Launching your own business is an exciting time in your life, but it’s also a time that makes many demands on you. Suddenly, you find yourself with a lot of additional responsibilities and getting pulled in multiple directions at once – welcome to the life of an entrepreneur! A lot of businesses evolve from you having a special talent or a skill set that you realise you can monetise. Unfortunately, especially in the early days before you hire your first employee, you will probably be using a lot of your time and energy in other areas, and you may feel you have less time to do what you love and what generates the income. You’ll be learning new skills but also taking on a lot of different roles, from writing a business plan to creating a marketing strategy, setting up invoicing, negotiating legal red tape, finding a suitable working space, securing funding and many more business administration tasks.
One area where it pays to have a head start are finances. Your personal and business finances are about to become intertwined in a way that you won’t have experienced before, and there is unfortunately the potential for many pitfalls unless you adopt a clear plan and approach getting your finances in order as a priority task. This can be a steep learning curve, especially for more creative types who think of themselves as not being good with the numbers. However, financial management is a skill you can and must learn to master if you want your start-up to be a success. Having a bit of a financial spring clean as you prepare to launch your venture doesn’t have to be daunting. Break it down into these simple steps, and you’ll be in the best position to focus on getting your company up and running.
Set Up Multiple Income Streams
For most of us, setting up a business means leaving a paid position and all of it’s benefits – automatic tax, pension fund, healthcare etc. So although you need to focus on making your new business a success, it’s a wise idea to think about cash flow. Try to avoid putting all your eggs in one basket, and solely relying on this fledgling venture to pay the bills. Think about any other casual work you could fit flexibly around the main event, and you will then have some extra money coming in to tide you over – this really could make the difference between your business sinking or swimming, as it gives a margin of error that allows you some financial breathing room. If you’re setting up a creative business, could you teach those skills on the side? It’s a nice thing if your side work is related to your day job, as it reinforces your skills, allows you to do some relevant market research and make contacts. Sites such as UpWork will let you pitch for smaller bits of business on a casual basis.
Separate Your Accounts
When you start off, the money for your business and your personal accounts are usually one and the same – but don’t fall into the trap of conducting all your business dealings through your personal account. It becomes hugely important further down the line to keep your business finances separate, so that there is a clear audit trail for tax reasons. Start as you mean to go on, by creating a business bank account, even if you ‘pay yourself’ from one account to another.
Expect The Lean Periods
Very few companies are an instant success and it can take longer than you think for the money to start rolling in, no matter how skilled you are at what you do. You need to anticipate and proactively plan for this to happen. Think about trying to build a cushion of savings before going it alone with a business venture. You will also need to consider forms of financing in an emergency and have a plan – will you use a business credit card? What are the best guarantor loans available? Rainy days – or months – are a fact of life as a small business, and lack of ready cash flow has shut down many promising ventures that just needed tiding over during a lean period or while waiting on a big contract coming in. An emergency fund can keep you going long enough to even out some of the ups and downs in those first rocky few months while you get started and establish a customer base.
Sort Your Taxes
It’s hugely important to ensure that you take care of what you owe in tax, by creating a tax savings account that will cover your yearly owings. Make sure that you understand your tax rate, and automatically deduct it from any payment that you receive into the business, to be put aside into your tax account. That way, you won’t be panicking when the self-assessment deadline rolls around. Find a good small business accountant, and they will be able to advise you about tax breaks and deductible expenses that you may not be aware of as well.
An accountant will provide crucial information and guidance but you also need to understand that the onus is on you to get your taxes sorted. It’s important to keep on top of this, especially if you don’t know what the repercussions will be for you and the business. On TaxReturn.com.au you can find information on what happens if you fail to lodge your tax return. It’s crucial to sort your taxes legally but also for the benefit of your personal finances and for the finances of your business.
It sounds obvious, but often times you are so focused on securing new business and delivering the work to a high standard, invoicing can slip further down the ever-growing list of tasks. But it only takes a few late-paying clients to spell financial ruin, so keeping on top of incoming payments is crucial. Block out time each week in your schedule to concentrate on this task – going through a list of completed work and what is owed, chasing up on payments that are due, forecasting cashflow and generally balancing the books. Automated invoicing software that keeps track of everything all in one place, and even allows you to check up on payments and issue reminders from your smartphone is a good idea. It means that you can always be on top of the financial health of your business, which prevents small downturns from developing into a crisis.
Follow these easy steps and business financing doesn’t have to be a headache – setting up smooth processes to follow will allow you to focus more energy on what you do best.