Finance and financial planning for your new start up - looking at sales forecasting, profit and loss and cashflow forecasting

1. Finance and financial
planning

2. Todays objectives
What we will look at:
• Understanding the basics
• The unique language used
• A balance sheet
• A profit and loss document
• Sales forecasting
• Keeping records
• Invoicing
• Debt recovery
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3. Understanding the basics
An accurate paper trail
• The only way to track financial success and failures – the main way of
achieving business growth
A legal requirement
• businesses are required by law to maintain financial accurate records
• This includes
• All sales invoices
• All purchases
• Receipts and payments
• Salary and benefits in kind
Tracking sales
• Keeping a watch on sales
• Watching for trends
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4. Basic lingo bingo
Page 4
Balance
Sheet
Assets
Liabilities
Profit
and loss
Cashflow
Expenses
Cost of
goods
sold
Turnover

5. Balance sheets
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6. Balance sheets
Should include
• Fixed assets
• Anything that the business owns with a lifespan of over 12 months
• Current assets
• Anything that the business owns and is likely to use in the next 12 months
• Current liabilities
• Debts the business must repay in the next 12 months
• Long term liabilities
• Debts with a longer period than 12 months
• Capital
• Any money in and out of the business
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7. Balance sheets
Plus from your profit and loss account
• Income – sales, interest
• Cost of goods sold
• Expenses
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8. Profit and Loss
Two types
• Revenue
• Expenses
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9. Profit and Loss
Page 9
Can you list revenue
items?

10. Income
• Sales of goods or services
• Other income
• Grants etc
• Interest income
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11. Sales forecasting
Your sales forecast should be based upon any historical sales, your marketing strategy
and your market research
It is a month-by-month prediction of the level of sales you expect to achieve
Every year is different, so you need to consider any changing circumstances that
could significantly affect your sales
These factors - known as the sales forecast assumptions - form the basis of your
forecast
You may wish to do two
1. A best guess – what you really expect
2. A worst case – your lowest estimate no matter what.

12. Typical examples of assumptions
• The market you sell into will grow by 2 per cent.
• Your market share will shrink by 2 per cent, due to the success of a competitor.
• Seasonality – how sales will change depending on the time of year
• You will spend 50 per cent less on advertising, which will reduce the number of
enquiries from potential customers.
• You are launching a range of new products. Sales will be small this year and
costs will outweigh profits, but in future years you will reap the benefits.
• You have new products that have the potential to increase sales rapidly.

13. How to forecast sales
Use your previous experience
• If you don’t have personal experience seek those you might have, friends, past
colleagues, advisors
Use past results as a guide
• If not your own look for past results from other similar companies
Look for specific drivers
• E.g. if you are delivering services how many days can you actually earn fees,
ensure you account for non fee earning days Use market data
• If you are a restaurant think about how many tables you have and how often
you can turn them
Use market data
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14. Market size
Total available market
This is the entire universe that could ever
buy your product, for your niche –
anywhere
Addressable market
This is revenue represented by the market
segments that you intend to sell and service
in the time covered by your plan available
money

15. Market size
A B C
Market
Size
Number of
customers
Average transaction
size
Number of
transactions per
customer per year

16. Sales forecast
MONTH SALES a SALES
b
SALES
c
TOTAL
MONTH
MONTH CUMULATIVE
MONTHLY
1
2
3
4
5
6
7
8
9
10
11
12
YEAR

17. Can you predict your
sales?

18. Profit and Loss
Page 18
Can you list the cost of
goods sold items (fixed
costs)?

19. Cost of goods sold
• Purchases
• Purchase discount
• Purchase returns
• Postage charges
• Other sales costs
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20. Profit and Loss
Page 20
Can you list expense
items
(variable costs)?

