Banking

Now that you running your own business you will need to keep accurate and verifiable financial records. One of the first things you will need to do is to decide how you are going to keep your personal accounts separate from your business finances, whether this is by opening a business bank account or a second personal bank account.

Do I need a separate business bank account?

Therapists who go into business with ‘sole trader’ status (which means that they are personally liable for any money owed to the business), do not have to have a business bank account if they are trading in their own name. Instead, it is permissible to use an existing personal bank account or set up a designated second account to operate as the ‘business’ account. However, if you are setting up in business as a limited company you will need to open a business bank account.

Why might I find a business bank account useful?

Even if there is no legal requirement for you to have a business bank account, it does make good financial sense to check out what benefits you might get from having a business account, and compare these to the cost of running such an account.

The usual benefits of business banking are:

• it is easier to keep your business and personal financial records separate
• it appears more professional to have a business account
• you will have access to the support of a business manager who knows your business
• you may have access to cheap deals such as website construction
• you will usually have access to a business support or egroup
• interest is now often paid on business accounts
• it will make it easier for you to get a bank loan for your business
• you will get a fast response to any enquiries
• there will be a higher degree of security in respect of your account
• you will get a variety of ways of banking: in person, over the phone, on the internet.

Some banks may also offer you free book-keeping systems or software, free entry in certain directories or websites, free business guides and free connection to your own freephone number. Others may offer you free business banking depending on the way in which you run your account.

Setting your service levels

With some banks you can choose the type of working relationship that you want to have with your business manager. Given the average turnover for most therapists, it is unlikely that you will require a high degree of input from your business manager, especially if you are operating as a sole trader. If the only advice you are likely to require is regarding business loans or other common financial transactions, you can keep your costs to a minimum by opting for the lowest level of support – this will generally be phone advice rather than face-to-face meetings. This level of service and support is usually provided free of charge.

Discounted banking

Most business bank accounts stagger the charges that are applied to your day-to-day transactions for at least the first two years. Quite often you will not be charged anything for any payments into, or withdrawals from your account during your first year of trading (please note – this does not include the set-up fees should you decide to take out a business loan). In subsequent years reduced discounts may apply, for example a 50% discount for your second year of trading and a 25% discount for your third year. This may mean for some accounts that it’s not until year four, by which time you should be fully set up and running, that you will incur the full charges.

Getting a good deal for your money

If you set your business banking service levels at a low level, you are already saving on your business banking costs. Taking advantage of any discounted charges will also help to minimise your costs during your first year of trading. Other ways in which you keep your costs to a minimum are:

• maintaining your account over the internet, or by telephone
• limiting the number of times you pay into your account
• limiting the number of times you make a withdrawal from your account
• accepting cheques as payment only if the value exceeds a certain amount
• using any cash you are paid to pay your business bills
• paying your bills by the cheapest method, eg direct debits rather than cheques.

Keeping down the costs of business banking

Generally, the cheapest way to run your business account is by operating it over the internet, or by telephone or telebanking. This means you will have no face-to-face contact with your business manager apart from the initial set-up interview. Operating your account in this way means that you only pay for the transactions you carry out that is paying money and cheques in, drawing money out and for any direct debits or standing orders you may have set up on your account. Different charges are made for different types of transactions, so if you have regular payments to make, for example paying the office rent or paying invoices for supplies, it’s worth checking out the cost of setting up direct debits rather than electronic transfers, and paying over the phone by business debit card compared to the cost of issuing a cheque. Also, as you are charged each time you pay money into a business account it is worthwhile having a regular routine for payment, for example once a week.

Further good financial practice

It is best to get into a good routine regarding your finances and banking procedures right from the start. It often helps to allocate a specific day each week for:

• paying any money into your account
• paying any bills which you are going to pay in cash
• reviewing your statements
• checking your cash flow
• entering all your receipts into your system
• updating your spreadsheet or your manual records.

At the end of each month:

• take an overview of your financial situation
• complete your monthly totals on your spreadsheet or manual records
• decide on your takings for that month and transfer the money into your personal account
• calculate (roughly) how much you need to set aside for tax
• transfer the money for your tax bill into your business savings account
• decide how much money you need to leave in the account as a ‘float’
• sweep any extra monies across into your savings account.

