As we careen into the New Year, now is a good time for SME owners to pause and consider laying the groundwork for a solid and successful 2025. Reviewing the past year and thinking ahead over the coming year are useful ways to improve performance in your business. To get the benefit from taking this time, we suggest five financial habits that will help build your business in the New Year.
Our five financial habits to build your business:
1. Monitor your cash flow – ideally weekly
Cash flow is, quite simply, the core of any growing business. Keeping a close eye on your cash flow means you’ll be ready for the ebbs and flows of business in 2025. Here’s how:
- Cash flow forecast: use the data you have to project your income and likely expenses for 3 – 6 months. This will give you a picture of periods of when you’ll have plenty of cash, and when you won’t.
- Keep track of payments and receivables by creating clear systems to follow up late payments and to ensure your own payments happen on time.
- Build a reserve of cash to cover at least 3-4 months of essentials as a buffer against lower-than-expected sales, late payment or downturns.
- Reviewing your cash flow on a weekly basis means you’ll be able to prevent problems from occurring later by making adjustments to your cash flow as you go.
2. Know your budget
Think of your budget as the key to your financial health. If you don’t already have a budget, the New Year is the perfect time to create one. If you already have one, check it is still relevant.
- Compare your Actual v Budgeted figures. By reviewing last year’s budget and seeing when your projections differed from what actually happened, you’ll be able to base your New Year budget on a more solid foundation.
- Where do you want to spend your money and prioritise that. Focus on strategies that deliver the best return on investment and cut unnecessary spending to free up money for those areas you want to spend money on.
- Ensure your budget factors in growth. Whatever that might be: new staff, marketing or upgrading tech, don’t get left behind by not creating space in your budget for the activities which will help you grow.
- Don’t hold back on budgeting software or even a Fractional FD to help you get the best out of your figures and to make better decisions.
3. Strengthen Your Financial Reporting
Regularly review your financial reports for insights into your business and the data you need for making key decisions.
- Put the time in to find the right accounting software – one that simplifies reporting and ensures accuracy.
- Metrics metrics metrics. Monitor metrics such as profit margins, current ratio, and operating expenses as a percentage of revenue for a snapshot of your business’s health.
- Schedule regular reviews each month to check your financial reports and spot trends or potential issues.
If financial reporting is beyond your team, consider a Fractional Finance Director for an interim period to help you set up the right processes and to interpret your numbers.
4. Plan for taxes nice and early
End of year and tax season doesn’t need to be such a huge source of stress. Plan ahead by taking proactive steps now to save you time and money later.
- Get organised by ensuring all invoice, receipt and expense records are up to date and categorised.
- Review your expenses to ensure that all allowable deductions are being claimed.
- Plan for and schedule your tax payments to avoid penalties on quarterly payments
- Consult an accountant or tax advisor who is on top of changing regulations and who will identify opportunities to reduce your tax liability.
5. Set goals
Setting clear financial goals and objectives gives you something specific to work towards which helps keep your efforts focused.
- We all know that SMART goals work and when it comes to financial goals, the smart ones are the best. It doesn’t matter what the goal is, just ensure they are specific, measurable, achievable, relevant and time bound.
- Break your goals down. Make it easy by dividing them into quarterly or monthly milestones.
- Stay on track. Regularly review your progress and adjust course if necessary.
- Share your financial goals with your team to ensure alignment and collective accountability.
Starting the New Year with strong financial habits can make a significant difference in your business’s performance and resilience. By monitoring cash flow, refining your budget, strengthening reporting, planning for taxes, and setting clear goals, you’ll be well-equipped to navigate the challenges and opportunities that lie ahead.
If you need some support with your financial planning, for example, if our 5 financial habits to build your business are too much for your team, but you aren’t ready to take on a full-time Finance person, get in touch. One of our experienced and expert Fractional Finance Directors will be able to support you as you plan ahead and look in the right direction!
Photo credit: Ali Elliott on Unsplash
