Starting Your Business - Prepare your Finances
Updated: Dec 10, 2019
There’s so much to think about when you’re starting a business; finding the funds to get it off the ground, finding customers/clients, perhaps hire employees, cover your ongoing costs, set up an ABN, register your business, make a website, draft a marketing plan… okay, we’re not going to lie… the list is endless! When it comes to starting a business we know finance and we also know how important it is, as a startup, to have your finances in order from the beginning.
We don't like meeting businesses once they need our help to get out of trouble or delivering the news they made a big boo boo with their financials that’s going to cost them big time, we would rather share our advice so you get it right from the beginning. This is why we decided to write up our advice on how you can prepare your finances when starting your business, with key points on the main items to tick off your list.
Set Up a Business Bank Account
Not all business structures require you to set up a separate bank account, but we would definitely recommend it. Sole Traders technically don’t need to have a business bank account and you can just use your personal account if you want to, but we always recommend using a separate account for your business. This will make it easier for you to keep track of your business income and expenses, without having it mixed up with all your personal banking. This way you can look at ways to improve your business finance as well.
However, if your business structure operates as a partnership, company or trust, you are required to have a separate business bank account. If you’re unsure what structure your business is or need help deciding which structure would be best for you, take a look at our blog where we covered the different business structures.
It’s always best to find an accountant who can get to know the ins & outs of your business and help you decide what system will best suit your needs. With an organised and automated bookkeeping system, you can have up to date financials, know the financial position of your business at any given time, make tax time simpler and plan for the future. We’re so fortunate in this day and age that we are spoilt with online bookkeeping systems which makes this entire process much more simple, and you can now automate a lot of processes that we once had to do manually or hire someone else to do it for you.
Organise a Budget
Budgeting your personal finances is important, but budgeting your business finances is even more important. Without accurate budgeting, there’s a chance your business could slip between your fingers without any warning. A budget will allow you to allocate finances into certain areas of the business; knowing how much you’re playing with and where the money needs to go in order for your business to grow. A budget allows you to plan your income and spending so you can set business goals, make smart business decisions and also get finance. You might be surprised by some expenses that are faced by businesses, but it’s always best to know this before you start your business so you can plan for it.
There are a few key points to always include on your business budget, and it can be challenging to know what to allow in your budget when you’re just starting out and have no idea what expenses to expect. We would recommend chatting with your accountant, as they will have a good idea of what the average expenses are for your industry, and help guide you in the right direction.
Get Familiar With The Difference Between Budgeting & Forecasting
Forecasting is just as important as budgeting, and you’re probably thinking ‘oh man, not another thing I don’t understand and need to learn’. But forecasting is quite simple and can just about be automated with your accounting software these days.
The main difference is that budgeting is normally broken down quarterly or annually and it allows you to allocate your funds. Forecasts are more frequent, normally monthly, and it takes into account the past and current trends of your financial statements so you can have a realistic idea of where your business is going in the next month and allow you to avoid problems. Although discovering problems is never fun, like learning that you can’t afford to start a new job until the last customer has paid, it’s better to know about the issue in advance so you can work around it and find a solution.
How Will You Get Paid?
For some businesses, this might be easy, people buy your product and pay you for it there and then. However, this can be challenging for other businesses, especially those that are services-based. Before you take on your first client, you want to decide what your payment terms and payment types are, you might also want to set up an invoicing & receipt template or find a program that can do it for you. You want it to be clear to the customer when their payment is due to ensure your business cash flow isn’t affected by their late payment.
If you sell goods, you might look into adding extra payment options such as layby or Afterpay.
Membership/subscription-based businesses would benefit from setting up automatic direct debits. It takes away a lot of the hassle to collect money from the same people on a regular basis and it means your cash flow isn’t affected.
Manage Your Cash Flow
We’ve mentioned cash flow several times in the blog now and you might be wondering what we’re talking about. Cash flow is the process of keeping track of what money is coming in and out of your business. You don’t want to be put in a position where you don’t have enough money to buy your products to sell, or you can’t start a job because you don’t have the funds to buy the materials. With a cash flow statement, you can track your income and plan your expenses, allowing you to plan ahead for upcoming bills.
There’s so much more to cash flow which is why we decided to write a whole blog dedicated to it and how you can improve your business cash flow. If you’re worried about your business suffering from poor cash flow or you want to start your business on the right foot, we recommend reading our 5 tips to improve your cash flow and booking an appointment with us.
Starting a new business is daunting, and we really admire anyone who takes the leap to make something of their own. We do our best to share as much advice we can on our blog on a monthly basis. If you’ve found this blog useful we would love to hear from you in the comments below. So you don’t miss out on any more handy business start-up tips, follow us on Facebook for weekly tips and our monthly blog.