Effective Financial Management — How to get one step ahead when starting out in business

Guest Speaker
Christopher Oxley From Danbro

Chris Oxley gave a very informative and practical talk to 30 students, graduates and staff. This blog is intended to provide a flavour of the event. It is not intended to be a comprehensive substitute for event attendance, nor for seeking specific specialist advice, for example from the Propeller team.

1. Company Structures

Firstly Chris outlined the main types of business structure and set out the pros and cons of

  • Sole trader / partnership- simple, fewer filing duties but unlimited liability
  • Limited liability / partnership – profit driven, limited liability, minimum of two members
  • Limited company – limited liability, transparency, flexible tax planning

As well as limiting liability, limited companies enable lower tax rates and the ability to sell goodwill. Chris outlined changes to dividend tax but consulted that limited companies were still often more efficient, providing an example of profit extraction.
Chris summarised the key considerations in deciding on structure, including estimated turnover, number of owners, future aspirations, other sources of income and whether the company had employees.

2. Understanding Financial Statements

Chris introduced three key financial statements and outlined the role of each in helping to manage a business.

  • Income Statement (Profit and Loss): Income – cost of sales = gross profit – operating expenses = profit before tax. The income statement displays and profit or losses in a given period.
  • Balance Sheet (a snapshot): Assets = liabilities + shareholder equity
    • Assets are split in to current and non-current
    • Liabilities are obligations that the company has to others e.g. loan repayments
    • Shareholder Equity is the money that would be left in the company if all assets were sold and all liabilities were paid.
  • Cash Flow Statement: The most important and underused statement for a growing business. Divided into operating, investing and financing activities

3. Digital Accounting

Chris outlined some of the key financial management and tracking issues facing small business owners, for example chasing payments, tracking tax, payroll & managing commitments & expenditure. He went on to introduce how cloud accounting software cold help with a wide range of real time financial management issues, including via mobile devices.

4. HMRC Making Tax Digital

This will mean the end of the tax return and the introduction of quarterly reporting and the collection of tax in real time. Businesses will have a single financial account and digital interaction with HMRC. The deadlines are April 2019 for VAT registered businesses and April 2020 for the new arrangements to be rolled out fully.

5. Succession Plans & Exit Strategies

Chris explained the issues to consider when seeking to transfer business assets to family members, including capital gains tax and inheritance tax, noting that spouses are exempt from both. He outlined the reliefs that may be available when gifting assets between family members and the opportunities afforded by Business Property Relief in the case of inheritance tax. Chris provided useful examples demonstrating different scenarios in relation to exist strategies and asset transfers. Finally he outlined some of the pitfalls if such matters are not handled correctly.

2018-06-01T10:03:16+00:00June 1st, 2018|Uncategorised|Comments Off on Effective Financial Management — How to get one step ahead when starting out in business