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What are the Risks of Taking Out a Personal Guarantee on a Loan?

What are the Risks of Taking Out a Personal Guarantee on a Loan?

To fund the growth of your business, you’ll almost certainly need to take out a business loan at some point.

But many lenders will ask you to provide a personal guarantee against this business loan – and there’s a risk element to consider when taking out finance.

So, what does offering a personal guarantee on a secured loan actually entail? And what are the principal risks of becoming a guarantor?

Understanding the key risks of a personal guarantee

When you agree to offer a personal guarantee, you’re essentially promising to repay the loan if the business can’t make the payments – and to do this out of your own money or assets. This might seem like a small step to take, but giving a personal guarantee can have serious consequences if your business is unable to repay the loan.

Here are some of the risks of giving a personal guarantee:

    • Personal liability – by signing a personal guarantee for the loan, you’re putting your own personal assets on the line. If your business defaults on the loan, the lender can come after your personal assets to collect the debt. This means your home, car, savings, and other personal assets are all fair game and could be at risk.
    • Negative impact on credit score – if the lender comes after your personal assets, this can have a negative impact on your personal credit score. As a result, it could become more difficult for you to obtain credit in the future. Lenders will see you as a higher risk, which could affect your ability to borrow, take out a mortgage or find personal finance.
    • Strained relationships – when you’re asked to give a personal guarantee by a business partner or family member, this can put a strain on your business and personal relationships. Having to repay the loan from your own assets can cause resentment, mistrust and ongoing problems between you and your partner, or family member.
    • Difficulty obtaining credit for your business – giving a personal guarantee for a loan may get the business out of a short-term financial hole. But when the business relies on personal loans from directors, this can impact your ability to obtain credit for your business in the future. Lenders see this as a risk and may be less likely to extend credit.
    • Risk of bankruptcy – if the business can’t repay the loan and the lender comes after your personal assets, this has the potential to push you into personal bankruptcy. Becoming bankrupt can have serious long-term consequences, including difficulty obtaining credit, loss of assets and damage to your credit score.

Talk to us about your business finance plans 

If you’re planning on taking out a business loan, it’s important to consider the possible risks. Make sure you understand the risks involved and have a plan in place for repaying the loan if the worst happens and the business can’t meet the repayments.

We can help you work out a strategy for your business finance plans. We can also connect you with a suitable independent financial adviser or legal expert to explore the risk threats.

 

The following content was originally published by BOMA. We have updated some of this article for our readers.

5 Tips for Chasing Invoices Without Annoying Your Clients

5 Tips for Chasing Invoices Without Annoying Your Clients

When you’re a small business owner, sole trader or freelancer, asking for payment on overdue invoices can be a delicate matter.

Without an accounts person or department, sometimes you’re trying to secure new work and chase invoices from the same person. That can be an awkward tightrope to walk.

Here are five tips for chasing payments while maintaining customer loyalty:

  1. Automate reminders – Set friendly payment reminders that go out automatically – they tell clients they’re missed a payment without making it personal. It’s like your invoicing platform is giving them a nudge, rather than you doing it yourself. You can sign it off with just your business name, rather than your own.
  2. Find out who’s behind the payments – Is there another person at the business who’s in charge of accounts or payments? Ideally, you want to be selling your services to your usual contact and chasing someone else to pay your invoices.
  3. Enlist help from a friend – If you have a friend who also has a small business, become each other’s accounts support. Set your friend up with an ‘accounts@yourwebsite.com’ address and they can send out email reminders and follow-ups to your clients, or call them about the invoice. Maybe you can do the same for them.
  4. Set expectations when you negotiate the job – Firm and clear payment terms make it easier to get paid faster and keep that cash flowing. Set out your terms up front – it’s much easier to talk about your payment expectations when you organize the job, rather than once the invoice has been sent. For persistently slow payers, consider offering an early payment discount or ask for more money upfront for the next job.
  5. Be nice, but firm – There’s no need to be rude or aggressive to your clients when chasing payment; you want to maintain a positive relationship. However, at some point you need to cut off their credit. Often saying ‘I’m very happy to do that for you, just waiting on payment of that last invoice’ will give them the impetus they need to pay you. But if they persistently don’t pay, no matter how much you like the client, you’re not providing a free service! Stop working for the client and chase those outstanding invoices more assertively.

 

The following content was originally published by BOMA. We have updated some of this article for our readers.

Which is More Important? Cashflow or Profit?

Which is More Important? Cashflow or Profit?

Cashflow and profit are two of the most important financial metrics for any business.

But while they’re both related to the financial performance of a company, they measure different things.

Knowing the difference – and how cash and profit contribute to your success story – is a vital skill if you want your business to have the best possible financial health.

The difference between cashflow and profit

Understanding the technicalities of financial reporting can be daunting as a new entrepreneur. And even seasoned business owners can find it hard work resonating with the various financial reports that today’s cloud accounting software can produce.

But getting your head around the differences between cashflow and profit can be a gamechanger – especially when it comes to managing your working capital.

