We’ve all had those moments where everything seems to be going smoothly, then the rug gets pulled out from under you. For one of my clients, this rug was more of a carpet – a posh, expensive one – that had been soiled by years of neglect, bad luck, and some unfortunate decisions. The story starts with a bloke who had his head in the clouds, making more money than he could keep track of, but found himself in a right financial mess. If you’re in the property business, particularly dealing with VAT compliance, this might hit closer to home than you’d like.

Let’s set the scene: a successful property business owner who could easily pay his bills with his spare change, was too busy living the high life to bother with the donkey work, like his finances. If he needed something done, he signed the papers and moved on, trusting the details to take care of themselves. It worked – until it didn’t.

The vision was a hotel turned luxury block of flats in a prime spot for the ultra-wealthy. Two top-end penthouses, four slightly smaller ones, and then a collection of swanky apartments. He’d even secured a 12-month option on the hotel. The architect assured him planning permission was a done deal, so he forked out over £100k into getting the plans drawn up. With what he thought was planning permission in hand, he approached a funder who was ready to give him over £14 million. There was just one minor problem, the architect had jumped the gun. The planning permission hadn’t actually been granted, and the whole deal collapsed like a house of cards. In the thick of Covid. Just to make matters a hundred times worse.

And it didn’t end there. His books hadn’t been touched for four years, so reclaiming the VAT became a ballache. And I won’t even go there with the state of his personal and corporate tax affairs. Which brings me on to why VAT compliance is so important.

Why VAT compliance matters

VAT compliance might not be the most thrilling part of running a property company by all means, but it’s one of those things you’ve got to get right. Mess it up, and you’re looking at penalties, investigations, or worse. It’s not just about avoiding trouble, either. Proper VAT management can save you a fair amount of cash, especially when you’ve got big projects on the go.

Common VAT mistakes in property

When it comes to VAT, property companies often trip over the same issues:

1. Misunderstanding the option to tax: This is a big one. The option to tax can be a breakthrough in commercial property transactions, but if you don’t understand when and how to apply it, you’re setting yourself up for trouble.
2. Misunderstanding the difference in VAT rates: Depending on the form of property the VAT rates differ. New buildings tend to come with a 5% VAT rate, whereas for longer existing buildings it’s the standard 20% VAT rate. Then there’s extensions, which could be either.
3. Incorrect VAT treatment on sales and leases: Categorising supplies incorrectly – whether they’re standard-rated, zero-rated, or exempt – you best believe it’s going to attract HMRC’s attention.
4. Reclaiming VAT on allowable expenses: Many property companies miss out on reclaiming VAT on legitimate expenses, like construction and maintenance costs. That’s money left on the table.
5. Managing VAT in mixed-use developments: If your property has both residential and commercial elements, things can get tricky. Misallocating VAT in these scenarios can cost you dearly.
6. Missing VAT exemptions: From new builds to residential conversions, there are exemptions available. Not knowing about them or applying them incorrectly can result in big tax bills.
7. Errors in VAT on land transactions: Land transactions and leases are particularly tricky due to complex rules and specific circumstances. Knowing when VAT does and doesn’t apply will help you avoid costly errors with HMRC.
8. VAT registration mistakes: Many property companies fail to register or register too late and end up with penalties from HMRC. You must register for VAT if your taxable turnover exceeds £85,000 in a 12-month period.
9. Failing to keep proper VAT records: Poor record-keeping can cripple your VAT position. Without detailed records, how are you going to support your VAT claims or accurately report to HMRC?
10. Errors in partial exemption calculations: When dealing with both VAT-exempt and VATable supplies, partial exemption rules come into play. Incorrect calculations of recoverable VAT leads to potential over or under claiming. Get it right to avoid HMRC issues.
11. Failing to adjust for VAT on capital goods: Major refurbishments and equipment purchases fall under the Capital Goods Scheme. Neglecting to adjust your VAT returns can lead to incorrect claims and potential fines.
12. Ignoring the importance of timely VAT returns and payments: Making sure your VAT returns and payments are on time is essential. Missing deadlines means penalties and interest charges, which will affect your cash flow whether you like it or not. Using accounting software (I recommend Quickbooks), setting up direct debits, or working with an accountant will help you stay on track and avoid late payments.

Rebuilding the books

So going back to my client story, after the deal collapse and four years of neglected accounts, my client had to get serious about sorting his finances. We rebuilt his books from scratch, digging through old records, finding missing paperwork, and piecing together his VAT reclaim. It wasn’t glamorous work, but someone had to do it. By the end of it, we’d turned an initial VAT reclaim of £38k into a whopping £130k – money that made a real difference in getting him back on track.

But, as you can imagine, this level of reclaim didn’t go unnoticed. This is HMRC we’re talking about, of course it triggered an investigation. Thankfully, we’d done the legwork, ensuring everything was above board. The key takeaway? If you’re going to reclaim significant amounts of VAT, make sure your records are immaculate.

Putting safeguards in place

With his finances back in order, it was time to ensure he didn’t end up in the same mess again. So I had to lay out a couple of ground rules. Starting with the non-negotiable, no major financial decisions to be made without consulting me. He had to give Cloud Accountancy full say-so of his finance department. All bills are to be paid through Apron (no more relying on the wife!). And most importantly develop a cash flow forecast and solid business plan to keep everything on track.

