Start-up tips for small business – Part 3

Last month we talked about what you need to do before you start actually trading. In this final instalment we investigate the key considerations, most important of all cashflow, in the early phase of a start-up’s operations.

Cashflow is king of any successful business

If I would share the most important rule I have learnt from business – that would be “Cashflow is KING.” The only difference between a successful business and a business that fails is a lack of cash.

I was lucky to learn this very early on with my first business. After slogging it out working for almost free for the first year starting a Disc Jockey booking agency, I had earned almost $30,000 in revenue (whilst studying as a Uni student).

At the end of the year I had a healthy amount of cash in the bank which I promptly withdrew to spend on a holiday and some new boys toys (like buying a set of ski’s in summer – doh! So logical, right?). What I didn’t prepare for was January is a very quiet time of year for most businesses. In February all of my big bills such a licencing fees, insurance and subscriptions were due. All of sudden my business had no cash to pay for them. Luckily I could tip in the money again to cover these expenses. But had of that number been $20,000 and not $5000 – I would have very quickly become another failed business statistic.

From that point, I always kept enough cash in the business to cover all expected bills for the next six to 12 months. I never had cashflow problems again.

Other things small-business owners forget to do

Here are two things I see many start-up sole-traders forget to do:

  1. Continue to make contributions to your superannuation. Many sole-traders do not do this. When you transfer money from your business bank account to your personal bank account don’t forget to add an extra 9.5 per cent of that amount and make a contribution to your superannuation fund. All contributions you make to your superannuation fund are tax deductible if you are a sole-trader. This will help you in the future when you have built a really successful business and ensure you have maximum choice on how to manage your superannuation. For example, many small business owners after a few years would like to purchase a property using their superannuation. However, a bank will want to see at least two years of regular contributions to superannuation especially if you are a sole trader.
  2. Protect your largest income producing asset – yourself. This can be done with income protection insurance. Something many sole-traders forget about or don’t think applies to them. The good income protection policies will still provide protection if you are starting a sole-tradership in the same industry you were previously working in as an employee. If cashflow is tight during the start-up of your sole-tradership, income protection insurance can be obtained in your superannuation fund.

Andrew Zbik, Senior Financial Planner, Omniwealth