If you’re thinking about starting a business, you will likely know that simply getting to the starting line can seem like a sprint. There are a range of structural hurdles to jump, regulatory precedents to hit, and waves of exciting highs and some stressful lows to ride along the way. One key way to avoid unnecessary stress from the get-go is to understand how to manage your businesses finances, as well as ensuring your business is correctly structured, taking into consideration all the relevant factors such as asset protection, control, access to cash, your family situation and your tax profile. Whilst the structure needs to be the right one for you now, it also needs to be flexible enough to allow you to grow into the future.
That’s where we can help. Remember, we aren’t just “Nexis – Accountants,” we are “Accountants and Business Advisors”. We’ve supported and guided many clients over the years with start-up advice and ensure that the full picture is considered particularly in relation to the establishment of good management practices and reporting mechanisms, which are commonly forgotten. Don’t be that person! Here are our top six tips to get you started and reduce headaches and heartache later.
- Understand your business and financial story
As a perfect starting point, first, select what sort of business structure will best work for you and your prospective organisation. While considering this take into account that the four most common business models in Australia are:
- Sole trader: an individual operating as the sole person legally responsible for all aspects of the business.
- Company: a legal entity that is separate from its shareholders.
- Partnership: an association of people or entities running a business together but not as a company.
- Trust: an entity that holds property or income for the benefit of others.
Once you’ve entered this phase, also consider which structure and reciprocal accounting practices, will help you in writing a pleasant narrative for you and your business when it comes to organising your business reports, statements or other financials. While you won’t need to know every intricate detail of your organisational accounting, it’s important to understand relevant terms and employ basic practices to track your business’s performance. In this instance, some important statements include:
- The Balance Sheet: A statement of assets, liabilities, and capital of your business on a given day. This shows the net financial position of the business and what is owed to and from the business.
- The Income Statement: This shows your business’ revenues and expenses during a particular period. It indicates how the business is performing and is used to determine your tax liability.
- The Cash Flow Statement: This illustrates how changes in both the Balance Sheet and Income statement affect your cash balances. This statement will show where the income you have generated has gone.
- Exclusive naming rights – domain vs business vs trademark registration
You got excited, registered a domain [insert business name].com and then went and got a logo and website designed by your crafty cousin only to forget about business name registration?
It is a common myth that by having a registered business name or domain name, that this provides a business owner with exclusive ownership of that name, but time and time again we have to educate our clients on the differences between a company name, a business name, a domain name, and a trademark.
For example, Rachel decided to register “Rachel’s Doggy Treats” as her business name thinking that that would give her exclusive naming rights under the Business Names Registration Act 2011 (Cth). However, the Act does not stop another person from registering a similar business name or prevent someone from registering a trademark using the same business name. She also bought the domain rachelsdoggytreats.com but didn’t think she needed to purchase rachelsdoggytreats.com.au, doggytreatsbyrachel.com or any other domains that could be easily confused with a competitor when doing a Google Search.
So do your research on domains, business/trading names, and trademarks before settling on a business name and your marketing collateral.
- Keep up-to-date records
When it comes to forecasting your business activities, assessing success and planning for the future; you will always be able to make more educated and justified decisions if your accounting information is accurately completed and up to date. It is for this reason, that it’s important that you make record up-keep a priority and frequently analyse the condition of your relevant finances.
There are various tools available to help you plan and evaluate your record-keeping practices, such as the ATO’s Record Keeping Evaluation Tool. We use the latest technology, such as Xero and Spotlight reporting to ensure that our clients do not have to spend lengthy amounts of time doing their bookkeeping from scratch. However, ensuring such financial information is kept current, will prove to be more than worth your while in terms of bolstering your preparedness for business planning and overall management. It can exhibit a realistic outlook of the progress of your business over time; it can help you make judgements about potential business moves and growth planning; it can even just simply reinforce that you are able to importantly pay both you employees and yourself, each month.
Remember, it’s always best practice is to record your business revenues and expenses as they happen and in one place. Trust us, this will save you a world of document sifting pain and time, in the long run.
- Create and maintain a budget
Once you have a good record-keeping structure in place, plot out your expected incoming and anticipated outgoings into the future. Then build an accompanying monthly budget, to stay abreast of and assess your actual progress against a plan over time. By doing this, you are able to paint a likely picture of your business’ future and make informed decisions to grow and change your business. While no one holds a crystal ball in the world of new business and related financial performance, sustaining a monthly budget will allow you to properly foresee your future cash flow and make decisions on it while auditing your progress in real-time to ensure your business’ vision can be fulfilled.
Remember, it’s best to create a financial budget well into the future (which is normally 12-36 months). This way you can also plan for larger capital expenditure and other payments such as taxes that will arise as your business evolves.
- Avoid making old mistakes
In the words of Eleanor Roosevelt, “learn from the mistakes of others. You can’t live long enough to make them all yourself”. To ensure your business’ life has longevity and operates as seamlessly as possible from the get-go, make sure you do your research in areas that you aren’t sure about, consult advisers or other business owners, and just generally ensure you don’t make any “age-old rookie errors”.
In our time advising a range of diverse businesses and assisting a multitude of start-ups in strongly building themselves from the ground up… These are the top 3 mistakes that we see start-ups make in setting up their accounting and financial reporting practices:
- Doing things out of order – If you ensure that your processes and reporting systems are set up before you start spending money you won’t miss things when it comes to tax time and you can ensure that there is not a big clean up to be done before you even start.
- Failing to have enough capital at the beginning – Failing to plan for all the costs associated with the first 12 months of the business can often result in a desperate grab for funds once it is too late. Having a plan for funding (whether from your pocket or from investors) will ensure that you are able to grow the business when the time comes.
- Going the cheap or DIY option – Getting advice from professionals from the start ensures that your finances can be set up correctly. Whether it is your structure, your bank accounts, the financial statements or your payroll, it is much better to do it right the first time than to have a list of things to fix!
- Let us assist you in ensuring all of the above is done right the first time
When it comes down to it, we understand that organising all the fine details for your business can overwhelming. Setting up your organisation the correct way and completing generally infallible accounting for your business, does not need to be a seemingly impossible or daunting task. It also does not have to take up a hefty amount of your time. How? All you need to have up your sleeve is the right tools, the right advice, and the right support. That’s why we’re here.
Allow us to help you streamline this side of your business set-up, so that you can focus on the rest of your business journey. Take one of our current clients Nick Dekantios’s word for it…
“I opened my new business Capital Auto Spark in early 2019. When I started getting into the details of how to structure the business and how to take care of records, I had some idea of what to do, but not to the extent that I needed to.. Nexis talked me through the complete process from setting up the business to my tax requirements each year, and helped me set up the tools to monitor and adjust our activities. This meant that I felt comfortable before we began trading that everything was in place and that Nexis understood what I needed. This understanding makes it easy to ask questions about how to grow the business and ensure that I get paid each week! ”Nick Dekantios, 2019