Budget, cashflow forecast, tax planning – these are all new considerations when you start your business. To ignore this could see you running into trouble, no matter how good your product, service or passion for your business!
Budgeting is vital. How much do you need to invoice in a month and how much do you need to limit your spending at. You need to know these two amounts so that when your invoicing drops for a reason, you can see where you can possibly cut back on with expenses.
Once you understand what you need to earn and where it needs to go, you need to review a realistic cashflow. Just because you sent an invoice, does not guarantee the money will be in your account. So you need to account for all your expenses, but not all your income. You should know which clients pay on time, which are a little late and which are a problem. Realistically look at the cashflow to make sure you don’t run into a cashflow problem.
If you have 30 or 60 account terms, a good month doesn’t mean you can pay your bills this month. Once you draw up a cashflow, you will start to see how profits don’t always mean money in the bank. And will help you become a lot stricter with debtors management. If you offer terms you need to make arrangements for terms for your payments. Paying upfront and waiting two months for payment is a cashflow killer.
Limit debit orders on your account. Paying an invoice a day late is a lot more manageable than an unpaid debit order – which will cost you additional bank charges.
Every business needs to have a proper accounting package. There are so many options and some are free, why would you not use an online accounting program?
Problems with invoice numbers, non-compliant invoices and manual statements are a waste of time and big risk for errors.
If you have a business you need an accountant. Either on a monthly retainer, quarterly for your tax returns, or at least a contact you can arrange an appointment or call with when you need to. We have studied for years, and are required to stay updated continuously – why would you risk something so important? Sars Compliance can be tricky and Tax is not simple. Penalties can also be very costly. Don’t manage your own taxes without some level of help!
All businesses file tax returns. Freelancers and sole proprietors declare their profits on their provisional and personal tax returns. Provisional tax returns are due February and August each year. On your final year end tax return you will be taxed at the appropriate personal tax rate (anything from zero up to 45%)
Registered companies file provisional tax returns within 6 and 12 months of their year-end (for most that would also be February and August). And then your profit on your financial statements, is declared on your company tax return – either at a small business tax rate, or 28%.
So all businesses – sole proprietors, freelancers and registered companies, pay tax on their profits. So you need to track your income and expenses, no matter how small!
So draw up a budget and keep an eye on your invoice total for the month. If you know what your expenses are, you will know how much you need to invoice and at what point you are in trouble!
Then if your invoicing and expenses are in order, make sure you have checked your cashflow for money that you expect in on time and make allowance for late payers.
Account for your income and expenses, and file your tax returns on time and accurately!