“You can't build a great building on a weak foundation. You must have a solid foundation if you're going to have a strong superstructure.” - Gordon B. Hinckley -
Picture this - you can have the most amazing beach house with an immaculate garden and fancy decors but does it matter if you didn’t have a strong foundation and structure?
Now, let’s apply this to business.
You spent all your time and effort on your “perfect” logo and branding, building the most amazing looking website and the most “on-brand” videos and promotional materials… Yet, you’re struggling with your monthly bookkeeping and reporting with an excel spreadsheet your intern created for you, you have absolutely no clue on your company’s cash flow and you have absolutely no idea about taxes...
Your business will only grow as far as the foundation takes.
In order to grow your business the way you envision it to be, you need to build a solid foundation and set it up the right way! Today - I will share the 4 main things you need to master for a successful business.
Four things you need to master for a successful business
1. Business Financial Planning
In order to build a solid foundation for your business - you first need to pick a business structure best fits your business, whether it’s sole trader, partnership, company, joint venture or trust. Make sure you’ve done your research before deciding on the structure as the tax obligations and liabilities are different for each structure.
2. Cash flow management
Having a positive cashflow is the key to a successful business. Just because your business is profitable, it doesn’t mean that it is cash positive. There are various factors contributing to this such as seasonable sale, cash outflows, credit terms and tax obligations (which we will dive deeper in the next point). Therefore, it is important to do a monthly financial health check to ensure that your cash flow is healthy. A good budgeting and forecasting process will also help with your cash flow management, making sure that you’ve enough money to run your business efficiently.
3. Tax 101
A good entrepreneur manages his/her tax efficiently - this is a lesson I learnt from a previous boss of mine! Apart from making sure that you’re paying the right amount (and on time) to the Tax Office to avoid any penalties - you should learn how to manage and optimise your tax structure.
Here are some of the important things to consider when setting up and running your business:
What is GST and when do you need to register?
Here in Australia - you are required to register GST if you’re making $75,000 and over in a year. However - are there any benefits for registering at the start of your business? Should you apply before you hit $75k or after? How do you apply the GST to your invoice etc…. These are some important GST questions to ponder upon. Speak to your accountant stat if you are unsure!
How to allocate your revenue for tax payments?
Running your own business means you have the option of paying your tax bills at the end of each quarter/financial year. If you don’t set aside a percentage of your sales revenue each month - you might be get the shock of your life at the end of each financial period. These numbers are usually quite substantial and could make or break your business.
Eligible business expenses and tax deductibles
Did you know if you are running your business from home office, you are able to claim a part of your rent along with other expenses? If you are attending a conference interstate or internationally, you might be able to claim a portion of that as business development expenses? The list goes on… the point here is are you claiming all eligible business expenses and deductibles against your sales revenue? Whilst you may think that they aren’t a lot - they all add up!
$20,000 instant asset write-off
The Australian Tax Office has extended the $20,000 instant asset write-off for businesses with a turnover of less than $10million up. What exactly does this mean for your business and most importantly - how can it help your small business?
These are some of the main tax questions you should be considering and factoring in your quarterly or yearly financial planning sessions. I can’t stress the importance of managing your tax effectively and optimising it for your business growth enough. Coming from a corporate restructuring and recovery background - I’ve seen plenty of small businesses winding up simply due to mismanaged tax obligations.
4. Accounting System
What exactly is an accounting system for your business?
An accounting system is the system used to manage your income, expenses and all financial activities of your business. It helps your business to keep track of all financial transactions such as sales (sales, income and invoicing), purchases(expenses), liabilities (loans, accounts payable), investments etc. Your accounting system should store all the data and information you need to provide you (and/or the management team) a summary and detail overview of the financial health of your business, at any point of time.
We all love ourselves some good excel sheets but excel sheets alone should not be your accounting system. The cloud technology has made maintaining and selecting an accounting system so much easier.
If you are just starting out, Wave accounting is a great option as it is free. It allows you to create professional-looking invoice and integrate with payment platforms such as STRIPE. As with all free softwares - there are limited capabilities and features. For paid accounting systems - check out XERO, MYOB and Quickbooks. Do your own research, speak to a professional before deciding on which accounting system to use for your business!
Disclaimer: Adeline Er is a qualified Chartered Accountant, registered with the Institute of Chartered Accountant. However, the information on this article is general in nature and does not take into account your personal circumstances, financial needs or business objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product or strategy having regard to your objectives, financial situation and business needs. In particular, you should seek independent professional advice.