12 Financial Moves You MUST Make When Starting a Business
Updated September 8th, 2023.
Owning and operating a business is the dream of scores of people. Whether you see yourself running a bed and breakfast at the shore, designing cutting edge software, or grooming dogs and cats, it all starts with a dream.
To take your business from a dream to a reality and then to long-term success takes commitment and hard work. Even though you may understand your product or service inside and out, you must apply business principles to your passion if you want a long-lasting company that will grow and flourish.
It is a lot to comprehend, especially the finances involved. Whilst you likely have received advice from everyone you know, it’s best to delegate to an expert business accountant for the most reliable advice.
Baring this in mind, here are a dozen moves you must complete before you begin your business owner’s journey.
1. Do Your Homework
It may sound obvious, but after you lay the foundation for your business, you will need to answer many questions regarding specifics. A huge consideration is what type of business entity you will operate. You will need to determine if you will be a sole trader, a partnership, a company, or a trust. To do this, you will need to understand the pros and cons of each.
2. Assess How You Will Fund Your Business
Cash flow problems can ultimately ground your venture before you start. You will need to decide if you will fund your company on your own, you will engage investors, take out business loans, or borrow from family or friends. Each option has benefits and pitfalls, so you must weigh your options carefully.
3. Forecast Your Future
Having a profitable business does not happen overnight. As you work to get your company off the ground, you may be able to run some projections to forecast when sales will pick up and how much revenue and expenses you may expect over the first few years. For more forecasting and business growth tips, check out Upscale Business Coaching.
Forecasting is challenging, especially if you have no experience with it. However, knowing the amount of money you need in reserve while you build is essential.
4. Work Out (and Stick to) a Budget
Many new businesses experience a huge problem: they are financially undisciplined. Some owners see themselves as rugged individualists bucking the system and boldly striding into the unknown. While that is a great movie plot, the unstructured carefree approach will tank your business before it has a chance to flourish.
Here are the basics of what your budget should address:
- A Time Frame – Will your business operate on a budget that is monthly, quarterly, or yearly?
- Chart Your Fixed Costs – What expenses must you cover? Generally, this includes rent, your salary, insurance, and any loan repayments
- List Your Variable Expenses – If you are unsure of some totals, list the maximum amount you would expect to spend. Some examples of variable expenses include your utilities, workers’ salaries and the cost of materials.
- Your Income – At first, you will need to project your income fully. However, as time goes on, you will be able to see your income over time.
5. Work With a Bookkeeper
It is a fact of business; bookkeepers help companies run smoothly. If your company lacks proper bookkeeping, you will have inaccurate accounts. This can mean many problems for your business, including incorrect reporting of tax figures.
6. Maintain Immaculate Records
Keeping your company’s records as close to flawless as possible goes hand in hand with having a professional bookkeeper on your staff. Having great organisation is a foundational element of successful businesses. Whether you manage this organisation or rely on an office manager, maintaining your business records is critical to keeping information safe.
7. Pay Down Your Debts
Having a business loan is not a massive problem unless you struggle to make the minimum payments because of other debt. Debt tends to snowball and can eventually overwhelm you.
One way to help you take control of debts is to make a list of your debts and methodically pay them off as quickly as possible. Suppose you begin with the smallest debt owed and pay it off. Next, take the amount that you would have paid to the first debt and apply it to the next smallest debt and so on until you are paid in full.
8. Understand the Concepts of Risk VS Reward
When planning a significant business decision that involves risk, you must explore the downsides. This is the concept of risk vs reward. No matter how good the potential reward may be, you need to assess the downside. Once you understand what your decision could cost you, determine if the reward is worth the risk. Sometimes, you may have to put off changes to be smart with your money.
9. Separate Your Business and Personal Finances
Many new business owners make a mistake in allowing the lines between their accounts and company finances to blur. Failing to separate business and personal finance can have consequences such as,
- Over or underestimating your wealth or that of your company
- Your company’s debt becomes your debt
- Difficulty reconciling finances and separating assets after years of mingling
- Struggling during tax season or in the event of an audit
- Investors may be put off by a finance system that appears haphazard
10. Maintain a Cash Reserve
Making sure you have access to liquid assets is vital for your business. Just as you experience unexpected bills in your finances, your business can be hit with expensive financial surprises. Here are three reasons your business needs a cash reserve.
- Money Available to Finance Expansions or Other Plans – If an excellent opportunity for your business appears, a healthy cash reserve can mean the difference between green-lighting the project or hitting the pause button.
- Taxes – If you end up owing the government taxes, you will want to take care of that bill right away. Otherwise, you could have penalties or fees added on if you pay over time.
- Help You Through Difficult Periods – We do not need to look back very far to see the financial carnage the pandemic brought.
11. Get the Facts on Your Taxes
As a business owner, your taxes will be different than when you were employed by someone else. Whether you realise it or not, owning a business is a game-changer, and the ATO will not accept inexperience as an excuse for tax mistakes.
A tax preparation specialist will be an excellent resource to ensure everything is in order at tax time.
12. Build a Relationship with an Expert Advisor
As your business grows, so will your financial needs. You should develop a relationship with an economic advisory team to help you achieve your business goals.
Look for someone who wants to understand your goals for your company and values a working relationship. This will ensure the most appropriate and timely assistance.
Businesses that successfully made it through the darkest days likely had at least some money in reserve.
As you can see, there is nothing simple about starting a business. However, it is not anything you cannot handle, especially with the right team on your side.
For more information regarding how to start your business, read our guide on the topic or feel free to contact M2 Corporate. Our team of experts can help you navigate the unfamiliar territory that is creating a business. And as your business grows, we will continue to offer support.