The UK Tax and Accounting Podcast from I Hate Numbers:

Pricing is one of the biggest decisions we make in business. Charge too little and we damage profit. Charge too much and customers may walk away. Target costing gives us a different way to think about price, cost, value and margin.

In this episode, we explain how to price using target costing and why it works differently from traditional cost-plus pricing. We look at market price, desired profit margin, target cost, cost gaps, product design, waste reduction, and how better cost control can help us protect profit without sacrificing quality.

• What target costing means in practical business terms.
• How target costing differs from traditional cost-plus pricing.
• Why customer expectations and market price matter.
• How to calculate a target cost from price and profit margin.
• Why many costs are locked in at the design stage.
• How to identify and close a cost gap.
• Why cost reduction should not damage quality.

Target costing is a pricing and cost control method that starts with the market. Instead of asking, “What does this product cost us to make?” we begin by asking, “What price is the customer prepared to pay?”

Once we know the market price, we deduct the profit margin we want to achieve. What remains is the target cost. That target cost then becomes the cost limit the business needs to work towards.

This makes target costing a customer-led approach. It forces us to think about value, design, efficiency, cost control and profit before the product is fully made.

Traditional costing, often called cost-plus pricing, starts with cost. We calculate the cost of labour, materials, production, support and overheads. Then we add a desired profit margin to arrive at a selling price.

Target costing works in the opposite direction. We start with the price customers are willing to pay, subtract the profit margin we need, and then work out what the product should cost.

If you want to understand the traditional approach in more detail, our episode on Understanding cost based pricing is a useful comparison.

Target costing matters because pricing is not just about adding a margin to whatever the costs happen to be. If costs are too high, the business may lose competitiveness, reduce profit, or struggle to sell at a price the market accepts.

One powerful idea in this episode is that many costs are locked in early, especially during design and planning. Once a product has been designed, sourced and built into production, it can be much harder to reduce costs later.

Target costing encourages us to challenge costs before they happen. That means we can think about materials, design, processes, production methods and customer value from the start.

The episode breaks target costing into a practical process. The method is simple in principle, even though applying it properly takes research, discipline and teamwork.

First, we work out the price customers may be prepared to pay. This can involve market research, customer conversations, competitor checks, testing, and understanding the value the product offers.

Next, we decide the profit margin we need. This may be a percentage of the selling price or a fixed amount per unit. The margin must support the wider business, not just one product.

We then subtract the required profit margin from the selling price. The result is the target cost. This tells us what the product should cost if we want to achieve the desired margin.

After that, we estimate what the product is likely to cost across its life cycle. This may include materials, labour, production, support, distribution, and other relevant costs.

If the estimated cost is higher than the target cost, we have a cost gap. The business then needs to close that gap by improving design, reducing waste, changing processes, reviewing materials, or removing features that do not add value for the customer.

The episode uses a clear example. If the market price is $25 and the required profit margin is $5, the target cost is $20.

If the actual estimated cost is $22, there is a $2 cost gap. The business then needs to reduce costs by $2 without damaging quality or customer value.

This is where target costing becomes more than a pricing method. It becomes a way to improve cost control, challenge waste and protect profit. For more on the link between costs and profit, listen to Knowing Your Costs Makes You Money.

• It starts with what customers are prepared to pay.
• It protects profit margin from the beginning.
• It encourages cost control before production begins.
• It helps reduce waste and unnecessary features.
• It supports better pricing decisions.
• It keeps quality and customer value in focus.
• It can improve competitiveness when used properly.

Target costing is not perfect for every business or every product. It can require more research, more planning, and more attention to the full production life cycle.

It may also feel more complex than traditional cost-plus pricing. That is because we need to understand the market, customer expectations, desired margins, production costs, and design choices before finalising the product.

However, that discipline can be valuable. It helps us avoid accepting costs simply because they already exist. Instead, we challenge costs before they become locked into the business.

• Research what customers are prepared to pay.
• Understand the value your product or service delivers.
• Set a realistic profit margin before production starts.
• Calculate the target cost from price minus profit margin.
• Estimate the actual cost over the product life cycle.
• Identify any cost gap between actual cost and target cost.
• Review design, materials, processes and waste.
• Reduce costs without reducing quality or customer value.
• Choose the pricing method that fits your market, customers and product mix.

• How to price your products or services
• Understanding cost based pricing
• Knowing Your Costs Makes You Money

Target costing helps us price with the customer, market and profit margin in mind. Instead of accepting costs after they happen, we work backwards from the selling price and design the product around the cost the business can afford.

The aim is not to cut corners. The aim is to remove waste, challenge unnecessary costs, protect quality, and improve profit margins. When we understand the target cost, we can make better decisions before the product reaches the customer.

If pricing, costs, or margins feel unclear, visit ihatenumbers.co.uk or listen to the related episodes above to build more confidence with your numbers.

Plan it, Do it, Profit.

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• 00:00 – Why pricing products is such a big business question
• 00:43 – Introducing target costing and cost reduction
• 01:27 – Traditional costing and cost-plus pricing explained
• 02:16 – Background to target costing and Japanese manufacturers
• 03:00 – How target costing differs from traditional costing
• 04:02 – Benefits and drawbacks of each costing method
• 05:09 – Target costing as cost control in reverse
• 06:54 – The five-step target costing process
• 07:44 – Example: price, profit margin and target cost
• 08:04 – Closing the cost gap without damaging quality

The I Hate Numbers podcast helps business owners understand accounting, tax, finance, profit, cash flow, and business planning in a practical way. We simplify financial topics so you can make better decisions and feel more confident with your numbers.

You can also watch more practical finance and tax support on the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

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Resources are vital for business growth and success, but resources are not just about money. They include people, equipment, systems, time, skills, reputation, working capital, and the ability to use those resources well.

In this episode, we explain how to carry out a resource analysis for your business. We look at physical resources, financial resources, human resources, intellectual capital, threshold resources, competitive advantage, and the competencies needed to use resources effectively.

• What resource analysis means in practical business terms.
• Why resources are not limited to money.
• The four main resource categories used in resource analysis.
• How resources and competencies work together.
• The difference between threshold resources and competitive resources.
• How resource analysis supports better planning and decision-making.
• How a touring dance company example helps explain the model.

Resource analysis is the process of identifying and assessing the resources available to help an organisation achieve its objectives. It also helps us see whether those resources are being used constructively, efficiently, and in the right areas.

Resources can help or hinder progress. A business may have valuable assets, skilled people, a trusted brand, or strong systems, but those resources still need to be managed and used properly.

That is why resource analysis is useful. It helps us bridge the gap between having resources and using them well.

A business needs suitable resources and competencies to survive, grow, and compete. If we do not understand what we already have, what we lack, and what needs improvement, we may make poor decisions about growth, investment, staffing, or new projects.

Resource analysis gives us a clearer view before making major decisions. It can highlight areas that need more investment, resources that are underused, and activities that may no longer matter as much as they once did.

It also links closely to business planning. If you are reviewing your future direction, our episode on Planning Your Business Journey is a useful next step.

In the episode, we group resources into four broad categories. Each category plays a different role in business capability.

Physical resources are the things we can see, touch, use, or operate. These may include buildings, vehicles, equipment, stock, technology, machinery, premises, and tools.

Financial resources include funding, working capital, cash reserves, budgets, access to finance, and the money needed to support day-to-day operations and future plans.

Because money supports so many business decisions, financial resources need regular review. Our episode on Budgets: Your Business Financial Story explains how budgets help turn plans into a clearer financial story.

Human resources include the people in and around the business. This covers staff, freelancers, contractors, managers, advisers, skills, experience, capacity, and the ability of people to deliver what the business needs.

