5 expert tips to help you master your franchise’s finances

Cash management is absolutely key to business success, but can be a tricky area for new franchisees. Rick Smith has some good advice

It’s often hard to seek out a path as a new business, especially when you’re a franchise. The added brand loyalty and awareness can be fantastic, but managing cash flow, funding and growth, while trying to run a business day to day, can be a challenge.

Rick Smith, managing director at insolvency expert and business consultancy, Forbes Burton, shares five ways you can ensure a smooth first few years as a business owner:

1. Set money aside for emergencies

It doesn’t take long to use up initial savings as a new business. You can use credit cards and loans in tight situations, but it’s better to have money set aside to help your business avoid paying interest and provide a cushion for when times get tough. These reserves can also be invested in expanding your business when the time is right.

Keeping three to six months of expenses in reserve is a great idea, as it means you have enough to fall back on in the case of unexpected expenses, or if you need to recruit or expand to meet demand quickly.

This should be topped back up if anything depletes it. It’s also canny to invest in tangible assets if you can afford to. A long-term investment is often better than a short-term payoff.

2. Don’t use HMRC as a bank

As much as they are loathsome, taxes are part of running a business and must be paid. You are effectively borrowing money from HMRC by not paying them, which is never a good idea.

Tax returns are usually put off for lengthy periods and can catch some people unawares. Before you know it, it’s another year, and you are rushing to submit your tax returns with just a few days to remit, and the amount may turn out to be larger than your expectation.

The easiest solution is to prepare your tax returns as early as possible after April 6th, which will help you handle this critical task on your to-do list efficiently and quickly. Doing it this way also informs you of the amount you’ll need to pay the following January, avoiding any horrible surprises, and giving you time to save if the need arises.

HMRC is relentless in its pursuit of debt, but it’s also flexible – often offering arrangements to pay what you owe in more affordable terms.

3. Minimise overheads

Every purchase you make as a business will eat into your profit so it’s best to prioritise purchases to keep costs down. Look into everything you intend to buy and consider whether it is essential, needed or could be acquired by cheaper or more effective means.

It’s always worth shopping around and seeking the best deals. For larger purchases, it’s best to weigh up the long term benefits. Will it pay for itself in time, or will you be stuck with something you can’t use beyond a certain point or will become obsolete?

Review your service providers regularly, as this can include energy prices, consultancy fees and more. Can you make these one-off payments? Could you reduce your outgoings easily?

4. Borrow and spend wisely

Sometimes spending money can be the best way to make money; however, this needs to be done strategically. Don’t fall into the adage of speculating to accumulate without a plan and defined objectives. Investing in someone to look after your accounts, for example, maybe one of the wisest decisions you make, as it will free up your time to do other things, although it doesn’t mean that you still shouldn’t keep a close eye on what’s going on in your accounts.

You can also borrow money if it provides a long-term benefit and has the potential to generate profit for the business. If you’re borrowing money at a higher interest rate to pay off other debt, there may be an issue.

5. Use a cash flow plan to track income and spending

Running the bank account dry is one of the top reasons why small businesses fail. It may sound obvious, but it’s best to keep track of every single pound that comes in and goes out of your business. It can be challenging at first but it will reward you and your business in the long run.

If you can afford it, hire an employee to keep track of the ins and outs of your money and the cash flow in general. If this isn’t possible, then you could also use a bookkeeper.

Having a hold on your cash flow can be the difference between your business succeeding or encountering trouble. Not knowing the figures is almost impossible to square with a business that will fly.

The author

Rick Smith is managing director of Forbes Burton, an insolvency and business rescue specialist and business consultancy. Rick and his team offer free help and advice for distressed businesses which are struggling with financial problems, cash flow issues, and HMRC tax debt.