If you are thinking of, or about to start a new business, you must be excited!
I know I was when I left the international consulting firm I was working for in 1991 to start my own financial and management consulting company.
I was excited and a little terrified!
But at least, I had an advantage over most subject-matter experts who decide to leave employment and start their own business - I was a qualified and experienced Chartered Accountant who knew about starting and building businesses, about tax and registrations and the law and agreements.
That is the most common experience of my clients over the years who have started their own businesses:
Whether they were highly qualified doctors or engineers, or very experienced plumbers and electricians, they all expressed to me the sense of overwhelm about what they had to know, almost overnight!
This month I want to discuss how you can start your own business and go through the 7 key things you need to know about starting a business.
At the end of this article is a video that provides these key points as well, so if you prefer to watch than to read you can scroll right to the bottom and watch the video.
Now let's begin with the first of the 7 key issues.
#1 Are you personally ready to start your business?
I don't mean if you know what you are doing, but whether you have set yourself up emotionally.
Running a small business can be a lonely road.
Ask yourself if you know what's ahead of you and if you are emotionally invested in going through any difficult times.
Talk to people you know and admire about how they started their journey in business. Check with your spouse and family - who will no doubt be supportive, but make sure they understand the sacrifices in time and possibly income in the early years.
Most of all, ask yourself if your "Why" - the purpose that is driving you - is strong enough to sustain you when times are hard.
Small business owners can under-estimate how hard it is to sustain the consistent effort, and many decide to call it quits. Make sure that you can sustain your efforts while retaining your wellbeing.
#2 Is your business idea feasible?
Will your business idea really fly?
This means that you should look at barriers to entry, at your competitors and at the potential market.
Barriers to entry are obstacles some industries have that make it hard for people to start a business in that industry.
For example, in some trades like building, you have to be accredited.
Perhaps the product you want to sell is licensed by the manufacturer and they have already licensed their supplier in your area?
Some businesses may require a substantial capital investment in equipment.
If there are barriers to entry, what can you do to get over them?
Looking at your competitors is a reality check.
I advised a client once who wanted to buy a travel agency in a suburban centre. When I looked at the competition with her, we found out that there were 6 travel agencies within a 5 km radius.
The size of the market as a local travel agent wasn't big, and on top of that, we found that several of these agencies were up for sale - a sign of those times when the internet was starting to provide the traditional services of a High Street travel agency.
Looking at her competition made her decide to give up the idea, but she stayed within her experience and created a successful tour company instead.
#3 The third thing you should know is what is your business model.
In many instances, it's easy enough to work this out: -
- Who you will sell to;
- Who supplies things to you;
- Who you need to hire;
- How you will engage with or market to your customer;
- What will be the key activities in your business?
However, many small business startups start without this model clearly in their head, so when they start, they work it out as they go along.
This means that they waste time marketing to all the wrong people. When they discover they need certain supplies, they spend time in order to find a supplier at the right price and negotiate credit terms.
All this wastes time once you are committed, and when you are committed what you really want to spend your time on is developing sales not on how you should do things.
#4 Prepare your business plan.
The fourth thing you should know about starting a business is that 80% of small businesses fail within the first 5 years!
Now, that's not a statistic to stop you because if you look further, the businesses that fail are businesses that failed to plan.
Before you start your business, write up your business plan - what your business idea and model is, the strengths and weaknesses of your product, identify your target market, list your goals and objectives and how you will attain them, what your staff structure should look like and how you will find your staff, and most importantly what your budget and financial forecast is.
Businesses that fail don't plan to fail; they fail to plan.
#5 Find your advisors.
The fifth thing you must know before you start your business is who are your go-to people when you need help and advice.
You will need an accountant and probably a lawyer to start with. You should also get to know your bank manager and perhaps an insurance and a finance-broker.
It's also useful to choose a mentor - someone experienced in business and whom you trust so that there is someone you can ask "silly" questions of and not feel embarrassed.
#6 What is your legal structure?
Without going into the detail, you can operate as an unincorporated sole trader, you can enter into an unincorporated partnership, you could set up as a family trust, or you can incorporate a company.
Each option has pros and cons, ranging from the cost of annual maintenance to protection of assets to tax efficiency and commerciality.
That's where your good accountant comes in - discuss what entity you should operate as before you start your business. You do not want to be figuring this out partway through the first year, or later, when it may be too late!
#7 Registrations, Legal Matters and Financial Considerations
The seventh thing you should know is what registrations or legal and financial considerations you might need.
These range from industry registrations (trade associations and so on) as well as licensing registrations (some Local Councils may need you to register your business premises if you work from home, for example), and taxation registrations.
Depending on your business model, you may need to register with the Australian Taxation Office for a Tax File Number and an Australian Business Number, Pay As You Go Withholding, and GST. Again let your accountant explain and guide you.
As well, don't forget to register domain names for your website - don't wait a year and then find that when you want to create your website the name has been taken.
You should also get to know what legal considerations you need to take note of.
For example, you may be signing a lease, various employment and other contracts, as well as loan and other agreements such as distribution agreements and applications for credit.
Some of these are extremely complex, so make sure that you consult with a lawyer about what you need, and what is in those documents.
Oh, and while we're talking about lawyers - go and get your Will updated!
With regard to financial considerations, what insurance will you need for your business?
What bookkeeping system will you be using?
To summarise, these are things to be aware of before you start your business:
- Making sure you are personally set up;
- The feasibility of your business idea;
- Your business model;
- The need to have a business plan;
- Who your advisors are;
- What structure is suitable for you; and
- Your registrations and legal and financial considerations.
There seems to be a lot to do but you need not be overwhelmed.
Start early and take it one step at a time.
The advantage of doing this step by step is that at each step of the way, you learn a little more about yourself and what kind of business you will run so that after you have taken that last step, you are well prepared.
You are also building up the knowledge to tackle the next step so that by the end, you have accumulated what you need to know, as well as a pool of people you can go to if you need.
Remember, starting the business is an exciting adventure and never lose sight of that.
However, it is a significant investment in time, emotion and money so you need to be prepared.
Set yourself up from the start, and you can look forward to building that successful business that gives you and your family the life you love.
You can watch this video I prepared for my online "brand" Teik Oh Dot Com that summarises all the above:
Starting a new business is a terrifying as well as an exciting time.
Don't let overwhelm stop you, but do make sure you do the work to research and prepare.
Cover picture by Franck V on Unsplash