This financial year make sure you know exactly what you will owe and save up for it. I find a simple approach is to have an online business savings account and each month work out how much BAS you will need to be paying, how much tax you need to be saving and any large bills that you need to save for each month. Just transfer that amount across to your online savings account each month to avoid surprises. If you are unable to do that then I seriously invite you to consider the viability of your business.
If you can save as you go, then at the end of the quarter/year you won’t be stressed out trying to find the money. The amount of people I have worked with that went from being full time employed into running their own business, and didn’t realise that they had to save for their own income tax, is scary. Re-mortgaging their homes if they were lucky enough to have one with equity in it was a common solution. Remember you need to pay a few different taxes!
It doesn’t matter what your organisation does—it needs to make sure that more money comes in than goes out. Financial Measures are used to create budgets, which are then tracked and reported against.
The following are some examples of financial measures that we use at Sorted.
- Sales across income streams;
- Online modules
- Gross profit and net profit
- Profitability of bookkeeping services
- Ability to pay bills as they fall due
- Liabilities each month understood, and money allocated in business savings to cover them
- Community contribution against income targets—goal to share the success of Sorted.
- Volume of work outsourced and therefore supporting other small business owners
I invite you to review what your organisation needs to be measuring and set up the systems to make this happen.
The following measures can be taken to ensure an organisation remains solvent. Again, this is what we do at Sorted., and I hope that by being transparent and sharing this information with you it can help you with your business.
We do a monthly calculation of liabilities and allocate money into separate business savings accounts to cover them.
Liabilities tracked include:
- Company tax
- Annual leave
- Long service leave
- Team superannuation
- Income tax
- Wage allocation for team
- Profit share
All expenditure items are saved up for, to ensure payment can be met prior to committing to them (e.g. website development). Sorted. does not have any debt and has money saved to cover all liabilities.
Professional Indemnity insurance has been taken out to ensure that in the event of being sued, there are the means to cover the legal fees and any penalties awarded.
We ensure our income streams and clients are diversified so we are not overly reliant on just one. We ensure that our services remain current and relevant to our target market—this helps us to remain financially viable and solvent!