starting up module 5

7/28/2019 Starting Up Module 5

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Starting a Business -The No Nonsense Guide

Module 5: Managing money


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Module 5: Managing money

5.1

5.1

5.2

5.2

5.3

5.3

5.4

5.4

5.5

5.5

5.6

5.6

5.7

5.7

5.8

5.8

1

Planning your money 2

Raising finance 6

Working out your profit 11

Managing cashflow 15

Managing the risks 18

Keeping financial records 19

Glossary 23

Action plan 25

What you will learn and understand asa result of working through this module

This module will help you to:

workoutyourprofitandloss workoutyourcosts workoutyourtakingsfromsales workouthowmuchmoneyyoull

needtorunyourbusiness setupandmanageyourcashflow understandwhatfinancialrecords

thelawrequiresyoutokeep.

Youllalsohavetheopportunitytocompletethepartsofyourbusinessplanthatareaboutfinances.

How to use the module

Thisisaself-helpmodule,withbothreferenceandworksheetmaterialtohelpguideyouthroughstartingasuccessfulbusiness.

Youwillfindiconsthroughoutthemoduletohelpguideyou:

Tipsforhowtomaximiseyourbusiness

Colour-codedlinkstoothermodules

LinkstotheBusinessLinkwebsite

Anactionplanattheendofthismoduletohelpyouplanyouractivityforstartingup.

Worksheetswithlinkstothebusinessplaninmodule6.

Linkstotheessentialbusinessplan

Linkstothecomprehensivebusinessplan

Ifyouareusingthemodulestocompleteabusinessplan,seemodule6forwhichplanisrightforyou.

Starting a Business - The No Nonsense GuideisproducedbyBusinessLinkaspartofitsStartingaBusinessservice.BusinessLinkprovidesimpartialadviceandinformationtohelpyoustart,growandsucceedinbusiness.Helpandsupportisalsoavailableonline,throughlocalworkshopsandoverthetelephone.Visit businesslink.gov.uk orcall0845 600 9 006,forfurtherdetails.


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Planningyourmone

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5.1 Planning your money

Pl

i Inthissectionyouwill:

calculateyoursalescalculateyourbusinesscostscalculatethestart-upcostsfor

yourbusiness.

Startingabusinessispotentiallyanexcitingopportunitytomakemoneyandfulfilyourfinancialneeds.Butbeforeyousetout,youllneedtospendsometimeplanninghowmuchmoneyyourelikelytomake,andwhatitsallgoingtocost.Youllalsoneedsomebasicbusinessskillslikebookkeeping.

Youwillneedtoputtogetherareasonablyaccurateforecastof:

yoursaleshowmuchyourelikelytosellyourcostshowmuchyoullneedtostart

upandwhattherunningcostswillbeyourprofithowmuchyoullneedto

breakevenandmakeaprofit.

Itdoesnthavetobecomplicated.Yousimplyneedtoworkoutwhatyourelikely

toearnandspend,basedonthemarketresearchyouvedoneandyourrealisticjudgement.

Forecasting your salesBeginbylistingthenumberofcustomersyouthinkyoucouldhaveinyourfirstthreeyears.Thenputarealisticsalesfigureagainsteachone,bearinginmindthatafewlargercustomersarelikelytoaccountforagreatershareofsalesthantherest-althoughthisdependsonyourtypeofbusiness.Youllhavetodosomeguesswork,butatleastyoushouldreach

aforecastthatsbroadlyintherightarea.Youwillneedtoestimatehowmucheachwillbuyandatwhatprice.

Calculating your costsCostsaretheamountyouspendonselling

aproduct,runningaproductionprocess,ordeliveringaservice.Typically,yourbusinesswillhavethreekindsofcosts:

Variable costs:Costitemsthatvarydependingonthelevelofyoursales.Thesecouldinclude,forexample,therawmaterialsformakingyourproductandstaffovertime.

Fixed costs:Thingsthatalwayshavetobepaidhowevermuchyousellsuchasrent,rates,utilities,salaries,travel,stationery,insurance,advertisingandpromotion.

Capital costs: One-offcostssuchasbuyingcomputerequipmentorpremises.

