Financial Fitness. for startups

Transcription

1 for startups How to build a great financial foundation for your Aussie business

2 PLAY BOOK for Startups Be a savvy startup New entrepreneurs have a lot of things in spades: great ideas, passion, skills in their field and the guts to start their own business. But our research shows there s one thing many lack: financial know-how. Intuit Australia surveyed local startup owners to find out just how much they knew about managing their business finances. Most didn t pass. That s understandable. When you spend all your time focused on your business idea, it s easy to lose sight of the numbers. The good news is it s easy to fix. We ll show you how. Intuit also looked at how startups manage their finances and where they could do with help. Most are losing sleep over business concerns, with cashflow the number one pain point. Most undervalue their business, pay themselves little and make even less profit. Perhaps this sounds familiar. When you don t understand your business finances, you miss opportunities to grow and prosper. Even worse, you might put your business at risk. The early years: what the facts say An average of 44 small businesses close their doors every day.* Of the almost 300,000 new businesses that opened in Australia in , 1 in 4 closed in the first year and only half were still operating three years later.** 1 in 3 (32%) businesses fail due to financial mismanagement, and 12% due to inadequate or inaccurate records. *** Make a smart start The good news is you can see your business not only survive, but thrive, by improving your financial fitness and taking advantage of a range of affordable cloud-based financial management tools and professional support.

3 GET FINANCIALLY FIT! GET FIGHTING FIT! While most startup business owners didn t pass our Intuit Test on common accounting terms and concepts like balance sheet, cashflow, risk, depreciation and capital structure, there s plenty of help at hand to put you on the right track. (For all the answers, head to page 13 of this book) BABY BOOMERS BEST, GEN Y WORST 42% passed. 58% couldn t answer the questions correctly. Baby Boomers (50 to 64 year olds) topped the class. 63% passed. Top scored in 7 out of 10 questions. Only 3% answered all 10 questions correctly. 8% answered no questions correctly. Gen X (35 to 49 year olds) 44% passed. Top scored on 3 questions.? 12% answered just one question correctly. Gen Y (18 to 34 year olds) 26% passed. Lowest score in 9 of 10 questions.

4 UNDERSTANDING BUSINESS FINANCES A foundation for growth A strong financial foundation is the key to building a successful business. Savvy Startups? 12% of startup owners said they had a thorough understanding of business finances....or do they? Most did - but18% failed the test. Basic beginners: room to improve 1 in 3-30% - have a basic understanding of their business finances. Those who didn t pass 27% 16% 51% claim a basic understanding of their finances. don t pay much attention to it. Yet... still prepare their own BAS & keep financial records up to date. Imagine the possibilities: a little knowledge goes a long way It s easier to do a job when you understand it. Spending just a little time getting to know the basics of business finances will deliver greater insights, better decision making and the ability to identify opportunities to save or grow. What s more, doing your BAS will become easier so you ll have more time to focus on your business.

5 GET FINANCIALLY FIT! MANAGING BUSINESS FINANCES The path to success Successful business owners are those prepared to learn and change. Most of those surveyed knew they could or should do more around financial management. And, identifying a need is the first step to fixing a problem. Older & Wiser? 51% of Baby Boomers think their business finances are very well managed. 38% Gen X owners. 33% of Gen Y owners. THINK YOU RE A FINANCE WHIZ? THINK AGAIN! Only half (52%) of those who believe their business is well managed financially passed the Intuit Test. COULD DO BETTER? A CHANCE TO LEARN AND GROW 60% believe they could do a better job. 40% say their business is well managed. 25% should pay more attention to financial management. 16% says it takes care of itself. I DON T GET IT, BUT I DO IT : GO FROM WING IT, TO WIN IT 2 in 10 (19%) look after their business finances, even though they don t understand it. 30% of Gen Y. 14% of Gen X. 8% of Baby Boomers.

6 SELF OR HELP? A sole trader can still benefit from a support team 36% Those who say their business is well managed financially are most likely to have an accountant or bookkeeper. 28% rely on a bookkeeper or accountant because they couldn t do it themselves. 35% Baby Boomers are more likely to use a financial advisor than Gen X and Y (both 26%). Who does BAS and record keeping? 53% do their own Business Activity Statements, even though 4 in 10 (40%) have only a basic understanding of business finances. 19% use an external accountant. 12% have a bookkeeper or finance manager. 25% Baby Boomers are most likely to use an external accountant/bookkeeper (Gen X 19%, Gen Y 14%).

7 GET FINANCIALLY FIT! WIDE AWAKE AND WORRIED 7 in 10 - (71%) - startup owners lose sleep over business worries including: 31% cashflow. 20% profitability. 30% getting new business. 14% compliance/legal requirements. Cashflow was the number one cause of loss of sleep and is a leading cause of business failure in the first two years of operation**** yet more than 1 in 3 couldn t identify how it can be improved in the short term in the Intuit Test. SLEEP EASY: HELP IS AT HAND You don t have to go it alone. Accessing financial management tools, education resources and professional support can help startups identify and address strengths, areas to work on, and opportunities. And, in the process, gain healthy returns from getting financially fit. SUPPORTING STARTUPS The most helpful support options for new entrepreneurs: 19% mentor. 12% accountant or bookkeeper. 16% financial management course. 12% online tutorials (Gen Y 16%, Baby Boomers 6%).