Savings accounts

As well as your business account you should think about setting up a savings account for the business. Whilst it might seem unlikely that you are going to have much in the way of savings in your first year of trading, you will need to ensure that you have money put aside to pay your tax bill at the very least. In the same way that it is often easier to separate out your business and personal finances by holding separate accounts, so it is with any monies that you wish to allocate for a particular purpose.

If you are working as a sole trader you do not need to set up a business savings account, but can instead set up a second savings account with your existing personal savings account bank or building society. You may even be able to take advantage of the generally higher interest rates available with an on-line savings account – but do read the small print first as most will not allow you to transfer funds to and from a business account or to pay in cash, which means that you may need to be creative in moving your money around between your business and personal accounts. Again the important thing is to keep your personal and business savings separate, so that your accounts can clearly reflect your business savings.

Loans

For your first year of trading, any loans that you may require should have been considered as part of your original set up costs (see Chapter 3). If your budgeting and planning have been effective in subsequent years, you should have some money set aside to fund, at least in part, any major purchases. However, there may come a time when you have some unexpected big purchase to make, or have decided that the environment is just right for that big business expansion ahead of your planned time.

You should have no trouble getting a business loan if you can prove that your purchase is essential for the running of your business, that you have researched thoroughly all the aspects of your proposed business expansion and can provide a detailed and costed plan of your proposals – and your financial situation is economically viable. A lot will depend on the amount you are requesting, the period of time you require to pay it back and the financial ‘health’ of your business – remember your business manager will have all your details at their fingertips.

If you encounter any problems with getting your business loan, it may be in your best interests to shop around to see if any other lender will make you the loan – even if this means changing banks, as some lenders will accept higher risks than others.

Credit cards

You may want to consider using a separate credit card for your business, for example:

• if you are often on the move with a mobile practice
• if you spend time touring the country, perhaps training at different venues
• to help smooth over any cash flow crises.

You can either apply for a business credit card to run in conjunction with your business bank account, or take advantage of some of the good deals that are currently available on the internet for accounts which you operate via the internet. Accounts operated via the internet will make you responsible for printing out your statement on a monthly basis, as the credit card company usually saves on its costs by pushing the paperwork onto the consumer. However, this does generally result in a lower annual percentage rate (APR) than most other conventional credit cards. Some companies offer flexible packages where you can create your own mix of benefits, for example, you can have an even lower APR on your card if you decide not to receive cash back benefits from purchases made using the card (generally around 0.5% of sales paid back to the consumer in some form), and by agreeing to pay the minimum amount due each month by direct debit.

If you know that because of potential cash flow problems there will be times when you will be using your credit card heavily, it’s a good idea to take out a second card with another company in order that you can take advantage of any 0% balance transfers by shifting the debt across from one card to the other.

Keeping your accounts

It is essential that you keep all your financial records in order that you can verify your accounts should you be required to do so, and also in order that you can complete your self-assessment tax form.

The need for routine

If you get into good record-keeping habits right at the start it will save you a lot of time. If you get into the habit, as suggested previously, of allocating a set day day each week for your banking transactions and record keeping, it will be a simple matter to extend this principle to include keeping all your financial records up to date. If you have a particular day allocated to this task you are less likely to forget to do it thereby allowing a backlog to build up.

What records do I need to keep ?

You will need to keep copies of the following:

• client payment receipts
• any other receipts for payments made to the business
• any invoices – whether generated by yourself or from other companies
• receipts for any purchases
• receipts for any transport costs incurred
• receipts for any training you have undertaken
• your business bank statements
• your personal bank statements
• any credit card statements related to business expenses
• any bills for rent or utilities
• phone bills, including mobile phone bills and any internet charges
• cheque stubs
• paying-in book stubs or counterfoils.

How should I keep these records?

Whatever method you choose to keep these records, whether you use a spreadsheet package or enter the details manually, it is often easier to keep a record of the income and expenditure you have incurred on a daily basis.