Workingoutyourstart-upandrunningcostswillenableyoutoseehowmuchofyourownmoneyyoullneedtoputin,and

howmuchfinanceyoullwanttoraise.

Aswellasestablishingwhatyourstart-upcostswillbe,youllneedtoworkoutwhatitwillcosttorunyourbusinesseachyear,andtoproducearealisticforecastofhowmuchmoneyyoullneedtosurviveuntilyourbusinessstartsmakingmoney.

Find out moreSee Module 4: Finding and keepingcustomerstohelpplanhowmanyandwhattypeofcustomersyourbusinessmayhaveandthepriceyoucancharge.

Forecastandplanyoursales:businesslink.gov.uk/startforecastsales

HowdoIsurviveuntilmybusinessisofftheground?businesslink.gov.uk/startsurvive

Putintoyouractionplananyresearchyouneedtodointoitemsandtheirlikelycost.

5.1

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TipIfyourethinkingofborrowingmoneyforyourbusinessalwaysfirsttalktoacommerciallendinginstitutionoranaccountant.


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5.1

Worksheet: Start-up costsSalesforecastYourestimatedtotalsalesovereachofthefirstthreeyears.

Youwilluseyourtotalsalesfigureslaterinsection5.3.

Whatareyourestimatedfixedcosts?

Your variable and fixed running costsGettingafirmideaofyourdifferentcostswillhelpyouplanfinanciallyforyourbusiness.Listasmanycostsasyoucanidentifyineachsection.Youwillusethefigureslaterinthemoduleinsections5.2and5.3.

Whatareyourestimatedvariablecosts?Remembertoallowforbothanyup-frontcostsaswellasongoingcharges.

Expected numbers ofcustomers

Sales figure percustomer

Expected total sales

Year 1 x =

Year 2 x =

Year 3 x =

Item Year 1 Year 2 Year 3

One-off Ongoing One-off Ongoing One-off Ongoing

Goods

Materials

Extralabour

Transport

Item Ongoing annual costs

Premises(incl.rent,rates,utilities)

Telephoneandbroadband

Printing,postandstationary

Advertisingandpromotion

Bankcharges

Professionalservices

Insurance

Bankinterest

Equipmentandvehicleleasing

Other(pleasespecify)

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Start-up costs

Calculate how much money you need beforeyou start trading

ITandcomputers

Telephonesandbroadband

Equipment

Stock

Tools

Vehicles

Professionalfees

Insurance

Rent/rentdeposit

Stationery

Marketing

Consumables

Licences

Training

Associationfees

Wages/recruitment

Security/healthandsafetyequipment

Marketresearchcosts

Other:(pleasespecify)

Total start-up costs

Your contribution to these costs


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Raisingfinance

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5.2

5.2 Raising finance

Inthissectionyouwill:

workouttheminimumyouneedtoearn fromthebusinessinthefirstyearworkoutwhatyoumightneedtoborrow tostartthebusiness.

Whenyourestartingup,yourelikelytoneedmoneytobuyequipmentandmeetmarketingcosts-allbeforethefirstsaleismade.Thenonceyouretrading,youllneedcashtopaythebillsandkeepthebusinessgoing,includingyourlivingexpenses.

Thereareanumberofsourcesoffinanceavailableincluding:

yourownmoneyfundingfromfamily, friends& communitybankloanoroverdraftequityinvestmentgrants&governmentschemes.

Money from other sourcesMoststart-upbusinessesfundthemselvesthroughoverdraftsandloans.Ifthevalueofassetsyouhaveavailableforyourbusinessisgreaterthanthetotalborrowingrequirements,youmaybeable

toraisefinancefromacommerciallendinginstitution.

Beforetheyagreetolendyouthemoney,yoursourceoffinance(includingfamilyandfriends)willwanttoknowthatyoureagoodrisk.Theywillusuallywantyouto:

presentacrediblebusinessplanoffersecurityforanymoneytheylendyouinvestsomemoneyinthebusiness

yourself.

