You have worked long and hard to get your business up and running and have put your heart and soul into making it successful.

The thought of losing it can be incredibly stressful, both for you and any employees who could lose their jobs.

Equally, if you have a customer who owes you money, you may want to take more immediate action if it looks like they may be in distress.

So, how do you avoid getting into difficulties and spot the signs of business failure? And begin firefighting potential problems?

The warning signs that a firm is struggling include:

Problems with cash flow

They say that money isn’t everything, but poor cash flow is a problem in business and is often a clear indication that the business is in trouble.

Cash flow issues can be identified with proper forecasting, which will identify the cash shortage problem areas or overspending.

Excessive debts

Interest rates are creeping up again after more than a decade of historically low rates and having too much debt within a company may place it at risk.

If you are seeking out additional funding and lenders are seeking stronger personal guarantees or security against any money they lend this could be an indication that your own business is in trouble.

It can be more challenging to spot debt issues in another business, but regular late payments from a customer can be an indication that they are struggling to manage their own money.

Defaulting on bills

We have all heard the phrase, “you will be paid by the end of the month,” often used to overcome short term shortages.

If this becomes a regular occurrence, it could suggest a business can’t pay its way.

When it comes to your own finances, defaults on tax payments to HMRC or other formal payment arrangements can be particularly damaging and lead to penalties.

It can also be bad for your reputation and that of your business if it becomes clear that you are struggling to make payments on time.

Chasing payments

A lot of businesses are reluctant to chase payment because they do not want to damage their relationship with customers or reduce the prospect of future work.

However, regularly allowing late payments can affect your own finances and prevent your own suppliers from being paid.

If you are dealing with late payment issues you should seek professional advice to improve your credit control processes and, if necessary, eliminate late-paying customers from your business.

If you are unable to effectively chase payment it may cause future cash flow problems.

Either way, sudden changes in these numbers should be investigated to see whether they are signs of something more serious.

Falling margins

High sales are great, but profit is the key to survival and growth.

Falling margins suggest that costs are too high, and prices or income are too low. This is not a sustainable position for any company.

Indications that this may be happening within a customer’s business are changes within its own operations, such as the cutting of service or product lines, redundancies or an overall poorer quality of goods or services.

Low morale

Reduced hours, contractual changes and pay freezes can all be signs of trouble within a business.

All of these indications may not necessarily mean the end, but they are a clear indication of money troubles.

With employment costs rising suddenly this month, you may start to notice this within more businesses that you deal with.

If you are concerned about your own financial health or that of a customer, you should seek professional advice as soon as you can.

It is always a challenge to keep costs down for businesses, particularly at a time of soaring inflation and steep rises in the cost of utility bills.

An expense report is designed to report on any business-related expenses an employee incurs, either by using a company credit card or by using their own funds.

This might include spending related to work activities, such as a business trip, travel and transportation, meals, training and workshops, accommodation, business supplies and tools.

The easiest way to manage expenses and process expense reports is to use expense management software, which automates the entire process for you.

Why it is critical to keep spending under control

Keeping expenses under control is vital to the long-term health of any business.

While some of the cost of expenses can be recovered via the tax system, much of it still falls on you and could reduce your profitability.

In implementing an expenses management system several steps need to be undertaken.

Manual expense management demands a lot of time, money and effort.

An automated expense management system with ready-made templates and cloud-connectedness streamlines the spending and employee reimbursement process and helps you to be more efficient.

Avoiding costly mistakes and duplicating

The best part about digital expense management systems is that they make it far easier for employees to follow the rules.

This eliminates most potential mistakes, such as overspending, double-entry and lost receipts.

By employing some of the latest technology, businesses can track employee spending and determine how the business will reimburse staff.

What’s more, many of the apps out there can connect to existing cloud accounting software to automate much of the accounts process.

It also applies the procedures and policies used to control this type of spending. For example, if employees are given daily allowances for meals when travelling, then the expense management process accounts for those limits when generating reimbursements.

Make the system secure and compliant

These systems allow you to limit user access to the system and to configure the software so that it prohibits employees from entering claims that are clearly in breach of organisational policy or the expenses guidelines of HM Revenue & Customs.

