Small Business Finance

Money might not equal to success

Yes money is important and we are in business to earn money


What success is not:

  • Having large turnover
  • Business losing money
  • Being in debt


Bigger picture

  • 99% of UK businesses is small business
  • 40% is 5 year survival rate


Why businesses fail

  • Grow too fast: can’t meet the demand
  • Run out of cash
  • Poor management
  • No market demand
  • Risk not managed: 2 directors not getting on?


Financial basics

  • Have a business model that works,
    • profit or at least breakeven (people working are paid)
  • Enough cash
    • To pay taxes
    • Support owners
    • Money reserve
    • Invoicing, collection, book keeping


  • Sales
    • Cost of sales
    • Gross profit
    • Gross profit margin
  • Expenses / overhead
    • Net profit
    • Tax
    • Net profit after tax


  • VAT does not belong to business
  • Business are acting as agents of gov’t to collect VAT


Balance sheet

  • Stuff that have value (assets)
    • Cash
    • Debtors – accounts receivable (outstanding invoices)
    • Stock (money tied up)
    • Fixed assets (PC, plant, vans)
  • Liabilities
    • What you owe to others
    • Creditors / accounts payable (bills to pay)
    • Taxes (VAT, corp tax, PAYE etc)
    • Loans (incl. Directors’ loans)
      • You can charge interest for personal loan to company
  • Owner’s equity / capital
    • What is truly yours
    • Share capita
    • Net profit after tax less dividends OR
    • Net profit less drawings (if sole trade / partnership )



  • Getting dividends is more tax efficient instead of wages
  • When you take on staff, your profits might decline because directors usually work very well for almost free
  • Sales, reach or exceed
  • Gross profit percentage, maintain and improve
  • overhead , do not exceed


  • Break Even point
    • How much sales you need to cover your overhead?



  • Increase sales – lots of resources
  • Increase gross profit % , stop giving stuff away for free, increase price, reduce cost of sales, increase efficiency
  • Little things, chip away
  • You can not erase all costs, you can not run business with nothing


  • Xero is better than Sage


  • If you had a very good year, Invest in capital to reduce tax (take advice and be business driven not  tax driven)



  • Limited companies
    • Have some form of mng accounts, keep an eye on how your company is doing, then take dividends
    • Leave a bıt of money in the company
    • Wages, dividends, set aside money for self assessment tax



  • Quality Record keeping
    • Raise invoices for the work
    • Capture all expenses
    • Reconcile your bank at least weekly
    • Use a cloud accounting package
  • Receipt processing
    • App xero, quickbooks etc



  • Cash is very different to profit
  • VAT is not your money. It was never your money
  • Cash mng is different than managing your business, profits etc
  • It is a daily job
  • Work estimated, work done, invoice issued, invoice chased, inv. Paid
    • Shorten this cycle
  • Get money in faster
  • Consider
    • Agreeing price upfront
    • Use of retainers
    • Invoice by instalment rather than on completion
    • Invoice the moment the work is done
    • Collect by direct debit
    • Automatic chaser emails
    • Do not give credit – your are not a bank!



  • Build resilience – don’t drain your business
  • Aim for retained profit about 5%
  • 3-6 months of fixed costs



  • Save for tax
  • Consider opening a separate account for VAT
  • Or even separate account for corporation tax



  • Forecasts, quarterly, monthly accounts
  • Have a financial strategy, budget
  • Profit goal, sales goal, marketing plan
  • Know your monthly key numbers
  • Forecast monthly / quarterly and budget at the start of the year