Starting a business? Here are five common mistakes most business owners make when launching a new business. Listen in to learn what they are and avoid making these costly mistakes.
Episode Highlights:
- An accountant with a heart for business
- First mistake, lack of business planning
- Blind optimism can be dangerous
- Second mistake, not having an estate plan
- Third mistake, not having the right structure
- Fourth mistake, not understanding your responsibilities as Director
- A real life example of what can go wrong
- Fifth mistake, not having a cash flow plan
Joanna: Hi it’s Joanna Oakey here and welcome back to Talking Law, a podcast brought to you by our commercial legal practice Aspect Legal.
Today we have on board Jason Skinner, owner of Skinner Hamilton Accountants & Business Consultants, whose passion for helping businesses inspired him to come out from behind the desk and bring his knowledge and experience to every day business owners all over the world through his podcast aptly called The Business Made Easy Podcast.
In this episode with Jason we discuss the common mistakes business owners make when starting a new business. And today you are going to get 2 perspectives – a perspective from the accounting side, and a legal perspective. And it’s a relevant topic to listen in to even if you are well past start up, as we examine the details of many issues we have seen business owners face.
I’m sure you’ll love this conversation with Jason. There’s so much valuable insights here for business owners, no matter what stage you’re in in the business cycle. So keep listening, and we’ll get started!
Joanna: Okay Jason thank you so much for joining us today on Talking Law. It’s great to have you.
Jason: Thanks Joanna. Thanks. Great to be here.
Joanna: Great. So why don’t we kick it off by perhaps you giving us just a little bit of a quick background just so that we understand the context of your I guess your perspective in this area.
An accountant with a heart for business
Jason: Yes. Sure. Thanks Joanna. So I’m basically an accountant. We’re an accounting business, accounting practice and we specialise in small businesses, medium businesses. We don’t do any sort of employee type tax returns. But what we do do with our business clients is a lot of business development work.
My background is really I’ve got a passion for business. My family were in business as well so I sort of grew up understanding what the stresses and strains of being in business is all about. It sort of gravitated to me in that space in the accounting space to help businesses to grow. I witnessed more than just doing a tax return I guess we could witness the pains that business owners were sort of going through.
Joanna: And can I just throw in there. I love that you include in this initial discussion of yourself your passion for business as a whole because I think that’s a really interesting perspective. I mean lawyers and accountants we’re both technicians I guess in a way. But many lawyers and accountants approach working with their clients from a technical perspective.
But I really think there’s a massive benefit for clients in having also the opinions of people from a technical perspective who also understand business as a whole, have a passion for it, have an empathy for it because it’s hard work running a business. Right? And certainly, there’s a textbook things that you should and shouldn’t do from an accounting perspective and textbook things that you should and shouldn’t do from a legal perspective. But in reality when you’re in business it’s never that clear cut and straightforward.
Jason: It’s not. I was very lucky Joanna when I started in accounting to have a great mentor, my partner that I worked under in the firm I was in. Because I thought, when I started in accounting, I had to know these sections of law and quote all these sections of law. And that’s what clients wanted to hear.
Joanna: And they never do. They never do.
Jason: No. I don’t understand that. I don’t understand why. It’s actually interesting when you get to read it. But he actually stopped me one day and said just wait because I was quoting all these sections to him and he said, just hang on a second. He said, your clients don’t give a damn about section numbers or what’s in those sections or anything like that. All they care about is their world being made better and you taking that pain away for them.
And he was so right. It taught me then and I just went all right. That’s the right way. So that’s the way I sort of got trained then was looking more at the relationship with the client and improving their world with the tools i.e. the legislation etc. that I knew at the back of my head.
Joanna: And I truly believe that’s how we can you know together as professionals deliver true value and real value at the end of the day, when we’re coming at it from the client’s perspective. And you know this all kicked off because you’re talking about the passion for business.
But I think that needs to be there in order for you to be most effective at translating that technical information into something practical and real for the clients that you’re dealing with.
And then, you also mentioned you know you understood sort of the pain and the stresses and I think that’s so important and I think that’s sort of why we’re talking today about this area of common mistakes. Because I guess we’ve both seen when things go wrong. Right?
Jason: Absolutely.
Joanna: Look I stopped you talking about your background. How about you finish telling us about it. Then let’s talk about some of those things where you’ve seen where things have gone wrong.
