To any business, the finance department is its lifeline. Thus, maintaining a balance between working capital, cash flows and investments is vital. Activities like excessive drawing and dividends payments can impact on the business. Also, excessive borrowings which may sound good in the short term can affect the business. When borrowing is not controlled, it leads to wastage and misuse of resources. Later, when the business is unable to pay the principal amount and accruing interest, it can be declared insolvent. Paying debts can stretch the business resources. It can make it difficult for the business to carry out its day to day activities.
At Hammersmith Chartered Accountants, we ensure that you have the right information. Such info can help you to make sound financial decisions. We respond fast whenever you need our input in resolving complicated financial issues. Some of the things we do are:
1. Managing working capital
Any company that manages its working capital has the room to grow to greater heights. The ability to utilise the working capital optimally is critical. Also maintaining a good balance between liquidity and profitability is essential.
Working capital refers to the difference between the business’ current liabilities and its current assets. A business utilises its working capital in its day to day activities to generate revenue. But it needs to put in place proper strategies to maintain healthy working capital. A good working capital ratio should be maintained at all times. It ensures that the company has adequate cash to pay its expenses and short term debts. But most businesses especially start-ups have issues on this. It results in financial difficulties that often force some of them to wind up.
If you are experiencing difficulties in this area, you need to talk to us. We have the expertise that will point at the things that you are not doing right. We will study your business and give you a full report. Also, we will calculate the level of working capital the business should maintain to maximise operational efficiency.
Things we do:
We do all this because we know that a sound working capital is a metric for efficiency in any business. It improves liquidity and ensures that the overall health of the business is good. Also, it reflects on the results of company’s activities. The most important activities include debt payment, revenue collection and paying the suppliers.
Working capital needs vary from business to business. But it’s prudent that your business put in place good policies on collections and payment. The business must also have plans on when to purchase assets to avoid cash flow issues.
When a business has enough working capital, it is can honor its financial obligations with ease. It helps reduce financial troubles that can lead to insolvency and bankruptcy issues.
Proper managing of working capital is a vital accounting strategy. It helps to maintain a balance between the company’s assets and liabilities. Also, it allows the business to cover its financial obligations. It enables it to take advantage of emerging opportunities.
At Hammersmith Chartered Accountants, we use performance ratios to understand the business. Ratios like collection ratios, inventory turnover ratio, and working capital are important. They help us to identify areas to focus our effort on. It plays a role in improving business liquidity and profitability.
2. Drawings, debt repayment, and dividend payment
Before spending money on items like drawings debt payment and dividends, an analysis of the resources available must be done. This is one area where most businesses falter. But if it is not carefully done, it can lead to financial problems.
If you own the business 100%, you will be at liberty to do as you want. But if there are other shareholders, there are rules that govern cash withdrawal. Also, it is important to remember that corporations must file income tax and pay other taxes. These activities soak in a substantial amount of money. If it is not controlled, it may impact negatively on the liquidity of the business. We will work with you to ensure that returns are filed on time. We will advise you to ensure any drawings made do not jeopardize the operation of the business. If any dividends have to be declared, we guide on the amount and the time it should be done.
It is normal for business owners to be tempted to draw some money to meet pressing personal needs. Note that drawing is allowed in sole proprietorships and partnerships. But when it comes to corporations, it is a different game plan. The officers can only be allowed to a low-cost loan which comes with some tax implications. We will advise you on how you can draw money from your business cheaply.
3. External Factors
Economic times change and so your business must be kept in the loop around the clock. Fluctuations in interest rates and currencies will impact on your business financial position. Also, the loss of a key employee may affect your business. Hammersmith Chartered Accountants has specialists who can keep a professional eye on some of these factors. We analyse them on a day to day basis. It means that we will keep you posted on trends that are likely to impact on your business. We will also suggest strategies to put in place to take advantage of the changes. It will ensure that your business is not affected by these factors.
Moreover, if your business is planning to expand, acquisition, and a mergers, we will be there for you. Also, internal changes such as the exit of a partner may cause financial problems to the business. We advise on the best time such exits should be done. A planned exit reduces the impact of such a move on the business. If money is to be paid out to the existing partners, it should not affect the operations of the business. We will help you develop a structured exit strategy.
4. Advise on selling a business
If you are planning to exit your business by selling it, you will need advice and guidance. We will help you prepare the business for sale. It ensures that the outcome of the process is favorable to you and the staff. We will advise you on possible tax liabilities associated with selling a business. Also, we will help to audit your business and compile a report that gives the true net worth of the business. We have a team of experts that will help you to do all this. They will quantify the value of the business so that you get what is due to you. Also, they will quantify the cost of the skill your staff possesses, goodwill as well as intellectual property. We will look at all the things you have done to develop the business and cost them appropriately.
5. Seeking additional finances
If a business is underfunded, it may not operate at a level that optimizes its activities and profits. Also, a business that is over financed faces problems of wastage. Any of the two positions are not good for your business. So, you need a financial expert to advice on what you must do to help guide your business. First, it is necessary to ensure that your business has enough resources. It will go a long way to helping it achieve its objectives. We will study the options available and decide the most appropriate ones for your business. We will prepare the necessary documents including the business plan, prospectus, and forecasts. We will then present the proposal to your prefered source of finance. If you have no idea where your business can seek finance from, you can rely on us. Our contacts and expertise will open the doors to help your business to grow to the next level.