Domestic Tips for Business: How to Deploy Personal Finance Skills to Running a Company

From finding cheaper utility bills to taking advantage of government tax breaks, why do so many business owners ignore basic money-saving wins so often sought out in domestic life?

When it comes to managing our households, it’s long been drummed into us to run a tighter ship, for instance, by trimming our energy bills, shopping around for cheaper premiums and getting the best return on our savings. But how might we bring our well-honed personal finance skills to the job of running a business?

Karen Swash, co-founder of Swash & Co accountants, says clients are often so focused on the day-to-day running of their companies they can forget about the simple cost-cutting measures that have become second nature at home. “One of the first things we tell customers is to treat their business utilities and insurance premiums as if they were at home and always look for a better deal before renewing,” she says. “It’s a surprise how many are not already making notes in their calendar when their contracts are due for renewal, so they can shop around. It’s so simple to switch providers online and it can save businesses a considerable amount of money.”

One reason business owners may neglect to bring their personal finance skills to bear on their businesses is because outlays such as utility bills and insurance premiums are sometimes perceived as more peripheral than other costs such as labour and raw materials.

More variables

Managing a business is typically more complex than managing your domestic finances, with more variables and more inter-relationships between them. Moreover, as businesses grow, this complexity can make it harder and harder to keep a handle on every outgoing and every incoming – a lack of visibility that is exacerbated when businesses rely on manual, paper-based finance processes.

This lack of visibility is another reason why business owners sometimes fail to apply their personal finance acumen to their companies. All the relevant information may well be there, but it can be difficult to oversee it all. Automating financial processes, for example by using software such as SAP Concur, can help here by ensuring that everything you need to know, for instance about your invoices, expenses and travel costs automatically flows into one system – making it easier to manage, analyse and figure out how to improve your business’s cashflow. Another part of the software package, Concur Budget, takes a holistic view of employee spend, enabling companies to make cost saving and purchasing decisions in the moment, which is particularly relevant for SMBs who have to be nimble.

And just as we might sometimes incur late-payment penalties for the red bills that land in our letterbox at home, failing to pay business suppliers in a timely manner can also result in late-payment fees.

Swash notes that this works the other way round, too: “The other clear disconnect [between personal finance and business skills] is chasing up money. If a friend owed them for some concert tickets, a business owner [would] expect to be paid as soon as possible. When it comes to chasing invoices and pressing their customers to keep to payment terms, we find so many don’t keep on top of it and that can be bad news for cashflow.”

Making allowances

Another facet of personal finance that executives do not always apply to the business world is knowing a company’s full tax allowances. As individuals, most people know they are allowed to earn so much before tax and, if applicable, use their dividend and capital gains tax allowance each year. They may even be using their annual Isa allowance to save money tax-free.

However, many businesses do not use all the tax allowances available because they either don’t always know they exist or they don’t understand them fully. A case in point is tax relief on research and development, which only a small proportion of eligible companies claim, according to Mark Tighe, founder of tax specialist business, Catax.

“Business owners always get great advice on making full use of the tax system for their work and personal pensions from their accountants but, in our experience, the same isn’t always true of R&D tax allowances,” he says. “If you’re involved in using science or technology of some form to make a bespoke product that carries risk of it working well or not, then you are likely to be able to claim against a total sum equal to 130% on top of the original expense.” So, a £100,000 bill for R&D staff, for example, will result in an R&D claim against a £230,000 cost.”

“It’s the same with patents,” says Tighe. “It’s a little more complicated but if you’re earning profit through a patent then you can apply to have the relevant corporation tax halved.”

Many businesses are also nervous about reclaiming VAT on expenses because of the fear of getting it wrong and risking a fine from HMRC. Research by Vanson Bourneshows that UK businesses miss out on more than half (54%) of the VAT they are entitled to reclaim. Again, SAP Concur can automate this process.

Travel expenditure

Holidaymakers have got into the habit of comparing foreign currency deals and learning how to make their budget go further whenever they go abroad. However, business owners sometimes forget to apply these lessons to their companies.

With non-sterling transaction and purchase fees on cards adding up to as much as 4% when a normal UK bank card is used, Nick England, chief executive officer of EasyFX, believes business owners can sometimes forget to ensure staff always pay in local currency. One tip is to consider equipping staff with pre-paid currency cards which don’t attract foreign transaction costs and don’t charge the owner for withdrawing money from an ATM.

Alternatively, if employees are still using UK business bank cards, bosses should check what the applicable charges are for purchases and cash withdrawals abroad. This will normally be cheaper for a bank that is a member of the Global ATM Alliance. A transaction charge may still apply, but there will be no additional fee for withdrawing cash from a machine.

Loyalty points

In their domestic lives, many business people choose to use a particular supplier, online shopping service or card to earn loyalty points, discounts or cashback. By not applying this approach to their work purchases, and those made by staff on behalf of the company, a business could be missing out on significant discounts or on accruing points to earn benefits, such as discounted travel or hotels. This is particularly pertinent when it comes to air miles and loyalty points that are racked up by employees buying travel, accommodation and other supplies both at home and abroad.

After all, just as no business owner would want to pay too much at home, there is no reason to do so at work. So, whether it’s making savings on everyday purchases, reducing bills or ensuring that you claim all your tax allowances, personal finance skills are one area where you should definitely bring your domestic life into the workplace.

SAP Concur can provide solutions to help your business automate finance processes, such as expenses and invoices, giving you the visibility you need to run your business more effectively – along with real-time analysis and insights to help you improve your cash flow. To find out more, visit concur.co.uk