Jason: Yeah, sure. So basically, we started the firm. It sort of morphed from another partnership firm that I was in and we, basically my wife and I, now run the practice. She’s the Hamilton in the Skinner Hamilton.
We live a very quiet life. We just do our work and help our clients and that’s pretty well what it was.
Joanna: Fabulous! In the beautiful Gold Coast.
Jason: In the Gold Coast, yes.
Joanna: I don’t think our listeners heard. But I was lamenting the fact that I’m sitting here in Sydney at the moment in the middle of a dust storm and there you are sitting in the beautiful Gold Coast.
Jason: Yeah. Sun’s shining and we’re looking forward to the weekend.
First mistake, lack of business planning
Joanna: All right. So let’s see if we circle back then. I touched on a point that you raised which is this understanding of where things have gone wrong. So from your perspective what have you seen? What have you seen go drastically wrong for businesses that you’ve dealt with?
Jason: Yeah. The thing I find most is lack of planning. Business owners doing a lack of planning. I guess it starts from the very start really when people get into business I believe because they’ve got this optimism that it’s going to be rosy and everything is just going to be so great when they buy this business or when they start this business and it never works out that way unfortunately as I’m sure you know.
Because when I see them, they come in the office and they go “Oh we’re going to shoot the lights out with this” or “We’re going to buy this business and we’re going to run it so much better than the people that have already got it and everything’s going to be great because I love making sandwiches” or whatever I’m passionate about.
And really, business as you know is just so different when you get into it because it’s not just about making sandwiches. It’s also about doing marketing. It’s also about managing cash flow. It’s also managing staffing and H.R. issues and landlord and all these other things that go with it. So I think that’s probably my big point is that they don’t. It’s the lack of business planning.
Joanna: Yeah. And can I drill into some of those examples that you’re talking about because I just, I love the stories and I think that’s what really resonates with people. And hey, you know our listeners I think are quite often jogging along the beach if they’re lucky or in their commute while they’re listening to this so stories really help to solidify it.
Jason: They do.
Joanna: And I certainly got loads of them. But maybe, are there any particular stories that stand out in your mind Jason?
Blind optimism can be dangerous
Jason: Yeah, there is actually. There was a young couple that came to see me. It wasn’t so long back. And they wanted to buy this particular business, so they were going to give up their jobs, their salaries.
And I think from memory, let’s just say combined they might have been on about 100 or 160 thousand dollars a year. But they wanted to buy this business. She was very very, the lady was very very interested in it and it was just something she thought was going to light her up.
And so I went through the numbers because they come in to see you and they’re all very optimistic. You’ve got to be very careful as the advisor that you just don’t go, you can’t just say “That’s a stupid idea, don’t do that.”
Joanna: Yeah.
Jason: You kind of got to take people on the journey of what that is going to look like and so what I actually did with them is sat down and we did some business planning and just looked at the numbers. And the thing is it’s a lot cheaper to do this stuff on paper or whiteboard than it is to go and commit to signing up for leases and buying the business and all that sort of thing.
But when we went through the numbers step by step. We got down to all sorts of things like how many hours a week do you think this is going to require of your time. While we worked all that out, it was going to require more time than they were spending at their day job and by the time they paid everybody, paid their expenses, paid off the loan for the business, paid the tax, all the costs, they were actually going to be making about 80 thousand dollars a year. So they were harming their income and doubling their work load all for the sake of, because it was a franchise business just those franchise fees and things like that, which again that’s not always easy to navigate.
But do you think I could still convince them not to buy that business once they saw those numbers, because again this blind optimism was that they were going to do better than that. And unfortunately. Well, they did see my way in the end. Yeah, that’s very common.
Joanna: So you said that they did end up going ahead?
Jason: No. They didn’t. Sorry.
Joanna: Oh they didn’t. They didn’t. All right.
Jason: I literally just had to keep up and showing them the numbers and you know it’s so much cheaper to get some professional help and plan that out first before it is committing as I say your hard earned dollars.
Joanna: I think you’re absolutely right because you know I mean we’ve seen many businesses. I mean business as a whole I think is subject to peaks and troughs. There can be good times, there can be bad times. In some businesses, the good times are better than bad times. And in other businesses it’s a reverse.
