08 Mar Thinking About Being A Business Person?
That’s great – but there are a few issues that you should think about before starting a business or purchasing a business. Unfortunately, there is a high failure rate in the first 3 years of a business’ life. An accountant’s role is to advise you on systems and processes that will contribute to your business being successful. Some of the problems which confront new business operators include:
- Inadequate planning – it is important that adequate consideration is given to planning when considering starting or acquiring a business. Will the lifestyle of running a business suit you and your family? Most small business people have to work longer hours than they would if they were in paid employment sometimes on weekends and at nights. How will these working hours fit with your family and sporting commitments and perhaps studies?
- Lack of professional advice – the CEO of a public company, or even a larger business, has a team of in-house experts or other key advisers readily available to assist him/her in making decisions. Small business operators do not have this luxury of having key advisers readily available. Successful small and medium-sized business operators establish a network of key advisers who can assist them very early in their business careers. The key professional advice areas include:
- accountants who are offering proactive business advice – not just preparing annual accounts and income tax returns
- commercial solicitor to advise on agreements, leases, terms of trade agreements etc
- marketing consultant to advise on the establishment of a marketing strategy, social media usage
- web consultant – to implement and maintain a suitable website for your business
- sales coach – to advise on the implementation of appropriate selling strategies for your business
- business mentor (who could be your accountant) – to assist in the setting of business strategies, business plans, budgets and cashflow forecasts
- experienced business people/directors – to be a board of advice and subsequently a board of directors for your business – this is a very important concept because even though it is your business, it introduces the “accountability function” for you reporting to your own board.
- Inadequate capital – this is a big problem for many types of businesses. At the beginning you need to prepare an honest appraisal of your capital needs in your business. Discuss your calculations with your accountant. Your accountant will advise you of some of the financial issues to which you will have to give consideration.
- Not establishing appropriate systems – this is where you should be heeding the advice from your accountant, relative to the establishment of appropriate systems and then implementing those systems so that your business receives prompt accurate monthly financial accounts and, in some businesses, weekly profitability estimates so that you are fully aware of your business performance.
- Not understanding working capital requirements – this relates to your business’ investment in stock (inventory), work in progress (applies to trades, businesses and professional practices) debtors (knowing who your customers are, prompt preparation of tax invoices, prompt dispatch of debtors statements at the end of a month, calculation of debtors’ days outstanding each month, having effective debtors’ follow-up processes in place).
To be continued next month…..
If you are contemplating starting or purchasing a business, we strongly recommend that you contact us prior to finalising your decisions and signing any contracts, for a discussion.