Time for a financial health check?

Now is a great time to reflect on your finances so you can plan for a prosperous 2020, writes d&t’s James Thomas

Around this time of year we like to look back at the past 12 months and work through our lessons learnt. It’s a good time to assess the performance of your franchise and reflect on what’s been great, what’s been not so great and look at areas for improvement, or where you might need more training or support. And it doesn’t matter whether you already have an established franchise business or are fairly new to business ownership, the following points are still worth bearing in mind. 

This might be a biased (accounting) opinion, but the first place to start is your accounts. The numbers never lie, and in all instances will be the first indicator that something is amiss! Given the uncertain political climate, there will be factors beyond your control that can influence your business, so having a handle on the elements you can manage is even more important, in order to ride any bumps in the economy that may come up over the next 12 months.

Asking your accountant to produce management accounts every month (or quarterly) will give you peace of mind, precise snapshots of your cashflow and mitigate any lasting effects of bumps along the way.

Updates to taxation regulation 

It’s also time to get up to date with your bookkeeping. April 2020 marks the point where all businesses, regardless of VAT threshold, will be required by HMRC to be compliant with Making Tax Digital (MTD); up until now it’s only been applicable for companies turning over more than £85,000 a year.

MTD means all businesses will have to keep digital records and submit quarterly returns digitally to HMRC. The returns will report the figures on a cumulative basis, so the final return in the year will theoretically reflect the annual accounts.

Non-compliance could result in some pretty serious repercussions, so you will need to invest in some cloud accounting software, which links to your bank feed. You will be able to reconcile invoices, check transactions and stay up to date in seconds.

The good news is that these cloud accounting applications have their own support teams available 24/7 and do demos and webinars regularly. Moving to cloud accounting software will save you hours of admin time in the long run and ensure your bookkeeping is always up to date as well as being compliant with MTD. 

Are you paying more tax than you need to be? 

From a financial point of view, an end-of-year review with your accountant is also worthwhile. It may also be a good time to switch to a more proactive firm if the service your current provider is offering doesn’t ‘add up’ to match your growing needs.

We often see small-business owners or sole traders get stung with weighty tax bills from something as simple as not keeping an eye on their sales throughout the year. Your accountant is a trusted partner and, as such, should be able to advise you early on if this is going to happen. At the very least, they should be advising you how much to set aside to be able to pay such a bill.

It is also important to talk to your accountant when you invest in or buy assets to ensure the transaction is completed in the most tax-efficient way. People commonly run into challenges with a new car, but we also work with clients where the disposal of property needs managing properly, too.

Planning for the year ahead 

Having the numbers in shape means you can plan more accurately for next year. Perhaps you are considering expanding or investing in another territory? If so, this may require funding.

To secure any business borrowing, it will be necessary to provide the banks with a detailed business plan. Business plans should be realistic and achievable using existing financial records to help with forecasting. They should also detail milestones and set out a roadmap indicating thresholds when, for example, additional staff can be taken on, or when the business can afford to expand further. A well-thought-out and comprehensive plan helps avert risk for the business owner and is also essential for the lender to evaluate projections for steady, achievable growth.

While overall bank lending for franchise businesses is on the rise, Brexit is making the banks a little more cautious. They are certainly paying more attention to their risk and exposure levels and, regardless of what the future holds in relation to Brexit, this is likely to continue for some time. It is therefore even more important than usual to present your case to the lenders properly to secure funding and gain the best rates. 

Sometimes, the franchisor can assist with business planning. This, however, can be seen as a conflict of interest: the franchisor wants to sell an additional territory, which may lead to them presenting their numbers a little more favourably than they ought to. Most franchisors prefer to remain impartial and empower a financial professional to complete the business plan in conjunction with the franchisee.

Therefore, for the best outcome all round, it’s best to use an independent organisation or expert who is on your side. With a solid business plan, an independent broker can focus on connecting franchisees to financial institutions with the aim of achieving the best rates possible. In this way, funding can usually be secured in just a few weeks.

Remember why you got into franchising in the first place! 

My final point is this: make sure you are still having fun! It’s very easy to lose track of what got you into business in the first place, and bury your head in the day to day without looking up and realising what you have. Remember to celebrate your successes and revel in the great services and products you’re providing to your customers.

I’m lucky enough to meet with lots of franchisees old and new and the one thing that I always like to see is someone who still clearly loves their brand. Don’t lose sight of that, it’s an invaluable mentality to create within a business and one that elevates your franchise beyond that of others! 

Franchising is a wonderful community where networks will freely share best practice with another franchise brand. Ultimately, what the new year brings to you will depend largely on what you bring to the new year.

From all of us at d&t we hope you have a happy and prosperous 2020! 

James Thomas QFP is commercial manager at d&t chartered accountants

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The Franchisee Network is a new initiative designed to help existing franchisees build connections with other business-owners from a diverse mix of franchise brands. It will allow you to learn from and collaborate with like-minded entrepreneurs as you navigate the challenges of running your own business. Find out more about joining The Franchisee Network here.