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Profit Vs Cashflow – What’s the difference?

Thursday, October 14th, 2021

Cashflow and profit are very different. Business owners can often be confused into believing they are highly profitable because they have a large amount of cash and vice versa.

It is important to understand the difference between the two concepts.

 

What is cashflow?

The money that comes into, through and out of your business. It doesn’t include money owed to you from customers or credit from suppliers.

Insufficient cashflow means a business can’t meet its financial obligations such as paying suppliers or employees.

 

What is profit?

Profit is how much is left of your revenue once all costs have been deducted. It includes all income and costs that are due but not yet received or paid.

A business cannot survive in the long term if it is not profitable.

 

What is the difference?

The key difference between profit and cashflow is time.

Profit takes account of transactions as they are generated whereas cashflow takes account of transactions as they are paid or received.

 

As an example:

In the above example, at 31 March, the company has a positive profit but a negative cashflow.

The cashflow does not become positive until 30 April when the money is received from the customer.

 

Understanding this key difference can be crucial in keeping your business going.

A business can be highly profitable but if customers are on a 90 day payment term but suppliers are a 30 day payment term then you may not have the cashflow to keep the company going.

 

If you would like any assistance in understanding your profit and cashflow or would like a cashflow forecast preparing, please get in touch with us.

 

 

 

 

September 2021 Dates for your Diary

Monday, September 13th, 2021

An Employer’s Guide to Payrolling Statutory Payments

Thursday, August 5th, 2021

 

As an employer there are various statutory payments that you must pay your employees when they become eligible for them. Thinking about if your employee is eligible and what they need to be paid can seem like a daunting subject! This guide contains everything you need to know about making statutory payments.

 

Statutory Sick Pay (SSP)

For the 2021-22 tax year, Statutory Sick Pay should be paid at £96.35 per week and can be paid by an employer for up to 28 weeks of illness. After the 28 weeks, it is then at the discretion of the employer whether they continue to pay sick pay. Some companies offer a ‘Company sick scheme’, which may mean that the employee will be paid more than the SSP entitlement. If offered, this should be explained in the employment contract.

Is my employee eligible for SSP?

Linked periods of sickness

If you are ill for more than 4 days on multiple occasions that are less that 8 weeks apart, the sickness may be classed as being ‘linked’. This means that you do not have the 3 days unpaid ‘waiting period’ for every spell of sickness. If this is continuous for more than 3 years, you will no longer receive SSP.

As an employer, you cannot claim Statutory Sick Pay back from HMRC unless the sickness is Covid-19 related.

There are different rules regarding sick pay due to Coronavirus. If you would like further information on this, please call us on 01785 254550.

 

Statutory Maternity Pay (SMP)

Statutory Maternity Pay is paid to an employee for up to 39 weeks.

What should I pay my employee?

SMP starts when an employee begins their maternity leave, it also automatically begins if the employee is unable to work due to a pregnancy related illness within the 4 weeks before the baby is due.

Is my employee eligible for SMP?

Can I claim back SMP from HRMC?

Employers can claim the SMP payments back from HMRC by reducing their monthly PAYE payments by the SMP amount.

 

Statutory Paternity Pay (SPP)

For the 2021-22 tax year, SPP is paid at the lower of £151.97 per week or 90% of the employee’s average gross weekly earnings.

Employees have a choice of taking SPP for 1 or 2 consecutive weeks leave and the start date must be either the day the baby is born or an agreed number of days following the birth.

Is my employee eligible for SPP?

 

 

Shared Parental Pay (ShPP)

Shared Parental Leave/Pay allows parents to split leave and pay following the birth of a baby.

Is my employee eligible for ShPP?

What should I pay my employee?

ShPP is paid at the lower of £151.97 per week or 90% of your average weekly earnings.

 

Statutory Adoption Pay

Statutory Adoption Leave is made up of 52 weeks split into 26 weeks Ordinary Adoption Leave and 26 weeks Additional Adoption Leave. Only one person in the couple can take adoption leave, however if this is the mother, then the father may also be entitled to Paternity Leave.

Adoption leave can start up to 14 days before the child starts living with you.

Is my employee eligible for SAP?

 

What should I pay my employee?

 

All the above payments must be recorded, processed and submitted to HMRC through a payroll scheme.

If you require any further information regarding any of the above statutory payments, please feel free to give us a call on 01785 254550.

 

 

 

 

 

 

Dates for your diary August 2021

Monday, August 2nd, 2021

Dates for your Diary June 2021

Wednesday, May 26th, 2021

Why Cloud Accounting?

Wednesday, May 12th, 2021

Why Cloud Accounting?

9 Reasons Why Cloud Accounting is the FUTURE of accounting!

 

  1. Automatic Bank Feeds

Cloud accounting software has a feature that allows bank transactions to be downloaded into your software daily, therefore there is no longer a need to spend hours typing out your statement line by line.

  1. You can view your companies’ financial position anywhere at any time!

Gone are the days of sitting at your computer to view your company financials; most cloud accounting software such as Xero, QuickBooks and FreeAgent have apps that can be downloaded straight onto your smartphone. You can even take pictures of your receipts and upload them directly to the app whilst you are on the go!

  1. Cloud accounting software allows multi-user access.

Multi-user access means both you and your accountant can keep up to date with your company financials. Giving your accountant access to this information puts them in the best position to advise you on your financial position throughout your accounting year.

  1. Cloud accounting software is SPACE SAVING software!

Cloud accounting software such as Xero allows you to store everything in one place. Invoices can be emailed straight into your Xero inbox. You can also attach pictures of your receipts to the relevant expense in the software – not only will you save on printing costs, but you will no longer need endless shelves to store all your invoices, simply snap and upload a picture of your receipts to your software and there is no need to keep the paper copies.

  1. You will always be logged into the most up to date version of your software.

Cloud accounting software does not need you to download updates each time there are new tax rates announced. Your software will change in line with new government finance guidelines for you.

  1. Allows for a ‘WORK SMARTER, NOT HARDER’ mindset

Running a business requires a lot of organisation and record-keeping, however, cloud accounting software can do a lot of the tedious bookkeeping work for you. From automatic bank feeds to sending automated reminders to customers that owe you money, there is a whole range of mundane tasks that your software will now complete for you giving you more time to focus on building your business.

  1. The Cost-Effective Option

In many cases, the ‘cloud’ version of the software is cheaper than their desktop counterparts.  This means you’re staying on top of the latest software whilst also saving cash!

  1. Software that is secure and safe!

As suggested by their name, online software such as Xero, Quickbooks and FreeAgent are all stored ‘in the cloud’. Unlike their desktop friends, they do not need to have regular data backups taken and the data you enter will never be lost!

Each Cloud software allows you the option to set up 2-factor authentication to gain access to the login. This means your business data will be kept safe and can only be accessed by those you allow.

  1. Data Capturing Software

Software’s such as HubDoc and Receiptbank can be used alongside your software. They use OCR technology to extract the key information from your invoices and feed them into your bookkeeping software. This can save you lots of time as you do not have to manually enter each of your invoices onto your software.

 

If you need any help or advice on choosing the right cloud accounting software for you please give us a call on 01785 254550.

 

May 2021 Dates for your Diary

Friday, April 23rd, 2021

April 2021 National Minimum Wage rates

Thursday, April 1st, 2021

Tax Rates 2021/22

Wednesday, March 31st, 2021

Tax Rates 2021/22

Wednesday, March 31st, 2021