The idea to fly solo comes to different people for different reasons. Some feel that they have outgrown their current job and would like to try it on their own and be their own boss. Some have been forced by the employment market. And some just want to try it as an additional income generator on the side to their main job.
Whatever your reasons are, you would have come up with an idea of a product or service that you want to sell. You also would have done some research, which shows that there is a niche or a gap in the market that your product / service can fill. A combination of these two is your necessary starting point: if the answer is no to both - there is no point in starting a business.
If this is your first start up, you will need to research and work out an action plan how to set it up. And it takes time. In an unknown territory it is always easier to have an experienced guide with local knowledge. The guide below is the result of many businesses set up in Australia. There are 14 items on the list. It is by no means exhaustive, but it has been tried and tested. It will give you an idea of the scope of work that needs done and some of the decisions that you will need to make early on.
1. Are you ready to become an entrepreneur?
Running a business is not just about being your own boss. It also requires a number of personal attributes and management skills. Honestly evaluate whether you are ready for the challenges ahead and have the necessary skills. Time-management and prioritising tasks are amongst the first challenges entrepreneurs face when start a business. Also, are you good at working under pressure? Can you cope with working long hours, having no holidays and little income for some time? Are you good at making decisions? Do you have at least basic knowledge of finance management and reporting? Are you an expert in your chosen field of business? What are the long-term vision and goals for your enterprise? These are just some of the questions you should ask yourself. And if you need external funding, you should have compelling answers not only for yourself but also for your investor, in order to convince them to invest in you.
If you are having an interview with a bank or a potential investor, go through the typical questions and think through your answers. There are a lot of questionnaires online, which are intended to help you assess your readiness for running a business. The online questionnaire presented by the Victoria state business support site is concise and to the point.
2. What type of a start up will it be?
There are three main options how to start your own business:
Starting a business from scratch offers unlimited creativity and full control. It is also the slowest, riskiest and hardest way to start a business but potentially the most rewarding. Product development, marketing, permits, licences and insurances, premises, distribution and finance are just some of the things you will need to make decisions about. This is a lot of work to do and you’ll have to do it yourself. So get ready!
Buying an existing business provides the entrepreneur with an established business, ready to trade immediately, often with a list of loyal customers, development and marketing strategies. It is a lot less risky than starting from scratch, but you still need to do thorough checks to make sure that with the business you are not getting “forgotten” debts, messy operating systems and a direct competitor across the road out of the previous owner. It is advisable to employ a good lawyer and an accountant for your own and your investors’ peace of mind.
Buying a franchise – an agreement between a large and well-known company and a small company or an individual to use their trademark, technology, licence and know-how - brings a number of advantages. The entrepreneur reduces risks by acquiring a working business-model. However, there is a price to pay for it, such as a sizeable original investment, strict conditions and high payments to the franchiser.
3. Which industry are you in? You can be in any industry, but when you are developing your business model it is important to have clarity as to whether you are in production or distribution, products or services. You can’t be everything to everyone, so it is best to concentrate on one thing and grow from there. Whichever you choose, being an expert in your field brings success closer.
4. Writing your business plan It is difficult to overestimate the importance of having an effective, detailed and well thought through business plan before you start. A good business plan can save you money, time and effort. There could be two outcomes of having a business plan. The first option: it will confirm that you have a good and viable idea. You will have an action plan of what needs doing, an operational plan of how you want your business to work, a marketing plan for how to promote your business, and a financial plan with set up costs and cash flow projections. The second option: you will realise that this kind of business is not viable, the market has been saturated or you just don’t feel fully committed to it. This is a good outcome, because it will save you the money you are unlikely to get back.
You can write it yourself, use off-the-shelf software or employ a professional business plan writer. Whichever path you choose, make sure you have a quality product at the end of it, which allows you to decide one way or the other.
5. How much money do you need to start trading?
Here, once again, comes your financial plan. There are many factors that will influence your setup costs, such as the industry, type of business and segment of the market you are in. Typically, production of goods requires a sizeable investment upfront, whereas when selling services, one can get away with a more modest start up budget. To increase your chances of developing a successful business and winning external funding, if you need it, you must prepare your financial plan BEFORE you start your business. It will change as you go along, but it will still give you a pretty clear idea of your financial needs and abilities and help to set financial goals for the future.
