Running a business comes with making mistakes and learning lessons, small and big. Some things you can do on your own, and others you may get support with.
One of the first things we think about when running a business is the financial side of it. How will you pay yourself, how to pay taxes, how to save or invest money, and how to juggle business and everyday expenses?
I had a good idea about business finances because of our previous business. Therefore, I had an advantage in knowing my obligations and getting an accountant. However, Waiapu Roads' turnover is a lot higher than our last business, so that requires me to be onto it when it comes to knowing when my due dates are for different tax types. Also, having a clear communication channel with my accountant has been helpful.
Sometimes the thought of business finances can be scary because of unknown variables - but when you take the time to sit down and understand how it all works - it becomes easier to forecast those variables.
So here are 3 Lessons and Tips I have for you to help you in your pakihi journey.
Three of the biggest lessons I have learnt when managing my business finances have been.
- SAVE MONEY FOR GST/TAXES - It can be tempting to spend money instead of setting it aside for taxes. I've done this a few times early on and then had big GST bills to pay, which I would have had the money to pay upfront if I had set money aside and not spent it!
- Cheaper isn't always better! I went with a more affordable accountant, which cost me brain cells, lol. I didn't have a good relationship with the accountant, and it was nightmarish. So I returned to my old accountant and will never change again, lol! He's amazing!
- Price your products with intent. Consider what it costs to make, ship, package, GST, and the time it has taken to design and source the products etc. At first, I felt terrible about our pricing, so I priced below what I and my products were worth. The business can never grow that way. I'm wiser now and price with intent, honesty and fairness for the company, myself and our customers.
The lessons I've learnt about managing business finances have allowed me to grow Waiapu Road in a bigger way than I could have ever imagined while providing for and supporting my whānau.
We've bought a house, been on holidays, and now Waiapu Road has it's own Head Quarters.
We've grown from working within our family home, to being able to move into a new warehouse and workspace. None of this would have been possible without lessons learnt in business finances, being resilient and disciplined, and getting some amazing financial advice.
Here are three tips I have for you for managing your finances if you want to start a small business.
- Put your taxes aside and be vigilant in keeping on top of your taxes so you don't get behind in payments. This is a biggy and something that still requires ongoing discipline for me. There is nothing worse than having a tax bill due and not having the money to pay it upfront. Setting up your business bank accounts with a separate tax account is handy so that you can hold your tax there and it's ready for any upcoming bills. I use Xero for my business, so every two months, I reconcile my spending for my accountant to be able to calculate my GST. This is useful for allocating expenses to their appropriate categories. An easy way to do this is from every sale you make, put aside your tax/gst percentage of that sale into a separate bank account straight away.
- Invest back into your business: use your profit to invest back into your business to grow it! Take the short course, outsource tasks so you aren't drowning in tasks you don't enjoy, or purchase something that will save you time and costs. This also means knowing WHEN to invest in your business Don't go spending money or buying things when there is barely any money available.
- Don't short-change yourself. Charge your worth and pay yourself your value. It's important to price your products or services to reflect their cost to produce and what they're worth based on you. Your education, skills, experience and time you invest in your business. I pay myself a weekly wage, which is nice to do. I calculated my pay to a feasible and manageable amount for Waiapu Road and myself.
Over time, you will learn more, and it soon becomes second nature - just like writing out a weekly budget for your household expenses.
With the beginning of the new Tax/Financial Year just starting, now is a good time to understand how to forecast your income, keep track of expenses so you can manage business costs efficiently, and review your finances regularly.
If finances are something you need more help understanding, I recommend speaking with an accountant or a financial advisor in your region, to get a better understanding of how to manage your business finances.
