First Business online module

First Business online module

First Business Online Image 1

Welcome to First Business online module,  a resource designed to help you decide whether starting a small business is right for you.

There are eight parts including Getting Started, Business planning and support, information on laws and regulations, and insurance tax. Each part includes a scenario to put everything in context, reflect on and help grow your business idea and an activity to apply your new knowledge.

Once you have finished working through this resource, and decided that you are ready to bring your idea to life, download the First Business app to help guide you through the requirements for kick starting your new business.

It is important to note that this resource focuses on a sole trader structure without employees, and does not discuss the various types of business structures in detail. What type of business you set up is a really important part of the decision process for your business and we recommend you take a look at more information on the different types of structures, including sole trader, partnerships, and companies to see if any of these business structures are relevant to your new venture.

Activities

1 Getting started

First Business Online Image 2There are over two million small businesses in Australia, so there are lots of people out there living their dream.

Let's talk about why you might want to be in small business. There's probably more than one thing motivating you.

Here's some typical reasons 

  • You want to be your own boss and have more control over your work
  • You want to make more money
  • You have a fantastic business idea
  • You're looking for more freedom and flexibility in your work hours to suit your lifestyle
  • You want a career change or you're unemployed
  • You want to be more creative and innovative

These are all great reasons to start a small business, but let's quickly take a look at the flip sides. Click the reasons that are relevant to your situation so you can understand the pros and cons.

You want to be your own boss and have more control over your work

This is a really popular reason. No-one to answer to, making all the rules yourself - what bliss! The problem is, you'll also be making all the decisions on your own, and if you're a tradie, you'll be quoting and organising all the work yourself, then chasing up the payments. You'll no longer be getting a guaranteed paycheque every second Thursday. It can be very rewarding, but it can be a struggle to adjust, managing the admin as well as the actual work, especially at first.

You want to make more money

It's true that thousands have made money in small business. But there wouldn't be many that haven't worked long and hard to get to that point. Chances are, you'll earn less per hour of work than you did before, and there are likely to be times when business is slow and you won't earn much at all. At this point you might start to doubt your decision, and you'll need to be pretty determined to stick with it. Steve Jobs didn't get rich overnight. He started his first small business in his parent's garage and barely made ends meet for quite some time.

You have a fantastic business idea

This is a truly great reason to start a small business, but … do your homework. You might think your idea is gold but you absolutely have to be sure that people will want to pay for your product or service, and that someone does not have a similar idea. Otherwise, you'll go broke! Airbnb is a great example of an idea that appealed to the masses and has grown from a small business to a huge one.

You're looking for more freedom and flexibility in your work hours to suit your lifestyle

How great would it be to be able to choose your own hours? Imagine surfing until 10am every day or finishing work at 3pm so you can go for that run. Here's the wakeup call. Starting out in small business is a massive responsibility, especially in the beginning when you'll likely be working day and night just to keep your head above water. If you're not scared of hard work, and you can handle the lines between work and home getting blurry sometimes, then go for it. Down the track you might just get to work hours that suit your lifestyle a bit better.

You want a career change or you're unemployed

Hate your job? Doesn't feel like the right fit for you? Been made redundant? Don't worry, you can always push the default key and start up your own business. But take note, it can be a really tough gig. You shouldn't do it just because you think it'll be better than the job you have now. You need a real passion for what you're about to do, or it just won't work.

You want to be more creative and innovative

Perhaps your job isn't creative enough for you or every idea you have at work gets slammed. But … keep in mind that running a small business comes with loads of really important and way less creative (even boring) jobs like record keeping, paying bills, chasing debts, marketing and networking. You'll have to wear lots of different hats unless you can afford to pay others to do it for you.

Tip

None of this means you shouldn't do it at all. If you're not 100% sure, you could start your own very small business in your spare time, to see if it has legs and to find out if you're ready for it. This could work really well for people who are able work on weekends (for themselves) like landscape gardeners, hairdressers, plumbers, and builders. You could balance a new business with other part-time or casual work so you can keep paying the bills while you build up cash flow in your new business.

Activity: Why start a small business? 