Youneedtobesurethebusinesswillgenerateenoughprofittorepaytheloanandtheinterest.Whatevertypeofborrowingyouuse,youmayhavetopayarrangementfeesaswellasinterest.Ifthereareinsufficientassetstoprovidesecurityforstart-upcoststhinkaboutwhetheryoucouldspreadthestart-up

costsoveralongerperiod.

Especiallyifyouareborrowingfromfriendsandfamily,carefullyconsider theriskthattheycouldlosetheirmoneyifyourbusinessfails.

Find out moreSee Module 6: Your business planforbusinessplantemplates

Choosetherightfinancewhenstartingup:businesslink.gov.uk/startfinance

GrantsandSupportDirectory:businesslink.gov.uk/startgrants

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Theremayalsobebusinessgrantsavailabletoyou,forinstance,ifyouarestartingabusinessinadeprivedarea.

Inthenextthreeworksheetsyouwill:

calculateyourpersonalsurvivalbudgetdecidehowmuchyoucanpersonally

contributetothestart-upcostcalculatewhatassetsyoumightbe

abletouseassecuritytoraisefinanceforthebusiness

calculatehowthebusinesswillrepayanyloanyoutakeouttofundstartingup.


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Raisingfinance

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5.2

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Personal assets

Valueofhouse

Valueofotherproperty

Surrendervalueofinsurancepolicies

Cashdepositsinbanksorbuildingsocieties

Stocksandshares

Valueofcar(s)Otherreliableassets

(thingsyoucanselltoraisemoneyspecify) +

Total assets =

Liabilities

Outstandingmortgage

Otheroutstandingloans(egcarloan) +

Total liabilities = -

Estimated net personal assets =

Sourcing financeUsethefiguresyouhavenowcalculatedtosetouthowmuchyoudliketoborrowforthebusiness,theassetsyouhaveassecurity,andhowthebusinesswillrepaytheloan.

Youwilltakethesefigurescalculatedhereintoyourprofitandlosscalculationsinsection5.3andyourcashflowmanagerinsection5.4.

Assets you could use to raise finance

Total borrowing requirements for the business

Start-upcosts(frompage4)

Personalstart-upcontributions(frompage8) -

Otherstart-upcontributions(frompage8) -

Totalrequired =

The assets you have available as security

Estimatednetpersonalassets(fromtableabove) =

Doyouneedtomakeanyplansortakeanyactionstoraisefinance?Placetheseinyouractionplan.

Worksheet: Personal survival budget

Ifyourestimatedpersonalincomeismorethanyourestimatedpersonalexpenditure,thismeansyoumayhaveadditionalfundstoinvestinthebusiness.

Estimated annual personal expenditure

Mortgageand/orrent

Counciltax

Utilities(gas,electricity,wateretc)

Personalandpropertyinsurance

Generalhousekeepingexpenses(foodetc)PhoneandInternet

Cartaxandinsurance

Carrunningexpenses

HPrepayments

Hirecharges

Subscriptionstojournals,professionalbodiesetc

Savingsplans&pensioncontributions

Contingencies

Tax

NationalInsurance

Other(specify)

+Total personal expenditure =

Estimated personal income (after tax)

Incomefromfamily,partner

Otherincome(specifythesource) +

Total personal income = -

Total survival income required from the business (after tax) =


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NextIwenttoFairFinance,whichofferscommunityloansinmyarea.TheywerehelpfulbutIhadtooffermyhouseassecurityandIdidntfeelcomfortablewiththat.IevenwenttoanethicalbusinessangelbutIwastoosmalltobeconsidered.

ThenImetwiththeEastLondonSmallBusinessCentre(ELSBC).Ipresentedtoabouttenpeople,butItreatedthepitchlikeaconversationandIknewmyfinancialprojectionsandthefiguresinmymarketingplan.

Inowhavea10,000loanfromtheELSBCthroughDeutscheBank.Ithastoberepaidoverthreeyears.TheyhavebeenveryhelpfulandgivenmeacoupleofmonthspaymentholidaywhileIsetthingsup.

Heres how I found the rightsort of finance for my newbusiness

Name: Tabitha PottsCompany: Mimimyne

Mimimyne,aLondon-basedonlineretailerofeco-friendlychildrensproducts,startedtradinginSeptember2008.Thecompanys

managingdirector,TabithaPotts,wantedherbusinesstohaveahighqualitywebsitetoreflectthedesignandworkmanshipoftheproductssheplannedtosell.