Intellectual capital includes assets that may not be physical but still carry value. This can include brand, reputation, client databases, business systems, knowledge, processes, relationships, and creative ideas.

A strong reputation or brand is useful only if we can use it effectively. Resource analysis helps us ask whether those assets are being properly supported, marketed, protected, and used.

Resources are what we have. Competencies are the skills, experience, and capabilities needed to use those resources well.

For example, a business may have a strong brand, but it also needs marketing skills to make use of that brand. A business may have equipment, but it needs trained people to operate it. A business may have money, but it needs planning and financial control to use it wisely.

This is where resource analysis becomes more than a checklist. It helps us connect assets with the competencies needed to create value.

The episode explains resources and competencies at two levels: threshold level and competitive advantage level.

Threshold resources are the resources a business needs to survive and operate. They help the business keep going, deliver basic services, and meet minimum requirements.

Competitive resources help a business stand out. These may include a strong reputation, specialist knowledge, unique systems, creative talent, customer loyalty, or a brand that competitors find hard to copy.

If our ambition is more than survival, we need to think beyond threshold resources. We need resources and competencies that help us grow, compete, and build something stronger.

The episode uses a touring dance company to show how the framework works in practice.

Threshold resources might include a van, administration systems, basic infrastructure, financial resources, dancers, and technical support. These are needed to keep the company operating.

Threshold competencies might include basic choreography skills, driving licences, budgeting, planning, cash management, and capable dancers.

Competitive resources may include the company’s reputation, brand, innovation, audience engagement, and creative identity. Competitive competencies might include marketing skills, creative talent, choreography, lighting design, and strong management.

If the original resource analysis table is still being used on the page, it can sit here:

[table id=37 /]

Resource analysis is useful, but it is not perfect. One limitation is that we may not clearly identify the competencies required to use our resources well.

Another limitation is that business conditions change. Organisations do not operate in a vacuum. Economic conditions, customer expectations, technology, competitors, and funding pressures can all change what resources and competencies are needed.

That means resource analysis should not be a one-off exercise. It needs review as the business changes.

• List your physical, financial, human, and intellectual resources.
• Identify which resources are essential for basic survival.
• Identify which resources help your business stand out.
• Review the skills and competencies needed to use those resources well.
• Look for gaps between what you have and what your objectives require.
• Assess whether any resources are underused or no longer important.
• Review working capital, cash flow, and budgets before major decisions.
• Update your analysis when the business environment changes.

• Planning Your Business Journey
• Build Your Cash Flow with a Spreadsheet
• Budgets: Your Business Financial Story

Resource analysis helps us understand what our business has, what it needs, and how well those resources are being used. It also reminds us that money is only one part of the picture.

People, skills, systems, equipment, reputation, working capital, and planning all contribute to business capability. If we want to grow beyond survival, we need to understand both threshold resources and the resources that create competitive advantage.

If planning, resources, or financial control feel unclear, visit ihatenumbers.co.uk or listen to the related episodes above to build more confidence with your numbers.

Plan it, Do it, Profit.

Share this episode: Listen on Apple Podcasts

🎧 Enjoyed this episode? Subscribe and leave a review on Apple Podcasts — it helps more business owners understand planning, finance, and their numbers.

• 00:00 – Why resources matter for business growth
• 00:59 – How resource analysis supports business planning
• 01:42 – The four categories of resources
• 02:26 – Managing, deploying and using resources well
• 02:50 – Threshold competencies and competitive advantage
• 03:11 – Limitations of resource analysis
• 03:36 – Why resources need regular review
• 04:04 – Resource analysis example: a touring dance company
• 05:20 – Threshold versus competitive resources
• 05:40 – Final summary and next steps

The I Hate Numbers podcast helps business owners understand accounting, tax, finance, profit, cash flow, and business planning in a practical way. We simplify financial topics so you can make better decisions and feel more confident with your numbers.

You can also watch more practical finance and tax support on the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

📘 Book

https://www.ihatenumbers.co.uk/i-hate-numbers-book/

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https://www.ihatenumbers.co.uk/i-hate-numbers-podcast/

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https://www.ihatenumbers.co.uk

Undercapitalization and business failure go hand in hand, like Peaches and Cream, Gin and Tonic, Pineapple and Pizza.

Undercapitalization is the main reason why many businesses, from start-up to established become financial failures and perish.  In this week’s podcast I'm going to talk to you about

• what undercapitalization means,
• what causes it
• why it's such a problem
• Tips to help you avoid that happening in your own business.

Welcome to another weekly podcast on I hate numbers.  The podcast to help improve your financial understanding in business.  Above all it's there to help improve your money mindset, make more money, save tax and time.

You may have heard about the term "undercapitalization" and how it leads to business failure. If you're not sure what this means, don't worry, I’ll answer that question and more in this podcast.

What is undercapitalization? It's when your business doesn't have enough money to cover its expenses or grow as quickly as it needs to.  Furthermore, why does this happen?  Sometimes people think that they need less money than they do for a given project or task

Listen to find out more

Moreover, if interested in dealing with Undercapitalization and business failure, this is all explained is here for you.  You will learn how it affects you, avoid confusion and overwhelm.  Many businesses, start-up to established find themselves in the same situation.  Wanting to know about Undercapitalization, more particularly taking steps to avoid it.  This podcast will help.

Listen to find out more.

My mission is to inform, inspire and educate you to get closer to your numbers. You can make more profits, save tax and time, improve your well-being and your money mindset.

Help me to help you and others by subscribing and sharing this episode in your network.  Listen now and subscribe to I Hate Numbers, so I can send it straight to your inbox every week with all the latest updates.

If you found this podcast useful then share this episode on social, leave a review on Apple podcast .  Connect with me on Instagram, You Tube, Twitter, LinkedIn and Facebook,

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Claiming back VAT on cars is one of those areas where a simple question quickly turns into a very awkward VAT question.

You buy a car for the business. You are VAT registered. VAT appears on the invoice. Surely you can claim it back?

Not necessarily.

The general rule is that VAT on buying a car is blocked. To reclaim it in full, your purchase must fall within one of HMRC's exceptions.

For many businesses, the key exception is exclusive business use. And exclusive really does mean exclusive. The car must be used only for business journeys and it must not be available for private use.

Getting VAT back on a car purchase has always been a challenge.

The fact that a car was bought by the business and is mainly used for work does not automatically mean the VAT is recoverable.

We need to look at:

• what HMRC treats as a car for VAT purposes
• when VAT on buying a car can be reclaimed
• what exclusive business use actually means
• why private availability matters
• how to build evidence that supports the VAT claim

There can be a lot of money at stake, so getting this right matters.

It sounds like a bizarre question. We all know what a car looks like.

HMRC, naturally, has its own definition.

For VAT purposes, a car is broadly a motor vehicle normally used on public roads with three or more wheels that is either:

• constructed or adapted mainly for carrying passengers, or
• has roofed accommodation behind the driver's seat with side windows, or is constructed or adapted so that side windows can be fitted.

That definition matters because vehicles that are not treated as cars can fall under different VAT recovery rules.

For example, vans and other commercial vehicles are normally subject to the ordinary input VAT rules rather than the special car block.

For the wider VAT framework, see our guide to VAT in the UK and how it works.

HMRC lists a number of exceptions.

Vehicles that are not treated as cars for these VAT rules can include:

• vehicles designed to carry only one person
• vehicles suitable for carrying 12 or more people including the driver
• caravans
• ambulances
• prison vans
• vehicles of not less than 3 tonnes unladen weight
• certain special-purpose vehicles, such as hearses, ice cream vans and breakdown vehicles
• vehicles with a payload of one tonne or more

So before asking whether we can reclaim VAT on a car, we first need to establish whether HMRC actually regards the vehicle as a car.