But hitting crunch times in a business I think you know particularly when business owners are getting a bit tired. So right at that beginning phase that you’re talking about, I guess the reason why it’s hard to have people see the reality of the numbers is because there’s so much emotion involved with the idea of this. It may be many things, but you know being their own boss, controlling their own lives, feeling that they’ve got more input into their destiny. I think that quite often it is a large pull factor and sometimes it’s just the misplaced belief that they’re actually going to get more money for less effort.
Jason: Yeah, absolutely.
Joanna: With hell, as business owners. I don’t know. It’s a while before you get to that place. Right?
Jason: It’s like the online business space. There’s this misconception out there that you just start an online business and you have this massive income coming. But it doesn’t work that way.
Joanna: No. That’s Right.
Jason: Business is hard work. You have to put the work in. But it’s the areas that you put the work in that make it work that make it viable.
Joanna: And so I guess we’re not saying here don’t do it. But we’re saying be aware of the enthusiasm that might be clouding your judgment.
Jason: And that blind optimism.
Joanna: That’s right. The blind optimism, and understand that you need to stop and from your perspective, look at the figures and the forecast and the projections without emotion. From my perspective, it would be considering, particularly when we’re talking about the purchase of a business or deciding to go into business with other people, make sure you’re asking the right questions right at the beginning and that you have some sort of documented agreement between yourselves. Because I think that’s where I see blind optimism also plays a role. You know people going into business and thinking because they get on so well today that they’re going to continue to get on into the future and the reality is in almost the majority of cases the issues will appear along the way.
Jason: Absolutely. Yeah. You’re so right there. Because when that optimism is there, when everybody’s getting on. It’s like, I call it the honeymoon stage of a partnership or a business. You had the idea, you bought the business, everyone’s getting on and everyone’s happy or you may not have bought it yet or you’re going to.
But at that point when everyone’s getting on, that’s the critical time to actually do the agreement because there’s no better time of agreeing. There’s no better time and everyone’s on board on the same page and sharing same vision than that honeymoon period.
And unfortunately, as you will see I’m sure, unfortunately people don’t do that because they go “No trouble is ever going to happen; we’re all on the same page here you know.”
Joanna: Yeah, exactly. Or they say, “We’ll definitely do it. It’s on the list. We’ll just do it a bit later.” So that means we’ll never do it.
Jason: That’s it. We’ve got bigger priorities at the moment. We have to get our Facebook page setup and things like that and you go “Really? No, you need that agreement.”
Joanna: Yeah, absolutely. Or they say, “Okay well let’s get started.” And then they say, “Oh you know it’s a bit too hard to work out now.”
I promise you it’s so much easier right now, even though you know of course there’s things you have to work through. It’s a lot easier when you’re getting on to work out those things than to wait until you’re not getting on because then that multiplies the difficulty of working it out tenfold sometimes a hundred fold.
Jason: Yeah. I guess it’s the rules of the game basically. That’s what you’re getting clear with that agreement. It’s the rules of the game and how these things are going to operate and what’s the conduct and what’s expected of each party coming into play. So they are all things that people just don’t get clear about. It’s like a marriage, isn’t it?
You don’t get married without talking about where you want to live, when you want to have a family or.
Joanna: I’m feeling like we can almost create a checklist now here Jason.
Jason: Yeah, we could.
Joanna: Not just for our shareholders agreement but our life partner agreement. Perfect!
Jason: That’s right. That’s right.
Joanna: I love it! I’m totally on board with you. This is good. One of the primary common mistakes that business owners make when they’re starting out is not planning. I think that covers it all. What else do you see? What else really strikes you as mistakes that these business owners are making?
Second mistake, not having an estate plan
Jason: Yes. The other, probably still on that legal theme, is their estate plan. They don’t have estate planning done so what happens to the business if the partner dies or the owner dies. So none of that’s taken care of. And unfortunately, incidents accidents happen in life and you can’t predict a lot of things like this. Still around I guess that planning piece, agreements, make sure you got the right agreements etc. in place, I would say arguably estate planning, making sure that’s done would be important.
Joanna: And once again you know we talking here about the mentality I guess of well yeah we’ll look at that one day because obviously it’s not a big issue for us right now. But of course you never know when it will be a relevant issue.
I think in both of these things that we’re talking about the planning and the estate planning. It’s just about not going for the I guess here we can bring up Stephen Covey’s sort of framework. It’s going for the urgent. It’s also going for the important.
Jason: Exactly right. Yeah, on his quadrant. Yeah, absolutely.
