It wouldn’t make sense to build your dream home without a solid foundation, so why would you start your business without one? You became an entrepreneur because of your excitement and love for what you do, and investing the time to make the right accounting decisions from the outset can help you become a successful business owner. Here are five accounting considerations you’ll have to make as you start your new business.
1.Which structure is most suitable for your Business?
This is the most important question while starting up. Your business structure will influence how much tax you pay, how much paperwork you need, how you raise money, and so on. There are four different sorts of business structures, each with its own set of advantages and disadvantages. Choosing the right structure is as important as choosing the right idea or the right people for your business. Here’s a quick rundown of each of the four structures:
Sole Proprietorship: The business owner has full control over the company and is personally liable for all financial commitments under this form.
Partnership: A business where two or more persons share the profits and losses of the firm, they are each responsible for the financial commitments.
Corporation: A corporation is a separate legal entity created by incorporated by its founders. Hence, the founders hold no personal liability. A corporation is treated as a person and is taxed and held liable for financial obligations. A corporation is more costly and requires extensive record-keeping and compliances. The structure of corporations allows its founders to issue a percentage of ownership to investors in a very quick and easy way.
Limited Liability Company (LLC): This gives you the best of both worlds; it allows you to avoid any personal liability but still have the profits and losses pass through directly to the owners.
When deciding on a business structure, it’s good to seek professional advice to learn about the advantages and disadvantages of each option. It will also be critical to staying on top of what is required to set up your business structure and ensure that you fulfil requirements on a regular basis, track the necessary expenses, and document when everything is in place.
2. How Will You Manage Your Cash Flow?
A successful business shall result in Revenue in-flow and Expenses out-flow. Managing the tides between these two is critical to ensure that the business doesn’t fall apart. It’s critical to have a system in place that keeps you on top of everything, from effectively managing your books to projecting business operations to knowing how much to provide for taxes. This isn’t something you’ll want to take on just to “get by”. Managing your cash flow may fall out of your scope of abilities, and that is when it’s time to bring in a professional, whether it’s an internal hire or an outsourced accounting firm. There are several examples where a good profitable business had to shut down, just because they didn’t manage their cash flow well.
3. What needs to be measured and managed?
From Harvard Business Review, we have learnt – “What can’t be measured, can’t be managed”. The leaders of a business need to locate what are the Key Performance Indicators (KPIs) of their business that they should be measuring and managing. Consistent tracking of KPIs decides whether the business will flourish or just be another business across the street. Financial analysis plays a very important role in measuring and tracking KPIs across the business. A well-managed finance function behaves as the backbone of a business.
4. ‘How to’ and ‘how much to’ finance your business?
Starting up a business will require funds out-flow from day 1, for example even registering your business will need funds. However, the business might not earn any revenue for several days initially, sometimes a few months too. So, it is inevitable that the business will need funding. You should consider finding an investor (sometimes self) and deciding what you would give them in exchange. Knowing the value of your firm will help you make the best investment decisions possible. Financial research and reporting can provide you with genuine data to present to investors, ensuring that you are receiving what you deserve and not giving away too much.
5. Will You Hire Staff or Outsource?
Over the years the term Human Resources have transformed into Human Capital. Yes, just like having the right amount of financial capital is important for starting-up, having the right ‘Human Capital’ is equally important too. Hiring someone to handle your accounting will free you up to spend time on the big picture, with the relief that your business is functioning correctly and the right KPIs are being measured and managed. You could hire staff to take this off your plate, or you could outsource to an accounting firm. By outsourcing your accounting function, your business gets various benefits over and above the impacts on quality, timeliness, resourcing, and cost. Based on what business you are in, outsourcing allows you to capitalize on smart people and allow them to propel your business forward.
At Outpost.Work, we are ready to be your foundation on which you start building your dream castle brick by brick. We are immersed in the services we provide – New technologies, process excellence, elimination of idle man-hours, industry trends, etc. are tracked and applied to the services you receive from us. You might miss these opportunities without an outsourcer’s diligence.
