1. Not preparing a cashflow budget
Cash is King. This is especially true for businesses operating in today’s economic climate. It is therefore imperative to accurately keep track of your cashflow. The best way to do this is by preparing a monthly cashflow statement showing payments and receipts. This will allow you to predict periods where additional cash may be required. Knowing when you are likely to need cash means you can explore different funding options in good times.
2. Debtor Collection
Ensuring debtors pay on time is crucial to businesses. The outstanding debtors list should be reviewed regularly and reminders sent to any balances overdue. Debt collection is a part of business that most people do not enjoy but time must be dedicated to this to ensure your survival.
3. Monthly Purchases
For businesses that sell goods, efficient buying of the goods is vital. Clearly, it
is important that you avoid over and under stocking goods as both can be costly
to the business. It is also important to ensure you avail of any rebates on
offer for bulk purchasing of stock and that you avoid the possibility of
surcharges on late orders.
If stock purchasing is a major expense, monthly or quarterly management accounts should be prepared to monitor the stock levels and the average number of days it takes to sell the stock once it is purchased. Calculating your gross profit margin will also give an indication if stock is being purchased efficiently.
4. Not registering for VAT in time
Where a start up business plans to incur significant start up costs (rent, computers, machinery etc) it is important for the business to register for VAT as soon as possible. Registering early will enable you to reclaim any VAT incurred on purchases which can provide significant cashflow savings.
Backdating a claim for VAT can only be done in some circumstances and generally
requires approval from the Inland Revenue.
5. Not keeping purchase invoices
Businesses that are VAT registered can reclaim VAT incurred on expenses incurred in the business. However, VAT can only be reclaimed where the business has kept a purchase invoice from the supplier. Failure to keep all purchase invoices can lead to business overpaying VAT.
6. Ignoring taxes
It is important to ensure the business is in compliance with all taxes to avoid Revenue interest and penalties. A business has certain tax obligations from the first day of trading not just when it becomes profitable. A sole trader must also budget for payment of income tax. Tax payments should be included in the cashflow budget to ensure sufficient cash is available to meet the liability.
7. Not including own expenses
Another common error made in the preparation of business plans is forgetting to include provision for your own expenses. For a business to survive it must generate enough profits for the owner to live off.