They are things that prevent problems down the track for you. You have seen this as well. At these times, when things do go wrong, the better prepared you are with these sort of pre-planning, pre-work sort of information, the better you get through them at that emotional time.
I believe a lot of entrepreneurs and business owners don’t factor in emotion into their decision making process. They’re emotionally driven, like they’re passionate in that way. But they don’t factor in the impact on emotion when things go wrong and having all those agreements and having estate plan, all those those critical documents and what not done I think serves you so well when things do go wrong.
Joanna: Yeah. I think that’s a really good point. I think some of these documents help to avoid issues. I mean of course from a state planning perspective we can’t necessarily.
Jason: If you figure that one, you’re in trouble.
Joanna: But casting our mind back to the discussion about things like shareholders agreements, I think and this is the same of any documentation that you’re putting in place, that just having discussions I think in the beginning with people that you’re going into business and just thinking through these issues helps to avoid the issues from occurring in the first place.
It’s not just about creating the mechanism by which you manage issues as they appear. It’s also about having the conversations to ensure that the issues don’t occur in the first place as well. I think that’s a really important extra element as well because certainly prevention is far easier and cheaper than the cure as they say.
Jason: Absolutely, yeah. One situation. It reminds me of one situation I had where it was partnership of two families, unrelated families in partnership together and the husbands were basically the partners running the business. The wives had nothing to do with it.
But one of the husbands passed away and his will left everything to his wife, to his spouse. So all of a sudden the other partner is in partnership with someone who can’t do the work and…
Joanna: Probably knows little about the business.
Jason: Yeah, knows little about the business and doesn’t want to be in partnership in the first place and a simple partnership agreement would have sorted all that out.
Joanna: Absolutely. And because then of course you know it leads to the question okay well you know what is the value, what’s the sale value of the business and which you know and does the other partner in the business even have the funds available to buy out the equity in the business. So you know it can lead to all of these really complicated issue, which can mean the end of the business as a whole and the destruction of the value of that equity both for the surviving partner, the wife in this example, and the partner in the business.
Jason: That’s right. Absolutely. It’s just so critical to get that stuff on the table at the very very outset of any business. It’s got to be documented.
The thing I’d like to do with that, when people are doing is I like to get people in a room for about a day and we have a strategic planning day and we cover off all those things and we engage the lawyers and we engage whoever we need to address all that so it’s done and then you can leave the room and go and get on with running business knowing everything’s…
Joanna: Taken care of, set up and that you’ve worked through all of these questions in relation to how the businesses is going to operate together and how your relationship is going to work without you having to just make it up on the fly as it were.
Jason: That’s exactly right. Yeah.
Third mistake, not having the right structure
Joanna: So I guess sort of moving forward. So other sort of mistakes that businesses and owners make when starting a business. I guess one of the things we should probably talk about here is structure as well. Because certainly, I see a lot of businesses at the exit phase and that’s where it becomes really apparent that there are real issues with the structure of the business when we get to the point of sale and suddenly there’s this discussion about the tax impact of a sale. So what’s your thoughts about that? How do you guide clients through that discussion?
Jason: So in those early startup days, structure, you’re exactly right. Structure is probably one of the critical element to get right from the outset because it is very very expensive or can be very very expensive down the track to change that structure.
So you kind of got to have a good clear idea about what it is that you’re creating. What size business is this going to be? Is it going to be a small one-owner run? Is it just one person going along or are you going to have employees? Is there going to be intellectual property that you’re going to create or assets that are going to need protecting?
Joanna: Might you want to bring other business partners on board in the future. I think that’s a really important element in deciding structure.
Jason: Correct. Yeah. So how do they enter your business and exit your business cost effectively. Because moving a business, depends on state based taxes obviously, each state is different, but if you’re moving your business from one entity to another and you’ve got stamp duty concerns, all that stuff, capital gains tax. All those things can get quite expensive later on down the track.
I always encourage that, again that sort of comes out of that day planning session that I run. But we get all this sorted out from the outset so that the structure is flexible enough to cater for future growth. But it’s not going to be so rigid that it’s. The other thing too. Sorry, I got a million thoughts on this topic.
Joanna: Well structure is a bit like that, isn’t it? It can be confusing. There’s so many things to consider.
Jason: That’s right. And people at that startup phase don’t really necessarily have the money or don’t see the point in investing in it properly to start with. So they’ll try and cut corners and go “Oh look, I’ll just get an ABN and I’ll just put my name on it for now and then we’ll deal with that again down the track with the wills and the state planning, and shareholders agreement. We’ll do it all down the road.” But yeah, it can be very expensive to try and change later on.