Activity: Why start a small business

Opportunity knocks

When it comes to business opportunities, the sky's the limit. But you really have to know what to look for and what questions to ask yourself when thinking about setting up a business.

Obviously, your skills and experience will drive the direction you head, but think about the following and do your research.

Will your product/service meet a need?

This one probably sounds ridiculous, why would you go into business without thinking about and researching this? You'd be surprised how many people do! Does what you offer solve a problem of some sort? If the need is already being met by other businesses, how will you do it better? Will your product be delivered quicker, cheaper, be of higher quality, or more convenient? What makes yours a value added product or service?

Will your business idea work in your area?

Demand for a product or service can often change from location to location. Say you're a builder. There might be better opportunity for you in an area where there's lots of new development. Or it may not be a good idea for a hairdresser to start a business in an area where there's already six others. An upmarket coffee shop might do really well in a busy shopping strip, but not so well in an industrial area.

Do you have the resources you need?

We're not just talking about tangible items here, but also skills and knowledge. As an electrician, having a work van and tools is one thing, but you'll probably need extra help like an accountant, a financial adviser or business mentor to help your business succeed. You'll also need to think about marketing your business, and how you will establish a customer base. Can you afford these extra resources? 

Do you have the right price point?

What pricing can your potential customers tolerate? Can you provide a good service at a price the public is prepared to pay and still make a profit? This is a vital thing to think about. You could have customers clamouring for your service at a rate that makes you go broke, or have a price point that no-one is prepared to pay. Finding a price the customer is happy to pay is really important.

Is the time right for your business?

Think about the first four points - all of these things have to add up at the right time to make it all work for your business. If everything points to the time not being quite right, keep researching and watching for the right time for you. And don't forget, sometimes there's opportunity in times of financial downturn. For example, there's research to suggest some women spend more on beauty products and hairdressing during economic downtimes.

Business goals and opportunities

Ok, if you're still seeing an opportunity, you're ready to set your business goals.

Goal setting is so important in both our personal and work lives. If you don't have goals, how will you know where you're going, how to get there or when you're there?

Can you think of any personal goals you've had in the past? It may have been something as simple as getting a part-time job while you were studying, saving for a holiday, buying a second-hand car or finishing an apprenticeship. Goals are great as they make you focus on the big picture. Ever noticed how once you've decided to buy a certain type of car, all of a sudden, you see that make and model everywhere? This is because your mind is attuned to the goal and is working hard to make it happen!

Your business goals can be big or small, short or long-term, but as with all goals, they must be SMART.

Here are some questions to ask yourself to make sure your goals are SMART.

Specific - Is your goal clear and precise? There should be no grey areas around your goal.

Measurable - Will you be able to easily tell when you've reached your goal?

Achievable - There's no point setting yourself up for failure. If your goal is impossible, you'll just give up.

Relevant - Is the goal in line with what you are trying to achieve? For example, does your business idea allow you to build on your existing training and experience?

Time-based - Have you set a timeframe for your goal? Give yourself a deadline to achieve your goal, if it's open-ended, you'll never get there.

So how does this all work in the real world?

Scenario: Tim

Tim is thinking about going into business for himself. He's a fully qualified pastry chef, is used to the early starts and thinks he has what it takes to run his own small business. He's thought about the pros and cons and jotted down a couple of broad business goals.

  1. Get a loan from the bank
  2. Find a shop to run the business from
  3. Get equipment for the shop
  4. Get shop up and running

Let's make Tim's goals SMARTER!

  1. By 30 Nov this year, find a shop within 20km of the CBD with rent up to $25,000pa
  2. Get a business loan for $50,000 by 1 January next year
  3. Spend up to $10,000 on ovens and bakeware by 31 January next year
  4. Start trading by 28 February next year

By making his goals SMARTER, Tim will be able to focus on his priorities and be responsible for making them happen. And he'll easily be able to measure when he's achieved them!

Activity: Making SMARTER goals  

Activity: Making SMARTER goals

2 What is your personality type for business?

We all have different personalities, and depending on the situation, we demonstrate the different ways we approach work. In a small business you might need to utilise some of your less common characteristics in order to succeed.