6. Where can you get funding from? You may be surprised but there are quite a few sources of funding available to you. The most commonly approached by start ups are borrowing from family and friends, bank loans and government grants. If you are ready to approach investors for larger sums of money, there are seed funding, incubation, angel funding and venture capital to name a few. We’ll touch on the first three as the most common ones.
Borrowing from family and friends is often the first choice. And also the riskiest. It is less formal than borrowing from a bank, but it can also put on the line your relationship with your nearest and dearest. Always keep your financial affairs professional, and even if you borrow from family or friends sign a legally binding document promising to repay the money.
Bank loans including an overdraft facility, a line of credit and a fully drawn advance. Many entrepreneurs find it difficult to make sense of the large number of business finance products and to meaningfully compare them. Of course, you should speak directly to your banker but it is always better to come to such meetings prepared or at least well-informed. The Business Loan Finder allows small businesses and entrepreneurs to quickly compare and rank loans by their true monthly cost. The tool is an initiative of the Victorian Government but is intended to be used nationally as finance searches can be customised by jurisdiction.
Government grants - Various government grants and loans are available to expand or improve eligible businesses.
7. Which legal structure of your business is best for you?
Deciding on a legal structure of your business early on is important as it will later affect such aspects as:
The way tax applies to your business
Protection of your assets
Your operating costs
How other businesses deal with you
There are four main legal structures: sole trader, partnership, trust and company.
Sole trader is an individual trading on their own. It is the quickest way to start a business, and a relatively cheap one. From the legal point of view, all you need is to do to start trading is to firstly, register your business name, which, for example, in NSW costs around $170 and can be done in minutes. Secondly, have your individual tax number ready and thirdly, obtain an Australian Business Number. You have full control of your business and do not have to wait on other people to do anything. However, one of the strongest disadvantages of being a sole trader is that you are solely legally and financially responsible for all issues in your business and that includes your private assets.
Partnership is an arrangement where parties agree to cooperate to advance their mutual interests, but not a company. A partnership is still relatively inexpensive to register. For example, in NSW it will cost about $350. The advantages of a partnership are in the ability to share the work load, responsibilities and losses, if it comes to that, with your partner or several of them. You will also have access to greater financial resources than when you are a sole trader. On the negative side, you have to share profits too, and you are legally and financially responsible even if it was not you who caused trouble.
A word of advice – draw a partnership agreement at the start, even or more so, if you are in partnership with a close friend or a family member. Clearly state who is responsible for what and how much they get for it. It may feel awkward but it will save you potentially having bitter disputes in the future.
Trust is a relationship or association between two or more persons whereby one party holds property on trust for the other. The holder of the property is called the trustee, the person for whom the property is held is called the beneficiary. The property could be land, shares, money or personal property. The cost of setting up a trust can vary greatly depending on the number of parties and the value of property involved, but generally trusts are more expensive and potentially complicated to establish compared to a sole trader and a partnership.
Company is an association of persons, individual or legal, where each one of them provides a form of capital and has a common purpose and an aim of gaining profits. A company is a legal entity in itself and is regulated by the Australian Securities & Investments Commission. For this reason its set up and administration are more costly and complex than other business structures. However, there are significant advantages in setting up a company; such as a far greater access to financial resources for running the business, at the same time, the shareholders’ financial liabilities are limited to the amount of capital they have invested, so you don’t put your family home on the line.
8. Choose your business name, register it, protect it
Your business must have a name but choosing one that reflects what you do in a compelling but fun way is not easy. While coming up with ideas, check that the name has not already been taken. You can do it online for free at the Australian Securities and Investments Commission's (ASIC) website.
You need to register a business name with ASIC if you conduct business under a name other than your own or your company name. Consider protecting your business name as a trademark in Australia with IP Australia.
9. Register for an Australian Business Number (ABN)
Registration for an ABN is not compulsory but it is a must if you want to set up your business properly from the start. ABN is a unique 11 digit number assigned to each registered business. Please note that if you set up a company you will need to apply for an Australian Company Number (ACN). If anything, the reason to register for an ABN is to avoid the situation where other businesses may withhold 46.5% from any payment to you for tax purposes. Another reason - you can’t purchase an Australian domain name (.com.au) without it.