As a general rule, you cannot reclaim the VAT charged when your business buys a car.

There are important exceptions.

You may be able to reclaim the VAT in full where the car:

• is stock-in-trade for a motor manufacturer or dealer
• is intended to be used primarily as a taxi
• is intended primarily for self-drive hire
• is intended primarily for providing driving instruction
• is used exclusively for business and is not made available for anyone's private use

That last category is where many ordinary businesses focus their attention.

It is also where many claims can fall apart.

For full VAT recovery, saying that the car is a "business car" is not enough.

HMRC looks for two things:

1. the car is used only for business journeys, and
2. the car is not available for private use.

Exclusive means 100%, not 99%.

But there is another important point.

The question is not only whether somebody actually drove the car privately.

HMRC also considers whether they could have used it privately.

If nothing genuinely prevents the director, employee or business owner from using the car for a personal journey, HMRC may regard it as available for private use.

Imagine a company buys a car and says it is for business use only.

The director keeps it at home every evening. The keys are sitting on the kitchen counter. The insurance allows private use. Nothing physically or contractually prevents a trip to the supermarket on Saturday morning.

Even if the director says, "I have never used it privately", HMRC may still ask a different question:

What stopped you from doing so?

This is why paperwork, procedures and what actually happens in practice need to agree with each other.

A sentence in an employment contract does not help much if everyone ignores it.

If you are claiming back VAT on cars under the exclusive business-use exception, build evidence from the start.

Useful evidence can include:

• a clear company policy prohibiting private use
• employment contracts that prohibit private use where relevant
• signed declarations from employees or directors
• insurance restricted appropriately to the intended business use
• mileage and journey logs
• records showing who had access to the car and when
• procedures controlling access to the keys
• board minutes or written resolutions recording the business-use policy
• evidence showing where the vehicle is normally kept

The important point is that the restrictions need to be real and enforced.

Paperwork should support what genuinely happens, not try to rewrite reality afterwards.

A genuine pool car can qualify for VAT recovery where the conditions are met.

HMRC normally expects a pool car to be:

• kept at the principal place of business
• not allocated to one individual
• not normally kept at an employee's home

Those conditions make it easier to demonstrate that the vehicle is genuinely there for the business rather than effectively being somebody's personal company car.

Buying second-hand does not automatically create a VAT claim.

There must actually be VAT available to recover.

A qualifying second-hand car may be sold with VAT charged on the full selling price. In that situation, the normal rules about whether your business is entitled to recover that VAT still apply.

But many second-hand cars are bought from private individuals or sold through the VAT margin scheme.

If VAT is not separately charged to you as input tax, there is no purchase VAT for you to reclaim in the normal way.

Check the invoice before assuming the advertised price contains recoverable VAT.

At the standard 20% VAT rate, the VAT element of a VAT-inclusive price is one-sixth of the total.

So if a qualifying car costs £24,000 including VAT, the VAT element is £4,000.

That's not small change.

It also explains why HMRC takes the rules around car purchases seriously.

Do not assume that because VAT on buying the car is blocked, all VAT connected with the car is blocked as well.

For example, where the business pays for repairs and maintenance on a vehicle that is used for business purposes, VAT on those costs can generally be reclaimed subject to the normal VAT rules.

The purchase of the car has its own specific input VAT restriction.

For a wider look at your duties when VAT registered, see your VAT responsibilities.

Suppose you reclaimed VAT because the car qualified for full recovery, but later it becomes available for ordinary private use.

That change cannot simply be ignored.

HMRC's rules can require the business to account for output VAT because the car has moved from a qualifying use to a non-qualifying use.

So the VAT position should be reviewed if the way the vehicle is used changes.

1. Confirm that you are VAT registered. You cannot make a normal input VAT claim if you are not VAT registered.
2. Check whether HMRC treats the vehicle as a car. The VAT definition may not match the everyday description.
3. Check whether VAT was actually charged. This is especially important with second-hand cars.
4. Identify the recovery exception. Do not assume business ownership alone is enough.
5. Check private availability. Ask what actually prevents private use.
6. Put real controls in place. Policies, insurance, key controls and storage arrangements should support the claim.
7. Keep mileage and journey records. Evidence matters.
8. Keep the VAT invoice. Your claim needs proper supporting documentation.
9. Review the position if the vehicle's use changes.

Not automatically. VAT on buying a car is generally blocked unless the car falls within one of HMRC's exceptions, such as exclusive business use with no private availability.

The exclusive business-use exception requires the car to be used only for business journeys and not made available for private use. A car that is genuinely available or used privately does not meet that test.

No. Having another vehicle available can be useful supporting evidence, but HMRC can still examine whether the business car itself was available for private journeys.

Potentially, yes. HMRC normally expects a genuine pool car to be kept at the principal place of business, not allocated to one individual and not normally kept at an employee's home.

Possibly, but VAT must actually have been charged and the normal recovery conditions must be satisfied. Cars bought privately or through the second-hand margin scheme will not normally give you purchase VAT to reclaim in the usual way.

Potentially, yes. VAT on business repairs and maintenance follows different rules from the specific VAT block that applies to buying cars.

• 00:00 - The challenge of claiming VAT on a car
• 01:15 - What is a car for VAT purposes?
• 02:03 - Vehicles that are not treated as cars
• 02:47 - Exclusive business use and private use
• 03:15 - Dealers, taxis, driving schools and hire cars
• 03:43 - How much VAT could be recovered?
• 04:08 - Evidence to support your VAT claim
• 04:50 - Sole traders and proving business-only use
• 05:09 - Mileage logs, resolutions and records
• 05:28 - The three things to remember

• VAT in the UK: How It Works and How to Stay Compliant
• What Is VAT? A Simple Introduction for Business Owners
• What Are Your VAT Responsibilities?

Claiming back VAT on cars is possible, but buying the vehicle through the business is not enough on its own.

Start by checking whether the vehicle is a car for VAT purposes and whether VAT was actually charged.

If you are relying on exclusive business use, the car must be used only for business journeys and must not be available for private use.

Then back that position up with evidence.

When thousands of pounds of VAT can depend on the answer, good records and genuine controls are well worth the effort.

If you are buying a vehicle and are unsure whether the VAT can be reclaimed, you can contact us for an initial chat.

You can also use our free online business calculators to support your wider tax, VAT and cash-flow planning.

For more practical tax and finance guidance, visit the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

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National Insurance easily explained means cutting through the jargon around NI, earnings, profits, payroll and contributions. Whether you are employed, self-employed or running payroll as an employer, NI affects how much money is paid, what gets deducted and how your contribution record builds over time. Once we separate the different classes and roles, the whole subject becomes much easier to understand.

National Insurance easily explained is for employees, employers and self-employed people who want a plain-English guide to NI.

We look at what National Insurance is, why it exists, who pays it, how the main classes work, and why your contribution record matters for State Pension and some benefit entitlements.

The original episode also discussed the planned April 2022 National Insurance increase for health and social care. That part now belongs in the historic category because the planned separate Health and Social Care Levy was cancelled and the temporary increase was reversed. Therefore, these notes focus on the evergreen structure while flagging that current rates and thresholds must always be checked.

NI matters because it affects workers, business owners and employers in different ways.

If you are employed, your employer normally deducts NI from your pay through PAYE. If you are self-employed, you usually deal with NI through Self Assessment. However, if you employ people, NI also becomes part of your payroll cost.

It also helps build your contribution record for certain benefits and State Pension entitlement. Therefore, understanding NI is not only about today’s tax bill. It can also affect your future position.

National Insurance is a UK tax-style contribution connected to work, earnings and profits.

The word “insurance” can be misleading. NI is not like private insurance where you choose a policy. Instead, it forms part of the UK tax system and helps fund areas such as the NHS, State Pension and certain welfare benefits.

