What you need to do for your finance before launching your activity
You have decided to set up your business in order to carry out your entrepreneurial project. But to manage your business it is not enough to excel in your sector of activity. Managing a business involves acquiring many skills in management, finance, human resources… At the beginning, most entrepreneurs have to deal with the complexities of accounting, bookkeeping and taxes. Thus, discover how to manage the cash flow of your micro-business, through the application of some basic principles.
1. Establish financial tables
You will need to establish financial tables that will allow you to better understand the accounting situation of your business, including the financial plan, the income statement, and the cash flow plan.
The projected income statement will allow you to understand and predict the result that you will perform for the first three years of accounting years, but also to know if the activity of the company will generate enough profits to be profitable and viable.The income statement for a company is generally done over 3 years, but often innovative companies including startups, make an income statement over 5 years.
The profit and loss account takes into account the forecast turnover (generated by the activity of the company), the forecast expenses (expenses, operating expenses, personnel expenses, VAT taxes, etc.) and exceptional expenses.
The cash flow plan will allow you to understand the different cash flows of your business, whether it is receipts and disbursements over an entire year and month by month. It takes into account all expenses, charges, payment deadlines) and will tell you if you have enough balance left per month and if necessary provide more cash.
2. Having an accounting software
Having accounting software is the easiest way to avoid getting lost in your accounting and administrative tasks. This will allow you to decrease the margins of error and thus save time and productivity. Whether your business is small or large, it’s essential to automate business accounting. QuickBooks and Peachtree are good systems that are user-friendly even for non-accountants and easy to use. You will be in a better position to manage your business thanks to the files generated by these computer programs and to have up-to-date information.
Automating accounting is done for entering purchase invoices, managing deadlines and customer reminders, developing accounting statements, importing and exporting accounting data. This provides better data reliability, optimizes payment processes, better monitors and analyzes the financial situation of the company.
Certain criteria are taken into account for the choice of accounting software: whether it is the maneuverability, the maintenance or the value for money of the software.
3. Separate your personal and professional account
Opening a professional bank account for your business is not compulsory, you can quite open a current account for your commercial activity. This includes the deposit of your receipts, the expenses made, the payment of charges, etc. The advantage of opening a business account is found in the services offered, support and customer service as well as more specific services for businesses, offered by banks.
For example, if you open a business account, you can benefit from a payment terminal, make payments to suppliers and employees, request a loan for your business, and have higher overdraft authorizations.
Separating the personal account from the professional account has the main advantage of not mixing transactions and saving time spent on accounting, but will also be necessary in the event of a tax audit.
4. Use a credit card for your business
Using a credit card allows your business to start building a history and its own payment history with business credit reporting agencies. Using a credit card regularly and paying bills on time is one of the best ways to build good credit. Paying only in cash doesn’t help your credit rating. To start building good credit, simply charge a few monthly expenses that you can pay off. If you get a card that doesn’t have an annual fee, you can prove you’re a reliable customer without those extra expenses. Using a Business card will save you from having to pay large fees in advance, from having to wait a long time to get your expenses reimbursed or from having to lose a receipt that prevents you from getting your money back.
5. Know your tax obligations and tax your entrepreneurial activity
When choosing a location for your new or existing business, a start-up or a new venture, there is quite a lot to take into account: you need a business friendly atmosphere, supportive tax policies, access to solid markets and skilled workforce, good infrastructure and broad range of available business service. Also, getting tax right and making sure you pay the right taxes is one of the most important financial aspects of any business, especially when starting up. The rules are set by national authorities and can be different for each member state.
Depending on the legal status of the company and the tax regime, the tax obligations are different: taxation on profits, VAT, taxes on wages etc. It is important to know the taxes that concern the company to anticipate the reporting and payment obligations. Either direct income tax on their behalf or corporate tax at the corporate level.