Enterprise Value: Don't Guess If You Don't Know The Reply
Ask most people what they think is the biggest cost to a business and they will tell you the salaries. But what about small businesses with maybe just one or two employees, or even retailers with no employees?
According to official government figures, of the 6 million UK companies currently trading, only 1.1 million are employers. The rest is run by their owners, who usually pay for themselves through corporate profits rather than a salary.
In fact, for the vast majority of UK businesses, the largest annual business expenses are more likely to be tax liabilities and energy use.
Research by Smart Energy GB, released in August, found that small businesses had an average of nine weeks of cash on hand before closing their doors. This is despite more than half, or 56 percent, who admit that if they understood the company's energy usage more clearly, they would have better control over their spending.
If you're in the 56 percent, it might be time to reconsider your cost base and implement a new strategy. Keeping track of your expenses is an integral part of having healthy cash flow, which in turn is the secret to running a successful business.
Control energy consumption
Although small businesses often take a forensic approach to managing their money, energy usage is still an area that is difficult to pinpoint. Robert Cheesewright, Director of Corporate Affairs at Smart Energy UK, explains that many view energy use as "a cost that can only be estimated".
But this does not have to be the case. Smart meters are an increasingly popular way that small businesses can track the cost of their energy consumption in near real time. It no longer means estimating and receiving accurate bills that give clarity about your expenses.
There are currently more than 17 million smart meters installed in homes and businesses across the UK. You can gain more confidence in your spending while doing your part for the planet by requesting a smart meter from your supplier. They can usually be ordered and installed free of charge.
Track your tax
Calculating your tax liabilities is not only good business practice but the law too. HMRC requires you to keep a record of your expenses, including at least copies of your receipts and invoices.
At the end of the tax year, you must file a tax return and pay the liabilities you owe, minus any expenses incurred during the year.
Staying on top of things is a challenge, especially for the smallest businesses that want to focus on sales and profits, not costs and administration. Fortunately, there is a wide and varied range of services that you can use to order your tax and pay it on time.
A quick search on Google for "Small Business Accounting Software UK" will reveal various software platforms – including Quickbooks, Sage and Xero – designed to help young entrepreneurs comply with tax regulations.
These will help you categorize and track your expenses and sales, and at the end of the year, work out the numbers for your debt. They will also help you with quarterly sales tax payments and, as your business develops, with payroll as well.
Find the best suppliers
Finding good, inexpensive suppliers is a business priority, but it does take some work. Remember, a supplier is any service you need to run your business. It can therefore range from the procurement of raw materials to payments in foreign currency.
As with anything, it's important to look around and revisit the market every year to see if new suppliers have popped up or if any special discounts are available. Remember to include hidden costs like shipping or administration fees in your review, and remember that "cheaper" doesn't always mean "better".
Trade shows are a great place to find new suppliers. You will find a number of exhibitors trying to attract your business.
There are often bargains to be found, but beware of introductory offers that expire and don't feel compelled to make on-the-spot spending decisions if you're not sure whether the product or service is right for you. It's better to spend a little more on something that's right than to spend less on something that doesn't make your business successful.
One last thing to remember, if you spend time finding reliable suppliers at the lowest possible price, expect to make more profits at the end of each year for the same sales value.
You have to invest more money, which is great. But do not forget that this will affect taxes. that other cost base that small businesses must manage to grow smoothly.
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