For business owners, the practical point is simple. NI forms part of the cost of earning money, paying yourself and employing people.

NI can affect three main groups:

• employees;
• self-employed people, including sole traders and partners;
• employers who pay wages, salaries and certain benefits.

The amount depends on your role, earnings, profits, age, thresholds and the relevant NI class.

If you are self-employed, our episode on Tax basics for self employed: What You Need to Know is a useful wider guide.

The NI system uses different classes to show who pays, how they pay and what the payment relates to.

• Class 1 applies to employees and usually comes through payroll.
• Employer Class 1 applies to employers on employee earnings above the relevant threshold.
• Class 1A and Class 1B relate to certain employee benefits and expenses.
• Class 2 relates to self-employed people and can help protect NI records.
• Class 3 is voluntary and can help fill gaps in your NI record.
• Class 4 applies to self-employed profits above the relevant threshold.

Once we separate the classes, the system becomes easier to follow. For example, employees, employers and self-employed people do not all pay NI in the same way.

If you are employed, your employer normally deducts Class 1 NI before you receive your wages or salary.

Your payslip should show the amount deducted. The exact amount depends on your earnings and the current thresholds and rates.

The original episode used 2021/22 figures. However, those figures should not be reused as current advice because rates and thresholds have changed since then.

If you employ people, NI becomes part of the cost of taking on staff.

Employers may pay employer contributions on employee earnings. They may also pay Class 1A or Class 1B on certain benefits and expenses.

This matters for budgeting, pricing and payroll planning. The cost of employing someone is not only the salary shown in the employment contract.

Our episode on Saving Tax with Company Benefits: Pay Yourself and Your Team Tax-Efficiently connects with this because benefits can create employer NI obligations.

If you are self-employed, NI usually follows your taxable profits rather than your sales.

That distinction matters. You do not pay self-employed NI on the amount you invoice customers. Instead, you look at taxable profit after allowable business expenses and tax adjustments.

Class 2 and Class 4 can both affect self-employed people. Because the treatment changes over time, check current GOV.UK guidance before calculating a tax bill.

For the sole trader angle, our episode on Tax Treatment for Sole Traders Explained is a strong supporting step.

NI affects more than the amount you pay now.

Your contribution record can affect entitlement to certain state benefits and State Pension. As a result, gaps in your NI record can matter later.

The original episode mentions Jobseeker’s Allowance, Employment and Support Allowance, and State Pension. However, the current rules can be specific, so check your own record instead of relying on guesswork.

Class 3 voluntary contributions can help fill gaps in your NI record in some circumstances.

Self-employed people may also be able to make voluntary Class 2 contributions, depending on their profit level and record position.

However, do not pay voluntary contributions blindly. First, check your State Pension forecast and NI record. Then, take advice where needed.

Your NI record affects your State Pension position.

For many people under the new State Pension system, qualifying years are important. Some people need at least 10 qualifying years to get any new State Pension, and the amount depends on the record built up.

The original episode mentions 35 qualifying years for a full State Pension. That may still be relevant for some people, but the exact answer depends on your personal history, especially where your record started before April 2016 or where you were contracted out.

The original 2021 episode discussed the planned April 2022 NI increase for health and social care.

That section now belongs in the historic category. The planned separate Health and Social Care Levy was cancelled, and the temporary increase was reversed.

However, the useful lesson remains. NI rules can change, so we should understand the structure and then check current rates before acting.

• Are you employed, self-employed, an employer, or more than one of these?
• Do you know which NI class applies to you?
• Are your payslip deductions being checked?
• Are self-employed profits being calculated correctly?
• Have you allowed for employer contributions in payroll costs?
• Do employee benefits create Class 1A or Class 1B charges?
• Have you checked your NI record?
• Are there gaps that could affect your State Pension?
• Would voluntary contributions help or not?
• Have you checked current GOV.UK rates before relying on old figures?

National Insurance is a UK contribution linked to work, earnings and profits. It helps fund public services and builds entitlement towards certain benefits and State Pension.

Employees, self-employed people and employers can all pay NI. The class and amount depend on employment status, earnings, profits and current thresholds.

NI classes are categories used to work out who pays and why. Employees usually pay Class 1, employers may pay employer Class 1 and Class 1A or 1B, self-employed people may be affected by Class 2 and Class 4, and Class 3 is voluntary.

Yes, voluntary contributions may be possible where there are gaps in your record. Check your NI record and State Pension forecast before deciding.

• 00:00 – National Insurance for self-employed people, employees and employers
• 00:50 – Why understanding NI helps your numbers
• 01:10 – What National Insurance is
• 01:34 – Who pays National Insurance
• 01:56 – Headline rates and self-employed NI in the original episode
• 02:19 – Employee and employer NI
• 02:39 – Earnings, profits and thresholds
• 03:44 – Low earnings and NI credits
• 04:43 – NI classes explained
• 05:03 – Class 2, Class 3 and voluntary contributions
• 05:31 – Gaps in your NI record
• 05:56 – State Pension and benefit entitlement
• 06:37 – Historic planned April 2022 NI increase
• 07:21 – What the old increase meant in money terms
• 08:13 – Final summary and no nightmares

• Tax basics for self employed: What You Need to Know
• Tax Treatment for Sole Traders Explained
• Saving Tax with Company Benefits: Pay Yourself and Your Team Tax-Efficiently

NI becomes clearer once we know your role in the system. Employees usually deal with it through payroll. Self-employed people deal with it through profits and Self Assessment. Employers need to budget for payroll and benefit-related costs.

The key is to check current rates, understand which class applies, and review your contribution record before making decisions about voluntary payments or future pension entitlement.

Plan it, Do it, Profit.

The I Hate Numbers podcast helps business owners understand tax, National Insurance, payroll, Self Assessment, VAT, bookkeeping, accounting and business finance in a practical way. We simplify financial topics so you can make better decisions and feel more confident with your numbers.

If you want support with NI, payroll, Self Assessment, employer obligations or tax planning, you can contact us for an initial chat.

You can also watch more practical finance and tax support on the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

📘 Book

https://www.ihatenumbers.co.uk/i-hate-numbers-book/

🎧 Podcast

https://www.ihatenumbers.co.uk/i-hate-numbers-podcast/

🌐 Website

https://www.ihatenumbers.co.uk

VAT responsibilities begin when your business becomes VAT registered. You are no longer just selling goods or services. You are also collecting VAT for HMRC, charging the right rate, keeping proper records, checking supplier invoices, dealing with reverse charge VAT where needed, and submitting VAT returns on time. Understanding these VAT responsibilities helps you avoid penalties, protect cash flow and stay out of VAT hot water.

What are your VAT responsibilities? explains what changes once your business becomes VAT registered.

We look at the different types of VAT supplies, how input VAT and output VAT work, what conditions matter when claiming VAT back, how reverse charge VAT works, and what goes into a VAT return.

If you need the beginner foundation first, our episode on What Is VAT? A Simple Introduction for Business Owners is a useful starting point.

When your business becomes VAT registered, you take on the role of collecting VAT from customers and accounting for it to HMRC.

That means VAT is not just an admin label on your invoices. It affects pricing, records, cash flow, accounting systems, VAT returns, supplier checks and deadlines.

If you get VAT wrong, fines, interest and penalties can follow. That is why we need to understand the basics before VAT becomes stressful.

Your VAT responsibilities include charging VAT where appropriate, using the correct VAT rate, keeping suitable records, checking VAT invoices, submitting VAT returns and paying any VAT owed by the deadline.

You also need to understand when VAT can be reclaimed on business purchases and when it cannot.

