Photo courtesy of dierken
There are a few articles on why startups are not just smaller versions of companies but these articles focus on what this means for the process and the product/market side.
So what does this mean for the financial and operations side of the business? Here’s a few things to keep in mind.
The burning platform means that it is crucial to keep a track of your funds. Use a cash-flow spreadsheet and update weekly to keep on top of inflows and outflows and to determine how long before the platforms burns completely. It is often beneficial to be conservative with estimates of inflows and overestimate outflows as this will leave a buffer for any unplanned expenses.
R&D Tax Incentive + Grants
The R&D Tax Incentive is a national program designed to help businesses offset some of the costs of conducting R&D activities. A 45% refundable offset (equivalent to a 150% deduction) is available to eligible entities with an aggregated turnover of less than $20m per annum. As well as a non-refundable 40% tax offset (equivalent to 144% deduction) to all other eligible entities.
There are also numerous grants available for startups including Export Market Development Grant (EMDG) where eligible companies can receive a reimbursement of 50% of export promotion expenses above $10,000 provided that the total expenses are at least $20,000.
Once you register for GST you will be able to use an activity statement to report and pay the GST your business has collected but also claim GST credits. That is, GST you’ve paid on purchases. This can be a boost for cash-flow, however it is important not to rely on inflows until they are a certainty.
It is important to factor in GST when deciding on a price point. Will the price be inclusive or exclusive of GST? For example, if you are charging $10 if it is inclusive of GST you will receive approximately $9.10 however if it is $10 exclusive of GST you will receive $10.
ATO – Activity statements
However, just because you’re a startup and not a fortune 500 company (yet) doesn’t mean that you don’t have to abide by the rules of being a company.
If you have have decided to incorporate a propriety limited company for your startup, you will need to practise governance and compliance. This includes holding periodic board meetings (the frequency will usually be determined by your Constitution). At these board meetings it is necessary to record minutes and resolutions. These minutes are required to be signed by the chairperson within 28 days of the board meeting or are void.
ASIC – Company compliance
Once you’ve taken on an employee you will need to start meeting Pay As You Go (PAYG) obligations and begin paying a Super Guarantee Contribution (SGC). You will also need to ensure you have a Worker’s Compensation insurance policy in place. Accordingly these amounts will need to be added into your budget.
ATO – PAYG withholding
ATO – Guide to superannuation for employers
If you are a director of the company, you should consider taking out a Directors and Officers (D&O) insurance policy. Failure to comply with obligations or the breach of duties may lead to claims against the directors and officers.
If a claim alleges that the directors or officers have breached their duties or not complied with obligations, said directors or offers may be personally liable (regardless of whether they are acting in a part-time, honorary or non-executive capacity) if there is no or inadequate D&O insurance in place.
The above points may seem straightforward but are often back of mind while features and customer development are usually front and centre.
But they are just as important an will become crucial when your startup begins to grow.