What I didIresearchedeveryoptionandlookedintoarangeofdifferentsourcesoffinance.Iveworkedasaresearcher,soImgoodatfindinginformationandsiftingthroughitquickly.IdiditallontheInternet.

IdidntwanttoapproachfamilyandfriendsbecauseIwaslookingforabout10,000,whichIthoughtwasanawfullottoaskfor.Ialsodidntwanttomixmypersonalandbusinessaffairs.

IusedtheBusinessandIPCentreattheBritishLibrary,whichhasagrantandfundingdatabase,aswellasGrantnet,

J4BGrantsandBusinessLinktofindgrants,butIcouldntfindanythingsuitableforme.

Ithenapproachedbanks.Ionlywantedtogotoanethicalbank,butTriodosandtheCo-operativeBankbothwantedmatchedfunding,whichIwasntabletoprovide.

5.3 Working out your profit


prepareadetailedprofitandlossforecastforyourbusiness

calculateabreak-evenforyourbusiness.

Nomatterwhattypeofbusinessyouarein,aprimaryobjectiveofbusinessistomakemoney.Itistheprofitfromyourbusinessthatwillallowyoutorealiseyourpersonalfinancialgoalsofowningyourownbusiness.Evenifyouareoperatinganot-for-profitorsocialenterprise,makingmoneytoputbackintothebusinessorcommunitywillbekeytoyoursuccess.

Oneofyourmostimportantfinancialtoolsistheprofitandlossforecast.Thisshowsyoursales,expenditureandwhatlevelofprofityouexpectyourbusinesstoproducebytheendoftheforecastperiod,usuallyatmonthly,quarterlyandannualreportingpoints.

Yourprofitandlossforecastcalculatesyourgrossandnetprofit.Grossprofitistheamountyouhaveaftersubtracting

directcostsfromyoursales.Thisisanimportantfigureasitshowsifyouaremakingenoughsalestocoverthebasiccostsassociatedwithyourgoodsorservice.Theprofitandlossforecastthendeductsyourfixedcostsfromthegrossprofittocalculateyournetprofit.Thisincludesanyloanrepaymentsyouneedtomakeaswellasdepreciationonyourcapitalexpenses.Ifyouhaveapositivenetprofitthismeansyourcompanyismakingmoneyafterallyourexpensesareaccountedfor.Itisyournetprofitonwhichyouwillpaytax.

What is depreciation?Youmaybeabletodepreciatemanyofyouroneoffcapitalcosts(seeglossary).Depreciationistheabilitytospreadthecostofcapitalexpenditureinyourfinancialforecastsovertheexpectedlifespanoftheitem.Thisallowsyoutodistributetheimpactofcapitalcoststoyourprofitoverthecourseofanumberofyears.Thiswillgiveabetterpictureofthetrueprofitabilityofthebusiness.

Inyourcashflowforecast(seesection5.4)youstillneedtoshowtheactualcostsoftheitematthetimeyoupayforit.Aworkingruleofthumbwouldbetotakeyourcapitalcostfigureanddivideitbythreeforthedepreciationfigureinyourprofitandlossforecastinsection5.3.

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Workingoutyourprofit

Find out moreBuyingassets:Understandingdepreciationbusinesslink.gov.uk/understanddepreciation


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What is break-even?Everybusinessneedstoknowthelevelofsalesnecessarytobreak-even.Break-evenistheamountofmoneyyouneedtobringintothecompanytocoveryourcostsincludingyoursurvivalincome(section

5.2).Ifyoudonotbringinatleastyourbreak-eventhenyourbusinesswillbelosingmoneyandwillbeunsustainable.

Ifyoucompareyouractualsaleswithyourbreak-evenpointeverymonth,youllbeabletoseeimmediatelywhetheryouremakingaprofit,makingalossorjustbreakingeven.

Toworkoutyourbreak-even,youneedtoknowbothyourvariableandfixedcosts(seesection5.1).

