5 Important tips for sole traders starting a new business post-COVID
Congratulations, you have jumped into being a sole trader and left the safety net of having a regular wage each week behind.
Success in small business is as much about planning as it is about ability. If the year of Covid has taught us anything as Newcastle-based business owners, it is that we need to prepare for the unexpected. It may not be another pandemic; I have seen many business owners needing to make changes in a hurry due to illness, separation or other life events.
Starting a business means that you not only have to be good at what you do professionally, but also at running a business. Being a sole trader can be difficult as you don’t have anyone else in the business as a mentor or to share the load.
One of the most important things you can do is to seek out professional advice from a proactive accountant who can coach and mentor you to building a business that can grow and prosper, and provide you with a life that you desire. The last thing you want as a sole trader is to work longer and harder for less income than you would have as an employee.
Small business accounting can be a hard slog if you don’t have a mentor to support and guide you.
Here are our top 5 tips for sole traders in Newcastle starting a new business in a post-COVID world:
1. Set a Business Plan
Most new business owners go charging into starting a business without creating a business plan. We understand that you think that you just need to get customers, and everything will be sweet. But as the saying goes ‘failing to plan is planning to fail’.
A business plan is the road map for your business and will help to establish the direction of your business and identify key goals for you personally and professionally.
When you start your business plan you need to ask yourself some key questions. Things like: What do I want from my business? Why am I starting this business? Who is my target market? What funding do I need?… to name a few.
A business plan will help you prioritise your goals and set dates so that you have targets to achieve. These target dates will keep you focused on the growth of your new business. Your plan should create a strategy to achieve your goals, both in the short term and the long term.
2. How do I pay myself?
One of the biggest mistakes many business owners make is not treating themselves like any other employee.
You should take a ‘wage’ from your business as if you are a regular employee and keep your personal spending very separate to the business spending.
Set the tax aside and pay superannuation as you would any other employee. You don’t want to be financially worse off than you would have been had you stayed an employee.
If you don’t continue to pay superannuation you will impact your future income in retirement. So many new business owners decide to only start paying superannuation for themselves once they are more profitable, but the impact of a few years without superannuation is larger than you think.
Paying yourself as an employee is vital as it keeps your personal finances separate to the business finance. Too many sole traders use the business bank account as their own and before long they find there is not enough money to pay suppliers and the business has a cashflow issue.
3. Know your numbers
When starting a business, it is important to know what your numbers mean and how to make changes to improve your profitability.
Knowing your numbers is important to track trends over time, understand if your business is growing and determine what your break-even point is. Crucially, it also helps you to see how you are tracking compared to your plan.
Constantly assessing and readjusting is really important to the growth of your business. So often we hear clients tell us they are busier than ever but there is no money in the bank. Knowing your numbers will give you the answer.
Sales does not mean profit, and profit does not mean cash.
4. Keep on top of your cashflow
Cashflow is the life blood of small businesses. It is the inflow and outflow of the business bank account, which at times can vary quite significantly from time to time.
It is really important that you keep on top of the cash flow fluctuations with a great budget and reporting system, but equally important is your debtor’s management system.
When you have people that owe you money you are effectively being a short-term lender to your customers.
It is also important that you account for seasonal factors in your business. Set aside money in the high periods to cover for the lows that will come.
Cashflow should be part of your regular reporting and review process.
Seeking support from finance professionals can make a big difference to your future success.
A good bookkeeper will ensure your records are accurate and well organised, which can help to maintain positive cash flow, while also giving you more time to focus on growing and enjoying your business.
A proactive accountant can help you make changes to ensure growth and will discuss the pros and cons of different strategies. For example, they might show you the effect on your bottom line of increasing your pricing and potentially losing some customers (it’s not always a bad thing!). They can explain the impacts of offering discounting to your customers or not passing on increased costs from your suppliers.
As a sole trader your insurances are more important than ever. You no longer have the safety net of having workers’ compensation, but even more importantly, if you can’t work because of illness or injury, there is generally no income for your business.
How are you going to pay your bills and those of your business if no income is being generated? Income protection is an absolute must for all sole traders.
As a sole trader there is no limit to your liability and your personal assets can be used to satisfy any legal claims. So, if you are sued and the business assets are insufficient to meet the claim then your personal assets (including your family home) could be sold to meet your legal liability.
Seek advice from qualified financial advisors. The investment in a good advisor will be worth every dollar you pay. They will guide you and show you how you can make your aspirations for your business possible. They will show you how to unlock your business potential and stand out from your competitors, know your target market and attract new business to let you achieve your full potential.