You could have the prettiest two-storey dream house, with a white picket fence, matching flower boxes out the windows, a swing hanging off the tree and immaculate lush green lawns. But does all this matter if the foundation of the house hasn’t been set up properly? Is that house going to stand the test of time if there is no foundation? Is there value in a ‘pretty’ house with no foundation?
Let’s apply this to business. You could have a trendy logo, the greatest looking website with all the bells and whistles, stand out business cards, the most squishiest branded stress balls and ‘wow’ corporate videos. But if the basic business foundations have not been set up is that business going to stand up to the pressures facing businesses today? One thing that’s guaranteed when you are in a growing business is that there always new issues to deal with.
Much like a house, which you build to create a better life, if your business’ foundations are not set up correctly, that better life you’ve been dreaming of may not happen. It’s quite possible for the business to quickly unravel. It’s also possible that your business will only grow as far as the foundation will take it.
So what does a good foundation for a business entail? Here are 4 accounting tips to building a solid business foundation.
- Business structure
Get good advice upfront before you start your business. Review the tax consequences of the different structures. Review your asset protection strategy. Review whether you should/need to register for GST. This is one area where I strongly discourage a DIY or budget approach. Skimping in this area could possibly set you up for even greater losses and heartache if incorrect structures are chosen. Also and an important factor, if your business only has the legal, financial, tax and insurance structures for a $50,000 year business, it’s possible that’s all you’ll end up with. If your business can handle 6 or 7-figures and beyond, that’s what your setting your business and mindset up for.
- Accounting software
Don’t be one of those business owners that buries its head in the sand – the financial side of a business is one of THE most important aspects of a business and having accounting software in place will assist you. Most people go into business because they are passionate about their business, not the accounting and bookkeeping aspects. That’s why it’s extremely important to set up cloud based accounting software early on and work with an accountant and/or bookkeeper to create basic financial systems. This means you can keep up to date on your tax and business obligations AND also use the accounting software to give you up to date reports on relevant KPIs (Key Performance Indicators). Setting up an appropriate cloud accounting software early on will only make life as a business owner easier as your business grows!
- Get educated
There are often many hats that a small business owner has to wear when they’re starting a business. I am not saying that you need to enrol in a Masters degree in business as soon as you start, but it’s vital to understand what financial numbers you should be monitoring and to develop systems that monitor this. Education should come from a great relationship with an accountant. It can also come from researching websites such as the ATO and reading blogs or books. I also highly recommend reading E-Myth by Michael Gerber – this will give you a great foundation in business education. The most important part of education is recognising that it’s an ongoing process. The bigger your business grows, the more education you need – so getting a head start on understanding the basics, rather than learning the hard and painful way, is key.
- Build three great relationships
It’s important for business owners to understand whom they need to build great relationships with. From a financial perspective, I believe the first and foremost is with your accountant. The second great relationship is with your business banking manager. But this needs to be treated with caution. A proactive accountant is always mindful in making sure you and your business are protected as much as possible when you enter into financial facilities with a bank or lender. A bank manager’s job is to make sure these financial facilities are in the best interest of the bank. An accountant will already have great relationships with bank managers, mortgage brokers and other finance providers and steer you in the best direction for you and your business. The third great relationship to build is with an ethical business lawyer. Having the correct agreements, contracts and Ts & Cs in place could save you a lot of financial hardship. Your accountant should be able to recommend an appropriate person to assist you with the legalities associated with running a business.
It’s important to note that, unlike a house, in a lot of circumstances it’s never to late to upgrade or even relay the foundation. Some areas are more tricky than others and legal and accounting advice is recommended where appropriate. Now is the time to review whether your existing accountant is still the right one for you, of if you need to look for a new one.