Practical, simple finance tips for small business owners with Anastasia Webber from Hummingbird Finance
What’s this episode about?
Managing my finances as a small business was a big adjustment for me both practically (saving for my tax!) and mentally (you mean the price I charge isn’t the money I actually make?!). I had SO many questions when I started and couldn’t find anywhere to tell me exactly what to do, step by step. So in this episode that is what Anastasia and I try to do. We’ve gone back to basics and talk about all the really important things you need to know about your finances, especially in those first few years.
Episode key takeaways:
We answer common questions like:
Do I need a business bank account?
Is a spreadsheet ok or do I need software like Xero?
What is the difference between bookkeeping and accounting?
When do I need to invest in a bookkeeper or accountant?
We also cover:
Why is it important to know your business numbers, especially with the current climate,
A simple system for receipts
What are tax-deductible expenses (and what aren’t!)
When should you be a sole trader vs a limited company (and what impact that has on you and your business)
Using Profit first to structure your finances
NOTE: This podcast was recorded in Summer 2022 and some of the specific tax thresholds or other information may have changed since the recording. We’d always advise you get specific advice about your financial situation from an accountant at the point you need it.
KEY LINKS:
Join Facebook group: Female business owners empowered about business finances
Get the ‘5 step method to get you in control of your business finances’
Profit first book - Click here
INTRODUCING… ANASTASIA
Anastasia is an ICAEW chartered accountant with over 8 year’s experience in the finance industry. After working her way up, the corporate ladder she left to start Hummingbi rd Finance with the aim of helping small female-led businesses with accounting and boo kkeeping so they could focus more on what they do best to grow and achieve success. Anastasia’s core values are approachability, trust, communication, and enthusiasm. Sh e’s super passionate about helping women entrepreneurs feel empowered about their fina nces at whatever stage of business they are in. Outside of finance, you’ll find Anastasia relaxing in the evenings with a glass of win e, watching the sunset or a trashy Netflix series. She also loves to travel the world but nothing will feel more like home to her than walks in the Devon countryside with h er dog Tucker!
Website: www.hummingbird-finance.co.uk
Instagram: @hummingbird_finance
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Read the transcript:
NOTE: This podcast was transcribed by an AI tool. Please forgive any typos or errors.
S2 Anastasia
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[00:00:00] Hello, and welcome to growing pains. The marketing podcast for brands who want to grow and get more consistent sales, but without the overwhelm of feeling like you have to be online 24 7, I'm Sophie, your host, and a Facebook and Instagram ad strategist
join me each week as I alongside some wonderful guests, she had practical tips and advice about how you can use and combine marketing strategies to get more impact for your effort.
Sophie: Hello and welcome to today's episode. So today I am thrilled to be here with Anastasia from Humming Bird Finance. She's actually my accountant as well. So you in very, very good hands. She is an I C A E W Chartered Accountant with over eight years experience. In the finance industry. After working her way up the corporate ladder, she left to start Hummingbird Finance with the aim of helping small female-led businesses with accounting and bookkeeping so they can focus more on what they do best to grow [00:01:00] and achieve success.
Anas stage's, core values are approachability, trust, communication, and enthusiasm. And just on a side note, like she's the only accountant I've ever really looked forward to having phone calls with. So she absolutely embodies all of those values. She's super passionate about helping women. PR entrepreneurs feel empowered about their finances at whatever stage of business they're in.
Outside of finance, your finance, Anastasia, relaxing in the evenings with a glass of wine, watching the sunset, or watching a trashy Netflix series. My own Heart as he loves traveling the world, but nothing will feel more like home than walks in the Devon countryside with her dog. Tucker, welcome Anastasia to the podcast.
Anastasia: Thank you. I'm very excited to be here.
Sophie: I am so excited to have you here. Let's do, so that's the official intro. Let's talk a little bit more about you. What's your kind of life set up at the moment?
Anastasia: So I am recently married. Got married in. August this year and just before we got married, we moved our lives back [00:02:00] down to Devon. So yeah, we now live in Devon on a farm, so it's very different to, sorry, life. But yeah, I've got a little dog called Tucker, who's two. And so yeah, it's just me, my husband and Tucker on the farm.
Sophie: Oh, and honestly, if you follow Anastasia on Instagram, I'll obviously post her handle in the show notes. You'll get to see all of her beautiful morning walks and the amazing views that she has. It is a really beautiful, oh, you're doing up your house as well, aren't you?
Anastasia: Yeah, it's quite a big, well, it's not a massive renovation. It's all like just painting and things like that, but there's just a lot to do. But yeah, no, so we'll do that and, and I show a bit of that on Instagram as well when I remember.
