Few new businesses fail because the idea was bad. Most lose money through habits formed in the first two years. These five show up again and again, and each has a fix you start this week.
1. Mixing personal and company money
A company is a separate legal entity, so its bank account holds company money only. When you pay a family holiday from the company account, or bank company sales into your personal account, the books stop matching reality. Cash taken with no salary, dividend or recorded loan becomes a director’s loan, and your accountant has to explain every such entry at year end. Private costs earn no tax deduction. Where records are missing, IRAS estimates your revenue and disallows your claims.
Fix: keep one company account, pay yourself through salary or declared dividends, and sign a written loan note for any other transfer. Our article on salary or dividends shows the numbers.
2. Filing late
Each late filing has its own penalty.
– ACRA: a lodgment fee of S$300 for an annual return up to 3 months late and S$600 beyond 3 months. Composition starts at S$500 per offence, and a court fine reaches S$10,000 per charge. A director faces disqualification after 3 or more filing convictions in 5 years.
– IRAS income tax: composition of up to S$5,000 and a court summons are both possible. IRAS issues an estimated assessment, payable within 1 month of the notice. After 2 or more years without filing, the penalty is twice the assessed tax plus a fine of up to S$5,000.
– GST: S$200 at once when a return is late, plus S$200 for each completed month, up to S$10,000 per return.
Dormant companies still file their annual returns. Fix: put every deadline in a shared calendar on the day you incorporate.
3. Working without written agreements
Co-founders remember a handshake differently two years later. Put in writing who owns which shares, who does which work, what happens when one founder leaves, and how you break a tie. Partners in a partnership carry unlimited liability, including for the acts of other partners, so a partnership agreement matters even more. Customers also need written terms, with a payment date stated on every quote and invoice.
4. Ignoring cash flow
Profit and cash differ. Suppose you invoice S$30,000 in March and the customer pays 60 days later. You spent S$25,000 on materials and wages in March. Your profit on paper is S$5,000, but your bank balance falls by S$25,000 until the customer pays two months later. If you are registered for GST, the tax you collect belongs to IRAS, and your return is due one month after each period ends.
Fix: every week, list the money due in and out over the next 12 weeks. Chase invoices on the due date.
5. Choosing the wrong structure
A sole proprietor has unlimited liability. If you sign a large lease or contract, your home and savings stand behind the contract. A company limits what shareholders lose. Running one means a company secretary, a S$60 annual return and statutory registers. Setting up costs S$115 for a sole proprietorship against S$315 for a company. Moving from one to the other later means a new legal entity, new contracts and new bank accounts. Our comparison of sole proprietorship, partnership, LLP and company explains which fits which business.
Check your own habits against these five. Fix the cheapest ones this month.
Send your latest profit figure or your question by WhatsApp to +65 9876 3553 or by email to henry@cschow.com.sg.
Henry Chow
Public Accountant, C S Chow & Co