The episode describes VAT-registered businesses as unpaid tax collectors. That may sound dramatic, but it captures the point. We collect VAT from customers, account for VAT on purchases, and pay or reclaim the difference through the VAT return.

The episode explains three broad types of supply in UK VAT: exempt supplies, supplies outside the scope of UK VAT, and taxable supplies.

Taxable supplies can then be standard-rated, reduced-rated or zero-rated. These categories matter because they affect what VAT you charge, what goes into the VAT return and whether input VAT can be reclaimed.

Do not treat the category as a technical detail only. The classification affects real money, records and compliance.

Output VAT is the VAT you charge customers on your sales where VAT applies.

Input VAT is the VAT you pay to suppliers on goods and services bought for the business.

At the end of the VAT period, we compare the VAT collected from customers with the VAT paid to suppliers. If output VAT is higher than input VAT, the difference is normally paid to HMRC. If input VAT is higher, the business may be due a refund, subject to the rules.

You can usually reclaim VAT on business purchases where the purchase relates to taxable business activity and the right evidence is kept.

The episode uses a newsagent example. If the business sells standard-rated goods, VAT on related purchases may normally be recoverable. If it makes exempt supplies, VAT connected to those exempt supplies may not be recoverable.

Zero-rated supplies are different from exempt supplies. A zero-rated sale has VAT at 0%, but related input VAT may still be recoverable where the conditions are met.

VAT invoices matter because they support the figures in your VAT return.

A valid VAT invoice normally needs key information such as the supplier’s VAT number, dates, description of goods or services, VAT rate, VAT amount, supplier details, customer details and any relevant discounts.

Supplier invoices should also show the VAT number, rate, VAT amount and description of what was bought. Weak records can create problems if HMRC checks your VAT return later.

The episode also mentions lower-value purchases. Even where a simplified receipt is acceptable, you still need enough evidence to support the VAT claim.

That means we should not assume every receipt allows VAT recovery. We need to know that the supplier is VAT registered and that the purchase relates to the business.

If the evidence is missing, HMRC may challenge the claim and ask for VAT to be repaid with interest or penalties.

Reverse charge VAT applies where the customer accounts for VAT instead of the supplier in certain situations.

The episode describes it as acting as both supplier and customer. We calculate VAT as if the service had been supplied in the UK, record the output VAT, and reclaim it as input VAT where the normal rules allow.

No cash changes hands for the reverse charge itself. It is an accounting entry. Common examples can include services bought from overseas suppliers, such as some digital advertising or professional services. Our episode on What Is VAT Reverse Charging? How It Works for Businesses explains this in more detail.

Most VAT-registered businesses submit VAT returns for each VAT period, often quarterly.

The VAT return summarises the VAT charged to customers, VAT paid to suppliers, reverse charge entries, taxable sales, purchases and any special overseas or Northern Ireland-related entries where relevant.

There are nine boxes on a VAT return. Software can help capture the information, but the business remains responsible for making sure the figures are correct.

VAT returns normally need to be submitted by the deadline for the VAT accounting period. Any VAT owed must also reach HMRC by the payment deadline.

The episode uses the common deadline rule of one month and seven days after the end of the VAT quarter. For example, if a VAT quarter ends on 31 August, the usual online return deadline would be 7 October.

Deadlines should always be checked in your VAT online account or accounting software because schemes, periods and special cases may differ.

VAT is now closely connected with digital accounting and Making Tax Digital.

For most VAT-registered businesses, VAT returns are submitted digitally using compatible software. Digital records and good bookkeeping systems reduce the risk of missing invoices, wrong boxes or late returns.

Our episode on Making Tax Digital Quarterly Updates: What to Send and When is useful if you want the wider digital reporting context.

• Do you know which of your supplies are taxable, exempt or outside the scope?
• Are you charging VAT at the correct rate?
• Do your invoices show the right VAT information?
• Are you putting output VAT aside so it is available when due?
• Do supplier invoices show a valid VAT number and VAT breakdown?
• Can you support every VAT reclaim with proper evidence?
• Do you understand when reverse charge VAT applies?
• Are your VAT return boxes reviewed before submission?
• Do you know your VAT return and payment deadlines?
• Are your digital records and software set up properly?

Your VAT responsibilities include charging the correct VAT, keeping records, issuing valid VAT invoices, checking supplier invoices, submitting VAT returns and paying any VAT owed to HMRC on time.

Output VAT is the VAT your business charges customers on taxable sales. It is collected from customers and reported on your VAT return.

Input VAT is the VAT your business pays to suppliers on purchases. You may be able to reclaim it where the purchase relates to taxable business activity and the right evidence is kept.

VAT returns are usually submitted every three months, and the deadline is normally one calendar month and seven days after the end of the VAT accounting period. Always check your own VAT online account.

• 00:00 – VAT registration and unpaid tax collector responsibilities
• 00:24 – What the episode covers
• 01:16 – Types of VAT supplies in the UK
• 01:44 – Taxable supplies: standard, reduced and zero-rated
• 02:06 – Output VAT and input VAT explained
• 02:53 – Exempt supplies and outside the scope of VAT
• 03:15 – Zero-rated, reduced-rated and standard-rated supplies
• 04:03 – Why VAT categories affect returns and reclaiming VAT
• 04:27 – Newsagent example and reclaiming VAT
• 06:05 – Documentation and VAT invoice requirements
• 07:17 – Supplier invoices and evidence for VAT claims
• 07:40 – What reverse charge VAT means
• 08:47 – Reverse charge example with overseas services
• 09:32 – VAT returns, dates and obligations
• 10:20 – VAT return boxes explained
• 12:05 – VAT return deadlines and payments
• 12:54 – Digital VAT returns and final thoughts

• VAT in the UK: How It Works and How to Stay Compliant
• What Is VAT? A Simple Introduction for Business Owners
• What Is VAT Reverse Charging? How It Works for Businesses

VAT responsibilities are part of being VAT registered. We need to charge the right VAT, keep the right records, understand input and output VAT, deal with reverse charge where needed, and submit VAT returns on time.

VAT does not need to feel overwhelming, but it does need proper systems and regular attention. The better your records and software, the easier it is to stay compliant and avoid VAT hot water.

Plan it, Do it, Profit.

The I Hate Numbers podcast helps business owners understand VAT, tax, accounting, bookkeeping, cash flow and business planning in a practical way. We simplify financial topics so you can make better decisions and feel more confident with your numbers.

If you want support with VAT, bookkeeping, tax affairs, accounting systems or planning, you can contact us for an initial chat.

You can also watch more practical finance and tax support on the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

📘 Book

https://www.ihatenumbers.co.uk/i-hate-numbers-book/

🎧 Podcast

https://www.ihatenumbers.co.uk/i-hate-numbers-podcast/

🌐 Website

https://www.ihatenumbers.co.uk

VAT can feel confusing, awkward, and intimidating for many business owners. However, once we understand the basic principles, the system starts to make more sense.

In this episode, we explain how Value Added Tax works, how it affects businesses, and why VAT-registered businesses become part of the tax collection system. We also look at output VAT, input VAT, VAT returns, HMRC responsibilities, and a simple supply-chain example that shows how VAT moves through a business.

• What VAT means in simple business terms.
• Why VAT is a consumption tax.
• How VAT-registered businesses collect VAT for HMRC.
• The difference between output VAT and input VAT.
• How VAT returns work in principle.
• Why consumers and non-VAT registered businesses usually bear the VAT cost.
• Why good VAT records matter for compliance and cash flow.

VAT stands for Value Added Tax. It is charged when goods and services are bought and sold. Instead of being a tax on business profit, VAT is linked to consumption and spending.

For business owners, this matters because VAT is not just something added to invoices. It affects pricing, records, customer payments, supplier bills, cash flow, and reporting responsibilities.

