In this presentation learn 10 key steps to help you start a small business and be best placed for success.
Key learning outcomes:
Hello, I'm Di Brown. I'm a chartered accountant and business advisor with SRJ Walker Wayland. Today I'm going to be taking you through a 10 step process to ensure you a best placed to start a successful small business.
Today we are going to be working through the 10 steps to help you ensure you are best placed for small business success.
The first step in any small business startup process is to ensure that you do your research. The ABS data in 2019 shows that we had over 2.1 million small businesses in existence. Unfortunately over 60% of small businesses will fail within the first three years.
How do you ensure that your business is not one of those, and your business is one of those that are best place for longevity and sustainability?
And the answer to that question is research and planning.
Step one in doing your research is complete a feasibility study. What is the estimated demand for your product and service? Who, and where, are your customers? Who, and where are you competitors? What are the barriers to entry for you entering this particular market? What's your sustainable competitive advantage?
Bear in mind that your sustainable competitive advantage is unique to you and your business. It's what makes your clients and customers use your services. It's specific to every organization, and every organisation will have a different, sustainable competitive advantage. Knowing what yours is, and how to reach your customer profile by mapping your sustainable competitive advantage to your client base, is important in achieving your success.
In terms of doing your research - research your industry. What are the key characteristics of the industry in which you're about to enter? Where do you fit within that industry?
There's a number of different resources that are available to assist you with that research. At the end of this presentation, I'll have listed a whole heap of different sites that you might want to go and visit to help you do your planning and your preparation for your new small business.
Initially there a couple of great sites available to help with your research. Business.gov.au has some industry fact sheets that are very useful. IBISworld.com also has some excellent reports and also benchmarking.com has some excellent industry information. I'd suggest that you arm yourself with as much industry and market knowledge as possible.
Once you've done that research, you need to test the market with your product or service, and you can do this in a number of ways.
Once you've done that, you need to start to thinking about developing your strategic business plan. What is strategic business planning? It's simply a process that we apply to provide direction to your business.
We identify your goals, break those goals down into strategies and action items, and it's one way to keep yourself accountable to achieving your goals. If you map that strategy into identifiable actions with allocated responsibilities and timelines, and have someone assist you with that implementation guidance in terms of keeping you on track, you're more likely to achieve your goal success.
Your strategic plan should not be a set and forget document. It is an evolving document that you need to be revisiting and updating on a regular basis.
Why is a strategic business plan important? Because it provides your business with direction, clarity, priorities, and actions, and it becomes your blueprint for your business success or your map to achieve your business goals.
Additionally, as a startup, at some point you will be required to obtain some sort of external funding to help your business either get off the ground or scale up. At that point you might be required to provide a business plan for financing. Whether that's to investors for grant funding, or traditional financing arrangements, such as banks, you will need a business plan for those finance applications.
Develop your strategic business plan. Define your purpose. Define your product and service. What do you do and why do you do it? What need are you addressing in the market? Develop your sustainable competitive advantage and complete a strategic business SWOT. A strategic SWOT outlines your strengths, weaknesses, opportunities and threats. It's also about taking that SWOT to the next level, and looking at ways that you can use your strengths to capitalize on your opportunities, overcome any threats and to ensure that your threats don't combine with your weaknesses to stop you achieving your business goals.
Develop your path to market. Define your SMART goals (specific, measurable, achievable, realistic, and timely). Develop your action plans, and, most importantly, hold yourself accountable to achieving those goals.
Once you've worked out your plan, you need to figure out what business structure is going to be most appropriate for you to achieve that business success. There are four key types of business structures. Once again there are some great resources again on business.gov.au that gives you some basic information on your business structure. I would certainly recommend at set up that you engage some independent expert advice in terms of ensuring that you have the structure that's most suitable to help you achieve your business goals.
Four key types of business structures:
There are some advantages and disadvantages to each of these different structures. This is why it's really important that you get independent advice to determine which one is the most appropriate for your business.
If you're considering being a sole trader - it’s great where your income levels are very low, and you're in the startup phase. It's simple. It gives you full control. The downside to operating as a sole trader is you become personally liable for any debts that are incurred in the name of your business. So there is risk associated with that structure.
