With HMRC’s self-assessment tax return deadline looming, it’s time for entrepreneurs to think of the year ahead and how fintech can help balance the books.
To help with this, Sara Green Brodersen, co-founder and CEO of Canaree, a financial modelling solution that simplifies budgeting and forecasting startup finances, shares how fintech innovation can help start-ups balance the books.
It’s never easy running your own business, but when it comes to challenging times, Covid-19 has delivered an incredible blow to many entrepreneurs. There’s been unprecedented disruption to companies across industries with lockdown closures and social distancing measures.
And then there’s the matter of taxes. We all still need to pay up, don’t we? Our self-assessment deadline looms!
Government support has been vital – with the Treasury stepping up to offer furlough schemes, deferred tax payments and loan support.
Unfortunately, these are temporary measures that will soon come to a halt. When that happens, how many early-stage businesses will be strong enough to actually outlive the pandemic?
The odds of any startup surviving its first year is very slim – in fact only 1 in 10 actually make it through those critical 12 months. With such difficult times ahead, many entrepreneurs are now probably wondering how they can overcome the added economic challenges brought on by the pandemic – and what kind of support is available.
Fintech Helping Businesses
Aside from government aid, there are some great fintech offerings that are helping businesses to run more cost-effectively and to manage their monthly cash runway.
As a fintech startup ourselves, we have tried and tested some of the tech out there which helped us survive last year’s crisis- knowledge that’s worth sharing with other entrepreneurs. Like them, we have lived through the pandemic and now have to navigate the challenges that still lie ahead.
Automated Financial Planning
Among the biggest causes of business failure is poor financial planning and a lack of understanding around what’s needed to generate enough revenue or raise external capital.
Only 40% of startups make a profit – and about 30% break even. In Europe alone, about 82% of first-time European entrepreneurs fail completely before they truly take off, while half of all startups collapse within three years. These numbers are shocking, but it highlights the importance of developing a sound business model for growth and planning for it. This is critical to success – but also very difficult to get right. I know this from experience.
Having built companies before, one of the things I always struggled with was the operational side of the business – you don’t set up a business to spend your time in Excel spreadsheets, crunching numbers and trying to figure out if you can afford to buy more computers or paper! Especially when you’ve got a pandemic to deal with and a remote team to motivate.
Fortunately, there are lots of helpful financial planning software products out there to help manage that side of the business – all of which are available now and easy to download.
Invoice Financing and Alternative Funding
Funding alternatives such as equity crowdfunding site Seedrs and lending providers like Funding Circle can provide businesses with quick and flexible short term financing that banks can’t offer – and at reasonable rates.
Invoice financing technology, like the one produced by Accelerated Payments can also help companies maintain a steady cash flow. They do this by enabling companies to borrow the money they need to cover unpaid invoices that a client owes a business through an online process that is quick, affordable and reliable.
When the invoice is paid by the client, the business pays a tiny percentage of the invoice amount back to the invoice financing company as settlement for borrowing the money. This gives businesses enough cash runway to maintain their cash flow effectively.
Banks, Payments and Book Keep – Tailor-Made SME Tech
Other fintechs that help operations smoothly and on a budget include technology such as Stripe. This is a very cost-effective and easy to use processing platform for Internet-based companies which enables you to transfer money from a customer’s bank account into your business’s account through credit or debit card transactions.
Revolut is a great challenger bank of choice for all business payments, revenue and salary. It keeps track of ingoings and out, has lower fees than traditional banks and is also easy to access.
Xero is a fantastic tool for accounting. This cloud-based system is perfect for small businesses and like google docs, allows you to give people access to the latest financial numbers, so that everyone from the accountant to the bookkeeper knows what’s happening with the business. It’s fast and simple to use and helps you to keep on top of all of your financials so you can make the very best business decisions in real-time.
For freelance startup owners and self-employed consultants, there’s also great account software to help manage expenses, invoicing and taxes – all through one mobile app. Coconut is one of the leading lights in this niche market.
There are currently over five million self-employed people across the UK – and on average they lose about £5,000 of income each year as a result of spending as much as 10% of their time on manual bookkeeping and sorting out their tax bill instead of focusing on scaling up their business. New accounting software like Coconut is ideal to help many overcome their tax management hurdles and save money too. This is particularly needed during the pandemic.
2020 was a difficult year for many businesses but there are many lessons to be learned – such as learning and seeking out the best alternative finance providers to help you run your company more effectively.
Banks and government support are always welcome, but long term financial planning requires good advice and expertise. For businesses that are cash strapped, fintech innovations can really make a difference in automating the requirements to keep cash flow positive and help to ensure you can pay your tax bill on time – even during a crisis.