The principles can be straightforward. However, the application and rules can become more complex depending on the business, the type of supply, whether customers are VAT registered, and how the business trades.

VAT matters because VAT-registered businesses collect tax on behalf of HMRC. Once a business enters the VAT system, it has responsibilities for charging VAT correctly, keeping proper records, submitting VAT returns, and paying over what is due.

That is why we often describe VAT-registered businesses as unpaid tax collectors. The business collects VAT from customers, offsets VAT it has paid to suppliers where the rules allow, and then pays the difference to HMRC.

If you want to understand how VAT affects pricing, registration and profit in more detail, our episode on Value Added Tax and Your Business: Pricing, Registration and Profit is a useful next step.

Two important terms are output VAT and input VAT.

Output VAT is the VAT a registered business charges to its customers. For example, when a business sells goods or services and adds VAT to the invoice, that VAT is output VAT.

Input VAT is the VAT a business pays to suppliers on eligible purchases. Where the rules allow, the business can usually deduct input VAT from the output VAT it has collected.

The amount paid to HMRC is normally the difference between the output VAT charged to customers and the input VAT paid to suppliers. If the business pays more input VAT than it collects in output VAT, it may be due a VAT refund.

The episode uses a simple story involving a farmer, a brewer, a pub, and the pub’s customers. Each VAT-registered business in the chain charges VAT on what it sells, deducts VAT it has paid to suppliers, and pays the difference to HMRC.

The farmer sells wheat to the brewer. The brewer uses the wheat to make beer and sells that beer to the pub. The pub sells beer to customers. Each registered business handles VAT along the way.

However, the final customer usually bears the real VAT burden. The customer enjoys the product and pays VAT as part of the final price. Businesses in the chain collect, record, deduct, and pay over VAT as part of the system.

A business may need to register for VAT when taxable turnover crosses the VAT registration threshold. Some businesses may also choose voluntary registration where it supports their commercial position, customer base, or VAT recovery.

Once registered, the business must follow VAT rules. That includes charging VAT at the correct rate, keeping suitable records, submitting VAT returns, and paying HMRC on time.

For a wider look at VAT responsibilities, compliance, records, deadlines, and penalties, listen to VAT in the UK: How It Works and How to Stay Compliant.

In many cases, VAT does not directly affect business profit in the same way as normal business costs. That is because VAT collected from customers does not belong to the business, and VAT paid to suppliers may be recoverable where the rules allow.

However, VAT can still affect business decisions. It can influence pricing, cash flow, customer behaviour, record keeping, and admin time. If a business sells mainly to customers who cannot reclaim VAT, pricing decisions can become more sensitive.

That is why VAT should not be treated as just a form-filling exercise. It is part of financial control and business planning.

• Understand whether your business needs to register for VAT.
• Remember that VAT collected from customers does not belong to the business.
• Keep VAT records accurate and up to date.
• Separate output VAT from input VAT in your bookkeeping.
• Put VAT money aside so it is available when the return is due.
• Check VAT treatment before assuming a sale or purchase is straightforward.
• Use suitable systems or accounting software to reduce admin and errors.
• Get advice if you are unsure how VAT applies to your business.

• Value Added Tax and Your Business: Pricing, Registration and Profit
• VAT in the UK: How It Works and How to Stay Compliant
• What Is VAT Reverse Charging? How It Works for Businesses

Value Added Tax is a major part of business finance. It affects how we charge customers, pay suppliers, keep records, submit returns, and manage money collected on behalf of HMRC.

The core idea is simple. VAT-registered businesses collect VAT from customers, deduct eligible VAT paid to suppliers, and pay the difference to HMRC. The practical rules can be more detailed, but understanding this foundation makes the system easier to follow.

If VAT feels confusing, start with the basics, keep good records, and get support before small mistakes become expensive problems.

Plan it, Do it, Profit.

Share this episode: Listen on Apple Podcasts

🎧 Enjoyed this episode? Subscribe and leave a review on Apple Podcasts — it helps more business owners understand tax, finance, and their numbers.

• 00:00 – Why VAT confuses many business owners
• 00:49 – How Value Added Tax affects businesses
• 01:12 – Good things to know about VAT
• 01:36 – The role of VAT-registered businesses
• 02:20 – Output VAT, input VAT, and VAT returns
• 03:29 – Introducing the VAT supply-chain example
• 04:39 – Farmer, brewer, pub and customer example
• 06:19 – How each business pays VAT to HMRC
• 07:59 – Who ultimately bears the VAT burden
• 08:24 – Why VAT money should be set aside

The I Hate Numbers podcast helps business owners understand accounting, tax, finance, profit, cash flow, and business planning in a practical way. We simplify financial topics so you can make better decisions and feel more confident with your numbers.

You can also watch more practical finance and tax support on the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

📘 Book

https://www.ihatenumbers.co.uk/i-hate-numbers-book/

🎧 Podcast

https://www.ihatenumbers.co.uk/i-hate-numbers-podcast/

🌐 Website

https://www.ihatenumbers.co.uk

Do you struggle with your mental health and money? You’re not alone. Millions of people are struggling with their mental health and money, but it doesn’t have to be that way. There is a solution!

You’re not alone. Millions of people are struggling with their mental health and money, but it doesn’t have to be that way. There is a solution!

It’s not an uncommon feeling to feel overwhelmed by debt, anxiety, depression, and the stress of everyday life.  Things become much when you take control of your finances and start taking care of yourself.

And while there are many reasons for this anxiety, one thing is certain – financial stress has a direct impact on your mental health and well-being.  This week’s podcast shines a light, shares tips, and advice.

In this podcast I am going to share four tips to help you with Your mental health and money .  Moreover, this will improve your sense of well being and improve your attitude to money.

• First Tip : Your own behaviours and attitudes.
• Second Tip : B is for budgeting, what some people dread but it will help restore calm, certainty and control into your life
• Third Tip: Buying when you are not 10% and shiny bauble syndrome
• Fourth Tip:  Your Physical and mental health.

Moreover, if you ever find yourself worrying about money you’re not alone. In fact, it’s estimated that many adults worry about their finances at least some of the time.

Listen to find out more.

My mission is to inform, inspire and educate you to get closer to your numbers. You can make more profits, save tax and time, improve your well-being and your money mindset.

Help me to help you and others by subscribing and sharing this episode in your network.  .  Listen now and subscribe to I Hate Numbers, so I can send it straight to your inbox every week with all the latest updates from I Hate Numbers podcast! are

If you found this podcast useful then share this episode on social, leave a review on Apple podcast, connect with me on Instagram, You Tube, Twitter, LinkedIn and Facebook,

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Cash keeps the lights on in business. Profit matters, but if cash runs out, the business can quickly feel under pressure. A cash flow forecast helps us see what money may come in, what money may go out, and what could be left in the bank each month.

In this episode, we explain how to build your cash flow with a spreadsheet. We look at the first steps, spreadsheet building principles, the business Lego bricks approach, formulas, copy and paste, money in, money out, cash contribution, and how to use the forecast to reshape your business story.

• Why a cash flow forecast is essential for business planning.
• How spreadsheets can help tell your cash story.
• Why we should decide what the spreadsheet needs to show before building it.
• How to separate inputs, formulas, calculations, and outputs.
• How the business Lego bricks approach makes forecasting easier.
• Why copy and paste can save time and reduce mistakes.
• How to use the forecast to test and improve business decisions.

A cash flow forecast helps us look ahead. It shows whether the business may have enough cash to pay suppliers, wages, overheads, tax, loan repayments, and other commitments.

This matters whether we are starting up, growing, pivoting, or managing an established business. Cash flow forecasting gives us visibility before problems arrive, rather than waiting until the bank balance creates panic.

