What Should Every Business Have/ Know?

Accounting

Whenever I meet a potential client who is about to set up in business, I am often asked what as a business they need or should have.

As part of any business set up, every accountant and business advisor will explain what kind of structure is appropriate, how to register business names, apply for trademarks, set up bookkeeping systems etc. These are basic things that all businesses must have.

In addition, I also give them a list of things they must really have in place not just to make their business successful but to also cover all their financial matters. So, what are they? 

1. Goals

 Every business must know must know where their business is now, where it is expected to be in one year’s time, 2 year’s time, 5 year’s time and beyond. They must be written down otherwise it will not work.

It usually means organising a day of thinking and setting strategy. This sounds daunting but it is not that difficult. If you have a small organisation it could just be the main business owner undertaking the exercise and then discussing it with the team.

I usually sit down and do this for one day when I am on holiday. I am likely to be more relaxed and ideas come naturally if you ask the right questions.

It is important that your team understands what you want to do and achieve and that they believe it is achievable. Larger businesses should include the team when setting goals.

2. They must know what level of income they need to live their lifestyle

This is usually my favourite question. Most business owners do not know how much their business needs to make in order to maintain the owner’s current and future lifestyle.

It usually means working out what you are spending your money on. I usually get my clients to record all their transactions for a minimum of a month. They are usually shocked to see what they are spending their money on.

3. They must have an action plan should the main driver of the business leave/ die.

Most small businesses have one or two major individuals in the business. Without them the business could collapse very quickly. Issues usually arise when business partners decide to go separate ways. The death of the owner or a partner can also have serious implications for a business.

If the business has more than one key individual or owners we always recommend a strategy to ensure the business can operate with the least amount of disruption. Usually this means a shareholder agreement and/ or buy and sell agreements. Buy and Sell agreements are basically an insurance policy which can be used to buy the shares of the deceased partner.

4. Must have some kind of estate planning

The majority of people in Australia do not have a will or if they do it is out dated. Death is a very stressful time for family. If you also have young children, children from a previous relationship or stepchildren everything becomes more complicated. What happens to your share in your business? What happens to your Super? These are all matters that need to be discussed as part of your estate planning.

5. Must have adequate insurance – personal and business

Whenever I ask this question I usually get a blank look or an answer to the effect that ‘yes I have that’. Usually when we look at them in detail we find that they are under insured. We recommend you have at least adequate life cover, Income Protection and Trauma cover. Anything else on top is a bonus. Life cover should cover all your liabilities and a bit extra for your family.

We also find that if a spouse is a stay at home mother/ father they also need adequate insurance. Should they die, the main breadwinner will still have to work so who will look after the children? The life cover of the stay at home spouse should cover childcare fees and more.

6. Must have some kind of retirement plan

You really need to work out how much money you will need when you retire. This is not easy but sitting down with a professional will help. Saving via superannuation has some great tax benefits but one needs to start early. One thing you need to bear in mind - the state pension is not sufficient to live on.

7. Must have some kind of succession planning in place

Who will take over your business when you retire or decide that you will hand over to someone else? If succession is to go to a family member this could cause rivalry between family members seriously affecting the business. Any plan should be discussed so that all family member know what the process is.

If the business is to be sold then planning should start 5 years before sale. Start systemising your business now and get it ready to operate without you. Research has shown that businesses with good written systems sell for more than those that have no written systems in place.

8. Should be surrounded by experts

This means a great business advisor or accountant, who is proactive and will ask questions outside tax and accounts. You should have a financial planner who can help in investing, retirement planning and insurance. You also need a plain talking solicitor for your wills, shareholder agreements and other legal matters. These three should be happy to meet to talk about your affairs.  


Hitesh Mohanlal

Hitesh Mohanlal

Director at WOW! Advisors & Business Accountants

I am known as Australia’s Number 1 Business Growth Strategist (profit increase and owner lifestyle improvement specialty), and have been recognised on CNN, Fox, NBC, CBS and ABC. I am also a Chartered Accountant in the UK and Australia and have been practicing for the last 22 years. I run three businesses. I have worked with over 3,500 businesses in Australia, America, UK, Japan and Europe. I work with small to medium enterprises to improve their profits by up to a staggering 2000%


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Phil Khor

Phil Khor , Founder at SavvySME

Hey Hitesh, good list! I especially like the last point of surrounding ourselves with experts. It is part of our vision for every business owner here in this community. Thanks for sharing :)

Selina Shapland

Selina Shapland , Founder, Administrator, Writer and Entrepreneur at Selina Shapland

Hi Hitesh, I thoroughly enjoyed reading your article. I related very well the blank stare you get when you ask about insurances. I recently went to have my own financial future and wealth creation needs addressed and was very similar to the people you are describing. Now, I have all those things in place. This is great advice and excellent for anyone in business to be practicing. I have also worked in a small business where one of the sales reps was accidentally killed in a car accident. The ripples spread out through the organisation, the customers and his family. It was a very difficult transition time for all concerned and so your comments on succession planning are vital for ensuring a business not only survives but thrives when tough times hit. Best wishes, Selina Shapland

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