Surviving your first 5 years in business – Part 1

There’s a lot of literature out there that talks about small business survival rate. The most common figure that gets thrown about is the survival rate past the first 5 years. In NZ, data from stats NZ show that for businesses born in 2020, only 41% have survived into 2025. That’s a 59% failure rate.

Now, the same dataset will also show that out of businesses setup in 2015, only 44% survive to 2020, and from that only 27% make it to 2025. But it is important to point out that, proportionately, out of those who survived to 2020, about 61% of them made it to 2025.

So the five year hurdle is crucial – clear the first 5 years and your business’ prospects for survival increase. Our company just recently cleared our first 5 year hurdle and I’ve managed to build the business to a point where I can take 6 weeks off (brain surgery is such an inconvenience!). This piece is for all you startups out there who want to break that 5 year barrier!

Sort out your financial systems!

Big surprise. The practicing accountant says that financial systems are the most important thing to sort out for your business.

Seriously though.

Like, make sure you start off on the right financial foot. I’ve had a lot of clients come in with messy finances that we’ve had to spend days trying to make sense of. And in my experience, messy finances = poor cashflow.

If you can’t tell when your cash will come in and where your cash is being spent, you’ve got zero financial visibility. Poor financial visibility is a risk because you may end up spending more than your business can afford.

Let’s talk about some right financial steps you can take, right now to set yourself up for success:

Set up separate bank accounts

Look, I’ve written extensively about this. To keep it short, you need to have a separate bank account for your business. DO NOT mix your personal money with your business money. There lies the path to financial ruin. Trust me. I’m an accountant. I’ve seen some horrifying bank accounts.

For your business money, you should have at the minimum, two different bank accounts set up:

1. Your Daily spending account – this is your daily operating expense account. Use this to receive payments from clients and pay your suppliers.
2. A tax account – tax is important. Make sure you are putting away money in this tax account.

Depending on how you run your business, you may want to consider setting up additional bank accounts, like a GST account just to keep track of your GST. You can also set up a long term savings account for capital investments, etc.

Always be putting away money for taxes

Taxes are the biggest bugbear of the developed world. On one hand, yay, socialised healthcare and free education is great, but you know, taxes!

A failure to meet your tax obligations is often symptomatic of poor financial management. So don’t be ‘that business owner’ and stay on top of your taxes. A good rule of thumb (if you don’t like complicated maths) is to be putting away 25% of your sales into your tax account. Be sure that you calculate this 25% after you take out the 15%/10%/20% if you’re GST registered (depending where you are in the world).

Make sure you don’t touch that money! I know its tempting. But don’t touch it! That belongs to the greater community!

Partner with a good accountant

I might be blowing my own horn here, but a good accountant is invaluable. Let’s face it, accounting, tax and financial stuff are kinda boring and difficult to think about. Having a reliable professional that can magic away your tax and accounting worries will free you up to focus on operating your business.

I’ll admit, we do a lot of boring stuff. Stuff like filing tax returns on time, talking to the tax department, putting together your financial statements and coding your transactions correctly. It may not seem like a lot in isolation, but if you add it up, it takes a lot of your time and headspace to do it on your own.

Plus as a non-accounting professional, the chances of you getting it wrong are pretty high! Then you have to deal with the fallout of getting tax stuff wrong. Trust me, you do not want to spend hours on the phone explaining to the tax people why you got stuff wrong.

In short, a good accountant will give you the peace of mind you need to set your business up for success.

Join us for part 2!