With lockdowns (hopefully) behind us and a fresh year only weeks away, chances are many of you are looking to turn your dreams of business ownership into a reality.
Both working with entrepreneurs in their early stages of launch and being a business owner myself, I can assure you it’s an exciting time, however it’s important to note that what you do in the pre-launch phase is key to your success. It pays to plan ahead now, to reap the rewards in both business and lifestyle in the future.
Develop your personal budget, as there’s a flow on effect at play here
Transitioning from employee to employer means you won’t have a regular pay check coming in, and it’s not uncommon to take a pay cut in those first few months. It’s important to account for these changes, so be sure to create a personal budget. It should include living expenses – the essentials like mortgages, rent, electricity and groceries – as well as the fun stuff like entertainment and going out.
Developing a budget like this from the outset will allow you to adjust your forecast (more on that later) and/or business goals so that they complement one another, and ensure you’re able to continue to live and enjoy life as you build your business.
Determine what you’re going to charge clients and customers
Creating a solid pricing model is essential before you launch, because it can be very difficult to change once it’s been set. It’s important not to calculate this based on what you think might be right, but follow a proven formula.
This will vary depending on whether you’re a product or service-based business. For product-based pricing, the material costs involved in creating a product, and indirect costs incurred to create that product, such as rent and wages, should all be taken into consideration here. Service-based businesses charge for their time, so determining your hourly rate is key, as is accurately working out how long a task takes you to complete. You can read more about these models and formulas here.
Separate your personal and business finances
Before you start earning, set a separate bank account up for the business. This will help to prevent confusion around spending and keep those urges to take additional cash out at bay. It will also save you a lot of time and money once BAS and tax time rolls around. When it comes to deciding which bank to open a business account with, look for those which offer zero fees, unlimited transactions, and no minimum balance, such as AMP or People’s Choice.
To avoid cash flow issues on the personal front, be sure to pay yourself first. This can be achieved by creating a recurring weekly or monthly payment from your business to personal account.
Create your small business forecast
Long and short term forecasting is essential to ensuring you make the right decisions as they relate to your business, at the right time. It should include essentially everything, such as projected monthly costs of overheads ranging from rents and insurances, through to employee wages, your salary, sales, and profit margin for each unit sold.
Then, and I can’t stress this enough, be sure to go back in and regularly (monthly, if not weekly) update your forecast to reflect the current state of your business. An accurate forecast will make it much simpler when it comes to determining whether you can invest in things like inventory or staff.
Avoid manual processes by investing in accounting software
Investing in things you think you can do yourself might be off putting, however accounting software will save you a lot of time down the track and remove the potential for human error. These systems will help you keep your books in order, allow you to see your actuals in real time at the click of a button, create and send invoices, and eliminate the need to chase late payments thanks to their automated features.
Look to the pros
Of course, we also highly recommend you look into the support of a professional bookkeeper, to help you get the essentials in place before you start out, as well as keep them in order so that BAS and tax time is that little bit more seamless.
Get in touch with us today! Book your free consultation here.