Lessons learned

The biggest takeaway from this client’s story is that success isn’t just about making money; it’s about managing it well. Here are some lessons worth noting:

1. Don’t neglect your books: It’s tempting to let the paperwork pile up, especially when business is strong, but it will come back to bite you and it won’t be pretty.
2. Understand the rules: VAT is tricky to get your head around, but ignoring it only multiplies the problems. If you’re unsure, get advice from someone who knows their stuff (i.e. me!).
3. Keep records up to date: Whether it’s invoices, receipts, or bank statements, having everything in order can save you the misery if HMRC comes knocking.
4. Plan for the worst: Covid was a wake-up call for many business owners. Building financial resilience isn’t optional; it’s essential.

Final thoughts

VAT compliance might not be the most exciting topic, but getting it right can mean the difference between thriving and just about surviving in the property game. Don’t let poor record-keeping or a lack of knowledge catch you out. And if you’re already in hot water, do something about it now. There’s always a way forward, it might just take a bit of graft (and the right people in your corner) to get there.

Need help with your VAT affairs or just fancy a chat over a brew? Give me a shout. If there’s one thing I’ve learned, it’s that no problem is impossible with the right approach – and maybe a mini dachshund like Toto by your side for moral support.

Interested to find out more?

Call us on 01617 985789

Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb

The Challenge

My client, let’s call him Dave, was pretty trusting with his money. He knew his accounts and bookkeeping were important. However, he left the financials to his other half, thinking all was ticking along fine and under control. By financials, I mean his wife ran his payroll, did his books and payments. In fact, there were many bank accounts that his wife was the only signatory for. After all, they were both in it together and wanted the same things. Didn’t they? 

But unfortunately, this wasn’t the case. As with many things, relationships often go well when the business and money is good. When Covid hit, many of Dave’s projects were put on a ‘stop’ and several large outstanding invoices were left ‘pending’. These were not the only serious issues Dave faced. He’d stopped looking at his finances and accounts. He just believed that his wife had it all in hand. His accounts were a mess and Dave didn’t know what he owed and how much he could take out of his bank account. A number of tax payments to the revenue had been missed and the brown envelopes were mounting up.

As you can imagine the pressure mounted up. As with many husband and wife teams, the relationship needs to be pretty strong to cope with a business under immense strain. Sadly for Dave, his wife decided to chuck him out and ask him for a divorce. I then get a very distressed phone call as Dave now realises that he hasn’t got access to his bank accounts and his wife is holding the dog and his passport as hostage until Dave agrees to her demands. By the way, no word of a lie, this part of the story is absolutely true. 

Oooops.

My approach

As an accountant with decades of experience of cleaning up messes often in hospitality and construction, you could call me an expert in this scenario. I will confess that sorting out husband and wife relationships are not my thing. But getting Dave back up and straightened out with the tax man and solvent again is my thing.

Here’s how I saved Dave and his firm from going under.

1. Sorted the mess:
   First things first, I needed to get a handle on Dave’s finances and believe me this was not a straight-forward job. But it rarely ever is. Often the starting point with situations like this is to go back to a point where we are confident that the accounts are correct. In Dave’s situation this was the last 7 years. My team and I then practically rebuilt the books from the ground up. Thankfully we were able to get copies of his bank statements, sales invoices and most but not all of his receipts and purchase invoices. I’ll say one thing for his soon-to-be former wife, she did put Dave’s business onto the cloud, which meant once we had gained access to the accounts, we had most of the information we needed. Then, we went through his accounts with a fine-toothed comb, highlighted the inconsistencies and started to plan out corrective measures. 
2. Dealt with the taxman:
   Tax issues? Yeah, he had them. Given that his accounts were, to put it simply, not a true and accurate reflection of his actual trading there were problems with VAT, CIS and his tax returns. When I had the accounts together I worked out what had or hadn’t been claimed and I put together a plan to get him square with the taxman. This is something we often do called ‘voluntary disclosure’. A voluntary disclosure means you are often on the front foot with the revenue and any fines levied are less than if the Revenue came after you. I’d like to say there were no fines involved. But I was able to plead significant mitigating circumstances – sometimes it is helpful for your wife to divorce you acrimoniously! These mitigating circumstances meant we were able to get a payment plan in place to make good the difference between the tax paid, the tax owed, the fines levied and what should have been paid. 
3. Got the cash flowing:
   Cash flow in a construction business should be like a pint of cold beer after work on a Friday – smooth and forward-moving. Sadly, it rarely happens that way. What was needed was a bit of breathing space for Dave. So, I restructured the business’s cash flow strategy by renegotiating payment terms with lenders, got a short-term loan agreed and got some of the outstanding large invoices paid. It’s amazing how menacing Toto barking in the background can sound when on the phone to ask for payment on behalf of a client. This not only improved cash flow but when the large outstanding invoices started to be paid restored the lenders confidence. Win-win!
4. Legal and debt management:
   With the tax issues came the legal headaches. Particularly with Dave needing to work out what his assets and income was as his wife’s divorce solicitor was going to be demanding this soon. Getting a new loan meant that Dave needed to take on more borrowing. However, we ran a cash flow forecast and looked at efficiencies within the business to ensure that Dave could pay back this loan AND also his other borrowings. We also needed to adjust the business shareholding so that his soon-to-be-ex-wife (who was resolutely not agreeing to shared access with the dog!!) no longer had any pecuniary interest or formal influence on the business. That took a little bit of delicate negotiation.
5. Continuous support:
   Lastly, it wasn’t just a case of fixing it and leaving. We’ve now got an arrangement that consists of us doing his bookkeeping, keeping a tight handle on his cash, and regular reviews to keep things on track and prevent future problems. After all, Dave needed a new finance department after he realised his wife had ‘resigned’ from that role!