Let's take a look at one way our work personality types can be captured.

The Doer - hates change

This person loves to get their sleeves rolled up and do the work. Their main focus is on getting the work done. Management, procedures and change can fly out the window according to Doers. They like things just the way they are. They feel comfortable when their job feels like a big, familiar comfy couch that stays the same.

The Manager - only supports change where necessary

Unlike the Doer, the Manager's main focus is order and processes and how they can work better. The Manager creates work and supervises. They only change things if there's a problem, in which case they'll develop a process to solve it.

The Entrepreneur - loves change

No-one loves change as much as the Entrepreneur! Never content with the way things are, they are creators, innovators and visionaries. Things can always be done better according to the Entrepreneur, who lives in the future, always wondering 'what if?'

Activity: Which work personality type are you? 

Activity: Which work personality type are you? 

3 Budgets and cash flow statements

Budgets and cash flow statements are both essential for managing the finances in your business.

What's the difference?

A budget establishes the financial position of your business and what expenses you will have to pay in a set period time, for example 12 months. This is very important when setting up your business, to understand what expenses you will incur, from licences and registrations, rent, insurance, raw materials and more. Into the future, a budget will help you break down the costs involved in reaching the goals in your business plan, such as new equipment, additional staffing, or new licences.

A cash flow statement is in real time, what is going in and going out of your business.
It is important to remember that budgeting for your own personal life is just as important for your business, however remember to keep these separate. You need to know the cost of your own expenses, such as paying rent and utilities, loan repayments, food, and transport costs. Knowing this will help shape your decisions around how to start your business, for example do you have enough cash to set up your business and support yourself for a period of time, or will you start your business part time, and continue working in another casual job to stay afloat?

The MoneySmart website provides further information on budgeting, and some tools to help you get organised, and Business.gov.au also has a start-up budget template for your business. Let's take a closer look at cash flow statements.

Cash flow is the life blood of small business and managing it effectively is critical to your business success. In fact, some businesses fail, not because they aren't profitable, but simply because they run out of money.
But it's not rocket science. There are lots of tools out there to help you. Before we get started, let's take a look at an example of what can go wrong.

Scenario: Khalid

Khalid is a 24 year-old plumber who started his own successful business two years ago. He loves his work, has a stream of regular clients that keep his revenue up and has managed to keep on top of his paperwork with the help of a local accountant. Life couldn't be better.

After two years of working really hard, Khalid has a bit of cash in the business which has given him a bit of a buffer from slow payers or lean months and so far everything's worked out fine.

Khalid is halfway through a really lucrative 12 month contract that should see his business turn a hefty profit for the year. The contract is with a large, well-known firm so Khalid isn't worried about extending credit for more than the usual 30 days; after all, he has some money in the business to tide him over. But the debt quickly goes from 60 to 90 and then 120 days and all of a sudden Khalid has worked four months without a payment. He is assured by the accounts department that he will be paid, but after six months, the firm goes under and Khalid is left with an outstanding debtor of more than $40,000 that will never be paid.

Khalid now knows that no matter how big the customer, it's unwise to extend credit past the usual 30 day term. It's also not the best move to have all your income coming from the one source because if that client goes bust, your business might too.

There are more small business case studies on our First business app.

Managing cash flow

So you can see from Khalid's story that managing cash flow correctly can make or break a business. Managing it well means you will always have money to pay your bills when they are due.

Many things have a direct impact on cash flow. In Khalid's case, customer payment terms were a huge part of the problem, as was having all his work eggs in one basket.

So here are some essentials for you to think about:

Plan your cash flow

A cash flow statement will help you estimate money coming in and money going out. Cash flow templates are readily available on the web, but you will need to record:

  • the opening balance to record how much money you have at the beginning of the month
  • total monthly cash coming in (income)
  • total monthly cash going out (expenses, including any drawings you take from the business to 'pay yourself')
  • net cash flow (the difference between money coming in and money going out) to make sure there's more money coming in than going out
  • closing balance (opening balance plus net cash flow) which will be your opening balance for the following month

Monitor your cash flow

It's important to compare your cash flow estimates against actual amounts, to see if you are tracking as you planned. Don't be scared to revise and amend estimates. It's a normal part of cash flow forecasting.

