FINANCIAL RECORDS

You need to keep records of your Bed & Breakfast’s financial performance primarily for taxation purposes, but also to help monitor your business’s growth. VAT records are required to be kept by all registered business operators. As we have said many times in this publication, it would be wise to contact a financial adviser prior to deciding anything to do with your Bed & Breakfast. The HM Revenue & Customs office particularly, is a fount of information. You are legally required to keep your records for taxation purposes and the tax office has a CD-ROM designed for this purpose.

Sage, or a similar computer record-keeping program, is another worthwhile investment for record keeping and for tracking your business activities. Due to the complexities of tax systems, we will not be going in to great depth on the records the government requires you to keep.

Other than recommending that you contact HM Revenue & Customs we would suggest you apply to your closest VAT office for registration if required. HM Revenue & Customs administer this office. VAT registered business must show a nine-digit VAT number on all literature and documentation pertaining to the business. As for the figures you need to assess your financial progress, we would suggest that every month you reconcile and look at the following:

Accommodation cash flow

This is the permanent record of your occupancy and income. With this information you can compare month-to-month, year-to-year trading, highlighting regular seasonal highs and lows and allowing you to forecast accurately. You can then turn this information into graphs, perhaps even comparing weekend and weekday trade, to plan for the coming year or season. As months go by you will be able to make decisions on when your busiest periods are, enabling you to market to fill in the gaps or even the best time for you to take a well-earned break.

Operating expenses

These are the fixed costs each month, such as leases, rent, rates, insurance, loans, memberships, etc, plus your variable costs, such as telephone, electricity, gas, water, labour (including your own), food, decoration, etc. Again, graphs are a great tool for comparison and can help determine whether further investigation is needed.

For example, one month you may have spent £300 or €250 on food, while the next you only spent £210 or €180, but your accommodation receipts were similar. Ask yourself what changed.

Break-even analysis

The combination of your operating expenses and your accommodation cash flow provides you with the material to prepare a break-even analysis. When your costs are higher than your income you are running at a loss. Break-even is the point when the two meet, and all income above that is profit.

Bank balances

Another long-term indicator is the comparison between your opening and closing bank balance each month. It helps track your expenditure and is also good to convert to graph form.

Debtors and creditors

Monthly reconciliation of the money owed to you by debtors, and by you to creditors, is imperative when running a successful business. Ensure that you pay by your due date, as you want to maintain a good credit rating, particularly if you are part of a small community.

You should put in place a process to follow up debtors. While they are not paying you, you are losing valuable interest.

Profit and loss statement

This is the conclusion of all of the above. Subtracting your costs from actual sales revenue from accommodation receipts will give you a gross profit estimate for the month. Then subtract all other costs including a pro rata amount for variable expenditure. This will give you a net profit figure.

The net profit is the bottom line figure from which you can draw cash, pay off capital or retain cash in the business for future growth. It is also the figure you can match against the value of your business assets to see the return on your investments.

With all these figures at your fingertips you can build an accurate picture of the financial position of your business. Recording these figures each month gives you the ability to keep your business finely tuned. You will be able to see trends in profits, costs and sales. It will also help you to see any potential problems if one or more of these indicators begin to go off track.

A business will eventually fail if it is not profitable. It may also fail (even if it is profitable on paper) when cash flow is not monitored to ensure that debits are paid when due or you take too much cash out of the business.

General ledger

A general ledger is a day-by-day record of your daily incomings and outgoings. In any business, including B&Bs, you need to ensure a general ledger is established and maintained in order to monitor debits and credits against each salient item. An accountant or financial adviser is the best person to assist you in setting up your books, in particular your general ledger. Again, a suitable commercial program can help you here.

BANKING

It is imperative that you put your payments into the bank as quickly as possible, for both security and financial reasons. If you are unable to get to your bank every day, and have the potential to carry large sums of money on your premises, you must inform your insurance company. We would also suggest the installation of a small safe.

A meeting with your bank manager would be a good idea when starting up your business. Your bank should be able to advise you of the best bank accounts to run your business and will provide you with the necessary documentation that will need to accompany any transaction.

To make your time at the bank more efficient:

• Always sort coins and notes into denominations and place coins in the bags provided by the bank.
• List your cheques on the deposit slip.
• Pay your foreign currency to the bank using a separate slip.

Don’t forget that for credit card transactions there is nothing to bank as the payments are electronic. Debit card transactions are straight through into your account.

If you are unable to get to the bank during trading hours, find out if the bank has a night safe facility. The bank will be able to issue you with a commercial wallet in which to put your money. The bank will also give you a key or a code that will unlock the night safe.