Sophie: yeah, absolutely. And every time I speak to Anastasia, she's in a different room. She's like, oh, that one's being decorated . We're in here today. Or I'm downstairs today. So yes, Sam, I get to see all the different rooms. Right. Let's do the quickfire round as well. So are you ready?
Anastasia: Yes.
Sophie: Okay. Tea or coughing. I [00:03:00] love it.
You haven't even got kids , like you're already a caffeine addict.
Anastasia: definitely. I
Sophie: Dogs or cats?
Anastasia: Dogs Gotta be dogs.
Sophie: Well, yeah. You obviously, yeah. You've got your dog bagels or crumps.
Anastasia: Ooh. I think bagels. I really like
Sophie: I'm well into bagels at the moment. Beach or pool?
Anastasia: Beach,
Sophie: Nice winter or.
Anastasia: summer, definitely.
Sophie: We spent, oh my God, your wedding along the summer's day was incredible. Again, you'll get to see some of those pictures on her Instagram as well. Not that I'm living vicariously through her or anything color or monochrome,
Anastasia: Oh, color.
Sophie: Early morning or late night.
Anastasia: early morning,
Sophie: Yeah, I can see that, especially when you've got dog as well, like those beautiful walks, like before work and everything.
Anastasia: definitely used to be a morning person and then I've got worse and worse at it, but I'm trying to get back. I'm trying to claw
Sophie: I get back to it. Yeah. Right. So today we are talking money and the focus of this podcast in general is to help small businesses with growth, especially through those really tricky periods when you know you've got a business and you're doing well, but you wanna [00:04:00] grow it or take the next steps and it feels a bit tricky and messy.
So typically we talk. Marketing mindset, sales, Facebook ads, obviously. But this season I really wanted to incorporate some other topics as well, and money was one of them that I kept coming back to. both kind of how we manage it practically, but also like the mindset around it as well. So today we're talking all practical elements.
And I'm gonna be doing another one really specifically on money mindset as well. But if you are anything like me, you will have muddled through life, working out how to live on like a budget at uni, you know, getting, then getting kind of money commitments, like renting your first flat, you know, the best way to save for our wedding, navigating a mortgage and you know, all that sort of stuff.
working as an employee and managing your own business, finance is such a different ballgame. I didn't realize how. Money management came from the company in terms of like, they just gave me like the end goal and it was just like, well, here's how much you can sort of spend or do what you want with, with your business.
It's obviously so [00:05:00] different. You know, whether you're thinking about bank accounts or self-assessments or corporation tax, it's a bit of, can feel like a bit of a minefield certainly when you're starting out. Anyway. So today we are gonna cover some key questions you might have, some decisions you might need to make and really some tools and strategies that you can use.
, and that might be really helpful for you. No matter where you are in your business, we are not gonna be covering things like you know, VAT registered and, you know, hitting the VAT threshold and stuff like that. That's probably a bit further on. So if you're at that point, I would imagine by that point you're already working with an accountant.
Because you really need some support when you're doing that, but we are looking really at those people up to that point. So when you're trying to decide the structure of your business, when you're trying to get some foundations in place, so you don't have a massive tax bill when you're trying to decide if now's the right time to go into a limited company or not, those are things we're gonna be covering today and I'm really, really looking forward to it.
So we are gonna start with some simple ways you can. on top of your finances. I've written down like a list of questions, which I'm going to fire at Anastasia . [00:06:00] And we are gonna kind of go and see where we go from there. So first up, I think the, basic question, you start a business and maybe you just, you just get going with what you've got.
Do you need a business bank account?
Anastasia: So yes, definitely that would be my number one thing that you need to do when you start a business. So the reason being is because when you come to do your self assessment or any kind of tax return, or look at your numbers further down the line, if you've got all your personal bits, In amongst your business, bits in your bank account, you're just making it so much harder for yourself to understand what is going on.
If you're a limited company, it is a legal requirement that you have a completely separate bank account, so that's one thing in itself. But even if you're a sole trader, it's super important to just separate out those bank accounts. And definitely look at getting, you know, look at some of the newer banks because actually they're really useful and they can be great tools for business owners because they give you notifications when [00:07:00] things come out of your bank and you can set up little pops in them to do different things.
So yeah. Definitely get a business bank account.
Sophie: Brilliant. And yeah, I have tried a few different banks and I think the more modern ones are just so good for, you know, the app on your phone being able to like save tax pots. We'll talk a bit more about that later. But, you know, different pots for different things and. Even helping you with like percentages and working out your bookkeeping and that sort of thing.
You can like assign receipts and all that sort of stuff that you don't get in like a personal bank account, isn't it? Okay. So tick for business bank account personally I would recommend Starling or Monzo. Are there any others that you would recommend?
