Today is an important date in the diary of any small business owner, as it's the day that we wave goodbye to the last financial year and welcome in the new one. Goodbye FY20-21, and hello FY21-22. Whatever profit or loss sitting on last year's books has now got a line drawn under it, and the slate has been wiped clean for a promising new year ahead.
It's another nine months until HMRC's deadline for tax returns for FY20-21, and nearly twenty one until we'll need to file our returns for this new financial year. But if you think that means you can forget about filing for the best part of the next two years, then I urge you to think again!
For me, keeping my books in order is one of the most satisfying parts of running my small business. It's a huge weight off my mind knowing that at the click of a button I can open my spreadsheet and see my totals so far for income, expenditure, tax, student loan, national insurance, savings...
There's a lot to keep track of! Which is why I'm sharing my top 5 tips for planning a successful year ahead this financial year...
1. Set up a system. Now.
The first thing I do on day one of a new financial year is to build a spreadsheet to track my accounts. This is the place that I input all income from individual sales, as well as tracking all of my expenses, from materials to postage and website fees. From this, I'm able to see my profit and loss per month and across the year, and calculate how much to put aside for income tax, student loan, national insurance etc as I earn it. That means I can put the money aside when it comes in, and I won't get panicked when the bill from HMRC comes along.
I build my own system because it's free, and means I can tailor the layout to suit my business. But if you'd rather let someone else do it, there are plenty of apps that can manage it for you. Whichever you choose, make sure you have something in place – today!
2. Keep it updated
There's no point building a snazzy spreadsheet – let alone paying for a service – if you're not going to use it properly. Set a regular time to log your income and expenditure to ensure that nothing slips through the cracks. I like to log my finances once per day, at the same time that I put the day's orders in the post. Making it part of my process means that there's no chance I'll forget, and I won't waste time picking over old orders, asking "Did I put that on my accounts..?"
So put some time in your diary, be it daily, weekly or otherwise. I also like to throw on a true crime podcast whilst I do it, so that it's always something I look forward to.
3. File your receipts
In all likelihood, most of your receipts are digital, and you won't need a large filing cabinet in the corner of your living room to keep your documents in order. But you do have to keep them in order. HMRC can ask to see your records up to 5 years after the filing deadline, so if that happens to you, all you'll need to do is to open your folder for the correct financial year (and give yourself a high five).
4. Estimate your cashflow
Like many independent makers, when I started CressidaCards I was delighted to simply have anyone buy my work and see money coming in towards my rent. It took me a little while before I was confident enough in my business model to start planning ahead. But once I did, I noticed the difference straight away.
Now, I use a simple cashflow spreadsheet (like this one from The Prince's Trust) to estimate sales across the year, which in turn helps me to anticipate my income for peace of mind, and buy materials at the right time – so I never run out of card at the crucial moment! Although this might feel like guesswork, a small business owner is best placed to be able to assess when the highs and lows are of their industry, and for me, this meant that I was ready for the bumper months and didn't get worried during the quieter ones. In fact, I could use my anticipated slower periods to plan new designs that would ensure I made the most of the busy seasons, and conduct market research to make sure my products were still priced competitively.
As any one-person business will tell you, effective time management is essential when you're the maker, marketer, social media manager, accountant and more. And trust me, a cashflow is an excellent use of your time.
5. Face up to your finance fears
Many people are afraid of talking about money. And sometimes the power of this social taboo can mean that we're even afraid to even confront ourselves about our own financial planning. I certainly used to tell myself that if I didn't open my banking app then what I didn't know couldn't hurt me. But I was only avoiding the truth, and not solving the problem.
Small business owners have to take control when it comes to finance and financial practices. The greater detail in which you understand your financials, the more power you have. It will help you to make better choices, spot opportunities early, and mitigate your financial risk for a healthier bottom line. So if you're someone who breaks out in a cold sweat at the thought of a cashflow, then make this the year you conquer your fears!
Here we goooooooooooo..!