Youcanthinkaboutbreak-evenintermsofthetotalmoneyyouneedtobringinorinthenumberofunitsyouneedtoselltocoverallofyourcosts.

Find out moreSetupasimpleprofitandlossaccountforyourbusiness:businesslink.gov.uk/startprofitandloss

Worksheet: Helping you to understand break-evenThefollowingworksheetshowsanexampleofabusinesswhichneedstothinkabouthowmanycustomerswillbuyitsproducts,thereforeitishelpfultothinkintermsofunits.

Amarkettradercanrentamarketstallfor50perday.Heaimstoearn100perday-hiswage(drawings).Heseeshimselfasbreakingevenwhenhegetshiswageandcovershiscosts.Hebuyshisgoodsonsaleorreturnandhastopayhissupplier10foreachproductsold.Hehasnoothercosts.Hesellshisproductsat15each.

Answer the following questions:a) What kind of cost is the rent?

b) What kind of cost is the amount paid for goods sold?

c) How many does he have to sell to break-even?

d) What is the effect on break-even of reducing his rent to 35?

e) Why is it important to calculate the break-even figure?

f) What could he do differently to improve his break-even?

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Workingoutyourprofit

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a)Fixedcostb)Variablecostsc)30itemsd)Reducesfrom450to405meaningheonlyneedstosell27itemse)Itshowshowmanyitemsheneedstosellonadailybasisf)Hecannegotiaterentorcostofgoods,orchangehissellingpricetoimprovehisbreak-even

Break-even(units)=Totalfixedcosts()

Sellingpriceperunit-variablecostperunit


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5.4 Managingcashflow

Managingcashflow

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5.4

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createacashflowforecastforyour business.

Cashflowisallaboutmanaginghowmuch

cashyouhaveimmediatelyavailableforrunningyourbusiness.Ifyoudonthaveenoughcash,orassetsyoucanquicklyturnintocash,topayyourbillsyoumaybelegallyinsolventandwillhavetotakeimmediateaction.Dontforgetthatifyoudontpayallyouroutstandingdebts,youmaymakeanothersmallbusinessbankruptaswell.Havingapositivecashflowisthereforeveryimportant.

Acashflowforecastshowstheincomeandexpenditureyouexpectinthebusinessandtheresultingsurplusorshortfallthatwilloccureachmonth.Yourcashflowshowshowmuchmoneyyouhaveinthebankandwhatiscominginandgoingout.Itsvitalthatyouknowthestateofyourcashflowthatis,whereyourmoneyis,whereitscomingfromandwhereitsgoing.

Managingyourcashflowisanimportantaspectofyourbusinessactivities.Ensuringyouaregettingpaidontimeandthatyouareabletopayyoursuppliersisessentialtokeepingyourfinanceshealthy.Evenbusinessesthatshowagoodprofitontheirprofitandlossstatementcanfailbecausetheydonotmanagetheircashflowproperly.

Find out moreCashflowmanagement:thebasics:businesslink.gov.uk/startcash

Name: Peter SpivackCompany: RendezvousWhenPeterSpivackandhispartnersopenedtheirrestaurant,Rendezvous,inWallaseyVillage,Merseyside,theyknewsoundcashflowmanagementwouldbekeytosuccessduringthatcrucialfirstyear.

What I didIdecidedearlyonthatIwouldreviewthecashflowforecastmonthly,althoughIupdatethefiguresonaweeklybasistokeepontopofthings.

Wearrangedwithkeysupplierstobebilledquarterlyforthebiggestcosts.Thatmakesbudgetingandplanning

easier.Wealsonegotiate30-dayaccountswithsupplierswhereverwecan,whichdefinitelyhelpscashflow.

Theforecasthasalsoenabledmetospotloomingcashimbalancesonthreeoccasions.IdidntpanicbecauseIcouldseetheproblemwasonlytemporary.Iusedapre-arrangedoverdraftfacilitytotideusover,confidentthatthemoneycouldbepaidbackthefollowingmonth.

Heres how I managemy cashflow

Worksheet: Your profit and loss forecastAprofitandlossforecastallowsyoutomanageyourbusinessonanongoingbasis.Itwillalsobeimportantifyouapplyforfunding.