Anastasia: No, starting in Monzo would be the two that I
Sophie: Two one. Yeah. Perfect. So if you want to have a look at, and they're both the, for the basic kind of just user bank account, they're both free.
I.
Anastasia: Starling's, definitely. Yeah. So if Monso is then yeah, they both are.
Sophie: Yeah, and then you can kind of upgrade. They have various, you know, packages where you can pay like a couple of pounds a month and have extra functionality, but I think for the basics, they're both free, so [00:08:00] that's really, really good. Okay. Next question is, can you just keep track of your incomings and outgoings on a spreadsheet, or do you need a finance software like Zero, or what's the other one?
Free
Anastasia: Free agent
Sophie: quickBooks, that's your one? Yes. Yeah. Do need to have one of those.
Anastasia: so no, I wouldn't say that you do need it. I think it depends what stage of business you're in. If you are in, if you are just starting out, Excel, Google Sheets, something like that is, is more than enough. You just need to be making sure that you are tracking it and you can easily see what's going in and out and whatever works for you.
At the end of the day, these are your numbers and you are the one that needs to understand what's going on, and if accounting software is something that you can't get your head around, as long as you understand what's going on in Excel, Excel and Google Sheets work fine.
Sophie: Perfect. And then at what point would you say you the software have benefit?
Anastasia: So it definitely has benefits in terms of it does a lot [00:09:00] of, it does a lot of the work for you, so you can link it into your bank account and therefore you know that you are seeing everything that's going in and out because it's linked to the account. And then from that, if you are quickly just allocating like, yeah, this is revenue.
Yeah, this. And expense, you can just pull reports from it really easily, which will show you your profit and loss. So you don't have to do any of the calculations. It'll do it for you as long as you are allocating things as they go in. So it has lots of benefits in that way and nowadays most of them will they also like link to.
Doing tax returns and stuff for that. So if you are using an accountant or a bookkeeper, they can do your tax returns directly from the software. So it is, yeah, it's definitely useful.
Sophie: Amazing. Okay. Well that is a very good way to link onto my next question of, first of all, what is the difference between a bookkeeper and an accountant?
Anastasia: So, yeah, so there is overlap with bookkeepers and accountants. That's the first thing I will say. So bookkeepers [00:10:00] are doing more of the day-to-day getting into the numbers. So they're looking at your bank account there. Assigning what things are. So yeah, that's a sale. Yeah, that's an expense. What type of expense is it?
And they're doing that and they'll do that hopefully for you on a monthly basis so they can really show you what is going on with your numbers. Also some bookkeepers will do things like self-assessments for people. And they will start to do some of the tax bits. An accountant. Can sometimes also do bookkeepings, like I do both.
But sometimes accountants will just do the end elements. So they'll do the year end accounts and they'll do the tax returns for you and they'll expect you to do the day-to-day monthly bookkeeping. Also, accountants can do a lot more of the tax planning. They'll sit down with you and be sort of, you can have strategic conversations with them about what you wanna do in terms of like where you wanna take the business, how you wanna grow it, what that looks like for tax and all of those types of things.
So there's, there's a little bit of difference, but they definitely do overlap.[00:11:00]
Sophie: Yeah, absolutely. I think that's a really good explanation and one that I did not fully grasp when I first started out. And I guess the follow on question from that naturally really is when do you need both? Like when do you need to invest in one or other, or both? Like why would you, why would someone kind of invest their money in it?
Anastasia: Yeah, and I think it is completely dependent on the person and what you. in your business do you need help with? If you are not a numbers person and you shy away from the numbers, then I would suggest that it's something that you get help with earlier rather than later. If you are somebody who is like, actually, I've got my Excel spreadsheet and know what I'm doing, I'm on top of it, then maybe you don't need it until further down the line.
Like I definitely would say. Most people that come to me that haven't used an accountant or bookkeeper before are going wrong somewhere with tax deductible expenses, like whether they're, you know, getting it right or wrong, things like that. So it's, there's definitely, [00:12:00] I'd just say like when you are starting to actually get to a point where you are paying tax in your business, you are going over that threshold.
That is when you probably need to start thinking about talking to someone. A lot of accountants nowadays do power hours, like one-off sessions where you can just pay for an hour of their time and you can go and say like, oh, is this tax deductible? Is it not? So maybe you, that's your next step before you actually go in for the full support.
But definitely when you start paying tax, think about it and think just about where you are and what you feel comfortable.
Sophie: Yeah, absolutely. And I guess from. Legal perspective, am I right in thinking that as a sole trader you can just do your self-assessment at the end of the year? Technically you can just do it all yourself, like that's absolutely fine. But from a limited, if you've got a limited company, the end of year tax
Anastasia: So.