21. Indirect / fixed costs
• Rent
• Wages
• Utilities
• Insurance
• Marketing
• Equipment
• Software
• Accountancy
• Legal
• Travel
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22. You should now have enough
information to complete your
Profit and Loss statement

23. Annual
Sales Income
Sales a £0.00
Sales b £0.00
Sales c £0.00
Sales d
Total Sales Income £0.00
Direct Costs
Cost of materials £0.00
Direct wages
Subcontract charges
Packaging and carriage
Total Direct Costs £0.00
Gross Profit £0.00
% GP Margin
Overheads
Staff Salaries / wages
Business Rent 0.00
Business Rates 0.00
Water Rates 0.00
Light / Heat / Power 0.00
Repairs and Renewals 0.00
Business Insurance 0.00
Travel and Vehicle costs 0.00
Phone and Postage 0.00
Printing and Stationery 0.00
Marketing 0.00
Professional Fees 0.00
General Expenditure 0.00
Total Overheads 0.00
Net Profit / Loss £0.00
Profit and loss statement / forecast

24. Keeping track of income
Keep an accurate log of:
• Invoice number
• Date raised
• Amount
• Client
• Date due
• Date paid
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25. Keeping track of expenses
Keep an accurate log of:
• Amount debited
• Account debited – name of supplier / cost
• Date
• Type of account (budget line) which its paid against – e.g. marketing, salary
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26. Paper, software, cloud
Do you know the
options?
Which would you use?

27. Financial records
All businesses are required by law to maintain accurate records
This includes
• All sales invoices
• All purchases
• Receipts and payments
• Salary and benefits in kind

28. How long do you need
to keep your records?

29. Financial records
Keeping accurate records will enable your business to complete correct tax returns
All records must be kept for a minimum of 6 years from the end of the accounting
period
It is vital for managing cashflow that you know which customers have overdue
accounts and that you managed the payment of purchases
Also you may require a payroll system if you are employing staff
You can be and will be fined for late and / or inaccurate returns
If in doubt seek the advice of an accountant or a bookkeeper.

30. How long is long term?
Accounting and tax
• Accounting and tax records for an ordinary limited company must be retained
for at least six years after the end of the tax period they relate to.
• Self-employed sole traders or partnerships must keep their records for at least
five years after the 31 January filing deadline.
• If you file your tax return late, or HM Revenue & Customs starts an
investigation, you may need to keep your records longer.
Pay
• Pay records must be kept for a minimum of three years after the end of the tax
year the earnings relate to.
• This includes sickness and sick pay records, and records relating to maternity
pay, paternity pay and adoption pay.
VAT
• VAT records and documents must be kept for six years.

31. How long is long term?
Contracts
• Contracts should usually be kept for six years after the contract ends, though
contracts under seal (e.g. deeds) should be kept for 12 years.
• Legal claims under a contract cannot usually be brought outside these limitation
periods, though there are exceptions.
Health and safety
• Health and safety records should be kept for at least three years.
• Records relating to hazardous substances may need to be kept longer. For
example, asbestos records should be retained indefinitely,
Employers' liability insurance
• The requirement to retain your compulsory employers' liability insurance
certificates for 40 years ended on 1 October 2008. You should still keep records
• Employers are still required to display their certificate of insurance at each
place of business. The certificate can be made available to employees
electronically providing all employees can gain access to it.

32. Invoices and what to include in them
Limited company – must have
• The full company name as it appears on the certificate of incorporation
• Any business name used in your business
• An address where legal documents can be delivered to you
• Registration number with companies house
Limited company – should have
• Value of the work
• Description of the work
• Invoice number
• Date of the invoice
• Date the invoice is due
• How you wish to be paid

35. Cashflow forecasting
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Income
Sales a
Sales b
Total Income £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00
Expenditure
Materials
Subcontract Charges
Packaging and Carriage
Wages
Business Rent
Business Rates
Water Rates
Light / Heat / Power
Repairs and Renewals
Business Insurance
Travel and Vehicle costs
Printing and Stationery
Marketing
Professional Fees
General Expenditure
Total Expenditure £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00
Monthly net inflow / outflow £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00
Cumulative monthly flow £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00

36. Bad debt
Clearly state the interest payable if unable to have payments done in a specific time.
• Statutory interest
Statutory interest
is 8% plus the Bank of England base
rate for business to business
transactions.
You can’t claim statutory interest if
there’s a different rate of interest in
a contract.

