Content from this article was originally posted by XERO.
While there are many advantages of being your own boss and running your own small business it isn’t always easy and it can come with hurdles you didn’t even know existed. Then throw in 12 months of restrictions, lockdowns and uncertainty.
The scale of the impact felt by the self-employed is abundantly clear in latest research by simply business. They found Covid-19 will cost SMEs an estimated £126.6 billion – double what owners predicted it would cost them. With six million SMEs in the UK – accounting for over 99% of all businesses, 33% of employment and 21% of all turnover – this £126.6 billion hole in the books of small businesses is a huge blow to the economy.
It’s been a lean time for small businesses, and especially the families supporting them.
Xero’s small business trends report shows that 60% of small business owners are worried about their household finances running low. So while 2022 will hopefully be a year of rebounding sales and revenue, owners really need that to carry through to the business’ bottom line.
What the experts say
“Businesses must analyse margins and focus on the products and services that generate actual profits as they try to restore cash to the business,” says Ya Wen How, an accountant at AccountServe, who participated in the report.
While there will be a temptation to withdraw any spare cash from the business as ‘owner’s drawings’, experts say it’s important to be mindful of upcoming and potentially unknown expenses.
“Owners often overlook upcoming business expenses when taking drawings, which creates cash flow issues later,” says David Stephens, an accountant at Stephens Financial Services. These cash flow issues create further disruption to the household budget because money has to be put back to the business.
“Rather than clearing out the business bank account, owners are better off paying themselves a modest amount at regular intervals,” Stephens advises.
Takeaways for small businesses
There are a few things small businesses can do to help support their recovery according to Xero’s small business trends report:
Analyse your business margins and focus on products that generate the most profit
Create a ‘rainy day fund’ within the business so you’re not constantly loaning it money from your personal savings
Schedule regular, sustainable drawings to ease home budgeting
Keep your regular drawings modest, as you can always give yourself a bonus payment at the end of a good year
Check out other trends for 2022
Read Xero’s small business trends report to learn more about how to manage your cash and income to set your business up for success in 2022.