4 Red Flags For Limited Company Finances

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October 26, 2017

It’s fair to say that manning a limited company is like steering a ship in choppy waters, hunting for a bounty on the horizon. However, you may find some leaks: subtle warnings that your limited company finances aren’t as buoyant as you thought. Bright Ideas wants every company director to stay attentive of these threats to their income, because they will likely affect you at some point along the way. Read on for our top four alerts that your earning potential may be under threat:

1. Blockages in your cash flow

We can fall into the trap of establishing a business model, then leaving it to tick over, placing too much faith in the outcome. Cash flow can be undermined by many things, all of which are preventable if you can root them out.

The overheads, for instance, may be too high. You can cut your utilities or inventory (office rental, equipment, raw materials) down to a size that makes economic sense. In the same token, you could apply for any credit loans way in advance of when they’ll be used, so your investment funding doesn’t run dry.

2. A lot of outstanding invoices

There’s nothing as frustrating – or detrimental – as an array of payments you’re expecting, when they’re lost in the scrum of your responsibilities. It’ll lead to missed deadlines for what you owe to others, and mess with carefully built forecasts.

We recommend late payment penalties on your invoices – that way, no-one has the excuse of ignorance. They can see how the amount will increase if X or Y date isn’t met. And furthermore, it’s a good idea to keep tabs on who’s received each invoice; this is where a bookkeeping tool like FreeAgent can prove its worth to your company.

3. Failing to label your ‘wage’ and ‘dividend’ payments

One of the main reasons for going limited is the tax breaks achieved when we split our income into a basic wage and a dividend. To do so, it’s imperative to make each payment separately– you can’t just lump them together, identifying ‘X amount is a dividend’, and relying on the good will of HMRC.

Hiring an accountancy service like Bright Ideas is part of the solution, as we’re used to double-checking the payroll for dozens of companies across the UK. We’ll ensure the tax-friendly strategy is identified as it should be, every time you take home cash for yourself.

4. Growth is eclipsing your micro-management

‘Progression’ is, obviously, a great word for entrepreneurial spirits. We should try to grow as much as we can to boost income and opportunities. Despite this, problems may crop up when a business owner is in the habit of checking everything themselves… receipts, stock orders, client relationships, or anything relevant to key processes.

Growth can run away from us; the best thing to do is stop micro-managing, and outsource/hire more staff for roles that require a lot of time or expertise. In terms of your finances, that’s something we can help with…

Bright Ideas accountancy can form a package for a robust, healthy hand on your cashflow and financial investments. We’ll check your books, examine how costs are stacking up to previous trade periods, and review the payroll for up to four employees, if necessary. Call us on 0161 451 3924 or email info@biaccountancy.com for a longer rundown of our services.    

Limited company finances


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