The application is not difficult and it is free, but bear in mind that it may take up to 28 days for you to receive your ABN.
10. Register your business domain name
If you are going to have a website for your business, make sure to register your domain name as soon as you can. Many hosting companies will check availability of your chosen domain name and extension such as .com.au in seconds and free. You can purchase it for around $20 for two years, after which time you will need to renew your ownership if you want to keep it.
11. About taxes…
The question of tax is always a complex one and one can save money by having the right advice at the right time. The good news is that free advice is available and the Australian Taxation Office (ATO) is your first port of call. They have a 24/7 self-help telephone service and they also provide free community seminars and forums.
In very simple terms, there are three things that you need to consider first of all - the Tax File Number (TFN), the Goods & Services Tax (GST) and Pay As You Go (PAYG).
TFN – is a unique number assigned to individuals and businesses by the ATO. As a sole trader you can use your personal TFN. If you operate a partnership, trust or a company you will need to apply for a separate one. This can be done at the same time as applying for your ABN.
GST - If you expect your annual turnover to be greater than $75,000 you will need to register for GST. If you provide a taxi service, you need to register for GST regardless of your turnover.
PAYG is income tax payments. If you employ people, you are legally required to withhold amounts for income tax purposes from payments you make to them. In addition to staff, PAYG also covers payments you make to other businesses. If you purchase from a business that does not quote an ABN on an invoice or other document, you must withhold an amount for tax purposes. This is the reason why you should register for an ABN!
In any case, make sure that you are aware which taxation requirements are applicable to your business, so that all the hard work that you have put into building a successful enterprise is not destroyed by non-compliance.
12. Licences, permits and insurances
Operating in many industries in Australia requires special licences and permits and it is illegal to work without them. Quite simply - your business can be shut down. Any new business should make sure that it has all documents, licences and permits required by the state law and specifically by the state where it operates, because they may differ and are not always recognised interstate. Each state has its own Business Licence Information Service where you can check licensing requirements for your specific business.
13. Open your business bank account
There are a number of banks that will help you put your business banking solutions in place, which will be tailored to your individual business needs. One of the high street banks could be just what you need. The best way to find out the most suitable service is to visit a branch in person and talk to a business banker. Shop around! Fees, terms and conditions vary from bank to bank, sometimes significantly. Also, look for personal service and a banker who cares – if they do not return your calls now, chances are you won’t find them when you really need them.
14. Set up your operations
Now it is time to set up your business operations. The way your operating systems will work depends on the type and industry of the business you are in; however a few general rules are applicable to all businesses:
Prepare as much as you can in advance. When you get your first order or contract there will be enough to worry about, so the more you can prepare in advance the easier you will make it on yourself that first time.
Test your systems, to see if they will work in reality. Imagine yourself a customer and go through the first phone call or email to the ‘job done’ point and see what works and what needs improvement. If possible – do a test job. If you are in production or import/export business – talk through every detail with your suppliers / partners and make sure you are on the same page.
Financial record keeping system. It may seem premature to worry about your financial record keeping system before you got your first dollar in the bank, but it is difficult to over-estimate the importance of establishing a well functioning and convenient record keeping system, including an invoicing and cash flow tracking system before you start trading. You won’t have time later and leaving it from one day to another will get you into messy financial affairs before you know it. Make a $10 test payment to yourself. See how long it takes to raise an invoice. Does it give clear instructions and descriptions to the customer? Do the invoice reference numbers work? How long does it take for the payment to come through? If you are using professional software, are you happy with it?
Think of an emergency plan. You may have to abandon your holiday plans for some time to stay in control of your business until it can be run smoothly in your absence, but there are situations that are beyond your control and you need to have a plan in advance. What are the procedures for your business in emergency situations such as your illness, fire or your main supplier’s bankruptcy?
There are 14 items in this guide. When you put together your operations plan, it is likely you’ll end up with twice as many items in that plan, and it will all feel a little overwhelming. The truth is, millions of people before you have started a business and some have succeeded. It is your determination, planning and hard work that will make it or break it.
What you need to remember is that it always takes longer than you thought, and costs more than you expected.
“Before everything else, getting ready is the secret of success.” Henry Ford, Founder of the Ford Motor Company