People commence their own business for many reasons – they’re sick of their job or have been let go, they have a passion for something and want to make it more than a hobby, they want the flexibility of being their own boss or they think they can make more money applying their skills as a business owner rather than as an employee.
Whatever the reason for starting your own business is, facts are that almost 70% of small (nascent) businesses fail or are struggling to survive in the first three years[1]. With close to 5,000,000 Australians employed in small business (including owners) at 30 June 2014, small businesses account for 44% of the total employment market[2].
So how can you reduce the risk of your business failing? Here is a list of the most common reasons we have seen in our 40+ years of combined experience in accounting and business advisory (we’d normally put “Find a good accountant” at the top of the list but being that you are reading this you’ve already ticked that box!).
1. Make a business plan – sounds like an obvious one but with people starting businesses for all sorts of reasons, very few prospective business owners invest the time and resources to create a business plan.
2. Establish the correct operating structure – should you operate your business as a sole trader, partnership, family trust, unit trust, company or superannuation fund?
3. Analyse your competitors – Are you entering an already crowded market? What can you do better, faster, smarter, cheaper than the others?
4. Understand the tax system and ensure your business is compliant – Do you need to register for GST? What income tax rate applies to your entity? Do you need to register for Pay As You Go Withholding to pay yourself or someone else a salary or wage?
5. Financing your business – Do you have sufficient capital (money) to start your business? How long will it take for your business to be profitable? Don’t expect the bank to throw money at you if you’re not backing your business with your own cash.
6. Marketing and advertising – even the greatest of ideas require some funding to launch the business. You’ll need a budget and a plan to get your business in front of customers.
7. Choosing a suitable accounting package – micro businesses may be able to survive using Excel, however this often leads to problems tracking money through the business and owners cannot ascertain if they are making money. Consider Xero, MYOB, Quickbooks, Reckon, Saasu, Wave – there are a lot of options and one to suit each budget.
8. Legal, licensing and operational compliance – do you need a licence? Have you registered your trademark or applied for a patent? Are there local or state government laws that require additional compliance?
9. Insurance – like your house you should insure yourself and your business. If you don’t turn up to work there is no one to pay you annual or sick leave and what happens to the business? Does it just stop? What about if someone is injured at your workplace or while working for you?
10. Resources required – how many staff do you need? Do you need someone with a specific skill set? Are you up to date with the latest technologies in your industry? Do you need to lease an office premises, equipment or a car?
There are, of course, myriad issues that new business owners face in addition to these listed above. At 360 Partners we have answered all these queries (and even some you haven’t thought of yet!) many times, most on a daily basis. We will address some of the more important or complicated ones in upcoming blogs, but if you have a question or problem requiring some urgent attention please contact us and we will do our best to answer it.
[1] Australian Small Business Key Statistics And Analysis, Australian Government, Department of Industry, Innovation, Science, Research and Tertiary Education, December 2012
[2]http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1516/Employ