Calculate your break-even

Year1() Year2() Year3()

Totalexpectedsales(worksheetpg4)

Lessvariablecosts(worksheetpg5)

Grossprofit(saleslessvariablecosts)=

Calculateyourgrossprofitmargin(grossprofittotalsalesx100) % % %

Salaries/wages

(survivalincome+anystaff)Premises(includingrent,rates,utilities)

Telephoneandbroadband

Printing,postandstationery

Advertisingandpromotion

Bankcharges

Professionalfees

Insurances

Bank/HP/interest(payabletoyourbank)

Equipmentandvehicleleasing

Depreciation

Other

+

Totalfixedcosts=

Netprofit(grossprofitlesstotalfixedcosts)=

Calculateyournetprofitmargin(netprofittotalsalesx100) % % %

Year1() Year2() Year3()

Totalvariablecosts+totalfixedcosts

Canyouidentifyanywaysofdecreasingyourbreak-evenpoint,whilemaintainingyourproduct/serviceoffering(egreducingcostsorincreasingprice)?Putanyactionsthatariseintoyouractionplan.

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Yourannualprojectedfixedcosts(worksheetpg5):


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Worksheet: Your cashflow forecastBanksandinvestorswillwanttoseeyourcashflowforecastifyouapplyforfinancefromthem. Itisimportanttoallocatetheincomeorexpendituretothemonthinwhichitisreceivedorpaid.

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Managingcashflow

Start-up0 Month1 Month2 Month3 Month4 Month5 Month6 Month7 Month8 Month9 Month10 Month11 Month12 Total

Income

Cashfromsales(incl.VAT)

Cashreceivedfromdebtors(seeglossary)

Capital/loansreceived

Other+

Totalincome=

Expenditure

Wagestostaff(incl.PAYE&NIC)

Premises(rent,rates&utilities)

Telephone&broadband

Printing,post&stationery

Advertising&promotion

Bankcharges

Professionalfees

Insurances

Bank/HP

Equipment&vehicleleasing

Paymentsrelatingtovariablecosts(worksheetpg5)

Capitalexpenditure

Otherpayments

VAT

Ownerswages/salary

OwnersNationalInsurance

Loanrepayments(incl.interest)+

Totalexpenditure=

Incomelessexpenditure

Openingbankbalance+ 0 0Closingbankbalance=

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5.5 Managing the risks

Itisimportanttohaveanunderstandingofthethingsthatwillaffectyourfinancialforecasts,suchassalesnotgrowingasexpected,animportantpieceofmachinerybreakingdownorasuppliergoingoutofbusiness.Byunderstandingtheserisks,youcanprepareyourselftotacklethechallenges.

Worksheet: Managing financial risks

The risks that youve identified for your financial forecasts are:egsupplierfailstodeliver

How you will minimise their impact:egspreadpurchasesacrossanumberofsuppliers

Arethereanyactionsyoucantakenowtominimiseyouridentifiedfinancialrisks?Puttheseintoyouractionplan.

5.6

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Keepingfinancialreco

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5.6 Keeping financial records

Yourerequiredbylawtokeepfinancialrecordsrelatingtoyourbusiness,andthebankmayaskyoutoproducerecordsandstatementsifyouapplyforfinancefromthem.

Manypeoplestartingtheirownbusinessdislikekeepingrecords,butitdoeshavemanypluspoints:

ithelpsyoumanageyourbusinesssoyouknowhowyouaredoingitsavesyoutimewheneveryouneed

figurestohandithelpskeepyouup-to-datewithhow

muchyouoweandhowmuchyoureowed

youcanbesurethatyoureonlypayingthetaxyouowe.

Whenyourestartingup,itsusuallyagoodideatodothebookkeepingandrunthefinancialmanagementsystemsyourself.Youllthenunderstandhowitallworksand,ifyoudelegatetheworktoabookkeeperlater,youllknowwhattolookforandhowtokeepeverythingunder

closescrutiny.


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What should your system include?Asaminimumyouneedabookkeepingsystemthatkeepstrackofyourbanking,sales,billsthathavetobepaid,moneythatyoureowedandpurchases.Somegoodsoftwarepackagesareavailableto

helpyoukeepyourbooks.

