Top tips for boosting your business’ financial efficiency in 2024: an accountant’s perspective   

Lee Murphy, managing director, The Accountancy Partnership, has shared his top tips for owners and managers of advice businesses gearing up for the end of tax year period including how you can improve your business’ operational efficiency

As we approach the end of another financial year, we can reflect on another tough financial year for SMEs, business owners, and freelancers. The economic difficulties faced by the UK are proving to be long-lasting, and last year saw a culmination of cost increases and inflation that put many companies in trouble. With dividend allowances and capital gains tax exceptions shrinking from April, the situation could become even more challenging.

In other words, improving financial efficiency for 2024 is essential. To survive in the current climate and thrive in the future, businesses must understand how they operate financially and why – and more importantly, which steps they can take to improve their operational efficiency.

Businesses can do this by regularly reviewing their financial records, a process sometimes known as management accounts, helping them identify areas for improvement.

One: tax efficiency

Lots of businesses miss out on claims for fear of claiming incorrectly and ending up with fines, but failing to claim allowable expenses hamstrings your profitability. A survey of 1,247 small business owners conducted by TAP revealed that 81% of them lacked a full understanding of what qualified as legitimate business expenses.

What’s more, 65% said they’d failed to meet HMRC deadlines, resulting in losses of sums surpassing £10,000 in allowable expenses.

Another 36% were simply unsure whether it would pass HMRC’s stringent rules, and 8% didn’t claim because they were too worried about penalties. Most alarming is that 41% of the respondents didn’t have time to claim expenses (or didn’t bother).

Hesitance and confusion

Expense claims might seem insignificant in isolation, but they can amount to a considerable sum over time and significantly strain your business’s financial health and profitability.

Considering all of the UK’s small businesses, the emerging picture suggests a loss of £5.6 billion in unclaimed business expenses. And the majority of it seems to come from hesitancy, worry, and confusion. The rules for claiming expenses are also slightly different for sole traders and limited companies, which doesn’t help.

However, companies seeking financial efficiency in 2024 and beyond must start taking their tax claims seriously, explore tools to help with the process, or partner with experts. Ideally, all three.

Two: management accounts

Management accounts is an internal report by yourself, of yourself, for yourself. It collates your financial records into a format which makes them easier to look at and understand what’s going on in the business.

Similar to the annual report but created more frequently, it enables informed decisions and a much higher degree of control. There aren’t any set rules on which reports it combines, and it will vary from case to case, but a management account typically consists of:

1. Balance sheet

The balance sheet reflects your assets, liabilities, and shareholder equity over a specific period. This provides a snapshot of what you own and owe.

• Cash flow

Managing your cash flow is crucial for paying bills on time. Reviewing the profit and loss statement and your cash flow together is particularly useful. This is a summary of a business’ sales, minus its expenses and will usually show the figures over a particular period of time, such as a month or a financial year.

For example, you may find that your sales are strong and your expenses are low but that you’re still not paying your bills on time. This might turn out to be a cash flow issue that stems from too many discounts and refunds, or as a result of customers delaying their payment to you. Spotting this trend will help you investigate and take action.

Another example is if you find customers are paying late because your payment terms are too generous, you can set shorter payment terms and stricter credit agreements or start using automated invoice chasing.

• Key performance indicators

These should be whatever you find useful, as they can measure success in various ways. For example, customer reviews or satisfaction scores, the number of refunds requested, or information about repeat customers; all of them paint a picture of how effectively the business is performing.

Combine these with your balance sheet and cash flow numbers, and you’ll have a firm idea of how effective and efficient your business is.

How often should you review your financial reports?

Since management accounts are optional, there are no strict rules. They’re not required by law or HMRC, but they’re instrumental in ensuring everyone involved in the business has the best information available.

Ideally, that means producing accounts at least every month. This way, you can reflect on your progress and plan ahead. This also ensures you deal with timely information, which is critical when making big decisions. After all, the last thing you want is to base your decisions on inaccurate and out-of-date information.

Looking towards the future

Heading into 2024, it’s essential to dedicate your time to thoroughly examining and analysing the inflow and outflow of cash in your business. This involves carefully reviewing your financial statements, such as income statements, balance sheets, and cash flow statements, to understand how your business is performing financially. This way, you can identify areas where you can reduce expenses, increase revenue, and improve your business’s overall financial health.

2024 is already shaping up to be a transformative year for all business owners, and you need to ensure that you’re on track to make the best decisions about the future of your business.