The UK has a thriving small business sector, with the Federation of Small Businesses reporting that SMEs accounted for 99.3% of private sector businesses at the beginning of 2016. This has been largely aided by a favourable environment, with Government schemes and specialist finance and accountancy providers amongst those helping the sector to blossom.
Nonetheless, some small businesses are still making some costly mistakes. Here we run through some of the main obstacles to small business growth, and explain how they can be overcome.
Using unclear or dated accounts
When done right, your accounts can prove invaluable, providing you with an overview of your business tax liabilities whilst helping to inform potential investment decisions. However, the problem is that many small businesses still aren’t familiar with an efficient, easy to understand set of accounts.
Some accountants prepare a company’s accounts in a manner that makes perfect sense to them, but none whatsoever to the small business owner. Any good accountant will explain your financial statements to help you understand them, but a better alternative is to have your accounts presented in a format that makes sense to you.
Similarly, if your accounts aren’t up-to-date, they’re going to be little help assessing your financial position. Small business owners are well aware that upcoming income and expenditure need to be factored in when making investment decisions, but making approximate calculations for lack of genuine insight is not advisable.
Fortunately, online accounting provides a solution to both of these problems. We partner with Xero to provide a cloud accounting solution that enables our clients to update their financial information in real time. Meanwhile, users can tailor their dashboard to ensure that their accounts are presented in a way that is easy for them to understand.
Onus on turnover, not profits
With it estimated that roughly four in ten small businesses don’t make it to year five, small business owners are under a lot of pressure to drive income into the company almost from the offset. However, in a bid to demonstrate an immediate return on investment, some can fall guilty of overlooking the overheads and expenditures that inevitably weigh down on company profits.
This may sound like a silly mistake, but it’s an easy enough trap to fall into. Any decent accountant will be quick to flag this up to their small business clients, before recommending ways in which they can help mitigate the risk. However, ideally you’ll want to make sure that it doesn’t happen in the first place.
Again it boils down to having up-to-date, accurate information in front of you as and when you need it. With cloud accounting your financial information is correct as of your very last transaction, with your turnover, expenditure and most importantly profit clearly displayed.
Not creating forecasts
By creating regular forecasts, small businesses ensure that they always looking ahead and planning for the future. Having a calculated idea of your company’s income and expenses over the coming months, and whether you are likely to make a profit, allows you to plan spending decisions well in advance, in turn helping to accelerate the growth of your business.
This enables you to gauge whether your business is ready for a ‘what if’ scenario, providing the answers to the questions that you would otherwise be hard pressed to answer, such as:
• Can we afford to take on new staff over the coming months?
• Are we ready to offer our services on a broader scale?
• Can we afford to move into a new rented office?
Unfortunately, some small businesses don’t generate forecasts and are missing out on valuable foresight as a result. Gathering and collating the data to create forecasts may be viewed as a time-intensive task for some small business owners who already have plenty to deal with.
However, cloud accounting solutions such as ours eliminate that time burden. With data readily available, we can help our customers create forecasts tailored to their wishes, helping them to plan for the future. For further guidance on how we can help ensure that your small business achieves its growth potential, get in touch now