Tag: cash forecast

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Business tips Finance Function R&D

The very real cost of DIY R&D claims

business journey

The very real cost of DIY R&D claims

If I’ve caught your eye with this, I’m going to guess you’re either the business owner, or you’re the lucky person tasked to compile your R&D Tax claim; FD perhaps? Thought so. You lucky devil. No doubt you’re already experiencing the very real cost of doing R&D yourself….the lack of time, and additional responsibility. Ever considered the cost of that? 

Here’s four very real costs of going R&D yourself: 

COST OF YOUR TIME 

Think about why you were hired. Was it to be an R&D Tax Specialist? Probably not. You’re an expert in your field, as I am in mine. Taking on a project like an R&D Tax Claim requires time; time researching a complex tax system to determine the savings your business can make. 

Logic suggests that if you bring something in-house, you’ll save money on the fees to outsource – correct. But it’s a false economy. Let me explain. 

Case study: As an FD, with such a high impact role, falling behind on your work can ultimately slow down the productivity of your business. You have an FD. Through changes implemented and processes introduced, she/he makes the business £500k. Any time taken from the FD’s area of expertise will ultimately have a negative impact on the revenue of the business. 

Makes sense when you look at it like that. 

An FD of a software business once fed back to me: “The main benefit was how quick the process was and the auto feed into Xero – in other words it saved me and the team valuable time pulling the claim together.” 


COST OF UNDERCLAIMING….OR OVER 

You can’t be expected to be an expert in finance, and an expert in tax. Knowing what constitutes as R&D is where I see mistakes time and time again. And it’s hardly surprising; tax is forever changing minefield. Unless you have your head in it every day, I really don’t understand how you can be aware of all the many nuances this relief holds. 

For example, you’re probably aware, you cannot include rent in your R&D claim. However, if you are renting a property with bundled power and utilities, did you know HMRC accept claims of 10% of the total rent? 


Knowing the boundaries of R&D is critical to ensure you are maximising your claim, this is true for subsequent years also; one year is never the same as the next, what might qualify one year, might not the following – overclaiming could mean a potential HMRC enquiry. 

Case study: A pharmaceuticals company we worked with paid £30k/year for a utility and rent package; looking back over 2 years we secured them an additional £2K. 

In another scenario, a client building a prototype for a heating system, had two employees – paid £100K in total – completing preparatory work for a month; we identified an extra £2.5K on top of the claim. Every little counts. 
 

COST OF MIND FREEDOM….STRESS 
Responsibility for making an R&D claim can carry a lot of stress. Although it’s not a direct cost, the cost of stress is very real. Unless your area of expertise is R&D, it is very difficult for you to have peace of mind that your R&D claim is 100% accurate. 

Case study: We helped a client who had an enquiry as they had put the claim in themselves & they didn’t know how to answer some of the queries, we assisted in resolving that without reducing the size of the claim but it took nearly 6 months to sort. 

 
With HMRC’s approach to procedures and policies constantly changing, coupled with a risk of under/overclaiming, it’s a heavy burden to shoulder. 

 
COST OF EXPERTISE 

The biggest challenge and risk of all, is down to having the right expertise. Your R&D claim will require you to draft up and understand a technical specification of the project carried to justify the claim. If you have a technical person capable of producing this content in the right format, then great! If you don’t, then it falls to the FD to step into that pseudo technical role, which is likely to be outside their expertise. 
 
This is the primary reason FD’s pass claims our way, – it simply falls outside the scope of their expertise. 

  

Cost of time. Cost of under/over claiming. Cost of stress. Cost of expertise. 

It’s all at a cost. 


If you would like to save yourself time, stress and money then speak to our specialist R&D consultant. A quick 10-15 minute call with determine if your business may be eligible. What is there to lose?

1. Book a call with me: https://debbiebaileymoney.co.uk//contact-us/ 

2. Download our free guide on “7 mistakes to avoid – to stop your fitness business running out of cash” https://debbiebaileymoney.co.uk//fitness-ebook/ 

3. Connect with me on social media: 

https://www.linkedin.com/in/southbourneaccountancy/ 

https://www.facebook.com/debbie.hancockSA 

Categories
Business tips Cash Finance Function

Understanding Statement of Cash flow

Understanding statement of cash flow

Revenue is vanity, profits are sanity, but cash is king – or so the saying goes. That’s because cash is what customers pay in, and what shareholders get as a dividend.  So, you must want to know more about the impact of your business activities on your cash flow?  

Understanding Your Statement of Cash Flows 

The cash flow statement shows how your business has generated and used cash (and cash equivalents) within a specific time period. 