Sophie: that, does that have to be done by an accountant or is it just a bit more complicated?
Anastasia: it's more complicated. You could attempt to do it yourself, but ideally, if you are a limited company, you really need an accountant just because[00:13:00] it's not as simple as the sole trader. And so you would probably end up saving yourself more money by paying out for an accountant than you would if you didn't.
You could do it yourself, you, if you were really clued up on things.
Sophie: Yeah. But like generally as a minimum for a limited company, you're looking at once a year year end tax reporting aren't you? And then whether you decide to get any advice or bookkeeping support in between, that's kind of up to you. But generally for limited company, you should kind of accept that that is gonna be part of the costs.
Yeah,
Anastasia: exactly.
Sophie: and we are gonna talk about sell trader versus Limited company a little bit later on as well. I guess as well, I wanted to talk. More generally why it's so important, especially at the moment in the current climate, to understand your numbers and where you see like firms that really do understand their numbers benefiting from it.
Anastasia: So at the moment with cost rising and there. Consumer kind of fear in terms of spending, like it's a really crucial time, especially for small businesses in terms of getting it right these [00:14:00] next couple of months, years. You want to continue growing, but if you don't know your numbers, you're gonna struggle to do that.
And it's just that you've got two ways you're gonna go either if you don't know your, your, dunno your numbers, you're blind in a way. So you're either gonna spend too much and. End up like putting yourself in a really dangerous situation because you've spent more than you are actually bringing in, or you end up in the other situation where you stagnate because you are too worried about spending because costs are rising.
But actually you might have had the money to say, invest in marketing or something like an investment that's gonna grow the business and you end up getting yourself into a dangerous position that way. The core of moving forward in these next couple of months, years is to make sure that you know your numbers, know how much you've got in your business, that you can invest into growth because you need to continue growing, right?
We can't just stagnate over these next[00:15:00] months with everything that's going on. So yeah, I'd say that's why it's really crucial.
Sophie: and that is why you are one of my favorite people because I think there's a bit of a stereotype around accountants being. , why have you spent that? Don't spend that. Spend less. Like there's that, you know, like movies, you often see that, don't you? The accountant's the one that's the boring one that's like, oh, don't do that, don't do that.
And actually I think what we found like working together is. That confidence of knowing your numbers gives you that freedom really to say like, can I afford to invest in that? And actually what are my projections and like, am I on track for saving for tax and do I have that freedom to kind of test this out and spend this money on ads or do this, but like you say, without knowing your numbers, you're not sure about that.
So it's not all just about spending less, it's really about understanding where you can spend and when you can spend it.
Anastasia: Yeah, definitely. And I appreciate that. The number side of the business isn't as sexy and fun as the marketing side [00:16:00] and the sales side, but it, it honestly underpins everything and it's the core and you've gotta get it right. And that is where you see businesses fail because they didn't know their numbers and they made the wrong decision.
So yeah, it's super, I.
Sophie: And in terms of. Knowing your numbers, like where do you start with that?
Anastasia: So I think the best thing, like the simplest thing I could say to people, If you are a bit like, mm, not sure where to start and you're just nervous about it, get into your bank statement. Like just get into a really good habit of just checking your bank statement and being like, oh yeah, okay. That's gone through.
Yeah, I was expecting that cuz it just reminds you everything that's going on in the business. And you might be like, , oh wait, I'm still paying for that calendar lead subscription, and I actually used todo now. So like, just things like that that you'll see and you're like, oh, I could save money because I don't need that anymore.
Because you forget otherwise. And so I think that that yeah, is like [00:17:00] my number one thing that you need to be doing often just to get you more confident is looking at, looking into your bank.
Sophie: Yeah, absolutely. And then one thing that I have really found useful kind of working together is having a system for my receipts and my invoices that come in. Because sometimes, you know, you get these emailed. Don't you? They'll say like, you know, oh, well done. You've renewed this subscription. Or you know, this money's come out and I sort of file them away,
And then it's like either I have to go back and like dredge them all out, or I'm not sure where they all are. I can't find one. So in terms of systems for receipts and just kind of getting on top of what is going out of your business, what do you.
Anastasia: Yeah, so there's two main ways, cuz you're gonna get two forms of receipts, right? You're gonna get the paper receipts and you're going to probably get receipts via email, like invoices and stuff via email if you've got software. , then use the software. So like Sophie, you use Dex [00:18:00] most of the time.