Therearesixbasicsetsoffinancialrecordsthatwillhelpyourunatightbusiness:

profitandlosscashflowthecashbook/spreadsheetthesalesledger/spreadsheetthepurchaseledger/spreadsheetthewagesbook/spreadsheet.

Youllneedtokeepfinancialrecordsforsixyears.Thisincludescheque-bookstubs,bankstatements,invoicesreceivedandsentoutandstaffrecords,suchasthoserelatingtoPAYEandpettycashreceipts.

Find out moreBeginnersguidetotaxandaccounts:businesslink.gov.uk/starttax

Setupabasicrecord-keepingsystem:businesslink.gov.uk/

startrecordkeeping

Chooseandworkwithanaccountant:businesslink.gov.uk/chooseaccountant

Howareyougoingtomanageyourfinancialrecords?Whatsystemwillyouuse?Doyouneedtobringinexternaladviceoraccountingservices?Decidewhatyouneedtodoandputanyactionsinyouractionplan.

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Keepingfinancialreco

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Choosing an accountantAccountantscanofferyouarangeofservicesfrompreparingfinancialstatementsforyourend-of-yeartaxreturntospecialistbusinessadvice.Theycansaveyoutimeandhelptomakeyour

businessmoreprofitable.

Werecommendthatyouusesomeonewhohasprofessionalaccountingqualifications.Thebestwaytofindagoodaccountantisbyusingprofessionalassociationsorthroughpersonalrecommendations.


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5.7 Glossary

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Glossary

Annual costsTherunningcostofanyitemovera12monthperiod

AssetsThevalueofthingsownedorowedtothebusiness

Break-evenThelevelofsalesrequiredtocoverallbusinesscosts,soneitheraprofitorlossisshown

Capital costsThecostsincurredonthepurchaseofland,buildings,constructionandequipmenttobeusedintheproductionofgoodsortherenderingofservices

Cash bookAcashbookisusedtorecordallcashreceiptsandpayments

Cashflow forecastAnestimateofthecashneedsofthebusinessandtheflowofthatcashinandoutofthebusinessaccount

CreditorSomeonetowhomthebusinessowesmoney

Current assetsCashorassetswhichareexpectedtoturnintocashwithin12months

Current liabilitiesMoniesowedbythebusinessdueforrepaymentwithin12months

DebtorSomebodywhoowesthebusinessmoney

DepreciationDepreciationmeansthecostoftheassetisspread,soitiswrittenoffagainsttheprofitsofseveralyearsratherthanjusttheyearofpurchase

Fixed assetsAssetsownedbyabusinessforuseoveralongterm,suchaspremisesorequipment

Fixed costsCoststhatstaythesamewhethertherearenosalesatallorwhethertheygoupordown

Gross profitTotalincomefromsaleslessvariablecosts

Gross profit marginThedifferencebetweenvalueofsalesandvariablecosts,asapercentageoftotalsales

InsolventWhenthebusinesscannotpayitsdebts,evenifitsellsallofitsassets

LiabilitiesThevalueofthingsowedbyabusinesstosomebodyelse

Net profitTotalincomelesstotalexpenditure

Profit and loss accountAstatementwhichshowsabusinesstotalincomeandexpenditureforaspecificperiod

Purchase ledgerAledgerthatrecordsallpurchasesmadebythebusinessandthemoneyowedattheendofthemonth

Name: Michelle De BruyneCompany: AmHealthy

MichelleDeBruyneusedanaccountanttosetupherlimitedcompany,AmHealthy,whichmarketsaherbalnutritionprogramme.However,shedecidedtodoherownbookkeeping.

What I didIputallmyreceiptsintoappropriatelylabelledplasticsleevesinaleverarchfolderthatsalsodividedonamonth-by-monthbasis.EverytimeIgetareceiptImakeadecisionaboutwhichfolderitgoesinto.Also,ifthereceiptdoesntstatewhat

waspurchased,Iimmediatelywriteonitwhatitwasfor.