Joanna: Yeah. I think the other thing to add about structure is also the importance of firstly simplicity. So obviously I think there’s an importance of considering how you’re going to run your structure and how that’s going to work for you moving forward. But I think there should also be a component or an element of consideration to simplicity, because I do see many instances where people come to me and I’ll talk to them about their structure. Do you know what this is like?
In a very high percentage of cases, when I asked them about their structure they will say “I don’t understand it.” And my position on that is, it’s actually critical for me to sit down and you know usually those instances when someone says that, we haven’t been the one to set it up for them.
But what we’ll do then is sit down and walk them through the structure and what it means and how it works. And I’m a very visual person, but I think many business owners are visual. I’d really like to see a structure in a diagram and sort of you know really clearly simply explain how it works.
Now some structures you don’t need that. But in almost every structure, there is an element to it that can create a little bit of confusion. That’s one thing I’d throw out there in structure as well. If people don’t understand their structure fully, then they shouldn’t just sit there saying I’m too embarrassed to ask.
Jason: Exactly. So dangerous.
Joanna: That’s the first thing. And then the second thing is they shouldn’t hide their head in the sand and say “Well, my advisor, my accountant, my lawyer understands the structure so I don’t need to.”.
I think the problem with that approach is, when I have clients and I explain the structure to them, they say to me “Hold on. That’s not how I thought it work. I thought it was like this.” And then we unravel it and find in actual fact they’ve had the wrong information all along, which can create serious problems. So I think the thing is simplicity is important but also education and understanding and for clients to put their hand up if they don’t understand so that they’re fully involved in that process of understanding the structure that they’re using so that they know what it means moving forward.
Jason: Yeah. We have a rule here that every single client no matter how big, you can be a sole trader with just your own ABN right through to a more complicated structure, but every client we do an actual structure diagram for that reason.
Joanna: Perfect.
Fourth mistake, not understanding your responsibilities as Director
Jason: So they have a copy of that. But you have got to make sure that clients are aware of what they’re signing up for and their responsibilities under that. I have a situation where a son had made her the director of his company. He’d been bankrupt previously.
Joanna: Oh, I’ve got goosebumps now. I’m concerned about where this story is going. Take us there.
Jason: She was blindly, like he’d obviously bring stuff home for her sign and all that sort of thing. She was blindly signing the financials off and everything like that. But trouble happened in the company and it ended up going pear shaped, the company went into liquidation and of course there’s all actions against the directors then and she just put her hand up and said “I’m sorry. I just signed it. I didn’t understand what I was signing.” Tried to plead ignorance and obviously you know what happens, was held fully accountable for the decisions made by the company.
Joanna: Oh that’s so scary. And that probably ties in I think to perhaps another common mistake that I see and clearly you see as well, which is directors of companies not understanding the implications of their holding a directorship and the potential personal liability that can go along with that.
When I say this sometimes I think “Oh gosh, I don’t want to be alarmist.” Because in many instances, there will be no issues with the business. But the reality is I’ve seen, you’ve probably seen as well, liquidators chasing, harassing directors of companies that have ended up insolvent or in liquidation personally And it’s a nasty nasty thing to watch happen. So I think it’s really important.
And of course now, directors are subject to all sorts of requirements in relation to lodging on time and paying on time because of course if you more than three months late in lodging or paying your BAS, then you can become personally liable for the payment.
Jason: That’s right. With the director penalty notice regime, particularly with tax offers, not paying your superannuation, they’re just broadening those rules even further now. Directors really can’t hide behind companies as much as they used to be able to. And you really need to understand as a director, whatever structure you go into what your personal liabilities are should things go wrong. Of course many times the owner is safe, but what if. So you got to ask those questions and your advisers should be explaining them clearly so you don’t leave that room until you fully understand.
Joanna: Yeah. If any of our listeners are involved in risky sorts of businesses or businesses where they think there might be liquidity issues into the future, I think it’s really also important to have a general discussion about asset protection in relation to their own personal assets and where they’re holding their finances and their wealth. Is that the sort of discussion that you also have with your clients in this planning days? Are those the sorts of things that you’ve seen play out as issues?
