You’ll get to see the culmination of all your dreams and hard work, and finally be your own boss. However, business isn’t easy. The business environment can throw you through some unfair loops and staying on top of everything can be tough. To start your business journey on the right foot, you need to protect yourself and seek professional business advice.
In this article we explain the 10 things you need to do when starting a small business.
Your idea may have the support of your friends and family, but it's important to fully understand the market you want to enter. How much demand is there for your product or service? Who else is providing it? What can you do that they can't? What is your unique selling proposition (USP)?
When you have completed your research, you need to be able to answer one simple question: “is my idea viable?”
Have you conducted the appropriate research to start your small business?
Now that you have researched the market and confirmed that your idea will work, you need to crunch the numbers to determine if your business is profitable and how much cash is required to successfully kick it off.
At this critical stage we recommend you engage the services of a savvy small business accountant. They will help you estimate your income, calculate your fixed and variable costs, forecast your cash flow, determine your start-up capital, break-even points and more. Assessing the financial viability of your business will be key to your initial success and is essential to support your application for a loan.
A business plan is not just for the big end of town. A well thought out plan is critical to the success of your business as it requires you to consider how you are going to compete as well as the variables and road blocks you may encounter along the way. If you need to borrow money from your bank, they will require a business plan to support your finance application.
A small business plan should include the following elements:
● An overview of what your business does,
● Its goals and objectives,
● The results from your market research,
● The specific products and services you intend to sell,
● Your numbers and forecasts,
● Your management team; and
● Your marketing strategy.
Once you have completed your business plan it is a good idea to share it with your trusted advisors and mentors for their feedback and input.
One of the main reasons for small businesses’ failure is lack of capital. For this reason, it is critical you take into account all of the costs required to start and operate your business, including working capital to fund losses or cash shortfalls in the early months of operation. The cash flows you prepared in step 2 should clearly show that you have sufficient funds to run your business, including enough to repay the loan.
Depending on the nature of the business, Australian banks typically lend between 50% to 65% of the loan amount against business assets with the remaining loan to be secured against personal assets such as the equity in your home or investment properties. You may also be required to contribute your own cash to fund your working capital requirements.
It is generally not a good idea to borrow from family and friends. Unsecured lending from non-bank lenders can be very expensive and place too much pressure on the business in its early stages.
Once the bank has approved your loan, the next step is to consider all the legal requirements relevant to start your business. At this stage we recommend you engage the services of an experienced lawyer who can advise and guide you through the process. If do not have a lawyer, ask your accountant or bank manager for a recommendation.
Matters you will need to consider and seek advice on include:
● The lease of your business premises.
● Licenses and permits; for example, a food and liquor license for a restaurant business.
● Insurances such as public liability, loss of income, professional indemnity and workers' compensation policies.
● A suitable business structure that protects you. This discussion is best held in conjunction with your Accountant to consider the tax implications of different structures.
Meeting with professionals is an absolute must when starting a business.
Sole trader, company, partnership, trust: These are the four most popular structures in Australia, and your business will likely fall under one of them. This decision will have a significant bearing on your legal responsibilities as well as how the business will be taxed, so it's critical to get this right. Work with your accountant and professional business advisors to determine which business structure best suits your business and personal circumstances.
To operate your business, you will need to apply for:
● An Australian Business Number (ABN),
● A Tax File Number (TFN),
● Goods and Services Tax (GST), and
● Pay-As-You-Go (PAYG) withholding.
Your accountant will advise you on what registrations are required and complete this for you when setting up your business structure.
If you are employing staff or contractors, you will need to document their conditions of employment including their rate of pay, superannuation and leave entitlements. It’s best practice to have a written Employment Agreement and ask your lawyer to look over it to ensure it complies with Industry Awards and National Employment Standards.
Keeping good financial records is critical to your ongoing success. Cloud based accounting providers such as Xero (www.xero.com) and MYOB (www.myob.com/au) offer great solutions for small business owners. These programs connect to your bank accounts making it easier to keep on top of your invoicing, expenses, payroll and tax obligations.
If you don’t have time to do this yourself, or numbers just aren’t your thing, then you can easily connect with your accountant to help manage the financial aspects of running your business.
The right accounting system and a trusted accountant can be the difference between business success and failure.
The most successful businesses review their financial performance on a regularly basis. Review your income and expenses each month and compare them to your initial forecasts and plans. Determine what is working well and what needs to change. Be decisive and implement those changes quickly to ensure you are not left behind and your business remains competitive.
If you are not confident with the financial aspects of running your business, then make sure you seek advice from your accountant and professional business advisors.
Being a small business owner can be a lonely place sometimes, so it’s important to surround yourself with your tribe - a team of professional advisors, mentors and trusted friends who will not only give you the right advice but the encouragement and inspiration along your business journey.
If you are thinking of starting a business and need some advice reach out to VBA. We would love to be part of your tribe.