Future-proof your business with these 5 regular financial checks

Danae Shell
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Free Agent
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Don’t risk your small business’s future with financial guesswork! Use these straightforward checks to give you a regular overview of how your business is performing, so you can anticipate issues before they become problems.

As a small business owner, it’s important to see the bigger picture of how your business is performing. Regularly doing some straightforward financial analysis will give you a good overview of how healthy your business is. This will help you to stay on top of your finances, give you confidence in your business strategy and mean that business decisions are based on facts rather than guesswork.

Know which projects are worth your time

As a small business trying to grow and deliver to multiple clients, being busy is good. But when you’re juggling lots of projects it’s easy to lose sight of which are actually the most profitable. You know how much the client is paying for the project, but hidden costs such as your taxi fares to meetings, special delivery postage costs or ‘unbillable time’ (meaning tasks like administration that you can't pass on to your clients) have a negative effect on your project profitability.

If you don’t record all your costs and unbillable time, you’ll never truly know which projects are worth your time and which are a stealthy drain of resources. Get into the habit of regularly recording all your time and costs then set aside an hour a week to tie them back to any projects that you’re running to make sure that you have a true view of how much profit you’re making on each project. Once you have the full picture, you can make even smarter decisions about where to spend your time in the future.

Track who owes you money

Staying on top of unpaid invoices is crucial to your business’ future success and luckily there’s a report that can help you with this. An aged debtor report is part of the standard set of accounting reports that an accountant or accounting software would prepare for you, and it tells you how much money you have invoiced, but not yet collected. It usually groups the amounts in 30 days and shows the invoices that are aged 30 days past the invoices date, 30 to 60 days, and more than 90 days.

If you check this report every month it should help you to get an idea of the money you can expect to come in over the next month or two, which helps to ease some of the financial unpredictability of running a small business. If there are outstanding invoices, this is your cue to get chasing and if there are repeat offenders with outstanding invoices in the aged debtor report then it could be time to reconsider who you do business with.

Review recent cashflow activity

Your cashflow report can show you everything moving in and out of your bank account(s). This is calculated by either totalling your bank accounts’ incoming and outgoing amounts by month, or by using accounting software to automatically create this for you.

Looking back at your cashflow can give you a good indication of how your business has been doing recently; at a basic level, you need to be bringing in more than you spend. But monitoring your cashflow report on a regular basis can also help you to check how much money you need to be earning each month to cover your costs and help to generate an ideal average income figure for you. If you’ve got some planned costs coming up then you’ll know if you have enough cash in the bank, and if your cashflow looks weaker than you’d like, you can consider ways to generate more income in the short term.

Keep an eye on the profit and loss report

Like a cashflow report, a profit and loss report shows incomings and outgoings. But while a cash flow report covers only the money that came in and went out of your bank account(s), a profit and loss report dives deeper into your business’s profitability. It shows money that you've earned and that you will earn (including invoices that you've issued in the period, but not yet been paid for) plus costs that have been incurred and other costs that may not have been paid in cash (like depreciation of an asset).

Most accounting software packages will create the profit and loss account for you and it’s really important to keep a regular eye on it. It will ensure that you always know where you’re making and spending money, so you can use it to check on the profitability of your business over a specific period of time. 

If your net profit, which is your business's income less all of its day-to-day running costs, but before any tax or interest due to the bank, is lower than you’d like, you can investigate options like cost-cutting measures, or raising your prices. Keeping a close eye on your profit and loss situation will also help you to identify patterns within your business so you can efficiently plan ahead.

Stay on top of your tax situation

A tax projection is an up-to-date view of how much money you will owe for your next tax bill. So if you’re running your business as a limited company then this is a projection of the company’s Corporation Tax, and if you’re a sole trader then it’s a Self Assessment income tax projection. A tax projection would also include VAT for any VAT-registered businesses.

Some accounting software packages, such as FreeAgent, will produce tax forecasts for you, as will an accountant. Check in on your tax projection on a regular basis to know instantly how much you need to pay and when it’s due. As your accounts change, your projected tax bill will also update, so you can set aside the correct amount for your future tax liabilities and make sure that there are no nasty surprises at tax time. Having a separate business bank account that you can set tax money aside in can help to keep you on the right track too.

You need an accounting solution that does the hard work for you

If you’re using spreadsheets to record your small business accounting then you’re at a disadvantage when it comes to being able to easily check your business’s overall performance - automation is difficult and financial analysis is laborious and prone to error.

Keeping on top of business performance is easy for FreeAgent’s 50,000 users. Designed especially for freelancers and small businesses, FreeAgent’s online accounting software will automatically crunch the numbers and provide you with aged debtor, cashflow, and profit and loss reports at the touch of a button, plus you’ll have a real-time view of how much tax you owe.  It will also make invoicing, expenses, time tracking and more a breeze. Give it a try for free today at freeagent.com to see how it can help you in building a strong future for your business.


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