You can set the system up so that disputed claims are easily moved up the chain to senior management once certain limits or rules have been breached.

Make sure that data is collected properly

One of the most common problems with employee expense claims is that not all of the information necessary to prove the validity of the claim is captured correctly.

The latest systems safely and securely store information on the cloud, often allowing staff to quickly take a picture of receipts or invoices so they don’t have to be processed manually or stored.

Publish analysis of the data

If a claim looks ridiculous or excessive, allowing the claimant to see might lead to more sensible claims and can allow you to reinforce your rules surrounding expenses.

In many instances, it is entirely appropriate for expenditure to pursue a new client or the management of an existing one.

Transparency of the spending involved ensures that everyone can see the true cost of client acquisition or retention.

Businesses without automated expense software should explore the options available to them to help them save time, and money and reduce the strain of managing expenses manually.

Financing a new venture is a challenge, even harder in the current climate of high inflation, global uncertainty and the backdrop of war in Europe.

Difficult, but not impossible. With planning, careful research and the right advice, you should be able to find the finance that is right for you.

If traditional funding is difficult, other forms of finance may also be a good option and are generally easier to obtain than bank funding.

Peer-to-peer, crowdfunding, angel investors and other forms of alternative funding can be more flexible and may not require the extensive credit history of a bank loan.

However, with all forms of finance some pitfalls are best avoided:

Lack of preparation

In some ways persuading a financial institution or financier to lend you money for a business is a bit like getting a mortgage.

They will want to see that you can afford the loan or support being offered and have a clear plan for repayments and the initial equity to kick start the company.

They may take the view that if you are not prepared to invest in yourself, then why should they?

For most loans you will need to provide some collateral, should there be a default in payment, but lenders will also want to see a clear business plan and some indication of income to support regular repayments and interest.

Planning is the key

You know what they say, failure to prepare is preparing for failure.

As mentioned, you must have a business plan. Unfortunately, many start-ups apply for finance with an underprepared or even non-existent business plan.

To persuade a lender to part with the funds, a clear and costed business plan is essential for them to see your goals and specifically, how you intend to reach them.

Choosing equity or loans

Equity investments can come from friends and family, angel investors online or even crowdfunding platforms.

Equity is less risky than a loan because there is typically less or nothing to pay back. Instead, investors enjoy a cut of your profits by being given shares in your company.

This can free up additional funds needed early on within a business but can create conflict, especially where investors are friends and family.

On the other hand, a bank or lender doesn’t have any ownership of your business and has no say in the way you run your company.

A loan can be short-term or long-term. Whatever the loan’s terms, however, you must pay the money back within a set time frame, plus any interest.

If you are not sure which option is best for you, speak to a professional adviser beforehand.

Know your borrowing limits

It seems obvious, but you should not borrow too much (or too little).

You should have a clear conversation with potential lenders about how much you need and how much they think you can afford.

You shouldn’t make the mistake of asking for more than you need, but it is a good idea to build a contingency into the amount of working capital you budget for, just in case something unexpected arises.

Make sure you manage your credit score

Your credit score will always be a factor when a lender considers offering you a business loan.

A lender may take the view that if a business owner hasn’t taken care in managing their personal credit, there is the potential that they will take the same approach to their business credit.

Because of that, managing your personal credit is critical and starts with knowing your current score and creating a plan to improve it if necessary.

If you are looking to start up or scale up a business then you must seek professional advice on financing beforehand.

National Insurance and Dividend Tax rates have increased by 1.25 percentage points as of 6 April, as part of the new Health and Social Care levy.

These changes have brought additional complications to the payments of National Insurance Contributions (NICs) and dividends that businesses are just getting to grips with.

How have NICs changed as a result of the increase?

The 1.25 percentage point increase in NI affects the contributions made by employees, employers and the majority of self-employed workers.

While the move will help to raise more than £12 billion for the NHS and social care system, it will mean that businesses face a sudden rise in their employment costs this month.

The increase in NICs will initially affect everyone over the age of 16, but below the state pension age, earning more than £190 per week through employment (rising to £242 from July 2022) or with profits of £9,880 or more a year in self-employment (rising to £12,570 from July 2022).

