Starting a business is tough enough without needing to worry about how to navigate financial processes. This guide will cover four finance need-to-knows for every new business owner (Source: Canva)
Businesses are often founded on dreams, ideals, and a burning desire to enact change. But while these serve as the fuel to stoke the flames, it is the slow burning wood that keeps a fire going.
And as unglamourous as it is, a business’ cash flow is vital to its survival, which is why new business owners need to get their finances in order from the outset. Here are four financial tips to show you how.
1. Start a corporate bank account
Manage a business’ finances easily by setting up a corporate bank account (Source: Canva)
A corporate bank account is one of the first steps business owners should take when starting their business.
A business bank account is compulsory for businesses registered as a Company or Limited Liability Partnership. Even if a different business structure was chosen, having a separate account is still highly encouraged. It will allow business owners to separate their personal savings from business expenses, and provide a financial overview of the business.
Business owners can open a business bank account at any of the major banks in Singapore including DBS, OCBC and UOB. Generally, banks will require account signatories and majority directors to be physically present to sign the paperwork at the time of opening the account.
Business owners should also prepare the necessary documents prior to heading to the bank branch to avoid a wasted trip. You can find a list of required documents on GoBusiness.
2. Corporate tax, rebates, and tax exemptions
Paying a corporate income tax is mandatory for all registered firms in Singapore. This section guides new business owners through the process (Source: Canva)
All registered companies must pay a corporate income tax fixed at a flat rate of 17 per cent of its chargeable income. To help companies ease their business costs, however, rebates and tax exemption schemes are available.
New start-ups, for example, can benefit from the Tax Exemption Scheme. Under this Scheme, start-ups enjoy a 75 per cent exemption on the first S$100,000 of normal chargeable income, and a further 50 per cent on the next S$100,000.
This Scheme is available for the first three consecutive years of assessments of a firm. Afterwhich, they will be eligible for the partial tax exemption scheme.
Business owners who are unsure of how to file income tax or when they need to do so can refer to the New Company Start-Up Kit, developed by the Inland Revenue Authority of Singapore (IRAS). More information on filing taxes can also be found on IRAS’ myTax platform.
The Kit provides a how-to guide to filing for taxes, and includes a comprehensive timeline of important due dates you need to take note of.
Employers can also check out the GoBusiness page on Taxes and GST for more information.
3. Hiring employees
As businesses expand, new employees come on board. Here are the financial considerations business owners need to have before hiring (Source: Canva)
Hiring the first employee of any business is an exciting (and slightly daunting) prospect, with many other finance matters besides just wages.
Most prominently, employers are required to make monthly CPF contributions for all local staff hired. Currently, the employer CPF contribution rate is 17 per cent of an employee’s salary.
To do so, they can apply for a CPF Submission Number (CSN) and ensure they keep their business particulars updated. The CSN is a unique identifier for CPF contributions and needed for all transactions with the CPF Board.
Besides CPF, employers are also required to purchase Work Injury Compensation Insurance for staff who are hired to do manual work and/or earn a salary of less than S$2,600 a month.
Additionally, employers are responsible for filing taxes for all employees annually. This will include preparing IR8A, Appendix 8A, Appendix 8B, and IR8S by 1 March every year, to be submitted electronically. The forms and instructions can be found on IRAS’ website.
Bookkeeping can be a tedious process, but there are plenty of tech tools which can help (Source: Canva)
If all of the above sounds intimidating, fret not! Tools are available online to help business owners with their financial accounting and stay on top of everything.
This is important as companies may undergo audits by professional accountants to ensure all their finances are aboveboard.
Business owners can consider using tools like QuickBooks, which is available on both web browsers and mobile apps to keep track of their financial transactions. For e-commerce platforms, tools like Xero have inbuilt payment collection functions on top of bookkeeping capabilities.
Accounting softwares may also be eligible for the Productivity Solutions Grant (PSG) to help business owners offset initial costs. Check out this GoBusiness article for more information about the grant and how to apply.
For a more budget or free option, good ole’ Excel can also come in handy!
This infographic by IRAS contains toolkits based on Excel that can help business owners with their bookkeeping needs, alongside other basic information about bookkeeping.
As tedious as finances can be, they are necessary and unavoidable. But with proper bookkeeping, the numerous processes of tax filing, paying wages, and CPF contributions can be streamlined – allowing business owners to focus their time on building the business.
Are you a new business owner or looking to start a new business? Try using the Regulatory Requirement Guides on GoBusiness to help you better understand and navigate the government regulations that your business need to comply with.
This article is accurate as at 7 Jul 2023