Give your salon a business health check

The end of the tax year can be a good time to tidy up your finances and check everything is in order, in other words give your salon a business health check. Salon management consultant, Ryan Fox, offers some advice on what to take a look at. Salon owners are usually really good at living in the moment and the here and now, which is why they are generally so good with people. They give them their full attention and create instant results. What they sometimes struggle with is looking back in order to better manage the future, which is what you need to do when looking at a salon’s financial position. When to look There are some key moments in the year that you should diarise as financial markers. These are: End of the Tax Year, Personal Tax & Corporation Tax deadlines, End of your company Financial Year, VAT Quarters and Payroll Cycles. Make an appointment with yourself at these key points and you will know you have everything under control and you won’t get any nasty surprises. End of the Tax Year The tax year runs from 6 April to 5 April, so this tax year has just come to end on 5 April 2015. These dates are relevant for your self-assessment personal tax return which you currently have to submit by 31January the following year if you do it electronically. So in January 2016 you will be looking at your earnings for the period 6 April 2014 to 5 April 2015. The government has just announced changes to the system in the latest Budget however, that might mean by 2020 you will not not have to submit a self-assessment tax return as the money will be collected automatically. Details of this are not available yet however, so for now you should carry on submitting your tax returns. Other things to think about are being efficient with any personal savings with for example the use of ISA’s, making sure you have maximised your pension contributions to gain maximum tax relief, disposal of assets to minimise capital gains tax and the timing of payment of dividends and loans to Directors. These need to be carefully reviewed and it’s probably worth seeking professional financial advice around these areas in addition to speaking your accountant. Corporation Tax If you are set up as a company with taxable profits of up to £1.5 million then you will need to pay corporation tax 9 months and 1 day after the end of your accounting period (your accounting period is usually your financial year). So work this out when you do your Annual Financial Accounts Meeting with your accountant and put a note in your diary of how much you need to pay and when. Improving profits whilst minimising Tax is a combination of improving the performance and efficiency of your business and having good tax planning in place with your accountant. Year End Annual Accounts This will depend on when your company financial year ends. If for example your accounts run from September to August, your Year End for this year would be 31^st August 2015. This is what your annual accounts including Profit and Loss are based on. It’s a good idea to try and stay up to date with your book keeping as you go so that when you come to the end of your financial year your accountant has everything they need to quickly produce the accounts. You can then arrange an Annual Meeting with them and review the year just gone whilst it’s fresh. You will then also be in good time to have all the information you need to submit your Personal Tax Return and/or your Corporation Tax without panic. In my experience you should avoid meeting with your accountant around their busy times which are between January (Personal Tax Return Deadline) and April (End Tax Year) so plan ahead to avoid these and you’ll get a better service for your money. Firstly because they have more time to help you and secondly because they will like you more for avoiding their “busy time”. Vat Quarters and Management Accounts An even better way to stay up to date with your accounts is to look at them quarterly, so ask your accountant to provide quarterly profit and loss figures to help you monitor cash flow and expenses. This ensures you always know what’s coming and can manage things as you go. To make this more efficient and reduce costs this can be combined with your VAT Quarters. Vat returns have to be submitted online to HMRC one calendar month and seven days after the end of an accounting period but you need to allow time for the payment to reach HMRC’s account. I would suggest submitting it by the end on the next month following a period and setting up payment by Direct Debit so it always happens on time and you don’t get any penalties. You also get a further three days until the payment comes out. So if your vat quarter is Dec to Feb, submit by end of March and the DD will come out around 10 April. Make sure you also mark these dates in your diary so you know when each return has to be submitted and paid by. Payroll Cycle These can be weekly, four-weekly or monthly depending on your preference. It’s more cost efficient to run them four-weekly or monthly and better to align to your company performance reporting so you are looking at the same figures for sales & financial performance. With the introduction of Real Time Information (RTI) and the new Workplace Pension Auto Enrolment, you really should think about moving to a 4 week or monthly pay cycle if you haven’t already, as running it weekly will cost you more in time and money. Company Structure When reviewing your tax affairs it’s also worth checking to see if you have the best company structure for your business. If you are a Sole Trader you may be better off operating as a Limited Company or Partnership or you could be better on the flat rate VAT scheme. These are questions you should ask your accountant. They should be able to do a quick couple of calculations to assess what’s best for you. Remember things change all the time so an annual review of this at your Year End Accounts meeting with your accountant should include this. Ryan Fox is a Hair & Beauty Salon Consultant who improves salon performance through training and innovation. He also offers an accountancy service specifically for Hair & Beauty salons and a Free Financial Health Check. For further details visit www.umbrellaconsulting.co.uk/services/salon-accounting-services/