Made any New Year’s resolutions this year? The tradition stretches back 4,000 years, when the ancient Babylonians celebrated their new year with a 12-day festival called Akitu during which they would make resolutions to try to please their gods.
Each year, many of us still make New Year’s resolutions. Common New Year’s resolutions include exercise more, eat a healthier diet, cut down or cut out booze, meet new friends, learn a new skill, spend more time with loved ones and cutdown on social media use and screen time.
You can also make New Year’s resolutions for your business and even seemingly small changes can make a big difference. Here are six New Year’s finance and tax resolutions.
1. Update your financial records more often
Using good accounting software is essential to the survival and success of your small business. Accounting software can enable you to better manage your finances and cashflow. The headline numbers can quickly reveal the information you need to run your business efficiently and successfully, empowering you to make better-informed day-to-day and longer-term decisions based on financial fact and not guesswork. Accounting software also makes tax compliance easier, too.
However, all of the above is only possible if you update your accounting records regularly. If you’re not already doing so, make time every week, fortnight or certainly every month to fully update your accounting software and carefully study the numbers so that you better understand your business performance and needs going forward.
2. Better manage your business expenses
Who needs the hassle of having to deal with the gigantic mess that results from having a chaotic or lazy approach to managing your business expenses? That can really hit home when you need to complete your Self Assessment tax return. And if you can’t or don’t want to sort out your chaotic expenses, paying an accountant to do it can prove expensive.
Sound expense management is about having reliable systems in place, because they give you control. Taking a “little-and-often” approach to recording business expenses is a proven tactic, because that way the task always remains manageable. Businesses with many expenses might need to do this every week, but for others, all business expenses should be fully updated every month in your accounting software.
3. Minimise your business costs
Businesses fail when they run out of cash and can’t access any more to pay their bills on demand. Minimising business costs is arguably the most critical factor when it comes to keeping your cash flow healthy. Living beyond your means by spending too much is likely to end in disaster before too long.
A great way to start any new year is to carefully reconsider your costs. You need to understand what your business is buying, how much it is pending and what value it gets in return. Are you wasting money? Could you be getting superior value for money from other suppliers? Even saving a few per cent in most areas can make a dramatic impact by saving your business a lot of money overall, easing its cash flow and ultimately becoming more profitable and successful as a result.
4. Send your invoices out on time
If your business grants credit to its customers, not getting your invoices out as soon as possible means you’ll get paid later, which will place an unnecessary additional strain on your cash flow. Even if it’s only by a few days or a week or two, don’t send your invoices out late. Make a New Year’s resolution to address the problem. As soon as you can send an invoice, send it – no delays. Make sure that all the information is correct, first time, too, because having to correct an invoice will lead to delayed payment. Once an invoice is overdue, resolve to chase it up immediately to make sure you get paid on time.
5. Put away enough to cover your tax bill
Few things are more unpleasant in business than getting a tax bill that you can’t pay. It’s the stuff of night mares. The preferable option, of course, is to put enough away, either each month or as an invoice is paid, so that you have more than enough money set aside to pay your tax bill. Put it in a separate bank savings account, so you’re less inclined to spend it.
If you expect to earn up to £45,000 a year as a sole trader, putting away about 18%-20% of your taxable income, whether each week, month or when an invoice is paid, should cover you. If you earn more than that, then 20%-22% should be more than enough. And if there’s any left over, you can reinvest it in your business or pay yourself a few more quid.
6. Do your tax return much earlier
January should be a month when you return to work fully refreshed after Christmas, full of optimism for the year ahead, determined to make this your best ever year in business. However, many sole traders are filled with panic every January, because they’ve left it until the final month to sort out their Self Assessment tax return.
Although millions do it, don’t leave your Self Assessment tax return until January, when the online filing deadline – midnight on 31 January – suddenly comes into view. Although you can file your tax return as soon as the tax year ends on 5 April, you don’t have to do it the next day, week or even month. But why not get your Self Assessment tax return done much earlier this year? It could be one of the best New Year’s resolutions you ever make.
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