Some small business owners will start off in their business financially blind. By that, I mean that they have seen a good idea and found the perfect location, but then jumped into setting everything up except their finances. Sounds weird, but some small business owners have done little more than a few figures on the back of an envelope.
So, before starting off your latest business project, how well have you done your homework?
Are you a small trade business and been offered what looks like a good private contracting job? Or has the offer simply come as a “this is what I’m willing to pay” type offer? Many people would be amazed at how often a plumber or tiler or any other trade contractor will take on one of these type jobs. Sometimes they won’t even do the estimate for themselves on the back of an envelope! Think I’m joking? Ask around any construction site and see for yourself.
The best place to start with for financial advice is often at home. Many small trade businesses have a wife and she is usually the one who does the books and runs the home. She knows how much it costs to live and what the going rate is for materials that your trade needs. She is usually the one too who is more computer literate because she does the accounts every week.
Between the two of you, do up a spreadsheet and enter all the relevant cost estimates to complete the job. Once you have all the relevant information included (including all your tax and payroll liabilities) along with when and where the progress payments are due, you will then have an idea of the financial viability or not of the contract. This is the essential step for any small business.
Then hopefully, you already have an accountant. The accountant’s job is more than doing up your tax returns every year. Today they act as a first stop financial advisor and have all the contacts with bank managers, financial institutions and lawyers in your town or area. It is a good idea to drop off your newly created spreadsheet to him/her so they can go over it checking that there are no omissions.
Tax laws change frequently and to stay abreast of all of them is your accountant’s job. They are the best ones to advise you as this is critical financial advice that every small business needs. Once he assesses and agrees the figures are correct and then it is safe to proceed.
If you need a low interest loan or overdraft to complete the job, then a bank manager or loans officer is more likely to look more favourably upon your request because they can see for themselves that you know what you are doing. When a loan applicant looks more like they know what they are doing, the loan is more likely to be repaid, and that is all a bank or financial institution wants to know.
By doing your own cost estimates professionally, then having them checked by your accountant prior to approaching your bank or other financial institution is the best financial advice you can get.
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