The 1.25 percentage point increase also applies to employer NICs, minus any reliefs that a business may be entitled to.

The increase will not apply to Class 2 NICs, which is the flat rate paid by the self-employed with profits above the Small Profits Threshold or Class 3 NICs, made up of voluntary contributions from taxpayers to fill in gaps in their contributions’ records to qualify for benefits.

How are dividends changing?

Most businesses have favoured a balanced pay strategy for directors, which saw a larger proportion of their income paid through dividends versus a regular salary, to reduce the amount of tax and NICs the business is liable for.

Dividends are paid out of a company’s profits to its shareholders and every individual also benefits from a £2,000 tax-free allowance for dividend income.

Any dividends over this amount are taxed at different amounts depending on a person’s marginal rate.

Businesses do not pay any NICs on dividends, providing a clear benefit to the company.

Before the increase in the Dividend Tax rate, most people were taxed as follows:

• Basic rate – 7.5 per cent
• Higher rate – 32.5 per cent
• Additional rate – 38.1 per cent

However, as of the start of the new tax year, these rates are now as follows:

• Basic rate – 8.75 per cent
• Higher rate – 33.75 per cent
• Additional rate – 39.35 per cent

From an employer’s NIC perspective, paying out more in dividends may make more sense given the upcoming changes.

However, those in receipt of dividends may not be as happy as it could affect how their income is taxed.

What about the changes to the NIC thresholds?

To soften the blow of the increase to NI rates, the Chancellor announced in his Spring Statement that the Primary Threshold (PT) – the point at which employees start paying National Insurance – will increase by £3,000 from July to bring it in line with the personal tax allowance of £12,570, which is the rate at which workers begin to pay income tax.

The change does not affect the Secondary Threshold, which is the point at which Employers start paying National Insurance Contributions (NIC). This will remain the same.

However, the Chancellor has extended the annual Employment Allowance to eligible businesses (those with employers’ Class 1 National Insurance liabilities that are less than £100,000 in the previous tax year) by an additional £1,000 a year to £5,000.

The Treasury has said that the changes to thresholds will help cut up to £6 billion worth of NICs – cutting the NIC bill for the ‘typical employee’ by around £330 a year.

Although this does represent a saving, in reality, much of this ‘tax cut’ is taken up by the rise in NI rates.

Links: Four things to know about National Insurance contributions and the April increase

The majority of adults will have flirted with the idea of starting a business and becoming the next Branson or Musk.

That idea would have been firmly buried for many during the pandemic, but new figures show that nearly 13 per cent of UK adults are running fledgling businesses, according to research, the highest percentage since the late 1990s.

They are in the first three months of starting a new business or are already running a young enterprise, according to the Global Entrepreneurship Monitor. This compares to just eight per cent of adults in 2020.

Indeed, more than 70 per cent of Britons believe it is easy to start a business in the UK, but less than one in 10 has any intention of doing so.

For those willing to take the leap, here are just a few tips to get you started:

Be prepared and plan carefully

Overnight success is a rarity, so remember to focus on what’s achievable and be consistent.

You should create good habits and follow routines that power you on when that initial motivation wanes.

Taking one step at a time is important, as diving in headfirst can be disastrous.

The best way to accomplish any business target is to plan it out step by step.

Decide what kind of business you want

Think about what you love and what you are good at can lead you to a brilliant idea for your next business.

If you already have an idea, measure it against the market, consider whether you’re good at it and have the passion to succeed, and most importantly consider whether it is truly profitable.

Research thoroughly

The first stage of any competition study is primary research.

This entails obtaining data directly from potential customers rather than basing your conclusions on past data.

You can use questionnaires, surveys and interviews to learn what consumers want.

You should also review similar ideas within existing markets and see whether your product or service has a sufficient unique selling point that could beat the competition.

Create Your Business Plan

A business plan is a dynamic document that serves as a roadmap for establishing a new business.

This document makes it simple for potential investors, financial institutions, and company management to understand and absorb.

Even if you intend to self-finance, a business plan can help you flesh out your idea and spot potential problems.

Several important changes are happening to research and development (R&D) tax reliefs in April 2023, which could affect what income qualifies for R&D tax relief that businesses need to account for in their plans.

