I AM STARTING OUT IN BUSINESS – WHAT DO I NEED TO KNOW?
Initiating a new business concept is an emotional rollercoaster. It is as exciting as it is painful in the beginning, however there are a few crucial considerations entrepreneurs either overlook, misunderstand or fail to research before kicking off their fresh venture.
While you may already have an endless to-do list, it is important to know that priority should prevail when it comes to getting off the ground.
Let’s look at seven things you should be organising first before thinking about the dollar signs!
Organise your accounts first
First things first. You will require a business bank account. This needs to be an account that is separate from everything else to track both expenses as well as income.
It’s a common mistake among small business owners when starting out to just assume you can use your existing accounts and simply ‘shuffle’ your funds around. Not wise.
Your best move is the set up at least three accounts – Income, Expenses and a Tax/GST account. Please check out our Profit First article for additional information on other accounts like Owner’s Pay and Profit.
A big part of determining whether your business is ultimately successful depends on how much planning and prep-work you do, and how well-organised your operations are from the get-go.
Find a bookkeeping system that works
If you’re a newbie, you may need some clarification on the difference between bookkeeping and accounting. Think of bookkeeping as more of a day-to-day type process. Think managing transactions, itemising and categorising along with handling banking and other financial matters.
Accounting is a more complex process in which the data from a bookkeeper can be utilised to create statements and make financial evaluations and decisions based on the figures.
All small business owners need to decide who’s going to look after their books and crunch the numbers before, during and post-tax time.
The Importance of Payroll Management
When you’re just starting out and getting the hang of things, it’s quite common to not pay yourself, or to pay yourself from whatever funds you have leftover at the end of the week. The Profit First concept involves paying yourself first and then using the leftover portion of your income for expenses and overheads.
However, things can get a little more complicated as a business takes off and you need to start the hiring process. But do you know how to pay both employees and contractors? Payroll isn’t a black and white process.
Employees need to be part of a payroll schedule which requires proper setup and management. The correct amount of tax has to be withheld from each employee as well as allowing for superannuation to be paid. You will also need to register with the ATO for PAYG Withholding and complete a Monthly or Quarterly Statement and remit these funds to them. You will also need to finalise your STP Reporting each July so your staff can prepare their Tax Returns.
Contractors can be even more complicated. Sometimes they are Contractors who are “deemed” employees, who you then need to pay Super for and withhold Tax. Other contractors are “true” contractors where you pay on invoice. You must remember to check their ABN & GST status prior to paying them to ensure they are correctly registered. The ATO has now also increased the industries for Taxable Payment Annual Reporting (TPAR) for Contractors, where you need to declare to the ATO each year which contractors you have paid and the amounts.
Understanding Tax obligations thoroughly
It is important you discuss with your Tax Agent the best business structure for your individual setup. You can setup as a Sole Trader, Partnership, Company or Trust. There is no right or wrong way to do this, however the structure you choose will determine how you record payments to yourself from your business throughout the year.
If you have or think your income will reach $75,000 within a 12 month period, then you will also need to register for GST. Depending on your turnover you can choose to report either Monthly or Quarterly. It is best to seek advise from your BAS or Tax Agent regarding GST (& PAYGW) Registration.
Cashflow and Funding – Do the math
One aspect that’s often underestimated is both a long-term and short-term calculation of viability. What you want to do needs to make financial sense from the start, otherwise a few months in you could be looking at early collapse or bankruptcy.
If you’re borrowing money, make sure you only accept what you can afford and start well within your means. You also need to simultaneously evaluate how much you expect to make to ensure the business’ feasibility and is worth the effort and other financial strains it might put on you.
Never try and just ‘wing it’ and run the numbers while you’re in operation as time, and financial losses can be detrimental.
Reassessing operations and adapting to change
It’s never enough to develop an initial business plan and stick with it forever. Small business is also not like an investment property where you can ‘set and forget it’ while it brings income.
You should reassess your business model and research what local competitors are doing to keep up with trends and adapt to their markets. Demands change quickly today, so remember to stay updated and look for innovative ways to increase profits by finding out where you could save some cash or cut unnecessary costs.
Get a Registered Agent on board!
We get it. Sometimes managing finances is overwhelming and just all too hard. But that’s what we’re here for!
Don’t allow those little bookkeeping or accounting annoyances overrun your ability to enjoy doing what it is you do best.
Whether you’re a sole trader with no employees or a large company, it’s definitely worth seeking advice from a Registered BAS Agent – It’s one less thing you need to worry about!
Aside from grasping a better understanding of the small business and accounting worlds and how the two intertwine, you’ve probably realised there was a little more to a business start-up than you expected.
Not to worry though! Ironbark Industries Bookkeeping specialise in professional bookkeeping and BAS-related services.
Most importantly, we’re here to help and eliminate the stress and hassle of business bookkeeping.
Give us a call today or drop us a line via our CONTACT page!