Top Tips for SMEs to protect cash flow

Late payments and inefficient management practices often put SMEs in a difficult position with respect to cash flow. When the cash flow of a company suffers, business owners often resort to measures which only inflict more damage. One such measure is using up precious cash reserves.

But by taking certain necessary precautions, an SME can avoid situations wherein they are required to compromise on working capital.

In this blog, we take you through the various aspects of protecting cash flow:

Use technology to your Advantage

Most SMEs still prefer the traditional methods of managing and recording business expenses. With the introduction of sophisticated accounting software, spreadsheets and other traditional methods of book keeping have become a thing of the past.

The software available these days are quite advanced in terms of functionality and this enables businesses to record their expenses in a more efficient manner. Maintaining books with the help of technology can free up a lot of valuable time and this helps them keep better track of their cashflow with minimum effort.

One of the biggest advantages of using cloud solutions and automated systems is that you no longer have to worry about losing precious data as such software automatically backs up the data at regular intervals.

Making Necessary Claims

The growth of an economy can only take place when there are more advantages to being an entrepreneur than there are to being an employee. To promote the culture of entrepreneurship, the government offers various tax relief opportunities. Following are some of the reliefs:

Property Relief

Entrepreneurs looking to occupy commercial properties are offered business rate reliefs. Also, there are several enterprise zones which have been set up across the UK to support businesses by offering them a range of incentives.

Investment Relief

Several schemes have been rolled out by the government to make funding available to businesses during their early stages. One such scheme is the Seed Enterprise Investment Scheme, which reduces the risk that investors are subjected to when investing in small businesses.

Another scheme known as the Enterprise investment Scheme incentivises investors by offering them a tax rebate in return for buying shares of small companies.

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Several allowances have been granted to entrepreneurs, such as Employment Allowance, Annual investment Allowance and Capital Allowances. For instance, employment allowance helps entrepreneurs reduce the amount of NIC paid towards their employees by up to £2,000.

Other Reliefs

In a bid to encourage the growth of the UK’s creative industry, small businesses have been given the opportunity to claim five types of relief which reduces the corporation tax which they owe to HMRC.

Entrepreneur’s Relief is a scheme wherein entrepreneurs are only required to pay ten percent Capital Gains Tax on the profits earned when they sell or close their business.

Take Support

Before you set out to seek finance for your business, it is important for you to streamline your expenses. At Northants Accounting, your business will find the support it needs when it comes to accounting or consulting. By receiving the right consultation at the right time, it is possible to avert the circumstances which place additional pressure on your cash flow, which is certainly something that small businesses have to contend with regularly.

If you believe that there is no other way to deal with the cash flow crisis in your business, then there is an effective measure which you can take to tackle the situation. Like we discussed earlier, tapping into your cash reserves may not be the right thing to do.

If you believe your business idea has the potential to make it big, you can seek funding for your business elsewhere. The right type of funding will not just set things back on course, but it will also give you the opportunity to expand your business operations.

R&D Tax Credits

Another way in which SMEs can reduce their tax liability is by claiming the exemption offered by the government to those companies which invest in research and development. The businesses which are making efforts to make advancements in the fields of science and technology qualify for R&D credits irrespective of the fate that their venture encounters. This tax relief can go up to 230% and currently £1 billion worth of credits are going unclaimed.

Apprenticeship Levy

A new government initiative known as Apprenticeship Levy encourages businesses to grow the skillsets of their existing employees and hire apprentices at a highly reduced cost. The apprenticeship levy is calculated at 0.5% of the payroll. Under this scheme, businesses with an annual pay bill of under £3 million will need to pay only 10 percent of the levy amount while the government will pay for the remaining 90 percent.

Get in touch with the team at Northants Accounting if you want help maintaining a positive cash flow moving forward with your business.

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