Maximise your earnings potential as a business owner without crippling your cashflow

AS A SUCCESSFUL BUSINESS OWNER, YOU WANT TO REAP THE REWARDS OF YOUR HARD WORK. AT THE SAME TIME, CASHFLOW LOOMS LARGE WHEN THERE ARE STAFF TO PAY AND SUPPLIERS’ BILLS TO MEET. JACK MOORE, PARTNER AT NOTTINGHAM ACCOUNTANCY FIRM PAGE KIRK, GIVES YOU SOME

What are your goals as a business owner? What truly motivates you to devote so much of your precious time to your enterprise? Money and earnings potential are a natural by-product of running and scaling a successful business, but most business owners have their own personal goals when it comes to money. And they should tie in seamlessly with those of your business.

Knowing when - and how much to extract from your business can be a tricky balancing act. You should be conscious not to over-draw from the business, or you run the risk of depleting the cash reserves and inhibiting growth or even the natural course of trading. On the other hand, you don’t want to be grinding out your 60+ hour weeks for little reward. This makes extracting profits a very fine balancing act and finding the sweet spot will require careful forward-planning to give you the peace of mind you need to enjoy the rewards comfortably.

Let’s take a look at over-extraction. Your business has a delicate cycle of chasing money from your customers and paying money out to your suppliers, your employees and HMRC. I have met with countless business owners who are in the habit of drawing from their business with little or no consideration for how they will meet their next supplier payment, employee payday or tax bill.

Remember, cash in the bank does not mean profits available to draw on. A breakdown in relationship with your key suppliers because of missed payment deadlines - or distressing your employees by missing payday is a knife to the heart of any small business. If you’re looking for ongoing success, it is vital to maintain positive relationships with your key stakeholders.

A finely tuned 12–24-month cashflow forecast and some financial modelling would really open your eyes to exactly how much surplus cash you expect the business to have available and at what times throughout the year you expect to be able to sensibly draw it. Unless you are in the business of printing money, this kind of analysis from a professional with a keen eye is hugely valuable to you as a business owner. Find a professional you trust and work on this together regularly.

A second common mistake which business owners find themselves making is not fully enjoying the success of your business. Fundamentally, a business needs enough cash to operate - cash is king, after all. But if you are drawing too little from your business throughout the year, then you are missing out on the opportunity to fully enjoy one of the rewards of being a successful business owner.

Importantly, you may also be failing to take advantage lower rates of tax each year by not drawing enough from your business. Whilst the lowest rate of dividend tax is just 7.5%, you will want to make sure that you optimise your personal earnings at this rate if at all possible, so long as your business will comfortably allow you to do so. If your business is profitable enough on paper, but balancing operating cashflows is a concern, you can make use of these lower rates of tax without physically drawing any cash from the business, to boot. Speak with your advisor about it if this hasn’t been explained to you, because you could be missing out. Just call 0115 9555500 or email enquiries@pagekirk.co.uk.