And you know, that means you can email it to the software and the software picks it up. Or you've got an app on your phone, you take a photo and it'll go to the same place. If you don't have software, it's not a big deal, but still paper receipts. Take a photo of it, create a new folder in your photo on your phone called Business Receipts, and just always move it into that business receipts folder because then it's gonna be, Chronologically ordered in there so you can go back and find it really easily.
If you are cutting them via, via email, then you need to create a separate folder in your inbox and just move them across into that folder as soon as they come in. So that's how you're gonna like, say that it's done in your inbox, like you move it across into that folder. Done tick. And I, it's worth saying because it's something that a lot of people don't realize is that, You, there's a legal requirement in business to hold your receipts for six years.
So if you were to get audited and someone did come and ask for them, they could ask for those receipts [00:19:00] back six years. So it is a really important thing to get on top of, make sure you are doing, get those habits in place just to cover you. So yeah,
Sophie: Yes. Even if you are not having huge amounts of expenses now, technically you could be audited in like five years time and still need them. Yeah. Okay. Brilliant. Now talking about expenses, and I know this is something that I have chatted to many a friend about, especially cuz most of us work from home tax deductible expenses.
Like what's deductible, what's not deductible? Like, you know, what can you claim back essentially from your business? And I think one of the things we're gonna kick off with, we'll talk about some like common ones. when you're working from home, can you, you know, especially with energy prices rising and you know, all that sort of stuff.
Do we have to sit here freezing cold, or is there any, can we claim some of it back through our business? Like what's the deal?
Anastasia: Yeah, so obviously if you are working from home, then it makes sense that you should be able to claim a bit back. H M R C actually. Flat rate, something called a flat rate expense system for working from [00:20:00] home. So depending on how many hours you work from home, depends on how much you can claim.
And that, and I'll go through that in a minute, but that amount is then meant to cover the portion of your heating bills, your water bills, your Like thi things like maybe your rent or your mortgage interest or your house insurance. So that's what it's meant to cover. So for example, if you are working at home all the time, so over 101 hours per month, then you could claim 26 pounds a month, which doesn't sound like a lot in the current climate.
And that's for soul traders. So you can also. Work it all out. So you could literally sit there, take your electricity bill, take your water bill take your house insurance and apportion it. But you need to have a very good, like, reasoning behind the apportion meant. So it's not as simple as just being like, oh yeah, I'll put my whole electricity bill through.
You can't do that. You have to kind of be like, I work X amount of hours at home. There are x [00:21:00] amount of hours in a month. , I'm gonna divide it by that. I normally have to take into account the room you're working in. Cause obviously if you're heating your whole house but you are only working in one room, then you should only be charging the amount for that one room.
So it gets complicated. I would use the flat rate and I'll be interested to see if they start to up that flat rate.
Sophie: Yeah, I was gonna ask that actually. That's quite interesting, isn't it? I mean, they don't seem to particularly desperate to help people that work for themselves. So I wouldn't ask a little political comment there for you. Tune in for more political commentary from Sophie yeah, I wouldn't, I mean it's not gonna massively hike up, is it?
Either way. Like even if they do look at it. Okay. Fab. And in terms of the rate for the limited company, is that similar?
Anastasia: Limited company, I think it's six pounds a week.
Sophie: Okay. Brilliant. So there is some provision there. In terms of general working from home expenses, what about other common tax deductible, maybe common ones that people get wrong, , or ones that maybe we overlook?
Anastasia: Yeah. So ones that I quite often [00:22:00] hear like wrong are things like client entertainment. So client entertainment sounds like it should be tax deductible, right? Because it, it sounds like it's who and exclusively, and that's the phrase that HRC use for your business. But actually it's one of the things that is kind of like a, an exception to the rule.
It's. Tax deductible. So you can still put it through as a business expense cuz it is, but just when you are working out your taxable profits, you can't deduct it. The other ones that I can, can hear wrong a coding. So lots of people, if you are going to a client site or say you work in an events business or something like that, where you are going out and you are.
Working and kind of your, you are your personal brand and that kind of thing. A lot of people put through clothing. So unless it has got your logo on it, , it's not hack deductible. So if you want to get your logo put on everything that you wear, then you could have that hack deductible because they would see it.
Because the thing is they're looking [00:23:00] at personal versus business use, and there's nothing to say that that dress you wore to a what to a, an event you couldn't wear the next day to see your friend. So
Sophie: Yeah.
Anastasia: that's what they're kind of like going with on that one. Yeah, so those ones are the. Not the ones I would say people forget is mileage sometimes.
So
Sophie: such a good point.
Anastasia: if you are driving somewhere for business then again it is kind of the same as working from home. H r C give you a flat rate, so 45 people per mile you can claim up to 10,000 miles and then it's 25 p after that. that is then really useful because that helps you cover things. So you can't put your petrol through, but you can claim that 45 p and that's meant to help you cover petrol ongoing, like wear and tear insurance, that kind of stuff.
