Running a small business can be such a rewarding opportunity, however, it can come with many tripwires, managing finances being one of them, especially if you prefer to focus on what you do, as opposed to the money side of things.
With that in mind, here are some of my top tips for managing the finances of your small business.
Have a good idea of your income and expenses
When you are starting out, it makes sense that you may not know how much you are going to be earning, however, you should still have a forecast of how much you expect to earn, and you should have an idea of your expenses.
Start by writing down your non-negotiable expenses, such as staffing costs, your wage, rent, equipment, stock and anything else. Once you have an idea of how much you need to spend per month, you can calculate how much you need to earn to stay afloat. Make sure you revisit these figures regularly. Every one to three months, especially when starting out, would be ideal and make sure you update the figures as needed.
Pay yourself
Once you start earning some money, make sure you pay yourself a wage. There are a few reasons for this. The first is that you need to make money for your work and you don’t want to complicate your business accounts with personal expenses.
The second reason is that for personal tax, there is a tax-free threshold up to $18,200 and then you are taxed at only 19 per cent up to $45,000. Over the last few years company tax rates for most small businesses have progressively dropped from 30 per cent to a flat 25 per cent; only if you meet the eligibility as a base rate entity.
Put money aside
Aside from having a rainy day fund, which should amount to around three months of expenses, it helps to put any overflow of business income aside for when you need it. For starters, start-ups often get surprised but their first EOFY so it is good to have money aside for that. You also never know when something unforeseen, such as a pandemic will come along. Keep the money aside, once you have paid your EOFY tax bill, speak to your accountant about paying yourself out a dividend with the rest. Then start saving again,
Invest in growth
Don’t be afraid of spending money if you can see that it may benefit your business. If upskilling your staff will yield better results and take work off your hands, it is worth it. Investing in better systems, software or innovations is not a bad thing if it will get you and your team ahead and work more productively.
Make sure you have a good credit history
Ensuring you have good credit rating with the bank is imperative. Make sure you pay them back if you are borrowing money, even if it is just your credit card. A bad credit rating will make it harder for you to get a loan and one day you may need one to grow your business.
Have a good billing strategy
You don’t want to spend all of your time chasing up money or invoicing. Find a billing strategy that allows you to get on with your work, whether you charge monthly, upfront etc.
It also helps to have an accounting system so that it can keep track of what you have billed, what is overdue and what is owing. It is also really easy to follow up on invoices using their system.