These new measures are still being considered by Parliament, but details of the upcoming amendments to the R&D tax relief system have now been published.

Overseas outsourced R&D

Under the new rules, the costs of overseas workers will not qualify for UK R&D relief, where costs are incurred after April 2023.

The Government has indicated that it does not want to introduce a rule that discriminates against businesses that cannot practically carry out research in the UK.

The Government will, therefore, legislate so that expenditure on overseas R&D activities can still qualify where there are:

• Material factors such as geography, environment, population or other conditions that are not present in the UK and are required for the research – for example, deep-ocean research
• Regulatory or other legal requirements that activities must take place outside of the UK – for example, clinical trials

The Government also needs to consider the international structures and connections of businesses carrying out R&D.

If a blanket ban was imposed, UK groups with overseas subsidiaries conducting work on a UK project may not be able to make a claim, despite the innovation still benefiting the main UK parent company.

Cloud computing and data 

Businesses have been unable to claim for the costs of cloud computing and data use. This has hampered some of the UK’s most innovative tech companies by excluding them from the tax benefits of the R&D credit scheme.

Under the Bill, businesses will be able to include the costs of purchasing data for R&D projects or using cloud computing services.

However, HM Revenue & Customs (HMRC) is still expected to provide clarity on the issues of usage and residual values in its upcoming guidance.

Amongst the other issues to consider is identifying cloud costs that relate to an R&D project. Many businesses use the same cloud services throughout their operations, so apportioning specific costs to R&D may be challenging.

Other qualifying costs for cloud computing costs may also be an issue, as it has been revealed that the costs of ‘data storage’ will not be allowed. Again, further clarity on what these rules cover should be provided in HMRC’s guidance later this year.

Anti-abuse action

There has been growing concern that the R&D tax relief system is open to abuse and so the new measures will include compliance procedures to deter speculative or fraudulent claims. This will include:

• An entirely digital claims system
• Additional details to be submitted with all claims
• Requirements for a named senior officer of the company to endorse each claim
• Companies made to notify HMRC, in advance, of their intentions to submit a claim
• Details of any agent who has advised the company on compiling the claim.

HMRC will also be given new powers and enforcement action to tackle R&D tax advisers. It is thought that alongside these measures, HMRC will invest further resources into conducting additional risk profiling and scrutiny of R&D tax relief claims.

Additional reforms 

During his Spring Statement, the Chancellor alluded to the fact that he planned to introduce further changes to the R&D tax relief system in future to improve access to the support that it offers.

Within the Statement’s accompanying documents, the Treasury says that the steps it hopes to take could support an additional £5 billion of R&D funding by 2024.

One of these steps has already been revealed with the expansion and clarification of qualifying expenditure to include pure mathematics services.

Further details about reforms to the R&D tax credit system are expected later in the year, nearer to the Autumn Budget.

The Government has said that, Where required, legislation will be published in draft before being included in a future Finance Bill to come into effect in April 2023.

Links: R&D tax relief: changes in the pipeline

HM Revenue & Customs (HMRC) is to launch a new mandatory P87 form from 7 May to create a consistent standard for the P87s it receives.

What is a P87 form?

Workers and their agents can use a P87 form to claim tax relief on work expenses. The form can only be used to claim tax rebates for an employee, not if you are self-employed as this is done via the Self-Assessment system.

Taxpayers need to submit a separate P87 for each job they are claiming a tax refund for.

What is changing?

At the moment claims for income tax relief on employment expenses can be made using:

• a self-assessment tax return
• online service available to taxpayers (but not agents)
• print, complete and post the P87 form available on GOV.UK
• by phone (subject to limits) if a claim has been made for a previous tax year
• substitute claim form or letter. Substitute claim forms are widely used by high volume repayment agents.

From 7 May 2022 claims for income tax relief on employment expenses can only be made on the standard P87 form, which can be found on GOV.UK.

HMRC will reject claims that are made on substitute claim forms, but the other options above will remain available.

Although this measure is due to be introduced later this year, the new P87 form is now live here.

Links: HMRC to mandate the format of claims for employment expenses