Ever wondered how you can give your new business the best chance at survival?
You’re going to love this blog post, and you’re going to hate this blog post.
See, when most entrepreneurs get started, they head straight into sales and marketing. They spend 0% of their time worrying about “boring” things like accounting and bookkeeping.
And that right there is the biggest mistake you can make.
Here’s the hard truth.
Your business will live or die by your financial foundations. Set them up correctly and you’ve got a fighting chance to succeed. Ignore them and you’ll be just another failed entrepreneur statistic.
What you’ll learn:
- Why Financial Foundations are so important
- The 4 financial systems every entrepreneur needs
- Why you should work with accounting experts
- Cash flow management 101
- Tax planning from day one
Why are Financial Foundations so important?
Allow me to drop some truth on you that you may not want to hear…
Research from U.S. Bank shows that 82% of business failures are due to poor cash flow management. 82%. That’s not a mistake. More than 8 in 10 small businesses fail due to improper money management.
And here’s another fun fact.
According to the Bureau of Labor Statistics, 20.4% of new businesses fail during the first year of operation. Only 44.7% of business make it 5 years.
Here’s the thing.
The reason why most businesses fail has nothing to do with being unlucky. Or not working hard enough. Or not having the “right” idea.
Businesses fail because the owner failed to plan for the future. They were so focused on today that they neglected to put the proper financial foundations in place from day one.
Oh and another thing.
The entrepreneurs who beat the stats aren’t necessarily more intelligent than you. They don’t have better business ideas. They aren’t even luckier.
They simply got their financial foundations straight before it was too late.
Ouch. That really hurts to hear doesn’t it?
Which is why working with local Singapore accounting experts can help level the playing field for first-time entrepreneurs. Bookkeepers and accounting firms have the knowledge and experience to help you set your financial foundations before things spiral out of control.
The 4 Financial Systems Every Entrepreneur Needs
Before you spend $1 more on advertising, product creation, or market research…
Stop.
Here are 4 financial foundations you need to have in place before spending another cent.
1. Separate your Business Banking
I know this sounds stupid simple but you’d be surprised how many new entrepreneurs skip this step. Do NOT mix your personal and business finances under any circumstances. Open a separate bank account for your business on day one.
2. Create a Bookkeeping System
Every single expense and transaction needs to be tracked and accounted for. Whether you use bookkeeping software like QuickBooks or Xero. Or you work with a professional bookkeeper. Either way you NEED a bookkeeping system in place to track your financials.
3. Set up an Invoice Management System
Being paid on time is critical to the survival of your business. Have a invoicing system with set payment terms in place from day one. Send invoices promptly, and follow up on late payments immediately.
4. Implement Expense Tracking
Know where every dollar is going. Categorize your expenses. Review them weekly or monthly. Trim excess costs where needed.
These 4 tips are just the foundation of your financial foundation. But unless you have these systems drilled in place you’ll constantly be fighting an uphill battle.
Why You Should Work With Accounting Experts?
Here’s a little known secret the vast majority of entrepreneurs don’t know…
Hiring outside accounting help isn’t just for big corporations with million dollar budgets. In fact, small business owners can benefit more from hiring a qualified accountant than larger companies with plenty of staff.
Let me explain:
Big companies can absorb financial mistakes a lot easier than a small business can. One incorrect tax submission or mismanaged cash flow can literally crush your startup.
Hiring the right accounting experts can help you:
- Set yourself up with the correct financial systems from day one
- Remain tax compliant
- Spot cash flow issues before they become a problem
- Make more informed financial decisions
- Grow your business sustainably
I know what you’re thinking.
“Yeah but Jeff, I can just suck it up and do my own accounting. It’ll save me money in the long run.”
Wrong.
The amount of time you waste trying to figure out bookkeeping on your own is time you could be improving your business. The cost of you making mistakes from lack of expertise are more than what you’ll save from not hiring a professional.
Trust me. Working with qualified accounting helps pays for itself many times over.
Cash Flow Management 101
Okay this next point should be obvious by now but…
Cash flow is the life blood of your business.
You can have the best product in the world. Payroll is super happy. Customers love you. Sales are increasing every month.
If your cash flow is being managed improperly…
You’re doomed.
All the revenue in the world doesn’t matter if you don’t have the cash on hand when you need it.
Too many new business owners get caught up in top-line revenue. How much you’re earning. When in reality cash flow is concerned with when you GET paid.
Follow this simple process:
- Monitor your cash position daily: Always know how much cash your business has available. NO surprises.
- Forecast your cash flow monthly: Project how much money you think you’ll make vs. spend each month for the next 30, 60, and 90 days. Identify shortfalls before they occur.
- Build a cash reserve: Try to have at least 3 months worth of operating expenses saved up. This is your rainy day fund.
- Accelerate receivables: Get invoices out quickly. Offer discounts for early payments. Send reminders and follow up on past due accounts.
- Decelerate payables (if possible): Take full advantage of any payment terms allowed to you. If a vendor gives you 30 days to pay don’t pay them in 15. But always pay on time. You don’t want to sour a relationship over late payments.
Again, cash flow problems don’t happen overnight. They creep up on you slowly over time. Make it a habit to monitor your cashflow regularly.
Tax Planning Starts on Day One
Don’t worry. We’re almost done here.
Tax aren’t something you “deal with” once a year.
Highly successful entrepreneurs think about taxes on their very first sale. Why? Because tax planning during the year can save you thousands.
Let’s break it down…
First, you should have a good understanding of your tax obligations as a business owner. Depending on your business structure you may be required to submit different tax forms.
From day one you should set aside 25-30% of all profits for taxes.
Keep detailed records of all business expenses. Remember these come in handy when tax season rolls around and you’re looking to lower your liability.
Depending on how much you earn you may be required to submit quarterly tax payments. A quality accountant will help you figure this out.
Like we said, tax planning isn’t the most glamorous part of starting a business. But it’s 100% necessary if you want to build a successful long-term business.
Final Thoughts
Financial foundations can be the difference between your business flourishing or floundering.
You’re not going to find a lot of entrepreneurs who say “cash flow management is my favorite thing about running a business.”
Nobody loves checking their cash position or boring bookkeeping entries.
But just because you dislike something. Doesn’t mean the world will end if you don’t do it.
Building your financial foundations correctly from the start ARE the difference between you and most other entrepreneurs.
Let’s recap:
- Setup your 4 fundamental financial systems
- Work with accounting experts if you can
- Pay attention to your cash flow. All. The. Time.
- Make tax planning a priority from day one
- Have money set aside for emergencies
The entrepreneurs who truly understand the importance of financial foundations are the ones who watch while every other entrepreneur jumps over a cliff.
Don’t be that person. Build your financial foundations right from the start.