The Result

With a bit of hard graft and some sharpness, we managed to turn it around:

• Dave dodged a large bullet with the taxman. Although his fines were much smaller than first thought.

• Got his cash flow moving again. 

• Saved his business and also removed his soon-to-be-former wife from his business affairs.

Key Takeaways

There’s several lessons learnt here:

• Stay in the know: Don’t leave your finances till the last minute. Keep your eye on the ball.

• • Don’t be too trusting. Always make sure that regardless of who is doing the invoicing, bookkeeping and payments that, you do regular reviews of what is happening.

• Get help before you’re in too deep: Got financial worries? Get hold of expert financial advice. There’s a time and a place for it to be handled amateurishly; dealing with HMRC is not one of them.

• Be proactive: Dealing with issues promptly prevents things from escalating. Definitely don’t ignore brown envelopes.

• Cash matters: Keep the cash flowing. No cash flow, no business.

Conclusion

Bad things happen, even to the best of us. But with the right accountants behind you, you can pull through anything—just like Dave did. 

So, moral of the story: Don’t be too trusting and if your finances are looking a bit off, don’t hesitate to give me a shout. Let’s get you sorted before the ref blows the whistle.

We’ve all had those moments where a letter drops through the letterbox and you instantly get that horrible sinking feeling in your stomach. For many construction business owners, that dreaded letter comes from HMRC. It’s a nudge letter, a not-so-subtle reminder that your tax affairs might not be as squeaky clean as you’d hoped.

Why the nudge?

Unfortunately, HMRC aren’t just sitting around twiddling their thumbs. Their advanced systems can spot a discrepancy a mile away, with accuracy. If you’ve been a bit sloppy in your record-keeping or missed a few deadlines, you might find yourself on their hit list.

Common reasons for nudge letters in construction:

• CIS antics: Errors in CIS returns or payments to subcontractors can trigger a nudge. It’s important to understand CIS and its complexities fully. If you need a hand with this give me a shout, alternatively, I’ve covered CIS in a previous blog. You can read it here.
• VAT issues: Incorrect VAT returns, especially for construction-specific schemes like the reverse charge.
• Income and expenditure mismatch: Discrepancies between your reported income and expenses.

A real-life example

One of my clients received a nudge letter from HMRC. At first, he was a bit flustered. After all, he’d been running his construction business for years and thought he had everything under control. But as I went through his records, I discovered a few minor errors that could have led to significant tax penalties.

If you know me, you know I’m not one to shy away from dealing with HMRC. So, I quickly got to work, reviewing his records, finding the errors, and communicating with HMRC to address their concerns. Luckily, thanks to swift response, we were able to resolve the issue with a slap on the hand and no major consequences.

Luckily, he had me (a tax professional that specialises in construction) at hand to handle it promptly. However, if you don’t already have an accountant I would strongly recommend following the steps below as soon as possible.

How to respond to a nudge letter

1. Don’t panic: It’s easier said than done, but it won’t change anything. So, take a deep breath and assess the situation calmly.
2. Seek professional advice: Consult with a qualified accountant, preferably with years of industry-specific experience, to help you understand the implications and come up with a strategy to get you out of the mess.
3. Gather your records: Gather all relevant financial documents, such as invoices, receipts, and bank statements. You know the drill.
4. Communicate with HMRC: Respond to HMRC promptly and provide any requested information. Don’t gatekeep anything or try to outsmart them, hand over whatever they ask for.
5. Consider a voluntary disclosure: If you’ve made significant errors, a voluntary disclosure may be a viable option. By doing this, you’re showing full transparency and cooperation with HMRC, which could work in your favour and result in reduced penalties and prevention of prosecution.

Remember: This is not a time to DIY it.

Avoiding future nudge letters

Construction is one of the most time-demanding industries, so falling behind on the financial side of things is something I see and deal with often. Making sure you set time aside each month to check your books are up-to-date will help to avoid a run in with the tax man. If you really don’t think you have time to do this, it probably means it’s time to look for an accountant that can take the weight off your shoulders.

To avoid future HMRC scrutiny, consider these tips:

• Keep accurate records: Maintain detailed records of all financial transactions. From paying subcontractors and employee wages, to purchasing materials and site expenses.
• File tax returns on time: Set reminders and consider using tax software to automate the process. My real preference is Quickbooks.
• Seek professional advice: Consult with a qualified accountant to ensure compliance with tax regulations.
• Stay updated: Keep ahead of changes in tax laws and regulations.
• Improve financial discipline: Establish effective systems to track income, expenses, and tax requirements.

