Start Out Strong: The simple & easy guide to manage the money in your small business; Avoid Costly 1st Timer Mistakes

By Vi Nguyen

Where do you start when you want to manage your business's money?

You start right here. Start Out Strong is an accounting book that's easy-to-understand (yes, you heard it right) and it was created for small business owners, entrepreneurs and those beginning their business journey to make sense of the numbers part of their

• Language: English
• Publisher: Useful Money Stuff Books
• Release date: Jul 31, 2022
• ISBN: 9781922339034

Book preview

The Failure Rate is Real

Being in business is hard.

Surviving in business is even harder with approximately 50% of businesses failing in their first five years.

That’s a scary thought, isn’t it?

To think that your dreams to create something new, to provide a valuable service or to create a customer experience may just become one of those forgotten failures is a daunting thought.

And it’s not only dreams but it’s the hard work.  The long nights and time with friends and family sacrificed so that you can work on building your new venture and keeping it afloat.

The amount of effort that goes into building a business cannot be underestimated—whether it’s running a self-service laundry, baking custom cookies, playing in gigs, selling artwork, making hotdogs or going out on your own as a consultant.

In every business, what’s common is the time, invested by you, into making it a success.

But the failure rate is real and let’s unpack that.

Failure in a business is very individual.  A business can fail for many reasons.  It could be a once-in-a-lifetime event that changes behavior, like a pandemic that may restrict people from leaving their homes to patronize the restaurants they usually do.  Or it could be a slow burn, where customers turn away from you and change their mind to try out a new retailer or brand, never to come back.

And you can’t ever be too big to fail. 

Multi-national companies making billions in sales and those operating for over 30 years have filed for bankruptcy previously.  They have people with fancy qualifications that manage them.

But, if such large companies can fail, where does that leave you?

It leaves you… with you. 

It’s your management that will steer your business.  Some situations are tougher than others and it’s about being able to weather the storm that comes with running a business.  Making smart decisions will be likely to help your business survive the storm until it can sail safely.

If you’re running a restaurant and the once-in-a-lifetime pandemic event hits, would you make a decision to offer take-out as some businesses did?

Similarly, if you ran a hot-dog stand and you noticed that slowly, customers were turning away in favor of healthier options, would you then start modifying your menu to include healthier options, to bring customers back?

Businesses that adapt to their environment, thanks to the good decisions of those managing them, survive.  But they also have something else.

Cash, the lifeblood of a business. 

Cash helps your business continue to survive - to pay its bills, even if there’s a period where your business isn’t making much money.  And accounting - the management of not only cash but the ins and outs of your business is crucial to staying on track.

Seriously, which large corporation doesn’t have a specialized accounting function?  Or what business doesn’t have an accountant?

Because businesses that survive and thrive know that money management is not just a mere afterthought - it is an integral part of running a business.  Just like sales and marketing.

And that leads us to the first-time freelancer or small business owner’s dilemma.

Failure through not managing money properly which comes from not being able to understand how money works.  From who plays what roles, where you fit in, what your obligations are and what to do.  Essentially, where do you start?

You start here.

The finances of your business, even when you’re starting out, is one of the ‘scarier’ things to do because it’s a minefield of jargon and perhaps, ‘numbers aren’t your thing’.  But those who don’t manage their finances properly or just avoid it altogether can quickly find themselves falling into a dark pit of despair.

A pit of despair that features some unsavory characters like bankruptcy, tax authorities demanding you respond to their letters and the people who, for some reason or another, want to just delight in your misery.

These are problems you don’t need in your life, given that you’re running a business and that’s hard enough.

So, let’s get you started on understanding your business's money.  It’s one step in the right direction. 

This book is written to help you understand your business's money so that you can avoid this dark pit of despair and perhaps, equip yourself with knowledge about money so that when your business faces its own storms, it can survive enough just to see the sunshine that awaits.

Why Run a Business?

When people start a business, their responses vary but they’re usually:

I’ve always wanted to go out on my own…

It’s been a dream to be able to open…

Finally, I get to change people’s lives and have an impact by…

It’s true.  Running a business usually is a lifelong dream for many people.  Going out on your own to create something that will have an impact on someone else’s life is fulfilling.

But let’s not lose sight of what a business really is.

A business is an activity to make, buy and sell services or products.  Its end goal is to make a profit.

This isn’t some hard-nosed money-making corporate speak but a real fact that means a business can continue what it’s doing so that it can survive and one day, thrive. 

Profit to a business is like what water is to your body—you need it for your survival.  But what is profit?

It’s an interesting concept and one that’s crucial to know.

Let’s say you work for someone, let’s call this person, YBB to represent, Your Big Boss.

YBB pays you $23 an hour.  And let’s say you work full-time for YBB and when payday comes this week, you get your paycheck of $697.  Your full earnings were $851 but YBB took out $154 to pay to the tax office as your part payment towards your end-of-year taxes.

So many numbers!  Confused already?

Let’s focus on the main things and break them up.

➡ Your paycheck represents your ‘earnings’ for the week.  This is the $851 number, not the smaller amount that is paid out to you.  Your earnings are what you make from your efforts and activities in working for YBB.  In a business, this would be called income, revenue or earnings.  Unfortunately, in the accounting world, there are a lot of words that mean the same thing or a similar thing.  You’ll soon see that this is an annoying problem.

➡ Taxes are taken out of your earnings.  I like to think of it as a requirement set by your mother to give her a slice of cake if you ever make cake!  So this $154 (a slice of cake) is taken out of your earnings (the total cake).

➡ Finally, you get the amount that goes into your bank account ($697) which is your earnings with the part that contributes to your tax payment taken out.

Here are the three parts you need to know and their ‘official’ names:

➡ Gross Earnings/Income/Revenue—This is what you earn from your efforts in total.  Without anything taken out.  Kind of like the whole cake when you bake one.

➡ Taxation—This is something that’s taken out and the amount that’s taken out depends on a number of rules set by your tax authority.  It’s part of business, but it’s only when you make or earn money (just like mom taking a piece of the cake if there is cake to start off with).  This is the slice of cake that the tax authorities take and how big this slice is depends on a number of rules that aren't covered in this book.

➡ Net Earnings—The word ‘net’ just means the remainder left over.  This is the cake leftover.

Awesome!

We’ve learnt some of the keywords that come with a business.  But when you work for someone else, what you consider is generally one-sided, the part where the money comes in from the sale (of your services).

The other side is spending.  Where money is spent in your business to make the money that comes in.

Confused yet?

Let’s bring it back to working for YBB.  Let’s say YBB now wants you to be a contractor, not an employee, because they only want you to perform certain tasks.

YBB says to you that you can bill them for the time you work on your tasks directly.  It seems pretty standard and you don’t really see that it’s much of a change.  You decide to charge $23 an hour on your bill to YBB, because nothing really has changed right?

But… you work from your share house now as a contractor.  You’ve also rented a laptop to do your work on and it costs $6 a week.  You’re now also spending $64 on internet a month, just so that you can do daily video conferencing calls and