Friday, 22 Dec 2023
Money plays a pivotal role in the success of a venture. Start-ups begin with a bang as they have the support of the seed capital but often fizzle out without making any noise. Most small entities get entangled in a financially distressing situation, which is challenging to reverse and leads to failure.
Since entrepreneurs are so focused on business development, they forget to pay attention to financial management. However, making money-related mistakes is the biggest blow to the organization since it leaves it with a shortage of cash. As the debts keep rising and income keeps declining, the gap becomes impossible to fill.
Therefore, new entrepreneurs need to know about the common financial mistakes to avoid them. In addition, they must hire a professional bookkeeper in Melbourne to stay on track and make the right financial decisions.
The first step to achieving financial success is creating a solid financial plan. Usually, it is part of the business plan and is prepared when the business idea is taking shape. The plan includes the organisation’s short-term and long-term financial goals for the next few years.
It covers the budget for the next quarter and year based on the sales and expense estimates made by the bookkeeper. The financial plan encompasses allocating funds to each department for effective operations. Besides budgeting and forecasting the revenue, entrepreneurs must also plan for the tax season.
They have to comply with the tax regulations and set aside funds to pay income, payroll, capital gains, and goods and services taxes. The bookkeeper helps identify the applicable taxes based on the business’s structure and type and claims deductions to reduce the tax bill.
Cash flow management is a part of basic bookkeeping that entrepreneurs should not overlook. It involves tracking the cash coming into and out of the business. Besides monitoring the inflow and outflow, it also requires ensuring the business has sufficient funds to pay its bills on time.
So, the expenses must be reduced when the business is expected to generate low sales due to inflation or any other condition. Also, the entrepreneur must find ways of increasing income through profit-making strategies like offering discounts to customers or starting e-commerce to reach a wider customer base. Experienced Bookkeepers Melbourne help manage cash flow by getting early payments from suppliers and negotiating lower prices for stock.
When new entrepreneurs start, they tend to go overboard with the expenses. They want to lease a big plush office in the CBD, acquire all the latest equipment and hire employees with high remuneration packages. They go on a spending spree to establish themselves in the marketplace filled with similar businesses.
It can help in generating a buzz among potential customers and workers but it does not help the business financially. The introduction stage of the business lifecycle is an expensive phase that drains most of the funds because of the cost of fit-out, marketing, branding, recruitment, equipment, logistics, etc.
However, effective bookkeeping can help eliminate unnecessary costs through sound investment. Start-ups must look for affordable offices and passionate workers with low demands. They must lease equipment instead of buying and maintaining optimum working capital until they hit break even.
Unexpected events can take the entrepreneur by surprise and affect the bottom line. However, it can withstand any storm if the business has a decent emergency fund to finance its operations during the low sales period. It showcases the importance of emergency funds, but most new entrepreneurs forget about it.
They must have savings and keep adding an amount monthly to it without making withdrawals. The fund should only be used in case of an unforeseen situation. It must have an adequate amount to fund up to three to six months of operations without income. In addition, Melbourne bookkeepers suggest getting business insurance to get coverage in case of various disasters and accidents.
Many start-up founders avoid hiring an expert bookkeeper in Melbourne because it seems expensive. However, when they lose money because of this mistake, they understand the value of effective bookkeeping.
Every professional separates the personal and business capital of the entrepreneur for accurate financial records and tax planning. They open a business bank account and ask the entrepreneur to use a separate business credit card.
It ensures the owner does not lose his funds while growing the business. Also, it helps maintain accurate financial records per the accepted accounting standards and legal obligations.
It allows the business owner to claim business tax deductions by showcasing proof of expenses. It helps in monitoring the flow of cash correctly and making informed decisions.
Whether you are a seasoned entrepreneur or have just launched your business, you must be aware of the financial mistakes that can take you down the road of bankruptcy. Steer clear of these errors and create a stable entity with sufficient working capital and savings.