Don’t forget, a timely response to an HMRC nudge letter can save you time, money, and stress. Don’t push it aside or ignore it, unless you want the situation and repercussions to escalate.

Consequences of ignoring a nudge letter

Ignoring an HMRC nudge letter can lead to serious consequences, including:

• Increased penalties: HMRC may impose hefty fines for late or inaccurate tax returns.
• Deeper investigations: A nudge letter can trigger a more thorough investigation into your tax affairs. You might not want them to see that pricey Christmas present that you got your other half in your expenses…
• Potential legal action: In severe cases, tax evasion can lead to legal action. Do you throw away all the effort and time you’ve put into your business by damaging your reputation?

Don’t let a simple oversight turn into a major headache. If you receive a nudge letter, take immediate action. Consult with a tax professional to understand the implications and develop a strategy to resolve the issue.

Need help with your tax affairs? Let’s chat over a cuppa.

Interested to find out more?

Call us on 01617 985789

Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb

Where do I start? When it comes to finances, the construction industry is a bit like a Saturday night out after one too many pints – unpredictable, messy, and sometimes leaves you feeling a bit worse for wear. We all know that feeling.

As a construction firm owner, you’ve often got multiple projects on the go, each with its own unique set of challenges. Customers can sometimes be a right pain in the neck, especially with not paying invoices on time, and then there’s material costs that change more than the weather in Manchester.

And that’s not all… Trying to keep track of your finances on top of all that is enough to drive anyone up the wall. Construction is notoriously known for being a volatile industry. Things like delayed payments and cash flow inconsistency play a massive part in that. It’s also why it comes as no surprise that there’s a high failure rate in construction.

Here’s where I come in and essentially turn all your sh*t situations into roses. But first, let me explain how construction differs from other industries. Understanding this will highlight the importance of why choosing an accountant that specialises in this industry is essential.

Construction vs. other industries

Construction is in a category of its own. It faces completely different challenges to any other industry. Each project has its own individual problems and as a result, construction businesses often struggle to match the efficiency of companies that have more of a repetitive and controlled production, such as factories and certain types of office-based work. But, who wants to do the same thing day in and day out anyway?

Here’s are some of the key differences that you can expect from owning a construction-based business:

Variable costs – For materials, equipment and labour on each individual project. You’ll know from pricing jobs up that the costs vary, it’s not a one cost fits all type of thing.

Location – Construction often takes place at new locations with specific site conditions, each with their own set of challenges. You might well have to deal with local environmental and waste disposal regulations.

Suppliers – Having to rely on specialised suppliers for different projects can affect efficiency and cash flow. Such as, certain types of glass, lifts and escalators, steel beams, cladding etc.

Contracts – Construction contracts often include retainage, where some of the payment is withheld until project completion, even if specific work stages are finished. (Note: these can be negotiated before signing the contract).

Now that you understand the differences in construction in comparison to other industries, it’s time to look at what challenges you can expect to face as a result, and how I can help you overcome them.

Common construction challenges

Given these unique characteristics, construction businesses face several common financial challenges:

• Cash Flow Fluctuations: Irregular cash flow is a common problem due to delayed payments, upfront costs, and subcontractors.
• Cost Overruns: Projects can easily go over budget if costs are not carefully tracked and managed.
• Profitability: It can be difficult to accurately estimate and track profit margins on individual projects. Particularly when material costs go up significantly after you quote for the job.
• Debt Management: Managing debt can be challenging, especially during economic downturns. (A feeling we’re all familiar with thanks to Covid-19).
• Tax Compliance: Staying compliant with complex tax regulations, particularly VAT reverse charge scheme and CIS payroll is essential to avoid penalties and fines. (You need to be able to understand these tax regulations in order to stay compliant, but don’t worry I can help with this).

How I Can Help

I’m showing my age here, but as an accountant with decades of experience helping construction business owners, I can help you manage these challenges and improve your overall financial situation. Here are the things I would start with:

• Financial Analysis: I’ll provide a comprehensive analysis of your financial situation, including your cash flow, profitability, and overall financial health.
• Cash Flow Management: I’ll help you develop strategies to improve your cash flow, such as optimising invoicing and taking payments, negotiating better payment terms with suppliers, and looking at what your alternative financing options may be. (There’s not an array of financing options out there for construction businesses, but there are a few strings I could pull on).
• Cost Management: I’ll work with you to identify areas where you can reduce costs and improve your profitability. This could be renting equipment instead of buying it, or negotiating with subcontractors etc.
• Tax Compliance: I’ll ensure that you’re compliant with all relevant tax laws and regulations.
• Financial Planning: I can help you create a financial plan that aligns with your business goals.

In addition to all of the above, I’ll be on the other end of the phone whenever you need a bit of advice or just fancy a chat. Something I definitely won’t do is judge, so complete transparency is always encouraged. I’ll work with you so that as a team, we can transform your financial situation from, you guessed it – sh*t to roses.

Interested to find out more?

Call us on 01617 985789

Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb

Taxman knocking? And not knocking quietly? Here’s how to handle an HMRC investigation:

Ever had that sinking feeling when you get that brown envelope with ‘HMRC’ written on it drop through your letterbox?

