Increased sales revenue

When a business encounters fast growth, one of the first indicators is rising sales revenue, or “turnover”. Whilst there may be fist bumping and jumping up and down, you need to be mindful that where HMRC are concerned this could mean you reach the VAT registration threshold rather quickly. Of course, this does depend on the type of sales you make and whether they are classed as exempt or standard/zero-rated (we cover this in another one of our blog’s here). When you reach rolling-year VAT-taxable sales totalling £85,000 or more then you are required to charge VAT on those sales and can reclaim VAT where relevant on your expenses. I have seen a few situations whereby a client has come to us having tipped over the threshold some time ago and then there’s been the task of backdating registration and working out the bill for HMRC. It’s much easier if you keep an eye on your sales numbers as you progress across the weeks and months. The best way to do so is by looking at your profit and loss report and other management reports.

 

Tracking growth

Based on our mix of experiences, we find that management accounts are a brilliant way of checking in on your numbers on a regular basis. It’s important to be looking at what you’ve spent and what’s been earned as much as it’s important to know how much tax you’ll have to pay out at the end of the year. Our blog “What Exactly Are Management Accounts?” gives you a more detailed insight into the various reports that can be run and why so I won’t reinvent the wheel here, but in short to keep your growth sustainable you need to ensure you understand your costs and whether they were one-offs, recurring, fixed or variable and whether they were an overspend on your original plan. Keeping an eye on trends, seasonal patterns and industry standards is also a great indicator of progress. 

 

Budgeting, forecasting and a business plan

Preparing a budget. A scary prospect for some, but an important task not to overlook, no matter how basic it may end up being. Without a budget a business often ends up “winging it” and not having a clear plan for expenditure nor an aim for income. Spending can go off off piste and there could be a lack of focus. Having a strategy and goals in place in a written business plan is the starting point for your budget. It doesn’t have to be complicated for it to work either, which is where a lot of business owners are put off. If you know what you want your business to achieve and how you’re going to get there, write it down. Even if it’s to look back further down the line to see how far you’ve come. It will also help keep you on track and be accountable. We have more info on budgeting and why it’s important here.

 

Your tax and other statutory reporting obligations

Running a business does mean that there will be statutory reporting required, and your business type will determine what you need to prepare. If you are running a limited company then you’ll need to prepare and submit a set of annual accounts to Companies House and HMRC, and to the latter also a corporation tax return (even if there is no tax to pay). For your personal income from the business such as a salary and dividends, you’ll need to submit a personal tax return to HMRC. Sole traders and partnerships have simpler reporting with the requirement of a personal tax return for the former and the addition of a partnership tax return and accounts to be submitted with the latter. As your business grows it could be worth evaluating your business type, as there can be benefits to making changes once profits and other tax complications increase. Each case is individual and would need to be evaluated based on pros and cons, such as tax advantages and protection for owners. We have provided a few differences between sole traders and limited companies in one of our first blogs here.

 

Although it’s an exciting time it can get overwhelming if things are moving fast. If you’re looking for some guidance or extra support to keep you on track and up-to-date, give us a call or pop us a message through our contact form. We thrive on supporting your business so it is the best it can be.