For Perth business owners, income can vary, particularly over the boom-and-bust mining cycle where you are likely to have a unique range of challenges specific to WA. With some smart financial planning decisions, you can increase your end outcome which can in turn help you achieve goals on the business and personal side.
Below are some essential tips on how blue-collar business owners can make smarter decisions with their money.
Make and stick to a budget
Having a good understanding of your business cashflow and budget makes for peace of mind and clear decision making. As a minimum, know what your expected sales are and how much business costs will be. Simplistically speaking, costs can be broken down into fixed (for example building lease, operating licence, rates) and variable (costs that rise and fall depending on number of sales which you can estimate based on expected sales).
Any large and irregular business costs you know are coming up, such as new tools, equipment or vehicle purchases, should be factored into your yearly budget so there are no nasty surprises down the track.
Setup an emergency fund and cash buffer
Establish an emergency fund so you can be prepared for situations such as paying for unexpected repairs or covering expenses during slower business periods. There may be a time delay between when you incur costs on a job and actually getting paid so allowing for enough funds, or a cash buffer, to see you through will ensure you know what portion of your cash is then left for you to reinvest in the business or to start building wealth.
How much cash you will need for the business is dictated by your upfront capital requirements on each job and payment (creditor) terms – this will vary from business to business.
Consider going paperless
Operating without paper can save you time and money and enables you to be more organised at tax time, saving the EOFY ‘runaround’. There are plenty of cloud-based tools that also help with remote working so your staff remain happy, leading to less turnover from key personnel.
What’s not to like?
Opt for bills to be paid automatically where you can
Manually paying for each bill that comes up throughout the year takes precious time away which could be used building more business. This in addition to avoiding late fees from a missed bill will save you enormously. Consider the prospect of full accounts payable automation which will improve efficiencies overall.
Contribute to superannuation
It is far too common of a story for tradies not to pay ongoing amounts into super, particularly those that are set up on a contracting basis. Investing profits back into the business is often the focus but it’s crucial to stay on top of the longer-term plan, with retirement savings a major source of future living.
You may also benefit from reduced tax payable each year by allocating some funds towards superannuation, ultimately increasing your hard-earned dollars.
Invest your money
Consider investing your hard-earned dollars into something well diversified, which would include shares and property. With inflation now at record levels, the money that you save and hold in your bank account is effectively losing value so directing your cash to investing can lead to a better long-term outcome.
Whilst interest rates are high, it also makes financial sense to pay down or offset some of the debt you may have on your home so balancing debt reduction with investing is an important area.
Speaking with a financial adviser will ensure that you are making the right investment decisions and they can help come up with a plan to suit your needs, debt levels and available funds.
Manage taxes
It’s essential to manage tax obligations as a business owner to maintain good financial health. As a business owner there are many ways you can do this including:
- Having the right structure for your business initially. You will need to decide whether you are best to operate as a sole trader, through a partnership, family trust or company.
- Make use of available tax deductions, such as instant asset write-offs and home business deductions. Eligibility criteria will apply.
- Contributing to superannuation as mentioned above.
Each of the above points carry their own benefits and eligibility requirements, you should seek formal advice from a qualified professional to make sure they are suitable for your situation.
Review your financial plan regularly
Your financial plan may change over time. It’s essential to review your plan regularly to ensure your goals remain on track and make adjustments where necessary.
Consider engaging a financial adviser who works with business owners on the regular. They can help you navigate the unique financial challenges you face and provide tailored advice and support. For more information please contact the team at Boutique Advisers.