Becoming self-employed is a great goal. Starting your own business is a part of an exciting journey to financial freedom. You are in good company too, according to the Australian Government 98% of all Australian businesses are small businesses.
The trick to finding success when starting your own business is to become financially savvy. If you have gone to business school you may know how to get started, but you don’t necessarily have to go to a business school to pick up these skills. Fortunately, there is a wealth of information out in the world that can help you take your business from an idea to an income stream.
To get you started, here are 5 tips for organising your finances as you start your new business.
Set up a business bank account
Most businesses are legally required to start a business bank account, which is a good thing. Keeping your business and personal finances separate is vital for any business. It is essential for organisational and tax purposes, while making it far easier for your accountant or bookkeeper to manage. On top of that, if you face legal trouble, your personal finances are protected.
Choosing the right account takes some research. Look at a wide range of financial institutes to see whose offering works best for you. Consider a variety of factors including:
- Monthly account keeping fees
- Included transactions
- Account type: Business checking versus savings account
- ATM access
- Online banking capabilities
- Cash deposit limits
- Credit card requirements
You can also set up a business credit card. These will come in handy if you want to make business purchases and build your business’ credit history.
Learn accounting and finance jargon
As you enter into the world of becoming a business owner you will encounter a lot of jargon. It may seem annoying at first, but it all has a purpose. It will make communication between you and your accountants or bookkeepers clear and concise. Fortunately, it is all easy to learn, and a good accountant will ensure that all information is clear for you.
A few basic terms include:
- Gross revenue: The total amount of sales recognised in a reporting period.
- Net profit: Your business’ income minus expenses, taxes, interest, etc.
- Expenses: The costs of operating your business that you incur to generate revenue.
- Break-even point: The point at which your total revenue is equal to total expenses.
- Cash flow: the net amount of cash or equivalents been transferred in and out of your business.
- Accounts receivable: The due balance for goods or services a customer has received, or has been delivered, but not yet paid for.
- Burn rate: The rate a business is losing money. Usually this is expressed in monthly terms.
- ROI: Return on investment. A measure which determines how well an investment is performing.
- PAYG: Pay as you go. A system in which you make regular payments to fulfill your income tax liabilities.
- Liability: Your business’ legal financial debts and obligations that will arise during operation of your business.
- Equity: Assets you own that may have debts or other liabilities attached to them.
A great accountant will ensure that you are not confused or left out of the loop when it comes to the work they do. You will be able to see real value and understand what they have done for you. If you feel left out or confused by your accountant, it may be time to make a switch.
Finance your business
Turning an idea into a business takes financing. While this can be a challenging part of starting a business, there are many different options you can take to seek funding. Whether you are looking for funding for your start-up, extra capital to expand your existing business, or enough money to make it through rough times, here is how you can get started.
Make a financial plan and budget
The first thing you should do before seeking financing is to create a budget. This will allow the planned financial operation of the business to be measured. Combine this with a financial plan to show how you plan to reach a secure, stable income, and ultimately make a profit.
Outside investors will use this information to determine whether they want to invest into your business or not. They will want to see how you plan to use their investment to generate revenue. You should present a calculate break-even point, a gross profit and profit margin, allowing you to accurately price your goods and services.
Pay business taxes
Every business will have tax obligations that they must pay. In Australia, some of the major taxes like the Goods And Services Tax (GST), fuel tax credits, PAYG withholding, must be reported on a regular basis through a business activity statement (BAS).
GST is a common tax that some businesses may have to deal with. There are some criteria that determine whether your business is required to charge and report GST. These include:
- If you reach a turnover rate of $75,000 per year, you must register for GST, and begin charging GST.
- You provide a Taxi service or are an Uber/DiDi/Ola driver. You are required to register for GST and charge GST.
In both cases you must also lodge a BAS every quarter.
If you are not required to register for GST you will still be required to report your annual business income to the ATO in a tax return statement.
Ensure you are on top of your employer obligations
As an employer there are many obligations that you will need to keep on top of. There are some requirements like superannuation and tax that you must pay.
You will be required by the ATO to report employee earnings, collect PAYG and contribute the correct amount to your employee’s superannuation. Fortunately, Super and PAYG obligations are generally apart of a quarterly tax return. Ensure that you put all money required for these obligations so that you are not short on funds at the end of the quarter.
Starting your own business is an exciting time. But it is important that through the excitement you start out on the right foot. When starting out you should build a relationship with an excellent accountant from the get go. They will provide you with excellent advice regarding the set-up of your business, enabling you to start out right, avoiding headaches later. For an experienced accountant that cares about your business talk to Link Advisors today.