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:
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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