I experienced a similar feeling recently when I went to the doctor and was told I needed to change my diet. Seriously? The weekly Chinese was under threat! Gutted.

You know you should open the envelope. And you know it’s not an unexpected tax rebate. Of course, it could just be that an employee’s personal tax code has changed. But still that feeling of dread is real.

So, what do you do if the taxman is on your case and being a real pain in the backside? I’m no stranger to this topic, although I’ve learned over the years that everybody’s situation is different. Some are more challenging than others. But the one thing that doesn’t change is my advice on how to deal with it. So let’s get into it.

Understand Why They’re Here

Before you start responding to the taxman’s questions, try to work out exactly why they’re investigating you. Have you missed a deadline? Made a mistake on your tax return? Or is it something more serious? Once you know, you can start to prepare your response. Being honest with me is important when I ask you these questions. Trying to cover up stuff here with me or HMRC can just bring a whole heap of the brown stuff down on you.

Or maybe you already know the reason, and it’s just the inevitable catching up with you. In that case, it’s time to deal with it before it gets any worse. You don’t want to be caught standing in court with all the truth coming out? I’ve seen it happen, and it ain’t pretty. It’s pretty stressful if your case goes to court.

Regardless of whether you know the reason or not, here’s what I would suggest you do next:

Be Cooperative

It’s important to cooperate with the tax inspector. Answer their questions honestly and provide any documentation they request. I know it’s hard not to get your back up when you’re feeling accused of something, but try not to be too defensive. Remember, the more you cooperate, the easier the process will be for everyone involved. As your accountant, If I can show that you have been cooperative, this could reduce any penalties that the tax man wants to make you pay.

Seek Professional Help

If you’re feeling overwhelmed, consider seeking professional help. Get in touch with someone who knows their stuff. (Hint: I’m right here. I’m just a phone call away, and I wouldn’t judge.) An accountant can provide invaluable guidance and support throughout the investigation, even if it’s emotional support that’s needed. They can help you understand your rights and responsibilities, and they can negotiate with the taxman on your behalf.

A decent accountant should give you peace of mind, ensuring you’re compliant with tax laws and regulations. It’s important to choose wisely if you’re going down this route. Always do your research before you make a decision.

Proactive Measures to Avoid Investigations

The best way to avoid an investigation is to be proactive about your tax compliance. Here are some of my suggestions:

• Keep accurate records: This is the most important thing. Make sure you keep detailed records of all your financial transactions. The first thing I will want to do to help you – regardless of any HMRC investigation – is to get your books clean and up-to-date.
• File your tax returns on time: Don’t miss any deadlines. That’s a fine you do not want or need.
• Pay your taxes on time: Avoid late payments, as they can trigger an investigation and heavy interest charges.
• Stay up-to-date with tax law changes: Tax laws can be complex and change frequently. Make sure you’re aware of any changes that may affect your business. This is where I can help you. As your accountant, I will ensure that you are compliant with all the relevant tax laws, such as CIS and the reverse VAT scheme for the construction sector.

Remember, the taxman is just doing his job. If you’ve done everything by the book, you should have nothing to worry about. But if you’re feeling a bit anxious, I’m happy to offer you some advice. Sometimes crap does happen to good people.

Additional Tips:

• Don’t panic. It’s easy to get stressed when you’re being investigated, but staying calm is important. Take a minute to sit down with a cuppa and get rid of any anxiousness you’re feeling. You need a calm head for this stuff.
• Be prepared. Have all your documentation ready before the investigation begins. You don’t want to be flapping around trying to find letters or emails; it won’t look good.
• Don’t make any rash decisions. Just take your time; it’s important to consider all the options that are available to you. Take notes to look back on if necessary.
• Seek advice from a professional. A tax advisor or investigations specialist like myself can help you understand your rights and responsibilities and go about them the right way.

By following these tips, you can increase your chances of firstly avoiding a tax investigation in the first place and then getting a successful outcome in a tax investigation.

Interested to find out more?

Call us on 01617 985789

Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb

Running a construction or hospitality business can be a complete and utter nightmare. You’ve got projects piling up, staff to manage, broken equipment and customers who seem to think paying on time is optional. But the biggest headache of all? Cash flow.

I’ve seen it first-hand. I’ve witnessed the stress of a dwindling bank balance and the fear of not being able to make payroll. Trust me, it’s not a fun place to be. But don’t worry, I’m here to help.

I’ve been in the construction industry for decades, and I’ve seen my fair share of ups and downs in my time. I’ve learned a thing or two about managing finances along the way, so I’m going to share my tips with you.

Separate Bank Accounts

First things first, set up separate bank accounts for your business. This will help you keep track of your finances and avoid mixing personal and business expenses. After all, you don’t want your accountant or bookkeeper to see exactly what nice presents you got for your other half. Let’s just say we’ve seen some ‘interesting’ personal expenditure when sorting out year end accounts. 

I recommend using Monzo banking, as they offer this handy feature called “Pots”. You can set aside money for specific things, like tax, rent, or, in my case a pot to fund my golf clubs (which by the way, if you’re not into golf, cost an arm and a leg!). I was recommended to Monzo and wondered what all the fuss was about, but I’ve learned it’s a pretty great app for keeping your finances organised. And, even if digital banking and apps isn’t your thing, it’s pretty easy to use. 

