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Consumers’ disposable income has been hugely affected by the cost of living crisis. The average Brit has lost spending power by around £3,000 per year, due to, in part, the rise of energy costs which are heading to become one of the biggest expenditures per year for British families. With only one in ten having available disposable income, it is more difficult than even for the public to spend money in businesses who need it the most this year.
The decrease of foot traffic and income means that small businesses with brick and mortar shops will be the most affected by this news. The fact that many businesses will be making less money this year unfortunately does not mean that rent and bills will cost any less. With this in mind, it is more important than ever for businesses to take every precautionary measure to ensure that they stay afloat during this crisis.
Stephen Verber from the accountants group “Alexander & Co”, commented:
“It is always important that businesses are as resilient as possible, the current uncertainty in the economy makes this doubly important. Managers must have a clear understanding of their financial position with up-to-date accounts and cash flows. Only when they have this can they make informed decisions regarding their company”
-Stephen Verber – Head Of Forensic Accounting
Finance is the foundation of your business. Understanding how it works has always been important, but with the cost of living crisis, this can be the difference between staying afloat or not. Financial literacy is essential for business owners as understanding where your money is going, what tax you should be paying and how you can deduct expenses can help you save thousands per year. Here are a few aspects of your finances which you should be looking after the most during this cost of living and energy crisis.
Why understanding your business accounts is more important than ever?
Administrative expenses cover all that is not included in costs related to the manufacturing of the product or service you sell. During this cost of living crisis, keeping your staff happy with the salary which they are earning is important to make sure they stay with you. At the same time, however, you must be careful with granting pay rises as these can greatly affect your profit margin at the end of the year. It’s really important to keep employees feeling valued so make sure to reassure them of the importance that they have within the company, especially during difficult times like these.
As well as staffing and hiring costs, administrative expenses include rent, energy, gas bills and water management expenses. These are skyrocketing right now so it’s important to make sure that you have the best deal possible from your provider. If you are struggling to pay your energy bill, and speaking to a provider does not work, the government is offering an “Energy Bill Relief Scheme” where businesses can receive a discount to help with this.
Other things you can do to reduce your energy bill as much as possible include:
- Considering switching suppliers
- Asking you staff to turn off equipment and lights more often
- Conducting an energy audit to discover where energy use within your business is affecting it negatively
- Replacing light bulbs with LEDs
Although being aware of administrative expenses will not eliminate costs fully, it is a great way to minimise the amount of extra costs that could incur from a lack of knowledge.
Cash Flow Management
Cash flow management can make or break your business when less income is coming through. Understanding how much is coming in and how much you will have to spend on business expenses will help you plan and forecast any problems that may arise in the future. Knowing where your money is going every month also helps maintain a good relationship with your suppliers by not losing their trust and paying late.
To make the most out of your cash flow management, there are some excellent resources available online to help you template your money tracking documents.
Businesses should make the most of tax reliefs offered by the government if eligible. These can give you a hefty discount that can help with keeping the company afloat when times are hard. Consider speaking to an accountant if you are unsure whether you are eligible or not. They will also be able to show you what kind of deductibles are eligible for your tax.
Understanding your tax and knowing roughly how much it will cost you per month can help you forecast the finances of your company and, through that, effectively budget every month.
During a financial crisis like this, no business can afford to lose track of their money. It’s about being in control of your finances, being able to forecast when things can go wrong and budgeting for if that ever happens.
Tackling money tracking on a day-to-day basis is a great way to start as it will take you less time and give you even more control over your finances. Alternatively, speaking to an accountant to help you understand your money better during this time is a good investment as they have the skills to let you know where the areas of concern are for your business.