The same goes with partnerships. In a partnership situation, it's relatively simple to set up. You are able to distribute profit and losses in accordance with your partnership agreement. However, with a partnership, all partners are deemed to be personally liable to any debts that are incurred by that partnership.
A company is a more complex structure. It has limited liability, meaning it's less risky. However, it's more complex because it must comply with the Corporations Act 2001. You were unable to distribute losses out of a company structure - they're effectively trapped in the company until such time as the company makes sufficient profit to utilise those losses. There are specific loss rules that must be complied with in order to access those losses down the track.
A discretionary trust is a widely used small business structure, particularly where the trustee of that discretionary trust is a corporate entity. If you have a corporate trustee, again, it will give you some asset protection in the form of limited liability from that corporate trustee.
A discretionary trust also allows for flexibility in income distributions. However, similar to a company, losses are trapped in that trust in subject to trust rules, and it's slightly more complex to comply with relevant trust rules.
There are advantages and disadvantages to each of the different structures, but they are the forming structures that you might want to consider when you're setting up your small businesses.
Step four in establishing your successful business is to make sure that you obtain appropriate registrations licenses and insurances.
This means ensuring you have an ABN and a Tax File Number. In the business world, if your turnover (or expected turnover) exceeds $75,000, you're also required to register for GST.
You will also be responsible for Pay-As-You-Go installments, which is the tax that you will pay on your business income.
If you're employing staff, you'll be responsible for:
It's important that you ensure that your business name is registered. There are some rules around what type of business names need to be registered and what doesn't. Again, I would ensure that you got advice with respect to registering your business name.
You might also want to consider some IP protection, particularly around any trademarks, e.g. trademarking any logos that you might want to design.
Most importantly, and one that a lot of small business startups seem to forget is to ensure that you register your domain name, which secures your website address.
The other thing that you need to consider is your appropriate insurance cover. Some specific ones to think about:
In addition, you also need to consider your industry specific licenses. Again, there's some good advice around those on business.gov.au.
The next critical step and one that is often deemed to be one of the more difficult by small business startups is planning your finances. It's critical, particularly in the first 12 to 24 months of trading, that you have a detailed financial plan.
So what does that look like?
It means developing a startup budget. What do you think your estimated costs are going to be in that first 12 months? Determine what capital commitment or contributions you're going to be required to make to ensure that you are able to trade out that critical first 12 to 24 months.
The way to do that is to prepare financial forecasts. Ideally, we like to see financial forecast:
Additionally in your financial plan, you need to be determining your pricing strategy, and there are a number of different pricing models that you might want to consider. At the very least you should be looking at what your competitors are pricing; what your costs are; what margins you need to be making to achieve your profit goals; and possibly work with your accountant to develop your pricing strategy.
It's critical that as a small business startup, you know your breakeven point. Your breakeven point is that point where your sales cover all of your operating expenses and your gross margin. It's not until you've reached that breakeven point in sales, that you actually start to earn a profit. You need to know what your breakeven point is on a weekly basis, so that you can be tracking that you're getting enough income in to ensure that your expenses are covered and that there will be some profit available for yourself.
Identify and monitor both financial and operational key performance indicators. There are some other learning modules that we have recorded for Business Moreton Bay Region that takes you through the importance of financial literacy and small business financial management strategies. In these we cover pricing, breakeven point cash flows, and all of those critical financial things you need to be familiar with in that first 12 to 24 months. I'd highly recommend that you have a look at that learning module.
You need to set up your record keeping and accounting systems. It’s important to get these systems in place correctly from the start, because it's much easier to get things set up correctly the first time than actually try and unpick your transactions and get it in place as you start to get bigger.
Getting it right the first time will save you a lot of time and money.
Some things to bear in mind. From an Australian Tax Office perspective, you need to ensure that your records are kept for a minimum of five years - preferred electronically. However, the five years is from the date that the transaction is completed.
You need to set up integrated systems. What do I mean by that? If you have something such as a cloud-based software system where you can track your income and expenses - Xero and MYOB are two excellent systems that would allow you to do that. Most of the cloud-based systems have integrated modules where you can add in things like your time sheets, and your customer relationship management (CRM) systems. Receipt bank is another thing that you might want to consider, which allows you to take a photo of all of your receipts and upload them directly into your small business accounting software.
