So you’ve decided to start a business! Congratulations. Starting a business is very exciting, but if you want to be in business for a long period, laying a solid foundation is critical for future success. Here at MBC Group Services, we see many new businesses walk through our door, especially businesses looking for help with their bookkeeping. We often wish we’d had a chance to discuss these points with them before they started out!
Considerations in your first year of Business
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Setting Up the Right Business Structure
– Choose the Appropriate Structure: The right business structure (sole trader, partnership, company, or trust) is vital for tax efficiency, legal protection, and growth potential. Consult with your accountant to determine which structure best suits your needs.
– Registering Your Business: Ensure your business name is correctly registered with the Australian Securities and Investments Commission (ASIC) and obtain an Australian Business Number (ABN).
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Understanding Tax Obligations
– Register for GST: If your business turnover is expected to exceed $75,000, you must register for Goods and Services Tax (GST). Your accountant can guide you through this process.
– Pay As You Go (PAYG) Withholding: If you employ staff, you’ll need to set up PAYG withholding to meet your obligations for income tax withholding from employee wages. You must get in good habits from day one and pay your taxes as and when they are due.
Superannuation: Ensure you’re meeting your employees’ superannuation obligations from the beginning. Understanding the superannuation guarantee and how to pay it is essential for avoiding penalties and being an employer of choice.
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Establishing a Solid Financial System
– Implement Accounting Software: Set up a reliable accounting software system to track income, expenses, and cash flow. Software like Xero, MYOB, or QuickBooks can automate many processes, making it easier to manage your finances.
– Set Up Bank Accounts: Open separate business bank accounts to separate your personal and business finances. This will make it easier to track expenses and manage cash flow.
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Budgeting and Cash Flow Management
– Create a Detailed Budget: Develop a realistic budget for your first year, considering all potential income and expenses. Regularly compare actual results to your budget to stay on track.
– Cash Flow Forecasting: Cash flow is the lifeblood of a new business. Work with your accountant to create a cash flow forecast to anticipate shortfalls and ensure you have enough cash to cover expenses.
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Setting Up Payroll
– Comply with Payroll Requirements: If you have employees, you must comply with all payroll requirements, including PAYG withholding, superannuation, and providing payslips.
– Single Touch Payroll (STP): Implement Single Touch Payroll, which requires employers to report employee tax and superannuation information to the ATO in real-time with each pay run.
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Managing Expenses and Cost Control
– Track All Expenses: Keep a detailed record of all business expenses, including receipts and invoices. This not only helps with budgeting but is also essential for tax time.
– Implement Cost Control Measures: Identify essential and non-essential expenses. Focus on controlling rent, utilities, subscriptions, and inventory costs without compromising quality standards.
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Understanding Profitability
– Break-Even Analysis: Conduct a break-even analysis to understand how much revenue you need to cover your costs and start making a profit. This is a critical step in setting pricing and sales targets.
– Monitor your Margins: Work with your accountant to review your profit margins regularly to ensure you’re on track to meet your financial goals.
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Developing a Tax Strategy
– Plan for Tax Payments: Set aside funds for your tax obligations throughout the year to avoid any surprises at tax time. Your accountant can help estimate your tax liability and suggest ways to minimise it.
– Take Advantage of Deductions: Understand what deductions you’re eligible for, such as business-related travel, office expenses, and home office deductions. Properly documenting these expenses can significantly reduce your tax liability.
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Financial Compliance and record-keeping
– Maintain Accurate Records: Keeping accurate and organised financial records is not just good practice but a legal requirement. Ensure all transactions are correctly recorded and stored for at least five years.
– Regular Financial Reviews: Schedule regular financial reviews with your accountant to assess your business’s financial health. This will allow you to make informed decisions and adjust your strategy as needed.
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Planning for Growth
– Identify Growth Opportunities: Consider how you can grow your business. This might include expanding your services, servicing a new area, or increasing marketing efforts.
– Seek Professional Advice: Regularly consult with your accountant to assess your financial position and develop strategies for sustainable growth ( link to the business services page). Their advice can help you avoid common pitfalls and seize opportunities.
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Building a Support Network
– Engage with an Accountant Early: Having an accountant involved from the outset can help you make informed financial decisions, avoid costly mistakes, and set your business on the right path.
– Establish Relationships with Other Professionals: In addition to an accountant, consider building relationships with a lawyer, financial advisor, and business mentor who can provide support and guidance.
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Compliance with Legal Requirements
– Understand Industry Regulations: Ensure you comply with industry-specific regulations, including licenses, permits, and safety standards.
– Protect Your Intellectual Property: To protect your business’s intellectual property, consider registering trademarks, patents, or copyrights relevant to your business or industry. This might include things like your business name, your logo design, product names, etc
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Evaluating and Adjusting Business Strategies
– Monitor Key Performance Indicators (KPIs): Regularly review your business’s KPIs to ensure you’re on track to meet your goals. This might include metrics like sales, customer retention, and profitability.
– Be Adaptable: The first year is often full of learning experiences. Be prepared to adjust your strategies based on what you learn about your market, customers, and operations.
By addressing these areas, a new business can confidently navigate its first year and set itself up for long-term success and growth. If you’ve recently started a business or are thinking of starting one, you may need to start a conversation with your accountant; book a call with us today! (link to contact us)
Survived your first year of business? What’s next? – Learn more in our sister article on what to expect in your second year in business.
