Starting a business, especially your first one is a very exciting time, but it can be quite daunting when it comes to bank rolling it, knowing what taxes to pay, whether you need to be paying super, etc.
To help you navigate this, here are some tips to help you set up your business.
Get a bookkeeper/accountant and an accounting system in place
First thing’s first, if you are not on top of all of the tax laws when it comes to how much tax to pay, staffing, super and so on, get a BAS bookkeeper or accountant onboard from the start to save you having to fix up all of your mistakes later, which can be costly.
Also, invest in Xero, MYOB or a well-known accounting system to keep track of everything. It will make all of your administration tasks a lot easier come tax time.
A lot of people figure they can skip this step and take care of it later, but that often leads to thousands of dollars in fixing the errors made, so it is best to get it right the first time.
Work on your business structure
Generally, you can start as a sole trader until you make $75,000, then some businesses will need to start charging their clients GST. At this point, you may want to consider making your business a company, holding company or trust. However, depending on the nature of your business, you may want to do this anyway to keep your business away from your personal assets. Speak to a lawyer and/ or accountant prior to launching your business to work out which would be the best structure for you. Some are better options for tax, while others are better options for security.
Project how much you need to operate based on your overheads
Do you need to pay rent to run your business? Do you need to pay for stock? Do you have employees? Do you need to pay for internet, electricity, insurance, bookkeepers? Work out what your key overheads are in order to run your business per month. Your key overheads will help you determine how much you need to charge clients, how much you need to sell in order to keep your head above the water and if you should look for an investor or cash injection of sorts.
Cashflow is a big area where a lot of start-ups fall flat and fail so here are some tips to get you started:
- All small businesses should do a weekly cash flow forecast to help them stay on track of the money that they have coming in and out of the business. Understanding the movement of your cash will better help you manage your budgets. Ready-to-use cash flow forecast templates can be found online for free.
- Make a list of essential and non-essential expenses to identify exactly where your money is going. All expenses can be broken up into two categories: a need or a want.
- Monitor your inventory and establish which items are selling and which are draining your working capital.
- Focus on cash flow, not profit. The mistake most businesses make is they do not stick it out past six months because they do not see a profit. If your cashflow is in order, your profit will be in order.
- Work with reliable, quick paying customers. Penalise customers for late payments.
There are not many businesses around that were cashflow positive on Day 1 and that is why forecasts and budgets are important – it is also why upfront capital is important.
In fact, around 60% of new businesses fail in the first 3 years of operation with one of the main reasons being that they are not injecting enough upfront capital into the business to get it off the ground.
The rule of thumb is that at least three months cashflow should be injected when starting your business, this doesn’t include any equipment requirements for the business.
Understand staffing and salaries
Do you have staff? How many days are they working? Is it a requirement to pay them super and hold their tax?
Again, this is why having an accountant or bookkeeper who understands staffing and salaries is important, because doing the wrong thing can cause a headache down the track. If you can, outsource and work with other companies to do certain tasks for your business to make the flow of work stream more smoothly.