Starting a New Business
So you want to start a business. Congratulations! This will be one of the hardest and most worthwhile thing you do in your career. There are no guarantees of success and being your own boss isn’t for everyone, but hopefully this post can help you achieve your dream.
Step 1: Have a plan for what you will provide or sell
Most people who start a business base it off their skills or knowledge in a particular field. You need to know what you will do, will it be:
Services (trades, professional advice or service, manual labour, transport)
Products (food, packaged goods, luxury items, technology)
Or a mixture of both (wedding invitations, cakes, printed materials).
These are just a few examples. Of course you will know better than us what you can provide the public.
In general, service based businesses are cheaper to start and usually provide revenue based on time billed to clients. Product based businesses require more upfront capital and deliver lower margins per unit. The advantage is that they can scale to an audience far greater than a services business, and far quicker. By looking at what you provide you can decide what type of business you want to have. And that brings us to the next point.
Step 2: Who to sell to? Businesses or consumers (or both)
If you sell toilet paper everyone needs it. But if you sell toilet paper from a van in boxes of 50, you are selling to businesses. Having a clear idea of who you are selling to and why makes your approach to marketing, pricing and selling much clearer.
Business to business sales tend to be lower margin, but higher turnover. Selling to a business means that they have different needs to a consumer and expect those needs to be met in different ways. For instance, a business might expect that dreaded acronym, 30EOM! That means you get paid 30 days after the end of the month you bill in. However, by selling to a business you may make much more money than selling to the public (you’ll just have to wait longer for it). Selling to the public gets you instant cash but how do you find your customers?
Ultimately your product or service dictates who you sell to. That is not to say you can’t approach both business and consumer, but it depends on the service you offer.
Step 3: Business Structure
For most people starting out, the best structure is a sole trader, or in the case of multiple people, a partnership. Once things get going, more involved structures can be considered. Here is a (very) brief breakdown of the different structures you can consider when starting out
Sole Trader
The simplest type of business, a sole trader trades under their own name (but can have a business name). A sole trader is usually a single person, (though they can employ others), who conducts business under their own name. Most importantly, a sole trader is legally responsible for any work carried out under their name. So all debts, loans, defaults, incidents and accidents are legally their responsibility. It is a simple, fast and easy way of starting a business and is great for a micro or very small business structures.
Partnership
A partnership is very much like a sole trader but for 2 or more people. All people in the partnership are legally responsible for the work carried out in the name of the partnership. While good for sharing the load between partners, issues can arise when partners want to go their own way.
Company (or PTY LTD if you have seen that acronym)
A ‘proprietary’ company is it’s own legal entity. That means that the owners or managers of such a company are somewhat shielded from liability for any problems that may occur. This is great for larger groups of founders that can establish shares and ownership. For a small business however, it may be overkill. The costs for creating a ‘Pty Ltd’ company are 10 times what a sole trader or partnership can cost. If you start in this manner you should be experienced with business and be confident in a quick recouping of the costs incurred in setting it up.
So pick your structure wisely. Remember there are other options not listed like trusts (which go beyond the scope of this post), and that if you are unsure you can talk to us, your accountant or the ATO.
Step 4: Licensing, Registration and Compliance
We live in a world that is governed! That means if you want to stay out of trouble you need to comply with the relevant laws and regulations. For instance: you need an ABN to sell anything to anyone! This doesn’t mean you need an ABN to sell a car to someone privately on Facebook. But if you sell 10 cars in a year, you should have an ABN. ABNs are a way for the government to keep track of who sells what. They also allow comebacks. Buy a faulty product from someone? If they have an ABN on their invoice you can track them down to get a refund.
Licensing
Make sure you obtain the licenses you need to sell the services you offer. Selling liquor? You will need a liquor license. Selling financial advice? You will have to be a registered financial advisor, or work for one. If you have any doubt, seek professional advice. The last thing you want is to be caught being non compliant.
Registration
Many types of services require you to be registered with the government. This ensures a minimum level of competency. Just like you want your electrician to be qualified, people expect the same from many types of professional services. If you offer a service to people, check with the state or federal government to see if you require a license to operate. It’s for the safety of the public, and for your security that registrations are required.
If you need help getting your small business off the ground, please contact us today.
Disclaimer
This information is intended to be general in nature and is not personal financial advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided having regard to your objectives, financial situation and needs.