8 SHOEBOXES & SHOESTRINGS SHOEBOXES... Most startup owners still use manual paper processes and spreadsheets to manage their finances: PLAY BOOK SMART STARTUPS HEAD TO THE CLOUD Those who passed the Intuit Test are more likely to be using financial management software tools, with cloud solutions like QuickBooks Online allowing them to access and manage their finances anywhere, anytime and on any device. 42% spreadsheet. 22% pen and paper, and ledgers. Twice as many business owners who passed the test use cloud-based software for financial management (12%) than those who failed (6%). Those who failed use paper processes (29%) far more than those who passed (14%). 13% desktop financial management software. 9% cloud-based financial management software.

9 ...AND SHOESTRINGS How much they invest to start: Most new companies run on the smell of an oily rag but there is an opportunity for startups to get more bang for their buck by getting a clearer picture of their business value and finances. 6 in 10 (61%) less than $5, in 10 (39%) less than $1,000 investment. 2 in 10 (19%) $10, in 10 (13%) $5,000 - $9,999. Baby Boomers invested the most 1 in 3 invest $10,000+, perhaps drawing on redundancy payments, savings, super or equity in their home to start their business. Many not charging enough: find your true value Most startups undervalue themselves they either don t know their worth, or intentionally undervalue themselves for competitive reasons: 1 in 3 (35%) undercharge for the work they do. 2 in 10 (17%) intentionally bill work at rates lower than its value. Clarity into business finances is vital when you can see business value, you can charge for it.

10 GET FINANCIALLY FIT! earning peanuts Most startup owners pay themselves at least 1/3 less than average weekly earnings before tax: 1 in 2 (56%) - less than $50,000 per year or under $1,000 per week. $1, average weekly earnings (full-time).^ 1 in 10 (10%) - $50,000 - $70,000 per year. $ national minimum wage.^^ 2% - $150,000 per year. Gen Y: show me the money Pay themselves the most: 6 in 10 (61%) - more than $50k. Less than $50k 7 in 10 (67%) - Gen X. It s worse for women 64% - females paid less than $50k versus 45% males. 6 in 10 (62%) - Baby Boomers. 4 in 10 (39%) - Gen Y.

11 HOW MUCH THEY MAKE Despite not paying themselves well, profit is hard to come by for startups: Little pay, less profit Break even or loss 1 in 2 (48%) under $50k profit. 8% of Gen Y. 1 in 10 (8%) break even. 15% of Gen X. 6% run at a loss. 20% of Baby Boomers. Gen Y: on the money Gen Y may have scored the worst on the Intuit Test, but they re not short of a dollar compared to older startup owners. Gen Y s pay themselves more and have lower rates of break even and running at a loss. The wish list: the pay off When the hard work pays off and the profit rolls in, most startups would re-invest it in their business. How startups would use extra profit: 21% pay off debt. 16% advertising & promotion. 17% invest in new equipment. 14% personal use.

12 GETTING FIT $ P FOR A BooTCAM OM LINE YOUR BOtt It s your business. You work hard for it. You deserve to reap the rewards. By improving your financial fitness, you ll gain a better understanding and clearer view of your business and that leads to smarter, more profitable decision making. Learning about common financial management pitfalls and how to avoid them can greatly improve your chance of success. Begin with financial management and education tools that show you how to make your startup viable by giving you an accurate picture of your business. By moving to the cloud, you ll be able to gain insights on the go. Partnering with a professional can help you get further but even with professional help, you still need to understand what each item means and where the numbers come from. Knowledge is power. Powerfully simple, affordable tools like QuickBooks Online give you the ability to get an accurate snapshot of your business, gain a clearer understanding of your numbers and take control of your finances and your future. And get a good night s sleep. RTUP ISUP! A T S D A GOO LTHY START A HEA

13 GET FINANCIALLY FIT! INTUIT FINANCIAL FITNESS TEST ANSWERS % of all new business owners who answered correctly Accruals means recognising revenues and expenses when they occur, regardless of when paid: 30% A company has more cash today when customers pay their bills sooner: 35% A firm s capital structure is the mix of debt and equity: 29% A sale on credit ends up as revenue on the income statement and as accounts receivable on the balance sheet: 47% A depreciation expense does not affect your cash position: 56% Assets = liabilities + owner s equity: 27% An individual or business who does not purchase any insurance is retaining the risk of loss: 59% Net working capital is the amount of current assets required to meet a firm s short-term minimum needs (i.e. within 12 months): 25% The role of the balance sheet is to record assets, liabilities and owner s equity at a specific point in time: 35% Short-term cashflow can be improved by collecting your receivables on time: 64%

14 Sources: * Average of 44 small businesses closing their doors each day, according to the Australian Bureau of Statistics, Lisa Cornish & Samantha Landay, Herald Sun, 7 August 2013 ** Counts of Australian Businesses, including Entries and Exits (cat. no ), Australian Bureau of Statistics, 2 March 2015 *** Start Me Up, 2005, John Petty, University of Technology, Sydney **** How well do you know your small business? Intuit QuickBooks Online, Canada, ^Australian Bureau of Statistics, Average Weekly Earnings (November 2014), ABS Cat. No , released 26 February 2015 ^^ retrieved 29 April 2015 Join the conversation: intuit.com.au facebook.com/quickbooksau twitter.com/quickbooksau