Ourbankgaveusanaccountingpackagewhenweopenedourbusinessaccountandthathasprovedveryhelpful,sothatIcanentertherelevantfiguresfromthefiledreceiptsdirectlyintotherelevantcategory.

Ikeepcustomer-orderrecordsonthecomputersystemtoo,andbackthemupatleastonceamonth.

Name: Jenny FitzpatrickCompany: The Fine Food Store

Fromthestart,JennyFitzpatrickmaximisedtheuseofaccountancyservicesaspartofthebusinessmodelforTheFineFoodStoreinStamford,Lincolnshire.

What I didMybookkeeperworkscloselywithmetoproducetheaccounts,butImstillincontrol.IanalysethecashflowonadailybasissoIknowexactlywherethebusinessstands,butsheentersandchecksallthefigures.TheresnowayIwouldhave

thetimetogointothekindofdetailsheprovides.

Therelationshipwithmyauditorsisalsoveryproductive.TheyrespondquicklytoqueriesandIusethemasadvisersonthingsliketaxationandVAT.TheirexcellentreputationisalsousefulbecauseVATofficialsarelesslikelytomakeyourlifedifficultiftheyknowyouradvisersaretrustworthy.

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Heres how I establishedan effective record-keepingsystem

Heres how I used anaccountant to help mein my business


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What needs to be done By whom Date

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Byworkingthroughthismoduleyouvetakenanimportantstepindecidingwhetherstartingabusinessisrightforyou.

Takeafewminutesnowtowritedownanyadditionalactionsyouwanttotaketomoveyourbusinessideaforward.

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5.8 Action plan

Sales ledgerArecordofthesalesyourcompanyhasmade,theamountofmoneyreceivedforyourproducts/servicesandthemoneyowedattheendofthemonth

Start-up cost

Thetotalofalltheitemsyouneedtobeabletooperateondayone

TurnoverTotalsalesincomefortheyear

Variable costs (alsoknown ascostsofsalesanddirectcosts) Coststhatvaryinlinewiththelevelofsales,forexample,rawmaterials

Wages bookArecordofallsalarypaymentsmade,includingNICandPAYE

Working capitalThevalueofcurrentassetslesscurrentliabilities

Find out moreFormorehelpwithyournewbusiness:

DotheotherStartingaBusinesstheNo-NonsenseGuidemodules

AttendBusinessLinksStartingaBusinessworkshops08456009006

ContactyourlocalBusinessLink08456009006

Andourwebsite businesslink.gov.ukhasinformationonthemanyaspectsofsettingupanewbusiness


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PublishedMay2010CrownCopyright

PrintedintheUKonrecycledpaper

URN:BL/007

Starting a Business The No Nonsense Guideisdividedintosixeasy-to-followmodules.

Workthroughitatyourownpaceordipinandout,dependinguponyourareasofinterest.Step-by-step,thisinvaluableresourcewillguideyoutowardsyourgoalandhelpyousucceedinbusiness.

Aswellasthisguide,BusinessLinkoffersthefollowingsupport:

Workshops to helpyoudecidewhether

startingabusinessisrightforyouandexplainwhatyouneedtoknowtomakeyourbusinessasuccess

Practicalguidesandonlinetools

onourwebsite.Visitbusinesslink.gov.uk

Helpandadviceoverthetelephone.

Call0845 600 9 006totalktoalocalBusinessLinkadviser

Business Link0845 600 9 006businesslink.gov.uk

Module 4: Finding and keepingcustomerscoversresearchingthemarket,gettingyourbusinessofferrightandsuccessfulsellingtocustomers

Module 5: Managing moneyexplainsthekeyskillsneededtoorganiseyourbusinessfinancesandhowtoapplyforfunding

Module 6: Your business planenablesyoutodevelopabusinessplantouseyourselfortohelpraisefinance

Module 1: Overviewsummarisesthebasicstepsyoullneedtotakeinordertosetupyourownbusiness

Module 2: Is starting a businessright for you?containsinformationandexercisestohelpyoudecidewhetherrunningyourownbusinesswillsuityou

Module 3: Planning yourbusinesswillhelpyoutoplanthepracticalandlegalaspectsofyourbusiness

starting up module 5

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