Financial
From Side Hustle to Six Figures: A Tax and Accounting Game Plan for Growing Entrepreneurs
When you’re hustling as a solopreneur, it can feel like you’re wearing all the hats—accountant, marketer, CEO, janitor (okay, maybe not the last one). But once you start seeing some serious growth, it’s time to make sure your finances are in tip-top shape. Scaling a business is hard work, but a solid financial structure will keep you on track to that six-figure dream. Let’s dive into the nuts and bolts of tax planning, accounting, and consulting advice to help you make that leap.
The Jump from Side Hustle to Small Business
You know the drill: you start small. A bit of passion, a bit of elbow grease, and a whole lot of late nights. But when that side hustle starts gaining traction, it’s time to stop thinking like a hobbyist and start thinking like a business owner.
Here are some key steps to take when scaling your business:
- Separate Business and Personal Finances: First thing’s first—no more mixing your personal expenses with your business ones. Set up a separate business bank account and credit card. It makes tax time a lot easier, and it gives you a clearer picture of your cash flow.
- Track Every Dollar: You can’t manage what you don’t measure. Keep a close eye on your income and expenses. Use accounting software like Xero, QuickBooks, or MYOB to keep things organised. Remember, every dollar counts—especially when you’re building towards those six figures.
- Register for GST: In Australia, if your annual turnover is $75,000 or more, you’ll need to register for GST (Goods and Services Tax). It’s not just about collecting the tax, it’s about claiming the GST on your expenses too. So, if you’re buying supplies for your business, you can claim back the GST portion.
- Understand Your Business Structure: Should you operate as a sole trader, partnership, or company? Each comes with different tax obligations and liability protections. Talk to an accountant to figure out what works best for you.
Here’s a graph illustrating how business growth can differ with and without proper tax planning. As you can see, a strategic approach to tax planning leads to a much steeper growth curve over time. This emphasizes the importance of getting your financial house in order as you scale your business.
Tax Planning: The Smart Entrepreneur’s Secret Weapon
No one likes tax time. But guess what? If you’ve planned well, it doesn’t have to be a shock to the system. Let’s break down some key tax planning strategies:
1. Keep an Eye on Deductions
- Business Expenses: Any expense related to running your business can be claimed as a deduction. This includes things like office supplies, travel costs, advertising, and even a portion of your home office if you’re working from home.
- Superannuation Contributions: If you’re a sole trader, contributing to your superannuation can not only help you save for retirement, but you can claim it as a tax deduction too. It’s a win-win!
2. Quarterly BAS (Business Activity Statement)
If your business is registered for GST, you’ll need to lodge a BAS every quarter. It’s a bit of a hassle, but it helps keep you on top of your GST obligations. Plus, you can also claim any GST credits you’ve accumulated on your purchases.
- BAS Due Dates: The ATO (Australian Tax Office) sets out quarterly deadlines for BAS submissions. For example, if you’re reporting for the quarter ending March 31, your BAS is due by April 28. Don’t miss it—penalties can add up quickly.
3. Pay as You Go (PAYG) Instalments
If you’re making a decent income, the ATO might ask you to pay tax in advance through PAYG instalments. This helps you avoid a massive tax bill at the end of the financial year, and it helps you plan your cash flow. But make sure you’re putting the right amount aside—underpaying can result in hefty penalties.
4. Track Your Cash Flow
Understanding cash flow is key to long-term success. Track your income and expenses carefully to make sure you’re in the black. Aim to have at least three months’ worth of operating expenses in reserve. This will help you weather any storms, and keep your business running smoothly when sales dip.
Accounting Advice: Building a Strong Foundation
With tax planning sorted, it’s time to talk about accounting. Good accounting practices keep your business running efficiently and prevent nasty surprises down the track.
1. Hire a Good Accountant (Yes, It’s Worth It)
Sure, you can DIY it in the beginning, but when your business starts growing, you need a professional. A qualified accountant can help you structure your business in the most tax-efficient way and give you tailored advice on tax planning.
2. Get Your Books in Order
You don’t need to be an accounting wizard, but understanding the basics is crucial. Here’s a list of reports you should review regularly:
- Profit and Loss Statement (P&L): Shows how much you’re earning and spending.
- Balance Sheet: Gives a snapshot of your business’s assets, liabilities, and equity.
- Cash Flow Statement: Tracks the inflow and outflow of cash in your business.
3. Financial Forecasting and Budgeting
Budgeting isn’t just about saving pennies—it’s about planning for growth. Forecast your income, expenses, and profits to understand where your business is headed. Forecasting also helps you manage your resources and avoid cash flow hiccups.
- Growth Plans: As your business grows, you may need to hire staff, invest in technology, or expand your office. Budgeting lets you plan for these bigger expenses.
4. Streamline Processes
Once your business picks up, you’ll want to streamline your processes to improve efficiency and reduce costs. Look at automation tools for invoicing, payroll, and expense tracking. This will free up your time to focus on scaling your business, not managing paperwork.
Consulting Advice: Lean on Experts to Grow Smarter
As you scale, it’s a great idea to seek advice from industry professionals. This could include:
- Financial Consultants: Help you optimise your financial strategy, including how to manage profits, reinvest in the business, and plan for future growth.
- Business Advisors: A good advisor will offer insight into market trends and help you navigate the complexities of scaling your business. They can also assist in identifying potential risks and ways to mitigate them.
- Legal Professionals: As your business expands, legal issues become more complex. Having a lawyer on hand will ensure you’re compliant with all regulations and protect your assets.
Real-Life Success: From Side Hustle to Six Figures
Let’s take a look at some entrepreneurs who’ve made the leap from side hustle to a thriving business.
Case Study 1: Sarah’s Organic Skincare Business (Melbourne)
- Initial Investment: $2,000 for ingredients and marketing
- Growth Strategy: Sarah invested in online advertising, worked with influencers, and kept a close eye on cash flow.
- Result: After three years, Sarah’s business is now making $450,000 in annual revenue. She credits tax planning and regular meetings with her accountant for keeping the business running smoothly.
Case Study 2: Jake’s Personal Training Business (Sydney)
- Initial Investment: $3,500 for marketing and equipment
- Growth Strategy: Jake used a combination of social media and partnerships with local gyms to build his brand.
- Result: Jake’s business is now generating $120,000 per year. With the right accounting software and tax planning, he’s been able to reinvest in his business and hire additional trainers.
Final Thoughts: It’s All About the Numbers
From side hustle to six figures, the journey isn’t easy, but it’s totally doable. Make sure your business has a solid financial foundation, keep track of your taxes, and lean on experts to guide you. With a bit of planning and the right advice, you can scale your business and live the entrepreneurial dream.
If you’re ready to take the next step in your journey, give your accountant a call, get your books in order, and start making your six-figure business a reality.
Want to learn more about tax planning or accounting for your growing business? Check out these resources:
Let’s make that side hustle dream come true, shall we?
You must be logged in to post a comment Login