but what’s even worse is when they don’t pay at all! So if that’s something that happens in your business, it’s a good idea to check regularly to see who owes you money.
Check your list of unpaid invoices. Accountants call this list your “aged debtors report”. Is there anyone there who hasn’t paid you yet but should have done? If so, contact those customers immediately, by phone or by email, and check whether payment is on its way.
If your customer is refusing to pay, you may have to consider your options and either chase them up through a small claims court or just cut your ties with them completely. But if there’s a problem and they can’t afford to pay you just yet, you may want to arrange some kind of alternative payment plan with them. Either way, you won’t know unless you check your aged debtors report and make that call.
Review your non-paying customers
If you have customers who regularly pay you late – or don’t pay at all – it may be a good idea to re-evaluate your relationship with them. Provided that your business can afford to do so, you may even want to sever ties with them altogether. After all, if you’re not getting paid for the work you’ve done that’s all wasted time that may have been better spent working for someone else.
Even if there is a good and genuine reason for being paid late, ask yourself if you are happy to keep on working with these clients or if their outstanding invoices might cause your business pain in the future. Remember, it’s your business and you shouldn’t have to deal with anyone if you don’t want to – so don’t be afraid to weed out the non-payers if necessary.
It can also be dangerous to let your business rely on one, or only a few, customers, because then if you lose one customer you lose a large proportion of your sales – if not all your sales.
See how profitable your projects really are
Schedule some time to review all of your different projects in turn to see how they’re performing. Calculate how much profit you’ve made on each project, and then divide that by the sales figure for each project to get its profit margin. This will show you how much profit you’ve made for every pound of sales.
Now do the same calculation for your business as a whole. If a particular project’s profit margin is lower than that for the total business it may be an indication that you’re being too nice to that customer and you may need to put your prices up. On the other hand, if your project’s profit margin is higher than that for the whole business, you may want to try doing more work for that customer or use the same basis for a new client.
Remember, it’s a good idea to make sure your growth is targeted and profitable; and working with good clients on profitable projects is key to this.
Review your costs
Set some time aside to go through the major costs in your business and see whether you’re paying more this year than you did last year – and, if you are, try to identify why this is the case. For example, you may find your suppliers have put their prices up and if so, you may want to consider increasing your own prices to compensate for this.
Alternatively, could you save money without compromising your brand? Remember it’s not a great idea to try and save as much as you can by cutting costs to the bare minimum (for example by printing your business cards at home on cheaper paper, or teaching yourself to code and build a website rather than hiring an expert to do it), so make sure your cost savings are sensible and not harmful to your business in the long run.
Tackle the little, niggly errors
Most businesses will have a little odd anomaly lurking somewhere in their books. Perhaps it’s an overpayment from a client that’s never been written off, or a tiny, unexplained bank transaction which nobody remembers. The problem is that these may cause you pain in the future because your accounts will be incorrect and your accountant will have to take extra time to sort it out when they prepare your final accounts.
Take the time now to clear the little errors out of your books and you’ll ensure your financial information is accurate – which means you won’t have to pay extra to get your accounts fixed by a professional at the last minute.
But remember if you’re unsure of anything though, do ask your accountant for help. A quick call to them for advice could save you a lot of time and hassle.
Emily Coltman FCA is Chief Accountant to FreeAgent, which provides a multi award-winning online accounting system specifically designed for small businesses and freelancers. Try it for free at: www.freeagent.com