So that's one. People forget.
Sophie: So say you run physical classes like in a town. Like [00:24:00] relatively locally to you. Could you do your mileage? So it's like three miles there and back twice a week. Could you do that as mileage?
Anastasia: So, yeah, you have to be careful with things where you are consistently going somewhere because then it becomes commuting, which wouldn't be cla wouldn't be allowable. But if you were going to a client's house for a client meeting, yes, definitely. If you were doing a one-off course somewhere.
It was three miles away from the house. Yes, definitely. If you were selling goods and you are driving to the post office to drop your goods off at the post office and it's literally you're just driving to the post office and back. Yeah. So just make sure that it's like a hundred percent business. But yeah.
Sophie: Yeah. Brilliant. Okay. That's really helpful. Fabulous. Okay, so next thing on my list is, and I know a lot of people are not sure about this, so it'd be really good to dig into this a little bit, is when should you be a sell trader and when should you be a limited company? And at what point does [00:25:00] the scales tip towards one or.
Anastasia: Yeah, exactly. So I always say to people, if someone comes to me and they're starting a business, it's kind of like, where, what are your goals? Immediate goals, are you gonna go in? Hard and you think this is really gonna do well and you are expecting like first year turnover to be quite high, like, I dunno, in the seventies, like nearing the bath threshold, something like that.
Then I'd say, yeah, it makes sense to maybe go limited straight away if you are like, actually I'm just building it up around my family and. And maybe not going for such high turnover to begin with. And I'll just see where it goes. Then I think Soul Trader makes more sense. So Soul Trader is a lot easier to set up.
So it works for a lot of small businesses when they're starting out. It generally has lower accounting fees cuz there's less for you to do. You've just got one self-assessment once a year. So it works quite well where the scales tip for limited company is in the region [00:26:00] of like 30 to 40 K worth of profit.
Limited companies become more tax efficient. So it is then better for you to move into a limited company and get the tax benefits of being in a limited company under 30 K. It's actually more tax efficient to be a so trader. So that's why I'm saying like, depending on where you wanna go in your first couple of years companies have limited liability.
So that basically means that you are separated from. The company itself. So when you're a sole trader, if, if the business goes bust and you owe people money, the business owes people money. You owe them money. There's no differentiation between the two. When you are a company, if the company goes bust and the company owes people money, the company owes people money.
It's not you personally. So like you couldn't, they wouldn't take your house to pay the supplier kind of thing. Whereas a sole trader, it's more risky. What else is there? Brilliant. And then some industries [00:27:00] with limited companies, like people want to work with limited companies, so you can't actually get any business unless you're a limited company.
But that's only with some industries. So do some re if you are thinking about it, do some research. Find out if, if that is the case for you and your industry. But a lot of places are farmers, sell traders.
Sophie: Yeah, absolutely. Just when we say 30 to 40 k profit, that doesn't include the money you take for your salary, essentially, does it?
Anastasia: So, yeah, so yeah, it doesn't, sorry, it doesn't include
Sophie: I know there's like all of these like terms and even I'm like, hang on a sec. So I know we're gonna dig into profit in a minute and tax and revenue and all that sort of stuff, but you are basically there. You are saying we may as well get into it now actually. So what we're saying is the amount of money you've taken in the amount of ex take off the amount of expense.
Deductible expenses that you can take off then, then whatever you are left with, that is the number that you're looking at, that 30 to 40 grand, essentially whether it's worth it. Yeah. Perfect. And so you might be [00:28:00] taking a salary of 30 grand, and so you are kind of reaching essentially like a net of zero, but you're obviously, but we are kind, that's what we're looking at.
Anastasia: And that's the kind of complication because yes, when you are sole trader, that's how we look at it. So we take your, your sales number minus all your business expenses, and then that then is your profit before you take any money for you.
Sophie: Yeah.
Anastasia: If you are a limited company, it is different because you are allowed to deduct your salary before you get to your like taxable profit.
Yeah. So it, it
Sophie: a newly limited company? This is why I'm like, oh my God, this is hurting my head. Yes. Okay, fine. So you in a, in a limited company, you take your salary and then your profit is then what's left after you've taken expenses and salary off of your main thing.
Anastasia: Yes, exactly.
Sophie: Got it. But you still do a self-assessment on your salary, don't you,
Anastasia: You,
Sophie: as a limited company?
