Four business financial mistakes startup founders make and how to easily avoid them.
- August 29, 2023
- 8 min read
Whether your new business idea is still in your head or you’re in the full swing of timelines, deadlines and spreadsheets, understanding and avoiding the most common financial mistakes of early entrepreneurship can help set you on the path to financial stability and growth for your business.
Mistake 1. Rushing your business structure
Caught up in the excitement of building and launching your new business, many founders choose the quickest and cheapest business structure. They think they can easily change it down the track when there’s more time and a clearer vision of where the business is headed.
But neglecting your research, not weighing up the pros and cons of the different business structures and jumping into becoming a sole trader without considering a partnership, company or trust early on can be a costly mistake.
It costs time and money to change business structures
Moving from a sole trader to a different business structure can be time-consuming and costly. You’ll usually need to get a new ABN, and in some cases, you can’t easily transfer from one structure to another but instead will have to dissolve the current business before starting a new one.
You can end up paying more tax than you need to
When you’re set up in the wrong structure, you’re limited in your ability to make tax-efficient choices that save you money.
It can negatively affect the maturity of the business
If you’re hoping for outside investment (and even if you aren’t), launching to market without the correct structure can have several negative effects. You may be open to greater legal risk, and investors may see you as financially immature without a clear understanding of business governance.
The benefits of choosing the correct legal structure for your business
Setting your own business up right from the beginning puts you in a more robust position. Your governance and decision-making processes will be fair and legal, and it sends a stronger message to the market, which is more favourable to potential investors.
“The structure that’s right for you depends on the nature of the business and tax benefits. There are several things to consider. For example, if you’ll be considered an employee, your stake in the business, how much involvement you’ll have, personal liability and other sources of taxable income are just some areas you should discuss with a professional before committing to a business structure.”
– Chaitali Panchal, Portfolio Manager at Sleek
Mistake 2. Ignoring compliance obligations
Just the word “compliance” can be enough to make some people switch off. It’s probably not the reason you started your small business in the first place, but it must be prioritised.
You might think that because your business is small (for now), complying with ASIC’s regulations will be straightforward, and it’s easy to DIY. But that’s not necessarily the case. It’s critical that you’re across and up to date on all the most important tax dates in Australia.
Compliance can be complex and differs between business structures and company types. Registering as a company, maintaining accurate records and submitting annual reports are just a few things you may need to do as part of your obligations. If you’re not across these, it can take a lot of time you could be spending elsewhere.
You can face hefty penalties and fines
If you miss key compliance dates, you could be hit with penalties and fines ranging from small sums to thousands and, in some cases, millions. These can drastically affect the financial stability of your business.
Your business reputation can be negatively affected
Your brand underpins your business. When that brand is damaged, for example, by not running your business correctly and compliantly, you can lose customer trust and sales.
The benefits of running a compliant business
When you meet all your compliance obligations properly and on time, you’re avoiding late fees and only paying what’s required. You get peace of mind knowing you’re operating compliantly and legally, and your business will be looked at favourably by any potential investors, making it easier to attract funding.
Mistake 3. Handling your accounting alone
If you’re in the start-up phase of your business, you’ll already know there’s rarely a minute to spare. Add to that you’re trying to keep spending to a minimum, you might think managing your own accounting and business finances is a smart choice.
But unless you come from a finance background, hiring a tax accountant can save you time, money and expensive mistakes.
You’re more likely to make common errors
Unless you’re across all the tax obligations and rules (and let’s face it, that’s hard to do if you aren’t an accountant), you could end up doing what many business owners do— mixing their business and personal finances, which can end in disaster. You could also be missing out on the best way to manage your business finances, including how to pay yourself and ensure your business has savings.
Going it alone makes it harder to grow
Without a financial sidekick and someone to help guide you and plan, you’ll grow at a slower or less sustainable pace.
You can end up paying more tax than you need
If you don’t have the time or inclination to put in some serious hours and research, it’s unlikely you can achieve maximum tax benefits.
The benefits of hiring an accountant
With accounting services becoming more innovative, it’s easier to choose a plug-in team of financial professionals that can scale up or down as required, giving you all of the benefits without the responsibilities of having an employee. You can leverage their expertise to help you manage cash flow and grow revenue. Plus, reducing your tax liability and being on top of your books is attractive to potential investors.
Mistake 4. Underestimating the value of outsourcing
Thinking your business doesn’t make enough money to outsource can be a lie small business owners tell themselves in the early days. You’re trying to minimise business expenses and think that devoting your time to all areas makes more sense.
But outsourcing, where you lack the skills or resources, should be part of your overall business plan; if it isn’t, you can quickly get stuck.
You’re more likely to burn out
There are only so many hours in the day, and when you’re at maximum capacity, you’re more likely to burn out, putting your business at greater risk.
Other parts of your business can suffer
When you’re spending time where you don’t have the skills, it takes you longer and steers attention away from doing more value-added work on your business.
Help from friends and family has limits
Perhaps you’re outsourcing to a friend or family member who is doing you a favour. But relying on this kind of help could mean that despite their best intentions, you aren’t getting the full benefit of working with a professional.
The benefits of outsourcing
When you outsource the things that take you the most time and cause you the biggest headaches, like accounting, you can instead focus more on your product and less on the day-to-day operations. Choosing a professional service provider means you’re accessing up-to-date skills and knowledge, helping propel your business growth.
Steps to get your company finances on track from day one
- Choose the right business structure and get help setting it up correctly.
- Understand your legal and compliance requirements. Sleek can help you set up your business accounting to be compliant from the beginning.
- Choose an accounting service that meets your needs and offers flexibility to scale with you as you grow.
- Prioritise outsourcing services that deliver complex or key skills you lack and reduce financial risk for your business.
Spend less time in your business and more time on it. Sleek takes away the hassle of financial admin and accounting and supports you as you grow and develop your business from an idea into a runaway success.
Ready to avoid these common business financial mistakes and be financially fit from the start? Fill out the contact form below, and let’s go.