For each of the reporting categories, receipts and payments are listed (money in and money out), and this is reported as a net increase or decrease in cash held for that category. 

The net change in all categories is added to the amount of cash at the start of the reporting period to arrive at the current cash at the end of the reporting period. 

It is another important financial statement to understand alongside with the Profit and Loss statement and the Balance sheet. These three reports provide a good understanding of the financial position of your business. 

How Does it Work? 

The cash flow statement integrates the information provided by the profit and loss statement and the balance sheet into a current cash position. The cash flow statement is reported on a cash basis, while your other financial statements are usually reported on an accrual basis. Accruals basis being when the income was earned or expense incurred, not when the cash entered or left your business. 

Report Categories 

The statement of cash flows is organised into three sections: 

  1. Operating cash flows– Day to day operations of the business. All business income, expenses, assets and liabilities (except for those assets and liabilities reported in investing and financing activities). 

  1. Investing cash flows – the purchase and sale of long-term investments, property, plant and equipment as well as deposits paid to suppliers or received from customers and dividends received. 

  1. Financing cash flows – for example, issuing and repurchase of shares and bonds and payment of company dividends if applicable. Loans are also included in financing activities. 

Why is it Useful? 

The statement of cash flows gives you a valuable measure of cash flow in and out of the business over a given period. It shows the ability of the business to pay its bills and fund its operating activities. This gives you a picture of overall performance. 

It also shows the relationships between assets, liabilities, equity and cash accounts. It shows changes and movements over time, whereas the balance sheet and profit and loss reports show account values at a single point in time. 

The statement of cash flows gives you vital information on your business. 

  1. How strong is your cash position? 
  2. What is the long-term outlook for your business? 
  3. What activities generate the most cash flow? 
  4. What is the relationship between your net income and your operating activities? 

A useful metric is free cash flow, this is simply operating cash flow minus capital expenditure such as building and equipment. 

Cash flow from operations – capital expenditures = free cash flow. 

It shows what’s left over from operating cash after expansion and upkeep costs. A positive balance implies the business has cash left over to give back to shareholders, pay off debts or invest in R&D or acquiring other companies. 

It can be useful to ascertain if a company’s free cash flow is, and has consistently been, greater than the dividend paid. That’s another figure you will be able to find on the cash flow statement, under financing cash flows. 

If your business is growing, you’re looking to expand your business, or you have a tremendous amount of investments, chances are that calculating your free cash flow can be beneficial. 

If you’d like to understand your financial statements, cash position and future outlook in more depth, arrange an advisory session today. We’ll help you identify and appreciate the strengths of your business. 

 

1. Book a call with me: https://debbiebaileymoney.co.uk//contact-us/

2. Download our free guide on “7 mistakes to avoid – to stop your fitness business running out of cash” https://debbiebaileymoney.co.uk//fitness-ebook/

3. Download our free Coronavirus support guide: https://debbiebaileymoney.co.uk//coronavirussupport/

4. Connect with me on social media:

https://www.linkedin.com/in/southbourneaccountancy/

https://www.facebook.com/debbie.hancockSA

Categories
Business tips Cash Finance Function

Is forecasting still relevant in uncertain conditions?

If you are always looking in the past, you will limit the insights you can gain. Forecasting switches your focus; it encourages you to take a forward-looking view of your business and to look down the road to identify your future threats and opportunities. This enables you to proactively create a plan for your business’ future.  

Forecasting enables analysis of your business finances so you can project sales, cash, revenue and profits. This enables you to have control of your business. But how can you forecast accurately when no-one knows when a vaccine will be available or when businesses will be able to re-open?  

Even pre Covid-19, we were living in a world which was facing rapid change and uncertainty, markets would move simply because Trump had put out a tweet about trade agreements, there were elections, BREXIT and fast pace changes in technologies.  

Forecasting can help you to understand where your business will end up if you do not take action. If you do not pivot, create revenue streams, reduce costs, delay costs or seek assistance from the government or banks. Where forecasting falls down is that we are in uncertain times and how can we possibly forecast what we don’t know? This is where scenario planning is really useful.  

Scenario planning goes one step further than forecasting, it provides a structured away to identify a range of possible outcomes, then estimates their impact and identifies actions. This can lead to risk planning, where the business considers the likelihood of an event happening and the impact if it happens. By doing this, businesses can begin to understand how they can mitigate the risks or mitigate the impact if that risk does occur. I.e. pre covid-19 a company which had a good cash balance and crisis plans in place they would have been able to react quickly to the situation. No business would be fully protected but with a solid cash reserve they would have felt more comfortable than other businesses. 