If you want a broader foundation before building the spreadsheet, our episode on Making your cashflow forecast is a useful starting point.

Spreadsheets are one of the most useful tools in the financial toolbox. They take the heavy lifting out of number crunching and help us organise the cash story of the business.

The principles in this episode apply whether we use Microsoft Excel, Google Sheets, or another spreadsheet package. We do not need to be an IT expert or maths genius to build a useful forecast, but we do need to think carefully about design, layout, formulas, and how the spreadsheet will be used.

A good spreadsheet should be clear, readable, flexible, and easy to update. It should help us understand the business, not create confusion.

Before building the forecast, we need to decide what we want it to tell us. In the episode, we use the example of the I Hate Numbers Food Palace, a business that prepares and delivers food to corporate clients.

The example may be food-based, but the approach works across many businesses. The key question is simple: what is the financial outcome of our planned activity over the next 12 months?

We may want to see:

• cash coming in from customers;
• cash going out to suppliers, staff, and overheads;
• cash contribution from sales after direct costs;
• cash left after wider commitments;
• monthly closing bank balance;
• whether cash is building up or running down.

When building a cash flow forecast, it is tempting to edit as we go along. We may look at an idea and think, “I cannot afford that,” before the full picture is even in the spreadsheet.

The first step is to get the story into the forecast. Put in the assumptions, the activity, the timing, and the numbers. Let the spreadsheet show what the plan means in cash terms.

After that, we can go back and change the story. If the forecast shows a weak cash position, we can adjust prices, sales levels, credit terms, costs, overheads, or timing. The spreadsheet gives us the power to test different choices before making them in real life.

A good forecast is easier to use when it is built properly from the start. The episode highlights several practical principles.

Open a blank workbook, give it a clear file name, and save it straight away. Then keep saving as you work. Losing a spreadsheet after building formulas and assumptions is frustrating and avoidable.

Inputs are the raw numbers and assumptions. Formulas are the instructions we give the spreadsheet. Outputs are the results we want to review.

For example, cash from deliveries may depend on the number of deliveries, the price per delivery, and when customers pay. Those assumptions may change, so we should build them as separate Lego bricks rather than typing final totals directly into the summary.

The forecast should be easy to read. Use clear headings, sensible font sizes, helpful worksheet names, and a layout that makes sense. We do not need unnecessary decimals or clutter if they make the spreadsheet harder to use.

Spreadsheets are powerful because repeated calculations can be copied across months. If the calculation structure is the same each month, copy and paste can save time and reduce repeated typing.

However, formulas should still be checked. A copied mistake can spread quickly across a forecast.

The business Lego bricks approach means breaking the forecast into smaller building blocks. Instead of typing one final number for sales, costs, or wages, we build the calculation from its parts.

For the I Hate Numbers Food Palace example, the key Lego bricks include:

• number of food deliveries;
• price per delivery;
• when customer money is received;
• food purchase costs;
• supplier payment timing;
• staff hours;
• rate of pay;
• overheads and other cash commitments.

This structure makes the forecast more flexible. If the result does not look right, we can change the assumptions and see the forecast update.

The summary sheet should show the main cash story. In the episode, the summary includes money in, money out, cash contribution, other overheads, and the bank balance at the end of each month.

Cash contribution is the money left after direct cash costs linked to sales. In the food example, that means cash from deliveries less food purchase costs and wages linked to preparing and delivering the food.

After that, we deduct wider cash commitments such as rent, rates, salaries, marketing, accounting fees, loan repayments, tax, and other overheads.

This helps us see whether the business is building cash, using cash, or heading towards a shortfall.

The real strength of a spreadsheet is that it can calculate for us. Instead of doing calculations elsewhere and typing in the answer, we should let the spreadsheet perform the calculation.

For example, total sales can be calculated by multiplying the number of deliveries by the price per delivery. Wage costs can be calculated by multiplying hours worked by the rate of pay. Food costs can be calculated as a percentage of sales.

This approach reduces manual work and makes the model easier to update. If one assumption changes, the spreadsheet can update the result automatically.

The cash flow forecast is not just a document. It is a decision-making tool. Once the spreadsheet is built, we can use it to test different scenarios and see what happens to cash.

If the forecast shows a cash shortage, we can review pricing, payment terms, sales activity, costs, overheads, staffing, stock levels, or borrowing needs. If the forecast shows cash building up, we can plan investment, debt repayment, tax reserves, or growth.

For more practical cash control steps, listen to Six steps to managing your cashflow.

• Decide what you want the forecast to show before building it.
• Save the file immediately and keep saving as you work.
• Use separate worksheets for summary and detailed calculations.
• Separate assumptions, formulas, and outputs.
• Use formulas instead of typing calculated answers manually.
• Use copy and paste where the calculation structure is repeated.
• Keep the spreadsheet readable and user-friendly.
• Build the forecast around money in, money out, and closing bank balance.
• Use the forecast to test and reshape business decisions.

• Making your cashflow forecast
• Six steps to managing your cashflow
• Understanding Your Financial Statements: Cash Flow, Profit and Balance Sheet

Building your cash flow with a spreadsheet helps us turn plans, assumptions, and activity into a clear cash story. It shows what money may come in, what money may go out, and what could be left in the bank.

The aim is not to build a complicated spreadsheet for the sake of it. The aim is to build a practical tool that helps us make better decisions, spot problems earlier, and reshape the business story before cash pressure becomes real.

If cash flow forecasting, spreadsheets, or business planning feel unclear, visit ihatenumbers.co.uk or listen to the related episodes above to build more confidence with your numbers.

Plan it, Do it, Profit.

Share this episode: Listen on Apple Podcasts

🎧 Enjoyed this episode? Subscribe and leave a review on Apple Podcasts — it helps more business owners understand cash flow, finance, and their numbers.

• 00:00 – Building a cash flow forecast with a spreadsheet
• 00:58 – Why cash flow matters for every business
• 01:36 – Using Excel, Google Sheets, or another spreadsheet tool
• 02:13 – Deciding what the spreadsheet should show
• 02:56 – Why we should not edit the cash story too early
• 03:16 – Saving the workbook and setting up the file
• 03:38 – Inputs, formulas, data and text explained
• 05:17 – Worksheets, summary sheets and layout
• 07:02 – The business Lego bricks approach
• 08:10 – Building the summary page
• 10:30 – Cash received, deliveries, price and timing
• 12:32 – Food purchases, supplier payments and wages
• 15:22 – Linking calculations to the summary sheet
• 16:28 – Cash contribution, overheads and monthly cash flow
• 18:32 – Using the forecast to reshape your story

The I Hate Numbers podcast helps business owners understand accounting, tax, finance, profit, cash flow, and business planning in a practical way. We simplify financial topics so you can make better decisions and feel more confident with your numbers.

You can also watch more practical finance and tax support on the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

📘 Book

https://www.ihatenumbers.co.uk/i-hate-numbers-book/

🎧 Podcast

https://www.ihatenumbers.co.uk/i-hate-numbers-podcast/

🌐 Website

https://www.ihatenumbers.co.uk

If you want to make a cash flow forecast, do not begin by staring at an empty spreadsheet.

Instead, start with your business story.

Where are you trying to go? What do you expect to sell? What activity needs to happen? What will that activity cost? And, crucially, when will the money actually enter or leave your bank account?

That is how we turn a plan for the business into a financial picture of the future.

Running out of cash can derail even a business with good ideas, customers and ambition. Therefore, a cash flow forecast gives us the opportunity to see what may be coming before we get there.

In this episode, we work through the building blocks of creating your own cash flow forecast.

First, the process starts with the story in your head.

Next, we translate that story into activity, break the activity into manageable pieces and finally convert those pieces into numbers.

Think of them as your business Lego bricks.