You also want to consider the integration of your job management or project scheduling system, depending on the top of your business. Again, we’ve presented a learning module on Small Business Accounting 101. I encourage you to have a look at that learning module HERE, if you considering implementing an integrated accounting system.
Another thing you need to consider as a small business startup operator is developing and documenting your systems and processes. Can't stress how critical this is, particularly as you start to get larger and you need to bring in staff.
It's important (if you're thinking about being a sole trader) that you are able to have someone coming and replicate what you do in certain areas of your business. Because there will come a point where you won't be able to do it all, and the best way to protect yourself around that is to develop documentation, policies and procedures around what you do as you go through your business.
There is a fantastic free resource that is available for Queensland-based businesses through the State Government. It is called the IPM program (Injury Protection and Management). I've listed a resource on the resources page. It will help you implement and document your workplace health and safety systems (in a lot of occasions for free).
It’s really important, as a small business owner, that you know and understand how to comply with your tax and legal requirements.
The way you pay income tax will depend on the type of business structure you have chosen.
For an individual partners or beneficiaries (similar to a sole trader), and partnership and trust distribution is distributed out to the relevant either partners or trust beneficiaries the income tax will be paid at the individual marginal rates. Companies have different tax payable. As a small entity, you'll probably hit the 26% mark, and depending on the size of the company that will change. However, initially the change has come in and it will be 26% from next year.
If you employ staff, you will be responsible for Pay as you go Withholding to be remitted on your business activity statement. You'll also be responsible with complying with the superannuation choice rules, and superannuation guarantee contributions that need to be made for your staff. You need to be ensuring you're complying with relevant industry awards and that you're submitting your business activity statements when they are due, which depending on your size, will be either monthly, quarterly (majority of cases) or even annually (if you are a very small business).
If you are a company, you also need to ensure that you are complying with ASIC requirements and your director's duties.
Once you've nailed your tax and legal obligations, you need to think about the team that you are going to need in place to support your business success.
Some questions to consider:
One of the key recommendations, I would suggest to anyone considering starting a small business, is to seek help early.
Develop your marketing plan. Ensure that your marketing plan is directly related to your business goals. This means defining your target market and defining your client avatar. What do I mean by that?
Your client avatar should represent the key characteristics of the clients that you are trying to target. For example, if you are a service business and you have decided that you are offering a service to the legal profession, what type of law firm are you targeting? What's their turnover? How many partners do they have? Where are they located? Define your client, and approach those clients that only have the key characteristics of who you want to be your clients.
Think about why that particular set of clients needs your product or service right now. What need are you addressing? What problem are you going to solve for those particular clients?
More importantly, think about in your marketing plan, how do you reach those clients? Is it through LinkedIn? Is it through Facebook? Is it through Google ads? Is it through networking events? Is it through direct approach? Is it through warm introductions? Your marketing plan needs to be considering how you are going to reach your key client avatars.
It's important with your marketing plan, that you have a marketing budget. It only needs to be small and that you work within that marketing budget.
Ensure, if you're going through social media channels (LinkedIn, Twitter, Facebook, etc), that these social media channels direct traffic back to your website. This gives people the option to see more of your capability that is displayed on your website.
Track your return on ad spend. It's amazing to me how many clients just pick a figure (e.g. $1000 on Google Ads this month) without actually working with a digital marketing expert to work out what is the return that has been generated on that Google ad spend. It's really important that you are tracking your return on that advertising spend.
Use things like LinkedIn, industry journals, speaking engagements at various industry events to improve your capability. So show people that you know what you're doing, and that your product does achieve what you say it's going to achieve. Build your capability through those various channels.
Think about how you're going to launch your business.
At a minimum, you want to have your key stakeholders at that event. For example, your financers, key suppliers, peak clients, employees. All of those people need to be involved in setting up and launching your small business event.
Today we’ve looked at 10 key steps to follow today to help you ensure your business is best place for success. There are a number of resources that are available via the presentation (available for download).
I would suggest you have a look at the various websites to do your research and get further information, ensuring your best pace for business success. Thank you for your time today and good luck with all of your endeavours.