In this time of incredible uncertainty, here are tips on how scenario planning can provide key insights.  

What-if: 

Scenario planning will let you run different scenarios with different drivers, so you can see how the business may change over time. You can compare options such as when your business may re-open or what is the impact on revenue if capacity is restricted to 30%, 50% or 60%. This will be invaluable information when defining your next strategic move. 

Results: 

From the scenarios the business will identify actions it needs to take, this could be in the form of a plan that they can follow if a certain risk comes to light. Or it could be an action they take now to reduce the likelihood of a risk happening or the impact if that risk did occur. I.e. they may take out insurance against a break-in or employee injury themselves at work.  

Understanding the potential actions: 

If the management had a crisis plan or business continuity plan, they could have swiftly in acted that plan. This may have involved what needs to happen so employees can work from home, how best to contact employees and what key employees are needed on site to secure assets.  

A sense of confidence can be gained by having a structure in place, sometimes people may panic but by having the structure in place it may calm employees and ensure the correct actions are taken. Hot-headed or panicked decisions will most certainly not lead to the desired outcome.  

Understanding how to restart: 

Businesses can identify actions required to restart the business. They will be more likely to identify different actions and prepare us for having to take a different course of action to the one we assumed we would take.  

Funding: 

If a business is seeking funding such as CBIL’s they will need a forecast to demonstrate that they can afford to loan and have considered the impact of repayments on their future business. A scenario plan will re-enforce that the business has considered different options and can still afford the loan even if different situations arise. 

Talk to us about the benefits of scenario planning  

If you want to get in control of the future of your company, come and talk to us at Southbourne Accountancy. Forecasting and scenario planning will help to identify the future threats and opportunities – and create a proactive strategy to improve the performance and stability of your business. 

1. Book a call with me: https://debbiebaileymoney.co.uk//contact-us/

2. Download our free guide on “stopping your fitness business running out of cash” https://debbiebaileymoney.co.uk//fitness-ebook/

3. Download our free Coronavirus support guide: https://debbiebaileymoney.co.uk//coronavirussupport/

4. Connect with me on social media:

https://www.linkedin.com/in/southbourneaccountancy/

https://www.facebook.com/debbie.hancockSA

 

Categories
Business tips Cash

The Cash in your bank

Cash solves problems, cash is king 

What is cashflow? 

Snapshot of business finances, it is a picture of money flowing in and out of a business. This picture shows the long-term financial health. You can track this on a weekly, monthly, quarterly or annual basis.  

Why is cashflow important? 

It enables you to buy supplies, pay yourself and your employees and invest in assets.  

Inefficient management of cashflow will almost certainly lead to failure.  

There is a need to plan ahead to ensure all costs are accounted for correctly, on the correct dates and avoid penalties, fees etc.  

You can be profitable but be cash negative and this leads to issues.  

There is a need to account for short term cash flow issues, such as a customer who is slow to pay. 

How to analyse and monitor cashflow 

Add together all your bank accounts and any cash on hand, this is your starting number.  

Subtract all payments (do not forget VAT payments to HMRC if VAT registered, annual employee costs such as Class 1A NIC and PSA and corporation tax or payments on account if self-assessment) 

Add all income (not sales as you need to account for when you expect to be paid, not when you will make a sale) 

This will give you a negative cashflow (more cash out in the month) or positive cashflow (more cash in, in the month). It is best to do this for at least a year, so you can see the ups and downs that you can expect and when you may need to hold onto cash to ride out the negative cashflow months.  

It is good practice to use past data as well as future expectations to get the best cashflow forecast. Past data may reveal seasonal trends, or dates when major contracts are up for renewal.  

Consider future requirements of the business, such as will a greater work flow require you to hire more staff, are there any tax changes expect such as auto-enrolment pension increases and if you are not registered for VAT are you expected to reach the VAT threshold which would increase your prices to clients and change your cashflow.  

Consider if you like to see information presented visually such as graphs or in table format.  

What can you do to sleep soundly at night, reduce any potential stress and maximise opportunities? 

  • Avoid Surprises
  • Keep up to date accounts and cashflow forecast – add control and strategy
  • Consider if you will need finance in the future and start to seek out those relationships, understanding what you will need  
  • Make your cash work for you  
  • Could you move some of the funds into an interest baring account
  • Consider different methods of collecting payments such as; direct debit, GoCardless, stripe, up front payment or partial upfront payment.
  • Reduce costs
  • Repair equipment instead of re-buying
  • Look at your regular bills, have you reviewed them recently? Do you still require all the services you are paying for? Can you move utility provider?