Doing The Sums

So here we are, I’ve been putting it off as long as I could but today is the day we need to start looking at finances! Business should be fun but tax returns, book keeping, forecasts, profits and loss and vat don’t feature in that category for most people!

In fact this is such a large subject, I am going to spread it over 2 guiding principles.

So why is doing the sums so important?

It will give you something to aim for and ensure the business is financially viable

It will help ensure you control spending if you know what is going out and what is coming in thus managing cash flow

It will help ensure you cost up the requirements of the business more accurately

Regular checking with allow you to see whether the business is going well or not

It will help decide prices

It will ensure you pay important bills such as tax on time

It will motivate you when you see you are making profits

It will give you control

There are several elements to the financial side of a business that need to be managed. Some are necessary for the planning of the business and some for the control of the business.

Some such as cash flow are required for both.

We will over the next 2 guiding principles consider all the aspects that will ensure you plan and control your business successfully.

However because it is crucial that you get to grips with the terms used here is a synopsis of accounting terms:

TITLE                              DESCRIPTION

Cash flow                                           A flow of money in and out of the business, not to be confused with profit

Fixed costs                                         For example rent for a clinic each month

Balance sheet                                      This shows the financial state of a business at a given date. It takes account of                                                            what the business owns (the assets) and of  what it owes (the liabilities)

Gross profit                                         The profit after cost of sales deducted

Net profit                                             Final profit after all operating costs deducted

Profit/Loss                                           The balance between income and expenditure

Variable costs                                     For example couch roll, this is dependent  on how many clients you have

Turnover                                             The amount of money coming into the business (income)

Corporation Tax                                  A tax on a limited Company’s profits

National Insurance Contributions      A type of tax to pay for public services such as the National Health service

Drawings                                             The name for the money a sole trader withdraws from the business to live on

Petty Cash                                           Money used to buy small cash items such as stamps

Personal Tax                                        Tax that’s an individual pays on things like interest from investments

Self-Assessment                                  A form that each self-employed person must fill in for their tax liabilities to                                                             be calculated

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