Even if you choose to utilise a spreadsheet for your accounts you will need to keep paper copies of all your other records. These are best stored in plastic wallets within a box file. This way you can keep all your income details and receipts for each month in a separate plastic wallet to your expenditure details and receipts. Label the plastic wallets accordingly (month and income or expenditure) and then it will be a simple matter for yourself or your accountant to check back and confirm any details.

Keeping manual records

This is an easy and cheap way of keeping your accounts. You can use a diary to record any financial transactions on a daily basis, and sum up the totals at the end of each week as well as at the end of the month. The Inland Revenue produces a Tax Tracker diary which you may find helpful as it has a useful layout, contains additional tax information and reminds you of the all-important dates you need to comply with for your tax return. You can get a copy of the Tax Tracker diary from any good stationers.

In addition to keeping a diary, you may find it useful to print off a sheet detailing your finances under their various headings, an example is given on page 92 (Figure 15) which you can amend to reflect your business needs. You can also use this sheet for either your weekly or monthly figures. Setting your accounts out in this way will help you to summarise your spending under the various categories, and enable you to see at any stage just how much you are spending on any one category. You can then check these figures against your scheduled monthly budget to see if your budget is keeping in line with your spending.

Make sure you keep your financial records locked away in your filing cabinet when you are not working on them.

Keeping computer records

Instead of keeping manual records you may choose to use the spreadsheet package that came with your computer software, or a package that your bank may have sent you when you opened your business account. The advantage of using a spreadsheet package is that the figures are automatically calculated which can save you time. If you choose to keep your records this way make sure you print off your monthly figures at the end of the month to add to your paper records – and equally important, make sure you back up your files. Also ensure that you keep your financial records safe by password protecting entry into your system and encrypting the files.

Making use of ‘quiet’ times

When you have spent some time working in your practice you will get a clearer idea of what the usual ‘quiet’ times are. These are the times when there are fewer clients seeking sessions with you. For some therapies this is during the summer months when the children break up from school and people are taking their holidays. If you find this to be the case for your practice, then you can use this time for gathering all your accounts together and starting work on completing your self-assessment tax form. If you are filing your accounts without the aid of an accountant you may find this quiet period in the year extremely valuable as it will allow you to complete your form before the 30 September deadline – which means that the Inland Revenue will calculate your tax for you.

Using an accountant

You can choose whether or not to use an accountant to review your books and compile your self-assessment tax return. There is no legal requirement for a sole trader to use an accountant’s services.

The benefits of using an accountant are:

• They will often be able to save you the cost of their fee by a careful review of your finances.
• You have another professional to draw on for advice in relation to your business.
• Your accountant can organise your accounts for you if you don’t have the time or are unable to organise them yourself – an extra charge will be made for this.

Many people rely on personal recommendations from their colleagues, friends or family in order to find an accountant. You can find an accountant by checking out the listings in your local Yellow Pages. It’s always worth contacting a few to see which one you feel more comfortable with, for example, you may want an accountant who has worked on the financial records of other therapists and therefore understands more about your business, or you may prefer to use an accountant who will visit you in your own offices to save time and save transporting your files.

If possible, choose a firm of accountants rather than someone working on their own, this way you will be able to tap into additional expertise should the need arise, and there will always be someone around to cover for holidays and sickness – and it doesn’t necessarily mean you will have a larger fee to pay.

Income

In your practice brochure you should confirm how you can accept payment, whether this is in cash, by cheque (with cheque guarantee card) or via debit or credit card, in order to save any payment problems when the client attends for their session. Generally speaking, the more ways in which a client can pay you, the better.

Accepting payment by cheque or cash

You must at the very least be able to accept payments by both cheque and cash. If your client is paying by cheque make sure they date and sign the cheque correctly, and make a note on the back of the cheque of the number on their cheque guarantee card – this ensures that you will receive payment.

Post-dated cheques

You will need to decide on your own policy regarding whether or not you accept postdated cheques. Accepting a post-dated cheque can sometimes be helpful to the client and allow them to afford your session as they may need to wait until the end of the month until their bank account can support the cheque. You may choose to decide this on an individual basis depending on the rapport you have with the client, or how many sessions they have already had with you and their personal needs.

