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Money matters

Behind every plate of food, cup of coffee and glass of wine served in a catering establishment lie wages, product orders and deliveries, cashflow considerations and calculated profit margins. Here we take a look at the whys and wherefores of keeping your finances fully up to date at all times

Just for the record

Keeping good records might not be the most exciting aspect of running a business but, when it comes to developing your company, it is one of the most important. Stephen Banyard, business customer unit director at HM Revenue & Customs (HMRC) explains why good records do not only make good business sense, but are also a legal requirement.

HM Revenue & CustomsEarlier this year HMRC sponsored The Business Inspector, a four part TV series on channel Five, which aimed to raise awareness among small businesses of the need for sound business practices such as keeping good records. Businesses that fail to take reasonable care with their day-to-day management are costing the Exchequer more than £6bn a year with poor record keeping being a major cause.

It might not sound feasible, but struggling caterers really can turn their fortunes around simply by improving their business systems, keeping good records, managing cashflow and developing a marketing strategy.

Benefits of keeping good records

Keeping good records makes good business sense as it gives you the information you need to manage your business and help it grow. In addition, it makes filling in your tax return easier and quicker and helps you avoid paying too much tax.

MoneyHaving a good record-keeping system that you keep up to date will help you:

  • Keep track of your expenses
  • Ask for a bank loan or credit if you need one
  • See quickly what you are owed by others and how much you owe them
  • Save time and accountancy costs
  • Pay the correct amount of tax
  • Receive the correct amount of benefits or credits
  • Avoid paying any extra tax or penalties.

Penalties for not taking care

Good record-keeping is a legal requirement. In April 2009, penalties were introduced for not taking reasonable care with records and tax returns. These mean that you have to pay additional tax and any interest that is due. If HMRC charges a penalty it will be a percentage of the additional tax. The rate depends on the type of inaccuracy. The more serious the reason, the higher the penalty can be.

Top tips for keeping good records

Set up a reliable system for keeping full and accurate records of your income and expenses from the outset

  • Keep records throughout the year. Update your records regularly, rather than letting the paperwork pile up
  • Keep your records for a minimum of six years
  • Keep records to show what you have bought or sold relating to your business. This should include details of all cash transactions as well as invoices and receipts
  • If you are an employer you must keep records of wages paid and details of tax and National Insurance that you have deducted and paid to HMRC
  • Keep bank statements and building society books – this is particularly important if you do not have a separate business account. You should be able to show clearly what you have spent personally and on the business.

For more help with record keeping go to To watch a short video on record keeping, visit www.businesslink/

Talking to your bank manager

Thinking of asking your bank for a business loan? Emmanouil Schizas, SME policy adviser, Association of Chartered Certified Accountants (ACCA) has combined research findings and the experience of ACCA members to come up with the following top tips to help SMEs get their bank manager to say yes to parting with their money

Talking to your bank managerLearn the bank’s language

Unless you are lucky enough to have a long-standing relationship with an experienced bank manager, getting a loan for your small business can be a fairly formulaic exercise. There’s no point telling your bank how profitable you are, how you’ve never missed a payment or how good your product is etc. if that’s not how they measure their risk.

Banks care about specific types of information, and their priorities have changed somewhat since before the financial crisis of 2008-9.

Show them you are in control

ACCA’s more experienced members are always reminding us that more businesses go under during a recovery than during a recession. This is because businesses tend to over-trade as orders pick up again, committing to more work than they can safely deliver based on their working capital. Banks know this too, so your aim should be to show your bank how sustainably (not how fast) you can grow your business, and that means demonstrating you are in control.

This is one of the reasons why bank managers will want to see your cashflow projections alongside your business plan. The figures will almost certainly never turn out to be spot on, but if you can demonstrate that you understand how your business generates and uses cash, it really doesn’t matter – you’re automatically a slightly safer pair of hands.

Remember – this is not Dragons’ Den. Your bank manager is trying to figure out the downside, not the upside to their investment. There’s no point telling them how much money you are planning to make if there’s a good chance they will see none of it.

