Starting your own business can be beneficial as it not only means more financial freedom for you, but you can also more choice when it comes to your hours, tasks and who you work with. However, bankrolling a business in the early days can be challenging, especially as you learn how much it costs to operate each month.
To help you navigate this, here are some of my tips to help you get started.
Most businesses will need some money behind them to get off the ground. Costs on rent, inventory, salespeople and marketing can really rack up.
The first thing that you need to realise is that not many businesses that are still around today were cashflow positive on day one. Therefore, forecasts and budgets are important, as well as upfront capital as you are likely to be bankrolling the business for the first little while.
The rule of thumb is that at least three months cashflow should be injected when starting your business, this doesn’t include any equipment requirements for the business. 60 per cent of new businesses that fail because they don’t have enough money to spend in the first place.
To understand how much capital investment you will need, it helps to project your overheads, for example:
- Do you need a physical space to work from?
- How much is stock?
- How much are your employees/contractors?
- How are you marketing your business?
- How much does your website cost?
- Do you need internet, electricity, insurance, bookkeepers?
Project what your overheads are likely to be, and categorise them into “must-haves” and “wants” to get you started.
Most businesses fall flat because they run out of cash so for a start-up:
- Weekly cashflow forecasts help you stay on track of the money coming in and out. You need to understand the movement of your cash to create a budget.
- Make a list of essential and non-essential expenses to identify what you need to spend on.
- Watch your inventory to see what is selling and what’s not.
- Try to only work with reliable customers who pay on time. Penalise those who are late.
Get an accounting system in place
If you are not great with your own accounting, get a bookkeeper from the start. If you make a mess of your books, it can cost you a great deal to fix them. If you are GST registered, get yourself a BAS bookkeeper/ accountant to save yourself the hassle.
Invest in Xero, MYOB or a well-known accounting system to keep track of everything as they will make life a lot easier come tax time.
On business structures, you may choose to start as a sole trader until you make $75,000, then some businesses will need to start charging their clients GST. At this point you may want to make your business a company, holding company or trust. However, depending on the nature of your business, you may want to do this anyway to keep your business away from your personal assets.
Speak to a lawyer and/or accountant prior to launching your business to work out which option is best for you.
Understand staffing and salaries
If you have staff, you will need to deduct tax out of their salaries and add 9.5 per cent in super for them. If you have contractors, they may also require tax and super to be taken out. Make sure you check the ATO website to make sure any contractors you hire fall into the category of contractors, or you may end up back paying them.
Gerry Incollingo, Managing Director, LCI Partners