Another time when you may find it helpful to accept a post-dated cheque is when a client is paying for a place on one of your training courses, where they want to confirm the place but can’t afford to release the money until nearer the time. Other ways in which I’ve accepted these is as payment for a block of work or training, where the individual cannot afford the full cost at the time but is prepared to issue say six post-dated cheques already filled out one for each month until the bill has been paid.

Accepting payment by debit or credit cards

If you can accept payment by debit or credit cards so much the better. Payment by credit card is the only way some clients can afford to pay for their treatments, for others it makes payment more of a convenience as fewer people these days seem to carry their cheque books with them. Each credit card transaction will cost you a certain percentage of that transaction. It will usually involve you in the cost of a machine so that you can take an imprint of the card – you may also need to call a credit agency in order to confirm that the amount will clear successfully.

Another way in which you can accept credit card payments is through internet systems such as PayPal. In order to be able to do this both you and your client need to have internet access. You will both need to set up PayPal accounts, which will require you to enter your credit card details. $1 (US) will then be taken from your accounts in order to test that the transactions work and that the accounts are valid. This can be a somewhat laborious process for a client to go through if they are simply trying to pay you for their session, but it is a very useful way of getting payment for any products you may be selling via your website as foreign currencies are converted into pounds sterling and debited and credited accordingly. For more information about the PayPal system, see Chapter 12.

Paying small amounts by cheque or credit card

Depending on the charges you make for your sessions you may decide to have a policy regarding the minimum amount you will accept from a client by cheque or credit card. This is purely for practical reasons, as you will be charged on your business account for each cheque you present for payment, and also charged for each credit card transaction you process.

Tax credits and grants

If you have children under the age of 16, you may be eligible for an increased amount of Child Tax Credit and Working Tax Credit if your income falls below a certain level. And depending on the area in which you live, other payments may be made even if your child is over 16 years of age. For example, in some areas students aged 16–18 are eligible for Education Maintenance Grants of up to £30 per week depending on parental income. Please note the period against which your income is assessed is the previous financial year, as these awards are always assessed retrospectively. Check this out with your local education authority. For further information on tax credits, see Chapter 12.

Pensions and health plans

Now is a good time to give some thought to making provision for your long-term future. If you were previously in a company pension scheme before taking the self-employed route, you should consult with the company on what the possibilities are where your pension is concerned.

Check out the deals available through your bank or building society, and also check out the big-name companies. Whatever plan you go for, it needs to be both affordable and realistic in terms of how you want to be provided for when you decide to retire. If you are bringing up a young family you might also want to compare what each company offers in terms of death benefits.

If you decide, because of the cost of initially setting up your practice, that you want to leave any payments to your pension fund on hold for a year or two, do make sure that it is for just that year or so as many people fail to make adequate provision for their retirement, and for their families.

The government has a good website offering impartial advice on pensions, see Chapter 12 for further details.

An independent financial adviser will also be able to advise you on pension plans which combine a pension with life insurance cover. They will be able to review your overall financial position, advise you on how best to utilise your finances and help you to think creatively around the financing of your practice and your long-term goals. For further information about independent financial advisers, see Chapter 12.

Insurance

Now is also a good time to review your personal insurance cover.

Life insurance

Are your life insurance policies adequate, especially now you have your own business? Could you benefit from rearranging cover? If money is tight, you might benefit by transferring to a lower cost scheme. Shop around for the best deals. This is another area that you might want to investigate with an independent financial adviser.

Health and sickness insurance

In addition, you might like to consider augmenting your cover by taking out additional health cover. As you are now self-employed, you will need to make some provision should you be off sick from work for any length of time.

Endowments

If you’ve been advised that your endowment policy is not performing as well as hoped, and particularly if this is linked to paying back some or all of your mortgage, you should be taking action now. Contact your endowment company for further advice and details of the possible options you could take.

Making your will

If you haven’t already done so, get this sorted now, especially if you have a young family, have business premises, or business interests to take into account. If you have already made a will, review it in light of your new business venture in case any alterations need to be made. It is also worthwhile making a note to review your provisions every three to five years to check that they still reflect the current situation.

Any solicitor can assist you in drawing up a will.