Alright, time for Lesson 3 in this series!
Full and fair disclosure – I am an Accountant (as of the time I am writing this article).
As a start-up owner should you hire an accountant?
Good question – it really depends on what your budget is and what your time commitments are like. Having a good accountant managing your books can take a huge deal of stress off your back when it comes to filing taxes and dealing with the taxman. But a good accountant isn’t cheap and as a business owner you will still want to know what is happening in your business finance-wise.
So, as the title suggests- learn up your tax and accounts!
Tax is the ever-looming spectre that hangs over all businesses and individuals. Much like death, taxes are unavoidable. At the most basic level, if you are a new business, you will need to be registered with the local tax department. In NZ it’s the Inland Revenue Department. Every new business will need to pay tax every year.
In your first year of business, you will be taxed based on your financial position at the end of your first year of operation (which is why you should be putting money away in your tax savings account!). Many new businesses struggle with paying their first lot of taxes as they can be hit by a huge lump-sum payment for all the taxes in that first year. But not you though because you’ve been reading this blog and been putting money away in your tax savings account! Yay!
Keep putting 20 to 30% of your income into that tax savings account. Remember that if you are GST registered, you need to include GST into your sales price and be putting 15% (or whatever % it is in your home country) of that total sales amount (with GST in it) into a different GST account! This is arguably the single most intelligent and cheapest way to stay on top of your taxes! I will update this blog in the near future with more info about basic tax obligations in NZ.
If nothing else, remember that whatever sales you make from your business – part of it belongs to the taxman and you should not touch it! Most tax systems around the world are all online and paying your own taxes through a website is a real breeze.
Accounts are trickier. But congratulations on you for following this blog! At least now you know the difference between an Asset, Liability and Equity. Also you know what Income and Expenses are! Yay!
Learning accounts also means learning how to keep your books in order. A good business owner does not completely rely on their accountant to do everything for them. A good business owner needs to know what is happening in their business.
As accounting software becomes flashier and easier to use, many accountants (including myself) encourage their clients to learn how to do some simple book-keeping. I highly recommend all my readers to check out accounting software like Xero and MYOB. There are plenty of easy to follow tutorials online on how to use them – so really, there isn’t any excuse for not learning.
Maintaining a regular set of books let’s you know what is happening in your business and it also gives you a sense of pride and achievement as you watch you little business grow in sales and assets. So not only is book-keeping good for your business financially, but it’s good for your own mental well-being!
So that’s it for now – that’s three lessons over three weeks that every start-up should learn. Next week we’ll get back into some technical (but still fun!) stuff! Woot!