Anastasia: you do a self-assessment on [00:29:00] your dividends that you take out. So on top of that, you would then take out dividends. Dividends don't get deducted from profit Ill gets really confusing, which is why you
Sophie: does start to, this is exactly why I work with Anastasia. Cause every single month I'm like, right. Just run me through it one more time. Just one more time. How much do I need to be saving in my tax pot? And that is what we're going to be talking about now because this is the one of things that honestly, when I, and even now sometimes keeps me kind of.
Awaken night is I'm suddenly gonna get like a 10 grand tax bill that I just didn't see coming, or I won't have enough to pay my tax. And it just feels like that thing at the end of the year of like, oh my God, I hope I've got enough. It doesn't, it feels like some way you should just be able to get like an absolute figure as you go along, but it is kind of down to you, isn't it?
To track it and monitor it and put the money aside and that's what's so different about being an employee versus obviously running a business yourself. Tax and saving for tax. What are your kind of strategies and tips to help people [00:30:00] not just get to the end of the year and go, oh shit, I've got a massive tax bill.
Anastasia: So the tough thing with taxes that. You are taxed on your profit. So if you don't know what your profit number is, then it's hard to work out what tax you are going to owe. What is a really good thing to do though, is if you've been in business a couple of years, you already know last year, what tax you paid, and you can then, Work out as a percentage of your sales number, what that tax is, and then using that go for going forward.
You can put that amount away in a tax pot every month, every week, however often you wanna do it. But definitely do it at least every month. And the reason why I would set up a tax pot is because you don't wanna get to the end of the year and not have that amount saved. You will have earned that amount and you will have had the money to pay for that amount because that's the whole point.
It gets tax from your profit, [00:31:00] so you will have had it. So if you are not saving it as you go along, then, then it's quite, it can happen that you get to January 31st when you have to pay for your tax. If you're a sole trader and you're like, I don't have all of that money. It's gone. So it's super important and with Monzo and Sting, You can set up pots and you can automate it.
So it automatically takes money out based on sales that come in which is super useful and I know a lot of my clients do. It's just trying to work out what that percentage is and that percentage, if you are looking at profit is rough. And you are, I've got a turnover of under 50 k, you are looking at around 20 to 25% of profit you wanna put in that tax pot.
Sophie: Brilliant. But I guess on a practical level, when you are putting away. Profit, you're putting away your tax based on your profit, but you get money incoming as just revenue, don't you? So you, so although your like total expenses for the month might be [00:32:00] X amount where you get in literally a sale, you're not gonna know how much of that is profit necessarily.
So would you normally just say, if you don't have, like, like you said, obviously historically you could take a number if you know that, but if you don't have that data, what, like, would you just go with 20% and then over save a bit if. Can't afford to do that.
Anastasia: Yeah, I would say it's worth, if you can afford it, over saving somewhere between 15 and 20% of your sales just so that you've got that saved. And at the end of the day, when you then pay your tax, you can release some money back to you and be like, oh, look at this. I've got this money that I've saved.
So if you can afford to do it, that's how I would do it. If you've got previous years numbers even better because you'll be more precise then. But just remember, if you've all all of a sudden had a massive growth in sales, you need to adjust it cuz you won't be saving the right amount.
Sophie: Yeah, absolutely. And talking about like this expenses and revenue and profit. [00:33:00] There is the profit first system, isn't it? Which is something that I have seen, I've read the book and have implemented. I've loosely in my business partly because. I think the, anyway, do you want to explain what the profit first system is first and then we can kind of dig into it a little
Anastasia: Yeah, so see the way we've just been talking about profit is we've been saying sales number minus your expenses, minus your salary equals your profit. And and profit first basically looks at the complete opposite way round. So it says, What do you actually want to make as profit? And you have to be realistic.
Obviously, you can't just be like, I wanna make tons of money, but what do you wanna make as profit in terms of a percentage of sales? And it says like, okay, maybe you just wanna make 5%. That's not what you need to live off. That's completely separate to that. So it's the top of the top. It's like what's left over after you've paid for everything else.
And once you've got that figure, you then immediately, as soon as you get a sale in, [00:34:00] you take that percentage out and you put it in a pot and you don't touch it until the end of the year. So it's the other way around. And then the next thing you would take out is your tax. The next thing you would take out is your salary, and then what is left is then what you can spend on business expenses.
So it's kind of a way of really making sure that you are only spending what you should do on business expenses. But. , it works quite well.
Sophie: It works really well. I found it really fascinating and I'd really recommend the book. I'll put the link in the show notes cause I think. You know, there's some really, really good examples and it kind of works it through for you and you know, what percentages you might have for your tax and your salary and your expenses.
