Year-end financial planning can be daunting for any business owner, let alone those who own start-ups and don’t necessarily have much experience. But taking the time to assess your finances as the year ends is crucial.
With a proper plan, you cannot only help ensure your business’s financial health but also increase its chance of success in the upcoming year. Let’s look at the best year-end financial planning practices for start-ups.
Maximise your tax efficiency
With year-end approaching, you can begin by reviewing your tax strategy to ensure your business is claiming all the allowances and reliefs it can to reduce its tax bill.
Every business will benefit from claiming allowable expenses, purchases made to support its day-to-day operations. You can deduct their value from your pre-tax profit, leading to a lower tax liability. Common expenses include:
- Operational costs: Office rent, utilities, and supplies.
- Employee wages and benefits: Salaries, bonuses, and any employee benefits like healthcare and pensions.
- Travel and meals: Business-related travel costs, including transportation, accommodation, and meals.
- Software and subscriptions: Subscriptions for tools and software used for business operations, including accounting software.
You may also benefit from one of the many tax reliefs available. For example, if you run a project that seeks to advance in science or technology, you could benefit from R&D tax credits. You could receive corporation tax relief if you’re in the creative industry. If you make investments or purchase a company car, you may be able to claim capital allowances.
To understand all the opportunities available, speak to a tax accountant. They’ll help you devise a detailed strategy tailored to your position.
Manage your cashflow and build a cash reserve
As you approach the end of the financial year, it’s important to ensure that your startup has enough liquidity to weather any potential downturn or seize new opportunities. That means managing your cashflow and building a cash reserve.
You should aim to keep at least 3–6 months’ worth of operating expenses in reserve. That will help you cover payroll, supplier payments, and other ongoing costs during lean periods.
Now is a great time to review your cashflow from last year and identify any patterns in the days. Were there any months where your business experienced cashflow gaps? You can use the information to create forecasts, which will help you plan for the future more carefully.
You should also consider your accounts payable and accounts receivable. Could you begin buying in bulk to save money in the long run? Perhaps you should lease a new computer to spread the cost rather than buy it outright? Likewise, could you begin sending invoices earlier or offer a discount for early payment to get paid quicker?
Prepare your financial statements
At the year’s close, it’s important to prepare accurate financial statements. While only limited companies are required to prepare these documents, they provide valuable insights into your business’s performance and will help guide your decisions in the future.
Ensure that your income statement, balance sheet, and cashflow statement are current. These statements will give you an overview of how your business has performed financially over the past year:
- Income statement: This shows your revenues, expenses, and profits or losses, which is essential for assessing your profitability and identifying areas for improvement.
- Balance sheet: Detailing assets, liabilities, and equity, your balance sheet provides a snapshot of your business’s financial position at year-end.
- Cashflow statement: This tracks the movement of cash in and out of your business, helping you identify periods of low liquidity and plan for future cash needs.
Review and adjust your budget
Take the time to revisit your budget for the new financial year. This crucial step will help ensure that your startup remains on track financially. Evaluate the past year’s performance and adjust your budget for the coming year, factoring in expected growth, new projects, and anticipated changes in revenue and expenses.
At P B Syddall, we have years of experience in nurturing start-ups to grow and achieve their financial goals.
If you need help with your year-end plan, get in touch with P B Syddall & Co. Let’s see how we can help.