Getting Paid Promptly

Getting customers to pay on time is like trying to score a hat-trick against Man City – tough and often impossible, but there are a few things you can do to improve your chances (that’s with getting paid on time, not scoring against Man City – unless you’re Alan Shearer).

• Send clear and concise invoices: Make sure the details are correct and easy to understand. 
• No surprises: Your billing schedule or the details on the invoice should match what the customer is expecting.
• Set payment terms: Clearly state when you expect payment.
• Put your bank details on the invoice: You’ll be surprised how many invoices we receive where we can’t work out how or where to pay. If your invoice will be paid by direct debit, then state this on the invoice. If you want them to press the ‘pay now’ button, then put this on the invoice. You get the idea!
• Follow up: If a payment is late, don’t be afraid to chase it up. A friendly reminder via email or phone can often do the trick.

Cash Flow Forecasting

A cash flow forecast is a prediction of your future income and expenses. It’s a vital tool for any business, but it’s especially important in the unpredictable world of construction and the seasonally impacted hospitality sector. Projects are great as they are a large lumpy sum of money. But the problem is that projects often come with high upfront costs, i.e. to hire the equipment needed or buy the materials to get started.

Projects can get delayed, costs can shoot up out of nowhere, and we’ve already had a rant in this article, about how slow customers can be when it comes to paying. With a cash flow forecast, you can see these potential problems coming and take steps to avoid them. No more unwelcome surprises. 

Minimising Bad Debts

Bad debts can be another major drain on your cash flow. These are, more often than not, due to the long payment terms involved in construction. Of course, it is possible to have a bad debt with a hospitality business but in my opinion this industry is far better at taking payment either at the point of delivery or before an event. 

Here are a few tips for minimising your bad debts:

• Conduct credit checks: Before doing business with new customers, check their creditworthiness. Don’t just take their word for it. Companies House is a great place to snoop or pay for a credit check.
• Require deposits: Ask for a deposit upfront to reduce your risk. Particularly at the start of a project or before you need to buy materials or ingredients.
• Set clear payment terms: Make sure your terms are fair and reasonable, but don’t leave any room for doubt. I.e. these payment terms should be discussed at the point the contract is signed.

Payment Plans and Instalments

If a customer is struggling to pay, consider offering them a payment plan. This can help you avoid bad debt while still getting paid and it’s more manageable for the customer too, win-win. This option applies more for the construction industry rather than hospitality. Funnily enough we have a few payment plans currently in place for our clients who hit a tough spot trading wise. 

Keeping Your Books Up-to-Date

Keep your books in order. By doing this you can see who owes you money, when payments are due, and if you’re heading for some squeaky-bum time when it comes to your cash or money in your bank account.

I’m a big fan of QuickBooks. It means you can run your business from anywhere in the world as long as you have an internet connection. The QuickBooks software tools let you track your cash flow and keep your business running smoothly. But, the best part is saving time on sending invoices, tracking expenses, and preparing your VAT returns. All of the long, boring admin jobs that often get ‘forgotten’ about.

Splitting Finances by Project

Are you working on multiple projects? Do you know which one of these projects are loss making or the ones that are truly making you money? In my experience many construction companies and hospitality businesses don’t know. Everything gets lumped together on one or two lines of the P&L. 

In order for you to grow and put more money into your bank account you want to know which ones are bringing in the profits and which ones are costing you money. If you are a hospitality business you can do this by splitting the revenue lines on your P&L between items such as takeaway, table service or create reports using software to analyse which of your tempting desserts are working for your customers’ palates and your bank balance.

One of the reasons I like Quickbooks is it makes it easy to split up your expenditure and income on a project by project basis. This means someone like you or I can see very quickly which projects are underperforming and how to quote better next time.

To summarise

Firstly, don’t put your head in the sands when it comes to cashflow. The sooner you have a problem emerging the easier it is to deal with it. We are here to help you whether you are worried about cash flow or whether you know you have a cash flow crisis.

Interested to find out more?

Call us on 01617 985789

Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb

Growing your business is great, but let’s be honest, once you start adding people, office and expensive plant it costs an absolute fortune. We’d all love to be able to just go to the bank and walk back out with a wad of cash. But, unfortunately it’s not as easy as that.

Securing the necessary funds to drive your business growth requires careful planning and strategic financial management. It’s like aiming for a hole-in-one at golf. You need to map out your course, consider the obstacles, and make strategic decisions to achieve a successful outcome. It’s not just about luck or who you know at the bank or finance business.

Understanding the Challenge

Banks, while essential for many businesses, aren’t always the most flexible lenders. They want to see your life story and, what can feel like, your dog’s birth certificate before they give you a penny. But there are ways around it, and failing that, you do have other options.

It’s all about getting your business in shape to impress even the most sceptical lender. Banks are pretty sceptical these days! If you want to increase your chances of securing the funding to help grow your business, you need to be able to present a strong financial profile.

Now, without giving my age away too much, I have to admit I have decades of accounting experience under my belt. So it’s fair to say, I know a thing or two about what lenders look for. I’m going to use that to take you through the necessary steps to become a more appealing applicant to a lender.