So, let’s look at the differences:

    • Profit refers to the amount of money your business has left after subtracting all expenses from your revenue. It’s a measure of your company’s financial success over a given period, whether that’s a month, quarter or a full 12-months.
    • Cashflow is a process that measures the inflow and outflow of cash in your business. This includes both your operating and investment activities. Maintaining a ‘positive cashflow position’ is vital for meeting your financial obligations.

Why is it important to make a profit?

Profit is a measure of the financial success of your business. It’s also a key factor in your growth as an organization. Healthy profits mean you have the surplus cash needed to reinvest in the business, and to pay yourself and your fellow shareholders healthy dividends.

However, you can only make a profit if you have enough liquid cash to keep operating – and this is where the importance of cashflow becomes paramount.

Why is positive cashflow so essential?

Poor cashflow is one of the biggest factors in most business failures. As the lifeblood of the company, cash is an essential ingredient in the financial mix. To operate effectively, you need more cash inflows than cash outflows. If not, you don’t have the cash to purchase raw materials, pay your workforce or buy the services that keep you operating.

Positive cashflow is all about ensuring that there’s more cash coming in than expenses going out. In this harmonious place of being in a ‘positive cashflow position’ you have liquid cash available exactly when you need it – and that’s vital for keeping the lights on in the business.

Talk to us about getting in control of your cashflow

Profit is an excellent measure of your financial success. But positive cashflow is the electricity that powers your business and keeps the wheels turning day in, day out.

Positive cashflow helps you:

    • Stay operational, with enough cash in the kitty
    • Meet your financial obligations as a company
    • Invest in your expansion, growth and scale-up strategy
    • Sustain your long-term success as an ambitious business.

Even a profitable business can face liquidity issues, so getting in control of your cashflow really should be top of your financial to-do list this year.

Get in touch to talk about your cashflow position.

 

The following content was originally published by BOMA. We have updated some of this article for our readers.

The ABCs of Bookkeeping

The ABCs of Bookkeeping

In today’s digital times, you’re probably used to having unrivaled access to your financial numbers, key performance indicators (KPIs) and cash flow metrics.

Without good bookkeeping, the speed and quality of your reporting can quickly fall down. 

So, why is fast and accurate bookkeeping so important? And what are the main bookkeeping tasks that your business should be getting right?

The financial importance of good bookkeeping

Bookkeeping is a fundamental part of your financial process as a business. Without it, your accounting software has no financial data to work with, your FD doesn’t have the most current numbers, and your accountant can’t see the current financial health of the business.

Inputting your financial transaction into some form of record-keeping system is also a mandatory commitment if you’re a registered business and paying goods and services or value-added tax. Bookkeeping is what provides you with a historic breadcrumb trail of your finances – allowing you to track your cash flow, revenues and profits over a given period.

How to maximize your bookkeeping

So, bookkeeping is a vital part of your financial management. And the key to having your transactions recorded, available for reporting and accessible whenever you need them.

But how should the bookkeeping process work, in an ideal world? Let’s walk through the core bookkeeping steps and how you can get the most from this financial admin task.

To keep on top of your bookkeeping:

    • Scan all financial paperwork – the initial part of the bookkeeping process is to scan and record all receipts, invoices and remittances. This gives you a digital copy of the paperwork that relates to your income and expenses – important when you get around to filing tax returns and expense claims etc.
    • Record all transactions immediately – getting your transaction recorded and in the books ASAP is vital. This includes recording both your income and expenses, as soon as they occur, and matching them with the scanned paperwork. This not only helps you stay organized but also means your financial data is always up-to-date and can provide real-time reporting and numbers. This can be a huge help when running the business.
    • Categorise transactions accurately – when recording transactions, make sure you’re accurate and categories each item correctly. Not only does this remove the potential for errors and miss-keying in your books, it also helps you track your spending and income more accurately, so your reports are an honest reflection of your financial health.
    • Reconcile your accounts regularly – reconciliation is the process of matching your transactions (both income and expenses) against your bank statement and other financial statements. It’s a key part of your bookkeeping and should be done regularly, to ensure that your balances are correct and that your records are totally up to date.
    • Use a cloud-based accounting system – bookkeeping doesn’t involve books (ledgers, in accounting-speak) anymore. In the digital world, you can use cloud-based accounting software, like Xero, to record your transactions and access your financial data in the cloud from anywhere, at any time. This makes it easier to keep on top of your numbers when out of the office (and Xero will even automate the reconciliation process too).
    • Outsource your bookkeeping to a professional – yes, you can do your own bookkeeping. But there’s a LOT of value to delegating all the hard work to a professional bookkeeper. If you don’t have the time or expertise to manage your bookkeeping yourself, outsourcing is a smart move. A bookkeeper will make sure your books are always accurate and under control. Plus, they can produce cash flow statements, revenue forecasts and other reports to help your business decision-making.

Talk to us about outsourcing your booking

With today’s cloud accounting software, bookkeeping is a far less tedious task than it used to be. But it’s still a regular, time-consuming job that can take you away from running the business.

