In short:
Be strict with invoices to avoid cash flow problems. Some industries, such as construction, are vulnerable to late payments when starting new projects is so costly.
Consider opening an extra business account to siphon off 20% for each job into. VAT bills are then automatically accounted for.
Have reserves in place for global uncertainties that are brewing in the background. Geopolitical tension with Russia and Iran can cause fuel prices to rise quickly.
The last few years have left directors anxious about how to manage small business finances in the face of so many challenging circumstances. Years on from the COVID-19 pandemic, businesses are still wrestling with its ramifications, and have had a cost-of-living crisis, a Russian invasion, and soaring interest rates to contend with since.
All of these factors and more have made recovery difficult, with some companies still not performing at their pre-pandemic best. With little looking like its going to change on the economic global landscape in the near future though, owners will have to be vigilant with how to manage small business finances.
Don’t allow your finances to scare you
That sinking feeling you get when you check your balance – either when you visit the bank or use an app – is normal. But it is crucial that you know just how much is going in and out of your account at any time
Small business owners would be well served to develop a habit of checking their account every morning via a banking app. Doing this helps to remind you of any outgoings due that day, and highlights any nasty overnight surprises like fraudulent activities quickly. Just this simple act alone can help business owners feel a little more in control of their finances.
Cut out needless expenses
Business travel and expensive lunches can eat away at your cash reserves over the course of a year. Try to question every transaction to determine how essential each expense is. You’ll be surprised at how much you can save.
Take a look at all of your current outgoings and go through each expense with a fine tooth comb. You’ll likely find subscriptions and rolling payments for services you no longer need. Likely culprits are usually software subscriptions (especially anti-virus services), unused mobile phone plans, and overly frequent equipment servicing.
Plan your finances in a way that suits you
There are so many different methods of managing small business finances, that knowing which to one to choose can become overwhelming. As a rule of thumb, however, the very best way of organising your finances is to find a way that will work for you. You could pay for a fantastic new app that everybody else is using, but if you’re more comfortable with a notepad and pen, then its unlikely to work for you.
It’s far less stressful to find a method that neatly fits in with the way that you already operate. There will always be new apps and services that promise to revolutionise the management of your finances, but only you know what works best for you and your particular business.
But look into accounting apps
Even if you’ve always found technology intimidating, the new wave of accounting apps can be an absolute godsend when it comes to managing your business finances. Stick with a well-known popular name such as Quickbooks, Xero or Sage, and you’ll find that they’re all geared toward ease of use.
Beyond their simplification of managing finances, one of the main draws for using such an app is their ubiquity. Having everything related to your business accounting handy on your phone at all times, makes it easy to keep updated and for you to stay updated.
If you don’t use one already, take a look at your business bank account; many offer reduced subscriptions as part of your account privileges.
Open two bank accounts
While it goes without saying that you should have a separate business account to your personal account (and if you don’t, this should be the first thing you do), there’s also something to be said for having two business accounts.
Business insolvency expert, Ben Westoby, explains that “running two business accounts is a great way to build up the funds needed to pay HMRC tax bills when they’re due. Left until it becomes time to pay them, tax bills can come in at amounts that can surprise businesses. By transferring 20% of each day’s income into another account straight away, you avoid the panic of trying to pull together enough money to pay a monster HMRC bill.
“We’ve helped thousands of UK businesses to navigate company closure, and the one constant throughout most cases is HMRC debt. By accruing tax silently in the background and being hit with a bill that asks for the amount in one lump sum, this archaic system catches many companies out. Ensure yours isn’t one of them by utilising that second account!”
Business bills making life difficult?
We offer multiple solutions for businesses struggling with their finances.
Whether it’s negotiating payment plans, securing alternative funding, or closing via dissolution or liquidation, we have options available to suit any situation.
Give one of our advisors a ring today on 0800 9750380 or email advice@forbesburton.com to arrange an entirely free consultation
Pay yourself first
Once you are ready to pay your suppliers, services, and savings accounts at the end of the month, don’t forget about the most important person to pay – yourself.
It’s very easy to bypass your own bank account when there are several other things to pay for, but remember why you started your own business in the first place. It’s very unlikely that you went to all that effort for no pay at the end of each month.
If your business can’t support its own owner, then it’s not viable in its current form. Skipping your own wages only skews figures, and can make things seem rosier in your own mind, but doesn’t help in the long run.
Reward yourself for your hard work and look to actively shake things up if taking a wage stretches your business too far.
Be strict with your invoices
As a small business owner, your income depends on the payment you get from your customers. However, from the many experiences we’ve had, we know that directors find that getting funds from their clients on time doesn’t always happen. This can cause a strain on your mental health and wellbeing.
To avoid this problem in 2025, look to implement a few beneficial changes to how you collect money from your clients.
Asking for 50% of the fee upfront not only helps your cash flow, but also makes it easier to identify genuine customers from those that waste time and resources.
Take a look at when your suppliers ask for payment too. If they routinely ask for payment within ten days, but you’re giving your customers 30, you’re bound to run into cash flow problems further down the line.
Look after your cash reserves
Your most important asset as a business owner, is your savings. You can rely on your savings in difficult times or when you want to handle unexpected expenses. Besides that, you can also take a break when you need one.
Without a suitable cash reserve, any unexpected repairs or other expenses can stretch your company’s finances too tight. In order to be comfortable, it is advisable to save 30% of your earnings each month.
Pay your taxes on time
Our tax returns are often put off until the last minute, and are usually at the very bottom of most to-do lists. It’s too easy to forget about tax returns until they need doing, but January comes round far quicker than we often expect, and sees many of us rushing to submit our returns.
This lack of proper preparation can sometimes lead to larger amounts to pay than first realised, or even a fine if the deadline is missed.
The best solution is to prepare your tax returns as early as possible after April 6th. Doing this will help you handle this critical task on your to-do list efficiently and quickly. Also, it informs you of the amount to pay the following January. Thus, you get to avoid any horrible surprises, and have more time to save extra money if needed.
How to manage small business finances in uncertain times
From what we’ve learned over recent years with global pandemics, Russian invasions, and other events, businesses need to prepare for the unexpected. Other factors, such as higher interest rates, can be easier to spot on the horizon.
With this in mind, it’s worth taking time to plan for different scenarios that may happen. Can the Russian invasion affect other markets if allowed to spread to different areas? Will higher mortgage rates cause more defaults in the banking industry? How might an early general election change UK industry?
More recently, the conflict in the Middle East has seen fuel costs skyrocket. If your business depends on lots of traveling, should that be by plane or car, this has the potential to have an impact on your finances. Those in logistics, haulage, and similar sectors, would be advised to do everything they can to prepare for issues with both price rises and scarcity.
Check on how much money you have saved for different eventualities, and have back-up plans such as new business lines in mind should the worst happen. There’s no such thing as being over-prepared.
Need advice?
If your business is struggling due to current economic conditions, we can give you free, no-obligation advice. Call us on 0800 975 0380 or email advice@forbesburton.com
We’ll listen to your problem and then find a workable solution that suits you and your situation.