Boosting Your Bank Balance

Before we get into the nuts and bolts of financial planning, let’s start with the basics. You need a bit of cash in the bank to look good to lenders.

• Liquidate Assets: Take a look around your site. That old digger or spare bit of land could be worth something. It might not be the most exciting option, but it can certainly help.
• Refinance Plant and Equipment: Refinancing can free up some cash. So, if you’ve got some shiny new equipment sitting around not being used, refinancing is an option. It’s like getting a cash advance on your stuff, but don’t forget, you’ll still owe the money.
• Remortgage Property: If you own any properties, remortgaging can also provide a lump sum. But be careful with this one, the last thing you want to do is lose your home if the business goes through a lean patch.

Preparing Your Business for Lenders

Now, it’s time to get your business looking good for the bank. It’s all about showing them that you know your stuff and you’ve got a solid plan.

• Up-to-Date Books: If your books are messy, it’s time to get them organised. Your books are like a report card for your business. They need to be top-notch. Lenders want to see straight A’s, not a load of red ink.
• Financial Analysis: Break down your numbers. Not only do you need to prove you know your stuff, you’ve got to be able to back it up with evidence.
• Cash Flow Projections: Are you familiar with cash flow forecasting? A solid forecast is essential because you need to show that you can handle the new costs without going under.
• Profit and Revenue Projections: Show your vision for your firm’s future to lenders, they love to see a plan. Be prepared to demonstrate how you intend to make more money down the line.
• Business Plan: A well-structured business plan outlines your goals, strategies, and financial projections. It’s your chance to convince lenders that you’re a safe bet.

Guarantors: A Safety Net

Sometimes, lenders might ask for a guarantor. If this isn’t you personally, this is basically someone who promises to pay back the loan if you can’t. It’s a big ask, so choose wisely.

Make sure to keep in mind that guarantors aren’t philanthropists – they have got to protect their own interests. This means they will probably ask for some form of security, such as a personal guarantee or even a share in your business. It’s important to understand what’s at stake and be aware of all the potential implications before involving a guarantor in your finances.

Beyond the Bank: Alternative Funding Options

There are other options other than banks that you could consider when it comes to financing your growth.

• Government Grants: Free money sounds alright, doesn’t it? Okay, maybe a bit too good to be true, but there might be something out there. Do some research and see what you find. It might be your lucky day!
• Alternative lenders such as Funding Circle: There are more people who will finance a construction project than just the bank. We have a great little black book of contacts who can help you raise money without needing to go cap in hand to the bank.
• Crowdfunding: Get the crowd to raise money and fund your business. It’s sort of like a big pub collection, but usually done online instead. This is not a normal option for construction or property businesses to use to raise finance!
• Venture Capital: Got a high-growth business? These guys might be interested in backing you. But just a heads up, the thing with private equity financing is that they will likely want some form of a return. That means they will want to own a significant slice of your business.

Time to Pay: An alternative source of finance

If you have been diligently putting money aside to pay your corporation or VAT bill, this is money that you can use in your business. You may be able to negotiate a payment plan with HMRC and reroute your cash set aside for tax bills to fund your next project. Don’t get me wrong, it’s not ideal and HMRC can be pretty fickle about whether they will do a payment plan. There’s usually interest involved, so by all means it’s not a free ride. But it could free up the finance you need.

Just make sure to weigh up your options carefully. Although a payment plan is better than digging yourself into a deeper hole, it all depends on your circumstances at the end of the day.

Remember: Every business is different. What works for one might not work for another. Sorry to be the bearer of bad news but copying what somebody else is doing just isn’t going to cut the mustard. That’s why it’s important to get advice tailored specifically to your business.

Interested to find out more?

Call us on 01617 985789

Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb

Running a construction company is not easy. Managing projects, employees and subbies can be a nightmare, not to mention chasing payments. One of the biggest challenges I see is getting hold of the cash needed to keep things moving.

Which brings me on to finance. Now, I know what you’re thinking, “boring”. But stay with me, this could be a game-changer. And I am not exaggerating on this.

One of the biggest hurdles is getting paid on time. You’ve probably experienced those long, painful waits for invoices to be settled. This can put a serious strain on cash flow.

Overcoming Challenges

I’ve known construction firm owners to struggle accessing finance. The problem is these traditional lenders, like banks, don’t understand the industry’s specific needs. This is where specialist lenders and finance brokers can be invaluable. However, when raising finance you need to make sure that your books and accounts are in order. I know, boring, but this is the first thing a specialist lender will want to see before they open a line of credit for you.

Invoice Finance

Invoice finance is where you get paid upfront for work you’ve already done, even if the client hasn’t paid you yet. It’s like having a safety net when those payments are overdue.

Equipment Finance

There are more options than just invoice finance. Equipment finance can be a lifesaver if you need to upgrade your machinery without breaking the bank. And if you’re looking for a bigger lump sum to fund a new project, there are business loans and development finance options out there.

Government Grants

Of course, there’s always the hope of government grants. But let’s be honest, they can be as rare as me going a week without a Chinese.

Construction Supply Chain Finance

Right, let’s talk about this supply chain finance thing. Supply Chain Finance is offered by specialist finance companies. These are businesses that do a lot of financing to construction companies. They pay your invoices to your suppliers and contractors. This means that you can get started on a project before the client pays your first few bills. Sounds alright, doesn’t it?

