The foundation of your business is all important, a stable foundation will help your business grow.
You are embarking on a new and exciting journey, a journey towards financial freedom, being your own boss, working the hours that suit your schedule. All good things! However, it is frightening how soon financial freedom becomes debt, or being your own boss ends you back up as an employee! I am not trying to talk you out of your business dreams. It is just important to be aware that there are two sides to every coin. Around two thirds of new businesses will make it to the second year. Half of start ups will make it to the fifth year. Only one-third of new businesses will survive to ten years. Like I said though, we are not here to rain on your parade. Our goal is to do our best to make sure that coin of yours, that coin lands heads up! That your business is one of the success stories.
You can find my mission statement & disclosure here.
Why start ups often fail
There are many reasons that start up companies often fail to keep their doors open. These are widely varied, ranging from external issues such as market share, and supply and demand, or lack thereof. However, today we are going to focus on the internal issues, issues that you can control. These are the issues that are often the cause of a small business closing its doors.
Not registering your company correctly
Not separating business and personal bank accounts
No business plan
Poor stock and Cash Flow Management
Not keeping important documents for the required length of time
Lack of bookkeeping and tax knowledge
Bookkeeping is often misunderstood or seen as a tiresome chore! People miss out on the value offered by bookkeeping. You can find out all about that value and how to utilize it in my post The Value of Bookkeeping.
The list above is your guide to setting up your new company with a stable foundation, and giving your company a better chance at success. Setting up the first three on the list will help you to get to the day that you can officially and safely open your doors! Yay! The other three are day to day tasks and will need to be worked on or adjusted regularly.
If you would like some down to earth encouragement and advice, to help you push through the tough days, this post by Jo at According to Jo is fantastic!
Registering Your Company
Your first step is a legal one. I know, I can just hear you sighing in resignation. It really is necessary though. You need to register your business, first thing before you do anything else. Registering your business will afford you a certain amount of protection if the worst happens. How you choose to register your company will also affect your tax liability. These are the common company structures available to choose from. The first two are usually the best choices for a small to medium start up company.
Private Company (Pty)
Public Company (Ltd)
There is no, cut and dry answer as to how you should register your company. It is an individualized choice and depends on your vision for your business. On how much you expect to make in the first year, how many partners there will be, and even whether you will have employees or not. This decision is always best made after seeking professional advice.
Separate Bank Accounts
Now that you have registered your company and have all the necessary documents, you need to set up a company bank account. Why? You ask. Well, there are a number of good reasons. I am focusing on the two most important. First off it is bad practice to mix your personal and business incomes as this will leave you with a mess to sort through come tax time. Personal income tax, and company tax are two separate issues and need to be dealt with separately. This is a big reason to keep your personal and company accounts separate.
Mismanagement of cash flows and overspending are another reason to keep your personal and company accounts separate. Not many people fully grasp the difference between income and profit, and seeing all the money in their account might be tempted to go on a shopping spree. Using the money in the bank which needed to be kept for, rent, wages, stock, and to put back into the business. Leaving their fledgling company cash strapped! Separate bank accounts will help you to manage your money better. You will be able to see at a glance which is your money and which is for the business!
You need to start a bank account for your new company, with the name you chose when you registered your company.
Your Business Plan
The business plan, is the all important blueprint to setting up a new business. No matter the size, yet many people begin without properly completing a business plan! Would a builder start building without the architects blue print? Nope. (at least a smart one wouldn’t) Your business plan will help you to make sure that you are going in the right direction. It will also give you confidence in the viability of your idea, and help you to get access to finance if need be.
You have probably started your business planning, without even being aware of it! So you have this great idea, I bet you have spent time researching it and checking if someone else has done it before. I mean you wouldn’t have stuck with me so far if you weren’t sure that your idea could succeed. Now is the time to dig deep and put in the hard-work to reach that success. These are the steps that you need to follow in setting up your business plan. Your business plan should be personal to you and your business, but you have to consider these things in order to create your own reliable blueprint! You can set it up as simply as you like, even just in list form. Bear in mind that if you are using your business plan to get finance you will need it to be as professional as possible.
Would you like a business outline to help you organize your thoughts and make sure that you don’t miss a thing? If so you can subscribe here, and we will email you, “Your Businness Plan” printable.