As business accountants across Perth we see a range of mistakes that start-up business operators make. The act of starting up a new business is challenging enough without adding to the headache so we have listed a few accounting business tips for start-ups to help you along the way.
Keep a separate business and personal bank account
When you first start out the business profits will feel like your own money. But start the financial discipline to keep your own spending separate to the business spending. This will help you keep track of what your personal spending is going like and also simplify the business administration.
Set the structure up from the start
While there are tax concessions letting you restructure later-on: tax is not the only consideration (and as tax accountants this is painful to say). However if you restructure your business operations later on to a more sophisticated structure you will need to consider changing the insurance policy, employment contracts, bank accounts, client contracts and leases. So working through your business plan with your Perth tax accountant can be a smart move.
The process of changing your tax structure becomes a whole of business restructure. It can be costly and also consume a massive amount of time explaining to everybody what is going on. So engage with your tax accountant or business accountant and get a solid platform that will grow with your business as you grow.
Look at tax incentives and grants
As a start-up business there are a range of tax incentives and government grants to encourage you along the way. This can include the export market development grant, R&D tax incentive, early stage innovation company and a range of other state and federal grants.
Be disciplined with bookkeeping
As a small start-up business the temptation is to put off the bookkeeping to later-on. However, like most things, it is easier to do something if you keep at it from the start and you are focussed on properly recording the transactions now.
With cloud accounting programs a lot of the manual bookkeeping tasks have now been automated and eliminated. So invest some time and money now in properly structuring and automating the bookkeeping for your business so you can take a long term saving in the administration of your business.
Set up your payroll properly
When you take on new team members keep on top of your employment obligations. Track their annual leave properly, pay their super on time and prepare confidentiality agreements and restraint of trade contacts that are enforceable.
At some time your new employees will leave you and you want to be protected. Poor HR compliance can mean that all of the employees annual leave is due (even if they have taken it) and super penalties for late payment can be 200%.
Know your taxes
Cashflow plan your tax debts so you know what is going on. Taxes, especially PAYG Instalment Tax, can potentially take two years to start kicking in – with the result that from year two to year three of starting a business you end up paying 3 years of tax in 12 months.
So getting good tax advice and cashflow budgeting your tax liabilities will mean that large nasty surprises don’t crush your business. Likewise, if you ignore your tax law compliance obligations will help you avoid a lot of penalties and costs in the future.
Look at your offshore taxes
If your start-up business is operating beyond Australia you also have the tax jurisdictions of the other countries to worry a about and the application of offshore taxation. This might also be relevant if you engage offshore contractors where Australian withholding tax can apply.
So talking to your tax accountant with a strong international network will help your business succeed and move beyond the “start-up phase”.
Look at your financial reports
As a start-up business operator you will typically “know” every transaction. And the temptation is to not look at your business and accounting reports as you are so intimate with the money of the business that the accounting financial reports will show you what you already know.
This strategy works until it doesn’t. At some time you will not know every facet of the business – and if you are fast growing this point in time will come home very quickly. Sadly business operators rarely know the point in time when they have lost control – and it normally takes a catastrophic event for them to realise they have lost control.
Start a process of looking at your accounting and business reports monthly. This could be with your family, mentor or accountant. But make sure you are disciplined to work on your business with another person so you all review and understand how your business is tracking.
Back yourself on pricing
When you start out there is often a lack of clients and a lack of capital. So the temptation is to lower your prices to get work.
If you have excess capacity: pricing a one-off job to get overhead recovery can work. But the temptation is that this goes from being a one-off to the norm. And there is a type of client who actively pursues start-ups business looking to purchase from you on the grounds that you are getting overhead recovery.
Just because you are a start-up does not mean that you are worthless. And it does not mean that you should take a loss to get market share. Understand your prices, your margins and your cost of doing business. And understand your quality proposition.
Do not lower your prices to a point where you lower your quality proposition.
Get a great team of advisors
A great advisors adds more value the longer they have been with you. So get on board with a team of advisors (accountant, lawyer and banker) who can have your back, support, grow and leverage up with you are your business starts to scale.
At Westcourt we started our own business. So we understand what it is like to create a business from nothing and the pitfalls along the way. And we understand what it is like to expand and go offshore and network. Given our single focus on helping founder led families in business, our international network and our proven tax leadership we are a natural choice for a start-up business looking to grow – so why not give us a call?
