The covid-19 pandemic has forced many Australians to re-think their career prospects and to find new ways of earning an income, one of which is having their own startups. As a result, thousands of new small businesses have opened up across the country as many Australians lose access to their traditional means of income and are forced to get creative.
Here are some tips to help entrepreneurs overcome some of the most common challenges startups face when trying to enable their business to become successful.
Funding Their New Startups
Gaining access to finances to fund your new business venture can be extremely difficult. For example; you might think that you have the best new business idea in the world, but convincing skeptical, risk-averse banks can be extremely difficult, especially if you don’t have a proven, successful track record in business already, which is something the majority of start-ups by definition don’t have.
Avoid Tax Traps For Startups
For small businesses, the biggest tax-related problem is failing to distinguish the company’s money from the individual business owner’s money.
Small business owners often fall into the trap of taking money out of their company and failing to account for it properly as either salary or a dividend. In that case, the Australian Tax Office (ATO) can deem the amount taken out to be a loan and tax it as an unfranked dividend if the situation isn’t corrected either by repaying the outstanding amount or putting in place a complying loan agreement.
The same treatment can be applied where business owners use company assets at no cost, for instance a company-owned property or boat.
There are also many examples of people, especially in the sharing economy such as Uber drivers who argue they are not really in business at all but are undertaking a “hobby”. Working as an Uber driver is not a hobby; it’s a business.
The sharing economy – through sites like Uber, Airtasker, etc. – is causing a big increase in the number of small businesses as people move into offering services through sharing-economy facilitators.
Other major issues include:
- “Cash-only” businesses failing to correctly record all turnover
- Not realizing you need to register for GST (particularly common for taxi drivers and Uber drivers, because they need to register from the first dollar earned)
- Not focusing on keeping records (for example, because you are too busy running the business) leading to missed BAS and tax return deadlines, missed tax payments, and poorly kept records
Managing Your Bookkeeping For Startups
Small businesses are often poor at keeping records, particularly micro businesses, leading to panic and stress around GST and income tax deadlines.
On top of this, small businesses often aren’t prepared to invest in bookkeeping, either by buying a suitable software package and doing it themselves or outsourcing to a third-party bookkeeper, which is often seen as an optional cost that can’t be indulged.
Controlling Your Cashflow
Maximizing cashflow is a persistent issue for small business. Not keeping on top of your bookkeeping can lead to failure to speedily collect cash from debtors and trouble with irate unpaid creditors.
Small business owners can seem to be constantly busy running their business without realizing they aren’t actually making any money, this is why so many small businesses fail.
Building an Online Presence
Building an online presence is a major ingredient needed to successfully run a SMB because it enables them to access new markets, at home and overseas.
Investing in a good website and an online presence including online sales can be vital to differentiate from the competition.
The abolition of the GST low-value threshold meaning imported goods are now liable to GST on low-value items of the type supplied by organizations like Amazon and other online retailers gives Australian businesses a renewed opportunity to grow.
Investing In Your Business So It Can Grow
Spending money to purchase productive assets (via the temporary full expensing tax break, for instance) is good business sense over the long term because it has the potential to lift productivity and hence profitability.
However, an initial unwillingness or inability to want to spend your money upfront can hold back a small business from unlocking that potential.
Similarly, keeping your own skills and those of your employees at the cutting edge will give your business an advantage and will flow through to greater profitability in the long term.
Not Seeking Financial Advice
Generally speaking, a lot of small businesses are prepared to pay their accountant to do their tax return and that’s it. They are often unwilling to pay for advice, which might improve their business over the long term.
A good accountant should be more than a number cruncher; they should be an adviser who can steer the business to sustainable growth.