And actually what blew my mind, I have to be honest, is I think working as a sole trader for quite a few years and just sort of taking out whatever was kind of left in my, in my head. When I charge a client the. Honestly, I still think that's kind of the money I'm gonna get. , and actually in this book, [00:35:00] generally the rule of thumb number for the amount of salary you take home is 50% and then there's like 5% whatever profit, and then there's your tax and then there's expenses and.
It kind of blows my mind that I only get 50% of everything I earn. I think it's just really different mentality to your corporate salary where you're like, oh, okay, this is what I earn. But I never broke down to like, oh, I knew all the tax stuff came off, but I never really looked at like how much I actually got.
So, . I think that was really interesting for me to be like, okay, when I'm setting my prices, when I'm looking at how much I need to be earning each month, it's not just a case of that top line number. I really need to half that or double it, whichever way you look at it. And to make sure that I hit it.
The other thing I thought was really useful is that I put it all in and my expense. Some months were really under, which was really great, and other months were much, if I invested in coaching or some high-touch support or something like that, actually my expenses are quite a [00:36:00] lot over, and having the discipline that really the only pot that can impact is my salary, because I still have to put away the tax and I still wanted to put away the profit and the expenses were what the expenses were, and it's really driven me to drive those expenses down and make a real conscious effort because I know now.
How that balance works and how it's such a, like an ecosystem that you have to really get your head around. But it's just given anyway, it's just given me a lot more confidence to make decisions knowing what those numbers roughly should be.
Anastasia: Yeah. I think that's what's so good about it, because it it, it does do that. It breaks it down and it, and you are so right, like when you are an employee. Going from being an employee to being a business owner is such a big adjustment because you didn't have to think about numbers and now you do. And it, and it is that whole, like that money that that person's paid you, you're not getting all of that.
Like, yeah, you, you're so right.
Sophie: I know. It's just really something that hit me and I was like, right, okay, this is when I'm, yeah. Whatever services I'm setting up, [00:37:00] whatever I think I'm getting, I really need to just have that. Rather than being like frustrated that I've got to put tax aside or frustrated that I'm not like, you know, having to pay for the expenses, actually it's up to me to set my prices to account for that.
Anastasia: Yeah, thanks.
Sophie: cuz actually that's where we do have the control. Because, you know, we run our own businesses . Brilliant. Oh my gosh. I feel like we have covered a lot there. I really hope that was useful for everyone. I do think that this is something that we can tend to hide our head in the sand and hope for the best.
And like Anastasia says, even if you don't feel like you're at a point where you can invest in an accountant, all the time. I definitely would think about power hour. Think about ways to kind of check that you are on track even if you have power hour twice a year or something, whether it's a check in, ask questions, make sure you're on the right lines and get any questions asked.
I just think that's such a massive I dunno, wait. For me it's just a massive weight of my mind knowing that I'm not going to totally bugger it up at the end of the year, especially now I'm a [00:38:00] limited company cause I just feel like that legal require. Is something that I would not want to get wrong, obviously.
And having an expert on board, that's when it makes a massive difference. So, as always, there's a lot to take in and it's really easy to listen to a podcast and think, oh yeah, I'll definitely do that, and then like, carry on with your day. So at the end of every episode, I ask my guest, what's the one thing if I only, if if everyone only did one thing from listening to this podcast today, what would you recommend that they do?
Anastasia: go set up a tax pot. Definitely go either if your bank doesn't offer separate pots, which some of them don't. Set up a separate bank account and put. Money aside and be saving for tax. Work out your percentages and what we said today. But yeah, definitely tax part.
Sophie: Perfect. Lovely. Fantastic. Well, if you have enjoyed listening to Anastasia's tips and advice and want to hear more, you can go and follow her over on Instagram where her handle is at Hummingbird underscore finance. She also has a. Facebook, a [00:39:00] relatively new Facebook group, which is very exciting.
It's called Female Business Owners Empowered About Business Finances. I will again, of course, put the link in the show notes. You can click through to that and join. She also has a fantastic guide, which is the Five Step Method to get you in control of your business finances. So if you are feeling like, oh my gosh, I really need to do this, but.
This is a bit overwhelming. I definitely download that. I'll put the link again in the show notes, download that, have a look at it. And if in doubt get in touch with Anastasia cause she'll definitely be able to help you. Thank you so much. That has been so useful.
Anastasia: Thank you for having me. I've really enjoyed it.
Thank you so much for joining me this week before you go, make sure you subscribe to the podcast so you can receive new episodes, right when they're released. And if you ever enjoyed these podcast episodes, I'd really love to ask you to leave a review in apple podcasts reviews are one of the major ways that apple ranks their podcasts, and it only takes a few seconds, but really does make a massive difference to new people.
Finding me. Thank you again for joining me, Sophie, in this episode of growing pains, see you [00:40:00] next time.
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