If you’re thinking about outsourcing your bookkeeping, and freeing up that admin time, we’d love to talk to you. Our outsourced bookkeeping service will take on your bookkeeping tasks, to streamline the whole process. We’ll also introduce you to automated data-entry tools like Dext Prepare, Auto Entry and Hubdoc, that make snapping receipts and scanning invoices a breeze. 

Let us do the books, so you can get back to talking to customers and winning work. 

Get in touch to discuss our outsourced bookkeeping.

 

The following content was originally published by BOMA. We have updated some of this article for our readers.

You Need More Than Just Accounting Software to Run a Trade Business

You Need More Than Just Accounting Software to Run a Trade Business

You need the right tools for the job. Most trade business owners use accounting software to help them run their businesses – and for good reason. It reduces the time you spend on manual data entry and automates the financial processes that help keep your books in order. It’s a necessary investment for anyone running a trade business.

But it’s not the only digital tool tradespeople should be using. Just as you wouldn’t use a screwdriver to hammer a nail, even a great accounting system can only get you so far. You might be a little hesitant to add another application into the mix (especially if you don’t feel very tech-savvy) but that’s exactly why it’s important to pick the right tool for the job.

Let us explain why using job management software like Tradify, alongside your accounting software, will help make running your trade business easier and more efficient.

Short on time? Skip ahead!

1. Accounting systems are made specifically for finances 

We’re huge fans of cloud-based accounting software. When it comes to tracking your finances, it’s a must-have tool. Tradify integrates with some of the most loved systems from all over the world including: 

Accounting software will help you use the time and resources you spend on your accounts more efficiently – and reduce costly bookkeeping mistakes. It’ll allow you to process your accounts faster and eliminate manual calculation errors.

It will also increase your efficiency by introducing automation. For example, UK tradespeople may need to keep records of their tax obligations under the Construction Industry Scheme. Accounting software like Sage can be configured to automatically deduct the correct percentage from a subcontractor’s bill, ensuring 100% accuracy when it’s time to file a return.

But staying on top of your finances is only one piece of the admin puzzle. What about the other areas of your trade business? Dealing with enquiries, quotes, staff and client management — accounting software isn’t the right tool for these jobs.

2. Improve your trade business with job management software

Manual, admin-heavy tasks make your trade business inefficient and disorganised. The more hours you spend managing the admin side of your business – digging through paperwork, chasing timesheets, following up unpaid invoices – the less time you have to take on jobs that will actually pay the bills. 

Not to mention all the little (but costly) things that start to fall through the cracks – forgetting bookings, undercharging clients, and missed work opportunities because you can’t get back to people fast enough. 

Here’s how job management software can streamline your business even further:

  • Keeping organised. With everything in one place, there’s no need for additional paper copies ‘just in case’. From the moment a customer makes an enquiry right through to final invoice payment, you only need to enter the information once – reducing manual data entry.
  • Get paid quickly. Cash-flow issues often happen because tradies can’t get their invoices out fast enough. If you wait until the end of the week, you’re already on the back foot. With Tradify, you can invoice on the spot as soon as the job is done. 

Tradify and Stripe integration

 

    • Stop losing money on jobs. A missed hour here or a few nuts and bolts there – over time, they all add up. You need to know that your jobs are making you money and not costing you more than they’re worth. With Tradify, you can record your time and materials accurately to the correct job, and they’ll automatically be included in your final invoice. You’ll also have real-time profit-and-loss info so you can send more accurate quotes.
    • Manage your team better. Taking on staff adds another layer of complexity to running a business. There’s keeping track of timesheets, job progression and scheduling work calendars. Tradify makes it easy to grow your team by automating your timesheets and staff scheduling, job information that’s easily accessible in the app (digital job sheets) and tracking jobs in real-time – which helps with updating clients too.
3. The advantages of integrated systems

Using the right tool is important for the job, but you don’t want to get caught in a complex web of software applications that waste more time than they save. The best-case scenario is to use systems that can speak to each other and share information. This allows you to work with the app that’s best for the job at the time, while syncing information between both.

Tradify syncs with most major accounting software providers and here’s how it helps you:

    • One source of information. Keying in the same information into multiple systems slows you down and opens you up to errors. Integrated systems automatically share the information for you, allowing you to make faster, more informed business decisions.  
    • Become even more efficient. Reducing the number of steps it takes to complete a task by removing data entry or adding automation helps you process more jobs faster, giving you better control over your business.
      • Create invoices in Tradify and send them to your accounting software for total visibility in just one click.
    • Consistent communication. Integrating these systems eliminates any confusion that inconsistent information creates. This means you can spend more time growing your business and less time maintaining your records.

4. Find the right tools that work together

Running a trade business is a busy gig. From one hour to the next, you could be acting as a tradesperson, a manager, or an accountant. Your business relies on how fast you’re able to move. One of the first software investments you’ll likely make is accounting software. When you do, consider job management software that will work together with it. 

The reason is clear: streamlining processes right across your business – not just your finances – will give you the control you need to grow your trade business quickly.

 

The following content was originally published by Tradify. We have updated some of this article for our readers.