Running your own business can be productive. You may chase your passion, can decide the partner with whom you wish to work with and there is always the possibility to earn higher returns. Independent Business owner usually enjoys the freedom and flexibility. However, the risk factor and pressure always remains in the business.
Along with the financial risk, there are few other adverse effects retain in your business such as working for long hours, isolation and the boundaries between work and family life become blurred. The issues can harm your mental health. Your professional accountant can help you to minimize your business risk as there are several strategies which may reduce your business risk
FAILING TO PLAN IS PLANNING TO FAIL
It is necessary to frame out a business plan before its establishment. Your business plan would be the blueprint of your business and it includes current market analysis, competitors and document of your marketing plan. To ensure that your business is manageable, you are required to squash the number and create estimated profit and loss for your first year of trading. If your business does not clear the test that you should reverse back to the drawing board to recalculate your pricing, marketing, suppliers or product offering
You will require a cash flow budget which enables you to make assumptions about your prices, projected sales, and costs. It is not as easy to predict your future sales accurately. For prediction future sale accurately, you are required to combine several tests which included your both best- and worst-case scenarios. Lack of cash is the main reason behind business failures in our country. Retaining cash flow budget is essential as it enables you to examine the amount of finance needed and when you will require the injection of funds. If you will be well-known about your business situations or problems in advance, then you can approach the bank and withdraw the amount of finance you need.
BUSINESS STRUCTURE
Your business structure can likely minimize by offering asset protection during the business unpleasant time. If your business is a sole trader or partnership, then you would be personally liable for the debts of the business and your assets can be utilized to recover the business debts.
A company structure is considered as a separate legal entity which can sue and can be sued. It can likely save your assets from the business activities. As a director of the company, you can manifest an event where you can offer a personal assurance to secure a business loan. You would yourself be liable to repay the business loans during the insolvent of a business. Also as a company director, you may come across personal liability for company debts if the business is declared bankrupt or incurs losses induced by a breach of director duties.
We perpetually consider tax minimization, asset protection, and admission of new partners in the future or entitlement to discount capital gains tax concessions whenever you offer any suggestions regarding business structures. Therefore, the choice of business structure is often threatened due to these issues. We suggest you to contact us prior to making any important decisions.
ASSET OWNERSHIP
As a director of the company, you may be well-advised not to possess key assets in your name to minimize the risk. For example- ownership of your residence and other significant personal assets can be possessed by those not linked with the business
INSURANCE
You business could be at risk without retaining effective business insurance policy. Your invested money and time invested in your business can lose due to the single event like a fire, storm or burglary.
It is crucial to ensure against the risk which could especially impact your business. Insurance seems like that it is an everlasting expense of your business. If your business is uninsured (or underinsured) you may never recover your losses due to them from a natural disaster, burglary, act of vandalism, fire or storm
You are required to address your specific business insurance needs and expect the unexpected. It is also crucial to ensure that your business coverage does no lack behind as your business grows or diversifies. The size and nature of your business will usually determine the type of insurance coverage you need.
Some of the insurance coverage you might require are:-
- Public liability insurance to cover customers, clients and visitors
- Insurance Cover for building and contents, equipment, stock, furnishings, and fixtures
- Professional indemnity insurance if your business is in a service industry –Insurance coverage is mainly purchased by professionals such as IT consultants, surveyors, accountants, solicitors, etc. This insurance cover will safe your legal liability to third parties arising from your (or your employees) professional negligence/wrongful advice.
- Product insurance if your business is in the manufacturing industry
- Motor vehicle insurance if your vehicle is used for business purposes
- Personal injury and/or income protection, particularly if Work Cover does not apply to your business
QUALITY RECORD KEEPING
Business Failures usually takes place due to poor management. Updated and accurate information is essential as it enables the businessman to make informed decisions. In business, transparent buying and selling decisions are required. As it is said Knowledge is Power, so it is required to retain updated information to make instant and informed decisions
Modernized Software delivers agreeable information about your business performance, suppliers and customers. As it is mentioned above, It is required to have updated information about your cash flows as without the updated information of cash flows, you won’t be able to know about your debtors and their outstanding payments. Delay payments to the debtors may lead to a cash flow crunch. Similarly, it is necessary to examine your accounts payable timely.
Updated records assure that your financial and tax returns are prepared promptly and lodged with the Tax Office and other interested parties such as your bank if you have finance in place. Having financial information at your fingertips along with your accountant enables you to save your money and defer your tax liability. Business intelligence software helps you to access your data and even helps you to identify your trends that may devise risk and opportunities in your market.
SUMMARY
Applying standard operating methods in your business can help you to eliminate the potential source of your business risk and the product risk can be managed by launching a quality assurance program. Moderate financial management and appointing efficient staff will even minimize your risk. Backing up your electronic data may minimize the risk of losing your data files. Initiating a successive play may save your business future.
The risk factor is a major part of every business. However, there are a wide number of strategies which can minimize your business risk. Every business and industries are unique but the items listed above provide us a useful checklist. If you are looking to establish your new business then our “New Business Starter Kit” includes various business issues, design for a business plan, cash flow budget and profit and loss statement.
Max Margin Accountants is a registered accounting firm based in Melbourne. We specialize in helping our clients with a full array of Business Advisory, Taxation and Accounting services. We help businesses in all industries and sectors including Automatic Mechanic, Hotel and Bar, Barber & Hair Dresser, Car Wash, Home Builder & Architecture, Cafe and Coffee Shop, Cleaner, Computer & IT Industry, Family Day Care, Gym and Personal Trainer, Small Businesses, Medical Practitioner, NDIS Business, eCommerce, Property Investors, Tradies and Taxi Drivers.
Last Updated on September 6, 2023