37. Payment and interest
Debt recovery costs
• You can also charge a business a fixed sum for the cost of recovering a late
commercial payment on top of claiming interest from it.
• The amount you’re allowed to charge depends on the amount of debt.
• These amounts are set by late payment legislation.
Amount of debt What you can charge
Up to £999.99 £40
£1,000 to £9,999.99 £70
£10,000 or more £100

38. Statutory demand for payment
Still no payment…….
You can make a statutory demand to ask for payment of a debt from an individual or
company.
Anyone who’s owed money (the ‘creditor’) can make a statutory demand. You don’t
need a lawyer.
When the individual or company that owes you money (the ‘debtor’) receives a
statutory demand, they have 21 days to either:
• pay the debt
• reach an agreement to pay.

39. You must deliver (‘serve’) the statutory demand form by:
• giving it to the individual who owes you money (you should try all their known
addresses)
• leaving it at the registered office of the company or partnership that owes
money (or the main place of business if they don’t have a registered office)
• giving it to the company’s director, company secretary, manager or principal
officer
• get a ‘process server’ to serve it for you (a solicitor can arrange this)
You can only send it by registered post or put it through a letterbox if it can’t be
delivered in person.
You must keep a copy of the statutory demand and anything that confirms:
• the time and date you served the statutory demand, e.g. a postage receipt or
confirmation from your process server
• the debtor has received the statutory demand.

40. 8 tips for saving tax
1. Know your industry
• Keep engaged with your trade body or association, attend their events, and
read the newsletters. Most industries have special dispensations and
allowances approved by HMRC, such as uniform allowances.
2. Spend more time on your business
• Are you really the best person to do your bookkeeping or VAT returns?
• Your business will benefit from you spending time working on it, whilst letting
the bookkeepers and accountants do what they do best. For what you may
think you are saving in fees you are probably losing out by not claiming for
everything you are entitled to.
3. Know your VAT
• VAT is a common area where business owners are losing out. Are you paying
the right amount? Have you looked at the Flat Rate Scheme?
• In a nutshell, under the flat rate scheme you pay a single, flat rate of VAT on
your turnover. HMRC have a list of the flat VAT rates available for different
industries. For example, for Estate agents and property managers it is 12%,
while it is 14.5% for computer and IT consultants.

41. 8 tips for saving tax
4. Talk to your accountant
• Business owners often complain about their accountant and how they have too much tax to
pay.
• The truth is that the business owners who regard their accountant as trusted advisors and
someone who can help them save tax are often the ones who are paying as little tax as
possible. If you don’t talk to your accountant; change accountant.
5. Keep it in the family
• The personal allowance is currently £11,500 of tax free income. By looking at your family
situation it may be possible to utilise the personal allowances of family members who are
able to carry out duties within your business.
6. Treat your staff
• There are several tax free benefits that can be paid to staff to save both you and them
tax.
7. Be organised
• Even if you don’t want to spend time doing bookkeeping yourself, you can help make sure
you are claiming for everything you are entitled to by keeping copies of everything.
• A common reason for HMRC to disallow expense claims or input VAT amounts is a failure
of the business to keep proper supporting records. Don’t fall into that trap.

42. 8 tips for saving tax
8. Work from home
• HMRC allow generous tax savings for self-employed businesses that spend
time working from home. Make sure you are aware of them.
• Most businesses claim a modest use of home charge of just £2 per week but
HMRC actually allows you more than that. For sole traders who work from
home, HMRC allows a much more scientific method for calculating what
expenses you can deduct for the use of your home.
• If you are a self-employed business owner, you can claim for a proportion of the
following home costs;
• Council Tax,
• Mortgage Interest,
• Insurance,
• Heat and light,
• Water,
• Landline and phone costs
• General household repairs & maintenance

43. Summary
• Financial planning is an important activity to undertake as a pre start business
• Investors will want to see some ideas of what the company could make
• It will allow you to judge whether the idea is worth developing and whether it will
provide you with enough of an income
• Try and learn as many of the basics as possible. Whilst an accountant will do it all for you it is
ultimately your responsibility to understand your figures
• Available cash is the life blood of your business try and ensure you have planned your
cashflow to ensure that you will always have enough money to pay suppliers and more
importantly your taxes
• Set up robust systems and process for monitoring your expenses and your income. They
more you can do yourself the cheaper the accountancy bill at the end. Systems like
Quickbooks and Xero will help you however they come at a cost.
• There are many ways of making your company as financially efficient as possible – visit the
HMRC website for up to date guidance. They do provide some useful advice through web
pages and webinars.