Jason: Yeah, absolutely. Yeah. Because you could be building up personal wealth and your business might be going well for a period of time, but as you know being balloon space, fees can go wrong very very quickly. Not as a result of something you’ve done per say. But as a result of someone else’s action that’s brought you into the situation.
Joanna: Which is a reminder then as well for businesses that are going into partnership or taking an equity position for example in a company or some other type of business entity that has been around for a while.
They have to be very careful about the history of that company and before they take on a directorship know for sure that there aren’t outstanding liabilities relating to that entity that they might then end up with holding the can for.
Jason: Exactly right. Yeah, the old skeletons in the closet.
Joanna: That it.
Jason: You’ve got to really do your due diligence before taking or particulars as you say, buying into someone else’s company. You really want to make sure that you do your homework and almost like a strict audit on the financial affairs, what’s happened in the past and get clearances wherever you can before signing on the line.
Joanna: Absolutely. And I’m feeling a little bit worried here. I feel like I’m sitting in the shoes of our listener here saying “Holy goodness! There’s a lot to be worried about in business.”
Jason: Yeah, we really painted a rosy picture.
Joanna: It’s not all bad, right?
Jason: I don’t get asked to many dinner parties.
A real life example of what can go wrong
Joanna: But I think the thing is. I remember this critical incident or memory from very early in my legal career where I had a client at the time that had come into the firm that I worked for at that point. And his business was crumbling before his eyes. He came in for advice and the problem was that he’d left it too late to get advice.
But I worked really closely with this guy who was just a lovely guy, to help him try and avoid the liquidation. But as it turned out one of his creditors ended up putting the company into liquidation and then he ended up in bankruptcy and then he was being pursued by the liquidator and the trustee in bankruptcy. It was just an awful, horrible situation.
I just remember sitting there with my client at the time and him just talking about how his marriage had just fallen over and how he just felt he couldn’t go on. It was one of those moments in your life where you say to yourself “I want to make sure I can do everything I can possibly do in this world to make sure people don’t end up in his situation” and it impacted me really deep.
I think that was the very first time that it fully occurred to me how important these things are. Because sometimes a business are people’s lives, and in this particular instance it wasn’t just his business that had crumbled. All of his personal assets were taken and all of the stress then led to the crumbling of his marriage. But it just seems so massive, when in many instances these things are avoidable.
And so whilst I really don’t ever want to scare the socks off people, I just think this conversation is so vitally important because if you sit down and you have these discussions at the beginning of your business and you can set out the framework for protection for yourself and the business moving forward, then you can avoid these monumental risks that are sitting out there, which aren’t highly likely to happen. But if they were to occur, can have massive ramifications.
Jason: Absolutely. That planning stage, I keep coming back to that, but that planning session really is vital before you start because it’s so much cheaper to plan on paper and map out a road map of what if’s and do a cash flow plan and budget as to what’s the road looks like ahead, what have we got to do in sales, what’s our pricing going to be, how many sales have we got to make, what’s our break even point, at what point do we start making money in this business.
And then, if you know what the break even point is, you’ll know whether you’re on track or not because if you’re under that sales figure, you’re not making any money. You’re not breaking even. And anything over it, you are making money. So you need to ascertain all these vital numbers and I kind of set up a bit of a dashboard so we put all that on.
When I’m talking about planning to a business owner, I’m not talking about creating tombs of documents that never get looked at again. This is sort of like a one page thing that everyone in the business, like all the owners can have and look at and stick it on their fridge and sort of check in how they’re going. But yeah, you’ve got to know those numbers just to make sure that before you commit to spending money, you are going to be safe.
Joanna: Well Jason, I tell you what I think that has been a really useful sort of session that we’ve gone through today talking about all these areas of mistake. Is there anything that you feel that we really should throw in there that we hadn’t quite covered yet?
Fifth mistake, not having a cash flow plan
Jason: No. The only thing, as I said, just touching on then is making sure because it sort of another area that I see is not doing cash flow planning. Again, understanding of how the money is going to move in and out of the business. Because it’s like petrol in your car. As your business gets bigger, I always think of that as your car getting bigger. Well you need more petrol to get from A to B, and that’s the cash in your bank account. So it’s like fuel or petrol in your car, you need to have enough to keep making your business grow and keep operating. So proper cash flow planning. Yeah, definitely.