However, the specialist finance companies will want their pound of flesh. This means you will need to pay them interest on whatever you borrow from them.

Your suppliers get paid faster, and you get a bit more time to pay them back. It’s a win-win, as long as you realise this is not free money and you need to manage it right.

Key Considerations

When considering finance options, it’s essential to weigh up the pros and cons of each. Factors to consider include:

• Cost: Interest rates, fees, and charges
• Repayment terms: How long do you have to repay the loan?
• Security: Do you need to provide collateral? Such as your house!
• Impact on cash flow: How will the finance affect your day-to-day operations?

It’s also worth thinking about the long-term implications of taking on debt. Make sure you have a clear plan for how you’re going to repay the loan.

Getting Professional Advice

Right, let’s touch on getting expert advice. Sometimes you just need a second pair of eyes to sort through the financial mess.

Decent accountants know the ropes. They’ve seen it all before. They can help you figure out what you need, where to get it, and how to pay it back without breaking the bank (and save you the risk of being ripped off).

So, if you’re feeling overwhelmed by it all, don’t be afraid to ask for help. It could be the best decision you make.

A Few Extras to Think About

• Cash flow forecasting: Keep a close eye on your money coming in and going out.
• Risk assessment: Weigh up the pros and cons of different funding options.
• Debt-to-equity ratio: Don’t pile on the debt.
• Government support: Check out what grants or loans are available.

By thinking about these things, you can make better decisions about your business.

Interested to find out more?

Call us on 01617 985789

Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb

Despite what you may think, the CIS scheme exists to ensure that the right amount of tax is paid. It’s not there to make your life hell as a construction business owner. But you would be right in thinking that CIS is complex and highly intricate. As a result, mistakes are often made. Sometimes we can smooth out these mistakes, other times you will need to suck up the penalty and move on.

This blog post explores the 5 frequent errors construction companies make when dealing with the CIS scheme for contractors:

Mistake: Separating allowed and unallowed costs

When you register for CIS as a contractor, you become responsible for verifying the materials your subcontractors claim. The catch? They can only claim for materials directly used in the specific job you hired them for.

Often, subcontractors inadvertently include disallowed materials due to a simple lack of awareness about what qualifies. This might involve adding staff facilities, tools, or even charges for unrelated jobs to your cost sheets. Here’s how to avoid this pitfall:

• Establish clear communication: Before work begins, clearly outline the types of materials covered by the project.
• Review cost sheets regularly: Scrutinise your subcontractors’ invoices and ensure they only include allowed materials. Consider using standardised cost sheets with clear categories. (We can help you with this!)
• Educate your subcontractors: Share information and resources about CIS regulations with your subcontractors. This empowers them to submit accurate claims and avoid complications.

Mistake: not identifying the material source

Construction projects rely on a constant flow of materials, from concrete slabs to bricks to wooden panels to windows. Each material likely originated from a factory or plant that transformed raw materials into usable components.

Here’s where a crucial aspect of CIS comes in – identifying the owner of the material production facility. Sometimes, your subcontractor may own the plant themselves. In other cases, they could be purchasing materials from a third-party supplier.

For CIS purposes, if a third-party supplies the materials, you don’t necessarily need to identify them. However, you do need to indicate that the materials are sourced from an external provider.

Remember, clear communication with your subcontractors is key. Understand the origin of the materials before processing invoices, ensuring accurate reporting to CIS.

Mistake: getting the scope of what is CIS wrong

CIS can appear all-encompassing at first glance, but understanding its limitations is crucial. A common mistake lies in assuming the scheme covers a wider range of jobs than it actually does. After all, you don’t want NOT to put through something which should be CIS.

Before registering, take the time to thoroughly review the CIS terms and conditions. Familiarise yourself with the specific industries and types of work that fall under the scheme’s umbrella. This ensures you accurately classify your subcontractors and avoid unnecessary registrations for ineligible personnel like designers. We can help you with this. In fact, part of our service can include checking over your contracts for CIS.

Mistake: Ensuring all eligible subcontractors are registered

Sometimes, contractors might overlook subcontractor registration because it’s a one off project or just a tiny part of a build. However, if the subcontractor performs construction work, regardless of the duration or scope, registering them under CIS is likely mandatory.

Remember, failing to register eligible subcontractors can lead to financial penalties for your company. This is why at the start of a project have a standard process to identify and register all subcontractors engaged in construction work, irrespective of project size or duration.

Mistake: Muddling up PAYE and CIS

Subcontractors operate as independent businesses providing services to your company.  A common mistake involves incorrectly registering them under PAYE (Pay As You Earn), a tax system designed for employees.

Distinguishing between the two is critical. Working with someone for an extended period can lead to the misconception that they’re an employee. However, in reality, they operate as a separate entity. Misclassifying a subcontractor as an employee can significantly impact your CIS claim.

To avoid this confusion:

• Establish clear contracts: Formal contracts with subcontractors explicitly outline their independent business status and responsibilities.
• Review the CIS guidelines: Refresh your knowledge on the key distinctions between employees and subcontractors.
• Give us a call if you are confused!

Interested to find out more?

Call us on 01617 985789

Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb