Four financial traps to avoid when your business is just starting out
Starting your own small business can be one of the most exciting and challenging of life’s adventures. But as the rates of attrition among news businesses show, it takes a lot of hard work and some savvy decision-making to go the distance.That’s why it’s a pleasure to welcome Kirsty Lamont, money expert at financial comparison site mozo.com.au, to share some financial tips to help budding businesses stay on the right course.
When it comes to making the right financial choices for your business, it pays to get the simple things right early on. That means creating and sticking to a realistic business plan and securing funding with a great value business loan. But what about the traps? Mistakes are inevitable when your business is in its infancy, but by avoiding these four financial traps you’ll be able to focus the funds you have now on growing your business, and setting yourself on the right financial path in the future.
You’ve heard the expression before, but mixing your personal and business finances really is a cardinal sin – and for good reason. Not only will keeping separate finances give you a clearer picture of how your business is actually performing, your accountant will thank you come tax time. That means completely different bank accounts, savings accounts, and credit cards for your business and personal life!
Business bank accounts often come with a greater variety of features than you may be used to with a personal bank account, but the trade off is they also tend to carry higher fees. So make sure you do your research first before diving in by comparing business bank account options to find an account which has the right features for your business needs without unnecessarily high fees.
It’s no secret that Aussie household budgets have been feeling the pain of high energy bills in recent years. But according to the Australian Energy Market Commission (AEMC), small businesses have been hit even worse, as they pay more for every unit of power and don’t have access to the same kind of hardship programs as residential users.
Of course, energy costs are going to vary depending on the size of your small business itself. A cafe, for instance, may use a lot more gas and electricity than a florist, but no matter the size and industry, comparing energy plans and switching to a better deal is a real no-brainer when it comes to trimming unnecessary costs. But just because you find a great value energy plan now, don’t fall into the trap of becoming complacent. Regularly reassessing your deal is a must, especially when there can be thousands of dollars of savings on offer for small businesses willing to change to a better value energy plan.
There are plenty of mistakes that new business owners make when it comes to tax – after all, tax can be confusing enough as an individual. But given the number of tax benefits available to small businesses, it makes sense to make use of them. For example, the $20,000 instant asset write-off alone, which is available to businesses with a turnover of less than $10 million a year, could make a huge difference if you’re just starting out.
And while doing your own research is important, so is seeking outside advice if you need it. The right accountant should not only be able to help you minimise your tax bill for the last financial year, they should be able to provide advice to maximise your benefits and minimise your costs in the years ahead.
Many business owners might not realise it, but business credit scores exist in the same way as personal credit scores. So why does your business credit score matter? Well, while you may already have secured funding for your new business, chances are you might need some more financial help down the track.
So keeping up with your bills, paying back your business loan on time and only opening new lines of credit (like a business loan or credit card) when you absolutely need to are all ways to maintain positive credit health. And with the recent introduction of mandatory Comprehensive Credit Reporting (CCR) the effort you put into maintaining your credit health could really pay off as lenders start to reward creditworthy borrowers with more competitive rates.