Table 1: What matters to SME lenders (top 5 types of information)*
What mattered in 2007-8 What will matter in 2010-11
 Item Importance (1-5)  Item  Importance (1-5)
Cash flow information
Cash flow information  4.7
Transaction history/account behaviour
Transaction history/account behaviour 4.5
Key risk indicators 4.0 Collateral 4.4
Collateral 4.0
Key risk indicators 4.3
Financial statements 4.0
Industry trends

As you can see on Table 1, lenders now make more extensive use of information to decide on a loan application. Traditional financial statements and key risk indicators are less important than they used to be pre-crisis, whereas collateral and information on industry trends have become more important. Consistently at the top of the agenda, however, are cashflow and transaction histories.

It is important to prepare realistic cashflow projections on a regular basis and to make sure the business can be cash positive in the long run. As for your transaction history, your bank manager will presumably have access to this and will be scrutinising it for signs of trouble. Make sure you can account for all transactions, especially abnormally large ones. The objective is to reassure your bank that your cashflow is steady and reasonably predictable, that you can pay on time when you need to and that you are not relying on windfalls to keep you afloat.

Most of all, remember that for your bank manager even bad news is better than no information. Be honest and forthcoming or you will risk damaging your banking relationships for ever.

Think like a bank

Banks generally understand and accept that they must take some risk if they want to do business, but some types of risk are more acceptable than others. The kind of risk banks really don’t want to take on is your trade credit risk – the chance that you will get into trouble because your customers can’t pay you in time – or at all.

If you’re extending credit to your customers, you are a bank. You may not think so but your bank manager does. While it is unusual for customers in the hospitality industry to expect credit, you are, nevertheless, dependent on them continuing to spend with you if your business is to remain buoyant. In order to secure a loan, you will need to be able to convince your bank that you will not require bailing out any time soon. Table 2 shows you how to think like a bank but without the jargon.

Get a sounding board


According to research, small businesses find business plans and other forward-looking statements more useful in their efforts to raise finance if they have been prepared by a third party. It is possible for owner-managers to get too attached to their businesses and to their own plans, convinced that they can meet their objectives even against the odds. This can-do attitude often serves entrepreneurs well, but it’s not popular with their banks.

A recent survey by The Banker magazine and the International Federation of Accountants (IFAC) revealed that 59% of small business lenders were more likely to consider would-be borrowers if they had used a professional accountant, external to the business, to give them advice and support.

Alternatively, try to build a relationship with your bank manager and use them as a sounding board. An ongoing relationship provides banks with an abundance of information and can help build trust and empathy. The Government’s latest statistics suggest that, even in the good days of mid-2007, only 15% of all the SMEs seeking external finance relied primarily on their banks for financial advice. This is good news for ACCA members (28% relied primarily on accountants), but with trust in banks falling across the SME sector, businesses could be missing out on an important source of advice.

Think outside the box

Don’t assume that traditional term loans and overdrafts are the only things you can get from a bank. In addition to their own capital, banks can tap into government guarantees (the Enterprise Finance Guarantee) or funds from the European Investment Bank (EIB) when lending to small businesses. It is possible that if you’re not a major risk your bank could still lend you the money you need in either of these ways, because either the cost of these funds is lower or somebody else is sharing the risk with them. Bear in mind that some bank managers either don’t know about these products or will not go out of their way to inform you. Ask them about these and insist that they come back to you with alternatives to the loan for which you are thinking of applying.

Table 2: A simple translation of bank-speak
Do we have robust and integrated risk management systems in place?
  • How much exposure do we have to key customers/clients? How much of our turnover and cashflow depends on them? Are they financially healthy?
  • How tight are our credit policies and how strictly do we adhere to them?
  • How good are we at chasing up invoices and other customer debt?
  • Have we made provision for bad debts? Do we know what shape we will be in if key customers start paying late or fail to pay at all?
Do we have enough capital to ensure solvency even under stress?
  • Do we have/will we have enough working capital to meet incoming orders?
  • Does our business have assets it could sell or borrow against? What are their values in today’s market?
  • Am I able to inject more of my own money into the business at short notice? Do I have personal property I could sell or borrow against?

*Source: The Banker / IFAC SME Lender Survey, September 2009

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