Autumn has a way of making business owners take stock. The summer slowdown is over, the busy run-up to the end of the year is on the horizon and for many businesses the year end is not far away. It is a natural point to pause, look at where the numbers stand and make some changes while there is still time for them to count.
A financial reset does not need to be a major exercise. It is simply a chance to review what has happened so far this year, tidy up anything that has drifted and go into the final months with a clear plan. Here is what to focus on.
Why autumn is the right time for a financial reset
Most business owners think about their finances either when something goes wrong or when the year has already ended. By then, the opportunity to change anything has usually passed.
Autumn sits in a useful middle ground:
- There is enough of the year behind you to see real patterns in sales, costs and cash
- There is still enough time left to act on what you find, whether that is trimming costs, chasing payments or planning for tax
- The busy festive period and the year-end rush that follows, has not yet started
- Any tax planning opportunities are still open, rather than already closed
A reset at this point is far more useful than one done after the year end, because the decisions you make can still change the result.
Review your business expenses
Costs have a habit of creeping up quietly. A subscription taken out for a short project that is never cancelled, a supplier whose prices have drifted upwards, an insurance renewal that was accepted without comparison. Individually these are small, but together they can have a real effect on profit.
A good expenses review should include:
- Going through bank and card statements line by line, looking for anything, you no longer use or need
- Reviewing regular subscriptions, software and memberships, along with cancelling or downgrading where possible
- Comparing quotes for larger recurring costs such as insurance, telecoms and energy
- Checking that all allowable expenses have been recorded, so nothing legitimate is missed
- Looking at whether any costs are growing faster than the revenue they support
The aim is not to cut everything to the bone. It is to make sure every pound being spent is earning its place in the business.
Improve profit margins before year-end
Reviewing expenses is only one side of profitability. The other is looking at what the business earns on what it sells and whether that can be improved before the year closes.
Some questions worth asking:
- Which products, services or clients are generating the best margin and which are barely breaking even?
- Have your prices kept pace with your own rising costs, or are they overdue a review?
- Is there work being done at a rate that does not reflect the time and cost involved?
- Could you focus more effort on higher margin work in the final quarter?
Even a small improvement in margin, applied across the remaining months of the year, can make a noticeable difference to the final profit figure. Because it is still autumn, there is time to see the effect rather than just hope for it.
Check cashflow and outstanding invoices
Profit on paper does not pay the bills. Cash does. Autumn is a good moment to check that the money you are owed is coming in, particularly before the festive period when payments from customers often slow down.
This is a good time to:
- Review your list of outstanding invoices and chase anything overdue
- Check whether payment terms are being followed and tighten them where needed
- Look ahead at the next few months and identify any periods where cash could be tight
- Make sure enough is being set aside for upcoming tax payments, such as VAT and corporation tax
- Consider whether any larger purchases should be brought forward or put off based on the cash position
Spotting a cashflow gap a few months ahead gives you options. Spotting it the week it arrives rarely does.
Prepare for year-end tax planning
Tax planning is far more effective when it is done before the year end rather than after it. Once the accounting period has closed, most of the opportunities to change the outcome are gone.
Autumn is the right time to start thinking about:
- A realistic estimate of the profit for the year and the tax likely to be due on it
- Whether any planned equipment purchases should be made before the year end to take advantage of capital allowances
- How director pay is structured, including salary, dividends and pension contributions
- Whether any other reliefs or allowances are available that have not yet been considered
- Any changes to the business during the year that might affect the tax position
Having this conversation early means there is time to act on the answers, rather than finding out in the new year what could have been done differently.
When to ask your accountant for a year-end review
If you are not sure whether you need a year-end review, the answer is usually yes and sooner is better than later. Ideally it should happen a few months before the year end, rather than in the final few weeks when options are limited.
It is particularly worth booking a review if:
- The business has grown, or changed significantly, during the year
- You have made, or are planning, larger purchases or investments
- You are unsure how much tax is likely to be due, or whether enough has been set aside
- Your own income from the business has changed and you want to review how you are being paid
- You simply want an outside view on how the business is performing
A year-end review gives you a clear picture of where the business stands, a realistic view of the tax due and a chance to plan accordingly, instead of being surprised by it.
If you would like to start the final quarter with a clearer picture of your finances, we would love to help. Call us on 01173 700 079 or drop us an email at hello@steppingstonesaccountancy.co.uk and we can talk through what would work best for you.
