From software development and software as a service (SaaS) to high-tech manufacturing, tech is undoubtedly an exciting space to operate in – and one with immense promise of success.

However, tech also comes with its share of financial challenges, which need to be addressed proactively to fuel growth and long-term success.

This blog explores financial planning strategies for tech companies, covering cashflow forecasting tricks, funding options like Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS), research and development (R&D) tax credits, and when it’s wise to call in the experts.

By implementing financial best practices early and maintaining them long term, you’ll build a strong foundation for your tech company’s future growth and success.

Cashflow management best practices

Cash is a fundamental necessity for any business. Particularly when a company is experiencing growth, cash demands can quickly escalate and potentially jeopardise the business if not managed carefully.

As such, you need to create robust cashflow forecasts. By projecting your expected revenues and expenses, you can identify issues early and make sure you’re never short on cash when you need it most.

Important elements to include in your forecast are:

• sales projections and anticipated payment timelines
• regular costs like payroll, rent and software subscriptions
• one-off investments needed to support growth, like new hires or office expansions
• external funding rounds and expected cash injections.

Cloud accounting software like Xero or QuickBooks can be a huge help here, automatically generating cashflow forecasts based on your real-time financial data.

They also offer features like invoice tracking and automatic bank reconciliation to help you stay on top of your inflows and outflows. It’s also smart to build some buffer into your forecast for unexpected expenses or revenue delays.

Regularly reviewing and updating your projection, perhaps monthly, can help you stay on track as your business evolves.

Scaling operations

As your company grows, you’ll need to make strategic investments to support your expanding operations. This might include:

• hiring new staff to handle increased workload
• investing in new technology or equipment to improve efficiency
• moving to a larger office space to accommodate your growing team
• expanding into new markets or product lines.

While investments can fuel your growth, they also present costs that need to be managed. Consider the following.

• The expected return on investment (ROI) – essentially, will the investment generate enough additional revenue or savings to justify its cost?
• The total cost of ownership (TCO) – this includes not just the upfront cost, but also any ongoing expenses like maintenance, training or subscriptions over the life of the investment.
• The impact on your cashflow and whether you have the reserves to support the investment.
• Alternative options that could provide similar benefits at a lower cost.

As you scale, keep an eye on your burn rate (the rate at which you’re spending money) and runway (how long your current cash reserves will last at your current burn rate).

You may need to adjust your growth plans or seek additional funding if your burn rate is too high relative to your revenue growth.

Tax relief for investing in your business

When you’re investing in your business, you can often claim generous tax relief through capital allowances. Capital allowances let you deduct some or all of the value of qualifying assets from your profits before you pay tax.

Key types of capital allowances to look into include the following.

• The annual investment allowance (AIA), which lets you deduct the full cost of qualifying assets up to £1m per year.
• 100% first-year allowance, which enables you to claim the full cost of the investment against your profits before tax for qualifying equipment.
• Writing down allowances (WDA), which let you deduct a percentage of the value of qualifying assets each year, if you’ve already claimed AIA on them or they don’t qualify for other allowances.

Discuss your options with an accountant to ensure you claim everything you’re entitled to and optimise your tax position. The savings can be huge so don’t miss out.

Securing funding

Exploring and securing external funding is one of the greatest milestones in a business’s journey. Key funding options include the following.

• Equity funding: Selling a stake in your company to investors like venture capitalists (VCs), angel investors or via crowdfunding means no repayments, but less ownership and control.
• Debt funding: Borrowing from a lender like a bank means you retain full ownership, but have to make regular repayments with interest.
• Grants: Non-dilutive, non-repayable government funding for innovative companies, like Innovate UK grants are highly competitive.

Before you explore equity financing in particular, consider how much cash you need, how quickly, and what ownership and control you’re willing to give up in return for funding.

Tax-advantaged schemes like the SEIS and EIS can also sweeten the deal for investors.

Tax planning

As a growing tech business, effective tax planning can help you optimise your tax position and keep more of your hard-earned profits.

Look into the following.

• R&D tax credits: If you’re doing innovative work in science and technology, you may be able to claim back a significant proportion of your R&D costs through the small or medium-sized enterprise (SME) R&D relief scheme.
• Patent Box: If your company holds or licenses a patent, the Patent Box scheme lets you apply a lower rate of corporation tax to profits earned from your patented inventions.
• Employee share schemes: Schemes like the enterprise management incentive (EMI) help businesses incentivise and retain key employees by offering them share options in your company.

As always, work closely with your accountant or tax adviser to ensure you optimise your tax position and stay compliant with HMRC’s rules.

Taking your tech company’s finances to the next level

Solid financial planning is a must for any growing tech business, but it’s not always easy. There are a lot of moving parts and complex considerations.

That’s where we come in. At Richardsons, we specialise in helping tech companies like yours thrive. We’ll work closely with you to understand your unique circumstances and craft a bespoke financial strategy that supports your goals.

Our aim is to take the stress out of financial management so you can focus on what you do best – building an amazing business.

Ready to take your tech company’s finances to the next level? Get in touch with the Richardsons team today. We’re here to help you succeed.