All posts by Richard Hallsworth

It’s all about turnover … 3 aspects to look at

I’m asked to interpret accounts a lot by clients. Either their own or somebody else’s, perhaps a competitor, customer, acquisition target or supplier. It doesn’t matter what the reason or how big or small they are, I always look at three aspects;

  • Are they growing revenue?
  • Are they profitable?, and
  • Do they generate cash?

Over the next 3 weeks I’m going to take a look at each of these in turn, starting this week with revenue, turnover or sales.

It’s important for a business to be growing, even if that growth is just to keep up with inflation, growth is healthy. So the first thing I look at is total sales and have they grown. If I’m lucky enough to have a few years of accounts I’ll look to work out the rate of growth. (Amount of growth divided by previous year’s sales x 100)

Take Qwerty Ltd, a small company with sales of £348,000 last year and £414,000 this year. The rate of growth is 18.97%. ({{£414,000 – £348,000} / £348,000} x 100)

Personally I like to see regular growth, but sometimes you see a significant increase in sales which can represent a step change in the business or may be a one off. It’s important to know which and so I start to ask questions. I also like to understand whether there is a cycle to sales. A time of the year where sales peak etc. Understanding this is vital as it helps plan activity and forecast cash flow and other resources that might be needed at either busy or quiet times.

Rapid uncontrolled growth can sometimes cause problems too as the cash needed to grow is more than the cash being generated. In this scenario “over trading” can eat through cash with disastrous consequences. As I always tell people, businesses ultimately fail because they run out of cash. That’s why “turnover is vanity and cash is reality”.

It’s also worth taking a look at the turnover note to see whether there is a geographical spread of sales. Turnover is usually split between the U.K., Europe and the rest of the world.

Analysing turnover is important, but it’s just the start.

Three tips for better bank reconciliations in XERO

Ever since seeing a demonstration of XERO I’ve always liked the bank functionality. It’s a key feature that is at the centre of the app and an important one to get right. We know that when bank accounts are reconciled the whole book keeping dataset is more accurate and with more accurate data going in we get more accurate information out.

So how can you take a step forward towards perfect bank reconciliations? Here are three top tips.

  1. Get your automatic bank feeds set up. Having bank data to hand when you log in means you can get to matching off bank transactions straight away.
  2. Use rules to post regular standing orders and direct debits. Rules are a great way of automating the posting of bank transactions. Rules can be set up quickly and easily and mean you can “ok” regular transactions.
  3. Check in two to three times per week. “How do you eat an elephant?… in small pieces” goes the saying. By logging in two or three times per week there will be less transactions to match meaning you don’t need to spend a lot of time in front of your computer.

For more information about how you can benefit from XERO or for help getting more out of it please call Stephanie Smith our XERO specialist on 01522 815100.


As You Were!

The Budget announcement, and subsequent withdrawal, regarding the increase in NI contributions for the self-employed has been a debacle. Philip Hammond was supposed to be a safe pair of hands as Chancellor of the Exchequer, but any more gaffes like this and he will earn the nickname “Butterfingers”!

Simplifying the tax system is a noble aim, and the abolition of Class 2 NIC from 6th April 2018 is a good step along this road. It seems that the Chancellor was trying to claw back
some of this lost revenue by his Class 4 NIC hike, but this was politically unacceptable. Continue reading

Budget 2017 – Payroll Changes

With the new tax year looming, the payroll year end is at the top of the list of ‘to do’ for all of us processing payrolls.  I thought it might helpful if I run through a few of the things that we need to keep in mind this month and into the next:

If you haven’t already ordered, and don’t want to waste ink, the Revenue are still providing blank P60 forms for free, just search for the online order form on HMRC.GOV.UK. Continue reading

Vanity, Sanity & Reality

I’m asked to interpret accounts a lot by clients. Either their own or somebody else’s, perhaps a competitor, customer, acquisition target or supplier. It doesn’t matter what the reason or how big or small they are, I always look at three aspects;

  1. Are they growing revenue?
  2. Are they profitable?, and
  3. Do they generate cash?

Continue reading

Choosing to incorporate? A wise decision or not?

“The number of private sector businesses that are now incorporated is on the rise. So why do people choose to incorporate? There are certain benefits relating to legalities and limitation of liability, but what are the tax and financial benefits to this?

There is often a misconception that when you are the shareholder and director of a company that all the profits belong to you. You should beware not to fall into this trap. Once incorporated, all the profits belong to the company and tax planning becomes an essential tool to extract this profit for yourself in the most tax efficient manner. Continue reading