Joanna: It’s funny you say that because in this particular instance I’m talking about years ago where the company went to the wall. The company was actually profitable. That was the funny thing. But it was the cash flow that was the problem. It was the cash flow crunch that hit them and they sought advice to late, that was the other issue. So number one they didn’t understand that profit doesn’t equal cash. And number two they sought advice to late. So I totally agree with what you say.
I’m just trying. I’m searching for. There’s a great quote that I heard recently about this. They say, “Revenue is vanity. Profit is sanity. Cash is king.”
Jason: That’s it. Yeah, nice. I like that!
Yeah, you’ve got to have cash. If you haven’t got cash, you really haven’t got anything. Some incredibly large businesses not actually have any cash. Not have any cash flow. You just can’t pay the bills. You’re always late. First thing that doesn’t get paid is the staff superannuation or the GST returns. It just spirals out of control from there so you do need to look at that working capital situation and cash flow.
Joanna: And make sure you understand when a cash flow. Make sure you’re doing it regularly enough so that you can identify when you might be at risk of a cash flow crunch coming onto the horizon so that you can identify it before it hits.
Jason: That’s exactly right. Yeah.
Joanna: I think that’s the point, right?
Jason:Yeah. There’s no point. So many people just go to their accountant once a year and get their tax return done and it’s so crazy to run a business that way because number one, by the time the accountant gets around to doing it, it’s usually six months after the financial year anyway. So you’re looking at 18 month old data to make decisions on this. It’s historic.
You should be looking forward and planning forward and taking a proactive approach to that and actually steering the ship rather than just seeing where the ships been.
Joanna: Absolutely. Well I think that’s a really great synopsis today. We talked about the issues around not planning. We talk about the concept of being clear on structure and getting your agreements in place and I think absolutely this discussion about understanding cash flow is a real imperative and having financial awareness I guess that’s a lot of what you’ve been talking about today.
Jason: That’s it. Yup.
Joanna: Fabulous. Okay. Well look, Jason if any of our listeners are interested in this one day exploration that you’ve been talking about or any other sorts of services you can provide. How do they get in contact with you?
Jason: Yes. There’s a couple of ways you can do that is to go to skinnerhamilton.com.au or you can email me direct [email protected] or you can check out my podcast as well. It’s just BusinessMadeEasyPodcast.com and I do talk about all that stuff on there as well.
Joanna: Fabulous. Well, obviously we all love podcast here.
Jason: Yeah, that’s it.
Joanna: So I really recommend that as listening for our listeners. Well Jason, thank you so much for coming on board today. It was a really interesting discussion. Of course, we’ve been talking about the mistakes that business owners make when they’re starting a business. But of course, we know many business owners who might be in the depths of their business at the moment might realise that they themselves have made these mistakes at the beginning. So it’s never too late. Right?
Jason: Exactly right. That’s a good point. These planning sessions don’t stop once you’ve done them once. You do them annually. So it’s not too late if you’ve already established your business and you go “Oh look, I didn’t do that. I’ll just keep going.” Don’t do that. Get it cleaned up and do it annually and be amazed at the results you’ll get on the bottom line.
Joanna: Fabulous. Okay. Well look, thank you so much for your time today Jason. I hope you have a fabulous afternoon.
Jason: Thank you. You too. I’m on the Gold Coast. I’m sure I will.
Joanna: Yeah. Absolutely. Absolutely. I’m green.
Jason: It’s been great.
Joanna: Okay, bye.
Jason: Thanks Joanna.
Joanna: Well that’s a wrap for our episode with Jason Skinner of Skinner Hamilton Accountants & Business Consultants, where we drilled into five common mistakes business owners make when starting a new business. As a quick recap, the five mistakes we covered were:
First, lack of business planning.
Second, not having an estate plan.
Third, not having the right structure for your business.
Fourth, not understanding the implications of your role as a Director.
And lastly, number five, the lack of cash flow planning.
If you’re interested to learn more about this topic, you can check out Jason’s podcast at businessmadeeasypodcast.com or check out our show notes at www.talkinglaw.com.au where we’ll link through to his website. There you will also find a full transcript of this podcast episode if you would like to read it in more detail.
I hope you enjoyed what you heard today. If you did, please subscribe to Talking Law on Apple Podcasts or your other favorite podcast player to get notifications straight to your phones whenever a new episode is out.
Thanks again for listening in! This has been Joanna Oakey and Talking Law, a podcast proudly brought to you by our commercial legal practice Aspect Legal. See you next time!
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