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sole trader accounts

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How to Avoid Common Money Leaks in Your Small Business.

Money leaks in your small business eat away at your profits without you even knowing about it. Even if your business seems to be in great financial health, you should regularly check for leaks to ensure that you’re not unwittingly wasting money. Plugging money leaks can help to reduce your spending and thus boost your profit margins without too much extra work on your part. Here are the most common money leaks to look out for, and how to fix them.

1. Online Advertising

It’s easy to let advertising fees get out of hand. Social media pay-per-click fees may seem small, but they do add up and can present a significant money leak for your small business. Keep a close eye on any social media or Google advertising campaigns to ensure that you’re not running up a big bill. It’s also important that you regularly review the effectiveness of these adverts. If they’re not bringing in business, they’re a wasted expense.

2. Subscriptions

At some point, we’ve all signed up for a free trial with no intention to continue, then forgotten all about it and ended up paying. Other times, we stop using a service but forget to cancel the subscription. It’s all too easy to let your business leak money this way, but it all adds up. Review your subscriptions regularly and promptly cancel any that are no longer benefiting you.

3. Power Usage

Small mistakes like leaving the lights on overnight and forgetting to switch off devices may not seem like a big deal, but over time they can seriously eat into your profit margins. It’s important to get into good energy saving habits and encourage your staff to do the same. 

There are many other ways to cut down on electricity usage, such as investing in insulated blinds or switching to energy-efficient lightbulbs. Although these changes do present an upfront cost, they will save your business a significant amount of money in the long term.

4. Office Supplies

It’s easy to go over-the-top with office supplies, so take some time to assess what is and isn’t necessary. Thousands of multicoloured sticky notes are fun, but they’re hardly a necessary expense. Furthermore, many businesses waste a lot of money on printing, which is easily avoidable in the age of cloud-based software.

5. Credit Card Fees

Being lax with your credit card payments is a surefire way to create unnecessary costs. By clearing your balance each month – or at least as much as possible – and paying attention to any annual or hidden fees involved, you can save your business money and boost your profit margins. 

When signing up for a credit card, don’t get distracted by the attractive rewards. Make sure that you read the fine print and understand the fees before you choose a card. This will help you to use your card wisely and avoid any money leaks.

6. Smartphone Bills

If you’re not keeping a close eye on your smartphone bills, you could be paying a lot more than necessary. Make a habit of reviewing your charges every month to ensure that you and your team aren’t exceeding your plans. Take a close look at your usage, too, because you could be paying for more than you’re actually using. It’s also worth shopping around regularly too to see whether or not you could benefit from switching plans or providers.

7. Watch Your Stock

Make sure you do a regular stock check and monitor your purchases – unsold stock hanging around can be very costly.

It Pays to Plug

By plugging these common money leaks, you can cut down on costs without making any real sacrifices. Regularly checking for leaks helps you to make your business budget go further, so make sure you don’t grow complacent. Get into the habit of regularly performing basic checks to maintain a healthy profit margin and prevent your business from losing money.

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6 Things You Need to Know When Starting Out as a Sole Trader

When you  become a sole trader, it’s important to understand your responsibilities, particularly when it comes to tax and finances. 

As a sole trader, you are self-employed and run your own business. This means that you are responsible for your own tax and National Insurance contributions.

Here are six things you need to know when starting out as a sole trader:

1. You Need to Register as a Sole Trader

If you want to become a sole trader, the government needs to know about it. 

Fortunately, registering as a sole trader is easy.

You’ll need to go to the HMRC website and sign up as a sole trader. You will then need to wait for a letter with your 10-digit Unique Taxpayer Reference (UTR) before you can set up your self assessment account. 

Your self assessment account is the one you will use to submit your tax return and pay taxes each year. 

When you are a sole trader, you are responsible for completing a tax return and paying the right amount to HMRC every year. 

If you have filed a tax return online before, whether or not this was as a sole trader, then you will need to re-register. You can do this by filling out the CWF1 form, which again, you’ll need your UTR for. 

It’s best to register as soon as you become self-employed, however the latest deadline is the 5 October after the end of the financial year during which you became a sole trader.

For example, if you became a sole trader on 1 August 2022, the latest you would be able to register is 5 October 2023.

You can be severely penalised for failing to register as a sole trader, so this is not a skippable step!

2. You Need to Keep Accurate Financial Records

As a sole trader, you need to keep detailed records of all of your sales and expenses. You won’t have to submit these when filing your tax return, but should you be investigated you will need to provide reliable proof of all of your activities – HMRC won’t just take your word for it.

Furthermore, it’s important to keep accurate records to ensure that you are paying the right amount of tax. If you fail to track all of your expenses, for example, then you may end up missing out on deductions and paying more tax than necessary. 

Using a cloud accounting software is the best way to ensure that your financial records are accurate and up-to-date. Many software programs allow you to upload receipts on-the-go from your smartphone and can automate your invoicing for you to ensure that you know exactly how much money you’ve made. If you choose to work with us we will help you decide on the best option for your business.

3. You May Need to Register for VAT

If you have a turnover of £85,000 or above, you will need to register for VAT. This means you will have to charge your customers VAT on legible sales and then pay the VAT to HMRC. You will also be able to reclaim VAT that you pay on goods and services for your business.

Being VAT registered also requires you to sign up for Making Tax Digital for VAT. This means that you must use HMRC-approved accounting software to keep record of your VAT and submit your returns digitally.

VAT can be very complicated and easy to get wrong so do seek help.

4. You can Become a Limited Company

If your business really takes off or the nature of your operations changes, then you may want to consider registering as a limited company instead. There are numerous benefits for this, including greater protection from risk and potentially greater tax efficiency, depending on your expenses and turnover.

This is a complex area and you will need specialist advice to navigate the process or it could get costly for you longer term.

5. You Will Need to Pay Tax on Account

Whilst employees pay tax as they earn via their employer, being self-employed means that you are responsible for your own taxation. After the end of each tax year on 5 April, you must complete a self assessment form before the following 31 January.

If you owe less than £1000 in tax, then you will simply make a payment after completing your return.

However, if you owe more than this – as is often the case – then you will need to make two payments on account: 50% of your tax bill by midnight on 31 January, and another 50% by midnight on the following 31 July.

You will then need to make a balancing payment for the tax year by the following 31 January – so three payments in total. This can be a difficult thing to budget for, so make sure you put enough money aside each month to cover your tax bill.

6. Open a Separate Business Bank Account

When you become a sole trader, you will need to open a separate business bank account. This makes it much easier to  keep track of your business finances and ensures that you don’t mix up your personal and business expenses.

Most banks offer free business banking for a limited time when you open an account, so shop around to see who offers the best deal. You may also want to consider an account with an interest-free overdraft facility to give you some financial flexibility in case of an emergency.

Final Thoughts

There’s a lot to  think about when becoming a sole trader, but hopefully this guide has covered some of the basics. Just remember to stay on top of your finances, register for VAT if necessary and open a separate business bank account. However, it’s a small price to pay for the freedom and independence that comes with being your own boss, so don’t forget to enjoy the journey.