Not having the right legal structure
Every business must start with the most appropriate legal structure in place. Much of what follows in setting up a new business revolves around it having the correct legal structure, so it’s important to get it right at the outset.
Finding the proper balance between initial cost, personal goals (both short and long term), income tax minimisation and asset protection can be a delicate balance, but it’s important to achieve it.
When starting out it’s important to know your long-term, big picture goals. When in doubt, expert advice about the correct legal structure can protect you from expensive future problems.
Not managing finance and paperwork
One area where many soloists and small business owners fall down is managing their finances and paperwork. Very few people actually look forward to paperwork but it’s a necessary part of running a business. When you create a virtual “too hard” basket for your paperwork, it only delays and heightens the pain.
Here are my tips to help you manage your finances:
- Work with your accountant.
- Know your key dates and obligations to the key bodies, namely the ATO, ASIC and Superannuation requirements.
- Develop regular routines to manage the administrative side of the business.
Want more articles like this? Check out the financial management section.
Not managing cash flow
The most critical aspect of growing a small business is cash flow. It’s an old cliché but cash really is king, and most often, businesses fail due to poor cash flow. The greatest business idea in the world isn’t really worth anything until it generates cash.
Learning to manage the cyclical flow of cash in and out of your business can be a real art. Once it gets out of hand, the downward spiral can be difficult to reverse, which is why it’s important to keep on top of it from the beginning.
Here are my tips to help with cash flow:
- Manage your customers’ expectations.
- Present clear and upfront payment terms to encourage earlier payment of your invoices.
- Offer payment services that suit your customers.
- Try to use cloud-based, online invoicing and accounting systems such as Xero. They integrate well with payment providers such as PayPal.
- Prepare a carefully considered budget for the year ahead.
Not being prepared for third party investors
Chronologically speaking, a side aspect of the growth phase comes about when third party investors want to share your journey by investing in your business.
This can be a great boost for businesses in the growth phase that have the correct legal structure in place to facilitate such an opportunity. This reinforces why it’s critical to create the right legal structure, one that accommodates for long terms goals such as allowing new investors to become stakeholders in your business. Fresh ideas that align with your own can be as beneficial to your business as the extra cash that investors bring.
Being a soloist can be a wonderful experience filled with exciting learning curves, and if you avoid these common accounting problems, you’ll avoid some costly headaches.
What is your experience with these common small business accounting problems?