Once those bricks are in place, we can see the likely pattern of cash coming in, cash going out and what may be left in the bank.

Every forecast needs a destination.

So, where do you want the business to be in 12 months?

That destination might include:

• a target level of profit
• a particular cash reserve
• a level of income for the owners
• more customers
• new services or products
• a larger team
• growth into a new market

Your goals do not all have to be financial. However, the financial forecast needs to reflect the activity required to achieve them.

A destination without a route is not much use.

Once we know where we want to go, we can start thinking about how we plan to get there.

A useful goal needs to be something we can recognise when we reach it.

For example, if the aim is to build a stronger cash reserve, how much do we want?

Perhaps the goal is to increase profit. In that case, what level are we targeting?

Sales growth needs the same treatment. What does that growth actually look like in numbers?

Putting a number against the goal gives us something that can eventually feed into the forecast.

We are not trying to predict the future with 100% accuracy.

After all, none of us has that crystal ball.

A forecast is our best view of the future based on:

• our plans
• expected activity
• the capacity of the business
• our marketplace
• customers
• costs
• timing

However, the forecast is not a straitjacket.

It is a financial version of the journey we currently expect the business to take.

One of the most important parts of the forecast is working out what the business expects to sell.

At first, keep it big picture.

For example, ask what total level of sales seems realistic based on:

• your current capacity
• past sales
• repeat customers
• contracts and enquiries in the pipeline
• marketing activity
• website or social media traction
• changes in your market

You will rarely know the answer perfectly.

Nevertheless, there will always be some judgement involved.

The point is to create a reasonable assumption that we can test and improve later.

This is where we start turning the story into numbers.

For money coming into the business, think about three things.

First, what quantity are you expecting to sell?

That could mean:

• hours or days of your time
• courses
• products
• meals
• monthly retainers
• projects
• customers

Next, what will you charge for each unit?

For example, if you expect to sell 100 units at £20 each, that gives us £2,000 of sales.

For a consultant, it might be 10 days at £500 per day. Meanwhile, for a restaurant, it could be the number of meals multiplied by the average spend.

Finally, this is where sales become cash flow.

You may make the sale in August but not receive the money until September.

Therefore, payment terms matter.

The forecast needs to show when the cash actually reaches the bank, not simply when the sale takes place.

If you have more than one source of income, separate them.

For example, a restaurant might distinguish between:

• customers dining in
• deliveries

Similarly, a marketing business might separate:

• monthly retainers
• one-off projects

An accountancy business might divide income by different types of client work.

As a result, grouping sales makes the forecast more useful because we can see which parts of the business are expected to generate the money.

Sales activity often creates costs.

For example, a retailer needs to buy stock.

Restaurants need ingredients, while manufacturers may need raw materials or components.

So we need to translate that part of the business story into cash as well.

Again, ask the same questions:

• How much resource do we need?
• What will each unit cost?
• When will we actually pay for it?

Then include the wider costs required to support the business.

These could include:

• wages
• marketing
• rent
• rates
• utilities
• software
• loan repayments
• other overheads

Once again, the timing of the payment belongs in the period when money leaves the bank.

One of the most important lessons in this episode is not to edit the story while you are building it.

Instead, get it out of your head first.

Write down the plan, translate it into activity and then turn that activity into numbers.

The first draft does not have to look pretty.

It simply needs to represent the business story as you currently understand it.

If we start cutting things out before seeing the full financial picture, we may never understand what the original plan actually requires.

Once we have the building blocks, we can place the figures into the months when the cash is expected to move.

For each month, we are essentially looking at:

Opening cash + cash coming in - cash going out = closing cash.

The result may show a surplus.

Alternatively, it may show a deficit.

A deficit is not automatically a failure. Instead, it is information.

It tells us that, based on the current story, the business may need more cash than it has available at that point.

That is exactly the type of information we want the forecast to reveal.

Finally, once the first draft is complete, we can start challenging it.

If there is a cash shortage, ask:

• Can we reduce a cost?
• Does that spending need to happen at that time?
• Can we negotiate a better supplier price?
• Can we accelerate customer payments?
• Are we buying too much stock?
• Is a product or service losing money?
• Can a purchase be delayed?
• Do we need to review financing options?

This is where the forecast becomes a decision-making tool.

In other words, we build the story first and then decide what needs changing.

For the first big-picture exercise, look across roughly 12 months.

That gives us enough space to see the wider journey rather than getting trapped in the detail of one or two months.

Afterwards, once the assumptions are in place, break the forecast down into the months when cash will actually move.

For broader guidance on keeping your numbers useful over time, see our eight practical forecasting tips.

1. Write down your business story.
2. Define where you want the business to be.
3. Make the goals measurable.
4. Estimate your overall sales activity.
5. Break sales into useful categories.
6. Work out how many units you expect to sell.
7. Decide the expected selling price.
8. Identify when customers are expected to pay.
9. Work out the costs required to support those sales.
10. Identify when those costs leave the bank.
11. Put everything into a monthly forecast.
12. Review the resulting cash surpluses and deficits.
13. Then start challenging and changing the plan.

If you prefer to see the building-block approach visually, you can also watch this I Hate Numbers cash flow video on YouTube.

Start with your business plan and expected activity. Then estimate what you will sell, how much you will charge and when customers will pay. After that, do the same for costs and place the cash movements into the periods when they are expected to enter or leave the bank.

You need reasonable assumptions about sales volumes, prices, customer payment timing, supplier costs, overheads, planned investment and when payments will actually be made or received.

Not necessarily. Start with the business story and activity first. Once you understand what you expect to happen, the spreadsheet becomes the place where you translate that story into numbers.

Because a sale and the cash receipt may happen in different months. Therefore, cash flow is concerned with when money actually moves into or out of the business.

That gives you something to investigate. For example, you can review costs, timing, customer payments, stock, planned purchases and possible funding options before deciding how to adjust the business plan.

It needs to be reasonable and useful, not perfectly predictive. Forecasts are built from assumptions. Therefore, the important thing is to create the first version, review the results and update it as better information becomes available.

• 00:00 - Why every business needs a cash flow forecast
• 00:45 - The building blocks of a forecast
• 01:08 - Business story, activity and Lego bricks
• 01:33 - Starting with goals and destination
• 02:18 - Making goals measurable
• 03:22 - Forecasting without a crystal ball
• 04:01 - Starting with sales activity
• 04:45 - How many, how much and when
• 06:03 - Why timing matters
• 06:30 - Translating sales into costs
• 07:10 - Estimating future sales
• 07:51 - Breaking income into categories
• 08:27 - Forecasting cash going out
• 09:28 - Building the first draft
• 10:14 - Reading monthly deficits and surpluses
• 11:21 - Using the forecast to make decisions

• 8 Tips to Predict Your Future Cash
• How Forecasting Supports Better Decisions and Control
• Why Cash Flow Matters in Business
• 7 Ways to Build Cash Resilience

To make a cash flow forecast, start with the business rather than the spreadsheet.

First, write the story and define the destination.

Next, translate the plan into activity.

Then get out the business Lego bricks: how many, how much and when.

Apply the same thinking to the money going out.

Most importantly, build the first draft before trying to make the numbers look better.

Once the whole story is in front of you, the real value begins.

You can see where cash becomes tight, where it builds up and what decisions you may need to make next.

If you need help building a cash flow forecast or turning your business plan into financial numbers, you can contact us for an initial chat.

You can also explore our free online business calculators for practical financial planning support.

Finally, for more practical finance and tax guidance, visit the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

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https://www.ihatenumbers.co.uk/i-hate-numbers-book/

🎧 Podcast

https://www.ihatenumbers.co.uk/i-hate-numbers-podcast/

🌐 Website

https://www.ihatenumbers.co.uk