by Kathryn Main
When I started my first business, I considered the financial side of things as “boring accounting stuff” – something I was not keen on initially. My feelings on the matter soon changed. Financial structures in your business are much more than mere accounting practices. As important as it is to manage your income and expenses, there is a lot more to setting up your financial structures than you may expect.
Making money is the easy part — managing and keeping that money is much harder! Ask any businessperson you know and I’m sure they will all tell you the same thing: cash flow is the key to a successful business. If I knew then what I know now, I would not have made so many rookie mistakes. If I had known this information when I started my first business, if I had started with the correct financial behaviours from day one, I wouldn’t have lost as much money as I did.
Let me share some of my rookie mistakes with you:
When I started my first real business – one that had clients who paid me for my services and paid me what I was worth for my time and effort, I used my business bank account like my own personal account. I paid personal expenses out of the business account; I went to lunch and did clothes shopping. This was my first mistake, because 18 months later I was sitting with an auditor trying to do a tax return. What a dog and pony show that was! It took me a full week just to go through the bank statements and differentiate between personal and business expenses.
All of those personal expenditures had to be allocated towards salaries, which means that I had to pay a lot more money in tax. What’s more is that for a year I had to pay off SARS for my mismanagement of my first business bank account. That was a very expensive lesson. Thousands of rands spent on auditors, coupled with 12 months of payments to SARS seriously impacted my cash flow.
My next rookie move was;
After the first year, I had to register for VAT. At the time, I was so excited to have reached that milestone that I didn’t factor in the impact of not paying VAT on time. I had a separate VAT account, so I always moved the VAT money into that separate account. One day I needed R40 000 to pay for something (I can’t even remember what it was), so I took the money from the VAT account, telling myself I would pay it back in a week or so. 2 months later, I had still not replaced the VAT money.
It was payday for me and my staff. I was waiting for a monthly retainer to pay my business expenses, when I saw the SMS for the payment come through. I went to my online banking and saw that my account was completely empty. I started freaking out, as you can imagine.
I went into the bank only to find out that SARS had told the bank that any money coming into my account was for them. Just like that, the R38 000 payment I received and planned to use to pay salaries was gone. Feeling the panic run up your spine as you realize there is no money to pay your expenses is truly frightening!
These are two examples of things that had devastating effects on my small business. Even small mistakes like these can leave you in debt and with minimal cash flow.
To help you to set up your own financial structures in your business, I have created a financial checklist of everything you need to cover in your business. From process documents, system automation, paying suppliers and more! Go through this checklist and complete what is missing.
If you are looking for words to describe Kathryn Main, CEO the Money Savvy brands, quirky, determined, visionary and masterful are just some that spring to mind. Kathryn is an author and award winning businesswoman and has won awards for her advertising agency as well as Money Savvy Kids. Kathryn has a passion to change the face of education on the African continent through financial literacy education and training. The Money Savvy brands are revolutionizing the way financial knowledge is disseminated to younger generations of South Africans. Money Savvy Kids + Teens promotes in youth the skills, knowledge attitudes and behaviors required to be financially independent.
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