Planning for the best and the worst

If your cash flow statement at the end of the month shows some shortfall of funds, you'll need to figure out a way to cover this until you get back into positive territory. A short-term loan or bank overdraft might have to be arranged. Any loan repayments will need to become part of your outgoings.

If you're in the great position of having excess cash, you could think about paying off any business related debt or purchase assets that will help you generate more income. It's also a good idea to keep some cash in reserve in case of emergencies.

Tips to improve your cash flow

  1. As in your personal life, good financial management means spending less than you earn. In business-speak this means increasing your profits and keeping your expenses under control.
  2. Whether you're a plumber, a café owner, a dog groomer or motor mechanic, if you hold stock to help you do your job, try to keep it to a minimum. Supplies that have been bought are tying up valuable cash and well … just taking up valuable space.
  3. Always follow up on your overdue accounts. Have tight credit terms and stick to them. Try to arrange longer credit terms with your own suppliers to give you a bit of breathing space.
  4. Look at how you're taking money in. Payment by credit card or EFTPOS is convenient for your customers and means you can get your money quicker. Talk to your bank about ways you can make this happen, make sure you ask about transaction fees and factor these into your prices and budget.
  5. Increase money coming in by taking a look at your pricing. Are you charging the right amount? Consider promoting your business or improving processes to generate more income.
  6. Monitor your expenses, cut back where you can and minimise wastage as much as possible. Going 'green' with your energy and water can also save you money.
  7. Educate yourself in financial management or get professional help where you need to. There are lots of small business workshops you can attend to upskill yourself and seeking help from a financial adviser or accountant is just a phone call away. You could also consider a business mentor, who may be a friend or family member, former boss, or someone you admire from your industry who may be willing to support you.
Tip

If you are going to be relying solely on business income to pay yourself a wage, you'll need to factor this into your cash flow as drawings

Getting started - What have you learnt?

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4 Business planning and support 

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Benjamin Franklin famously said, 'if you fail to plan, you are planning to fail'. It seems he may have been onto something.

Why you need a business plan

Planning is one of the keys to small business success, yet a high number of small business start-ups don't have a proper plan.
Key reasons why planning helps you:

  • Identifies your goals and keeps you focussed
  • monitors and reviews your progress
  • conveys your business idea to others
  • describes contingency plans in case things don't go as expected

All very sensible, right? Read on to learn more.

Goal setting

Business planning starts with setting goals. As identified in part one, goals provide focus and direction and keep you motivated. You might set a series of milestones to achieve as part of your overall goal. Small achievable milestones keep you focused and make reaching the goal seem possible. The Part 1 of this resource looked at making SMART goals. You may wish to refresh your memory on SMART goals .

Monitoring and reviewing progress

A business plan is not a static document, it will evolve as your plans are reviewed and revised. Comparing your plan to what actually happened and tracking your progress against milestones helps you make decisions about your business and hopefully improve future results.

Conveying your business idea to others

If you need finance to get your business off the ground, putting your vision in writing is absolutely essential! Investors or lenders will want to see that you have researched your product or service and undertaken market analysis, so they have a credible basis for believing that your business has what it takes to succeed. It also makes sure that other people you're working with, including advisers and mentors, are on the same page.

Making contingency plans

While planning improves your chances of success, it's important to understand that things don't always go to plan. It's important to consider what could go wrong, what is outside your control and plan for unexpected events. In business, you can hope for the best but you need to plan for the worst. Consider doing a SWOT analysis and including it in your business plan.

Tip

Research your business idea to see if it has a reasonable chance of success before you start on your business plan. This is covered in Part 1, if you haven't already taken a look, now's your chance.

Business planning basics - what do you know?

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Your business purpose

Ok, so we've looked at all the reasons why a business plan is a good idea where to start.
Your plan doesn't need to be long and overly complex. It just needs to be set out:

  • The purpose of your business
  • Your product/service, what it does and why
  • Your target market
  • Your ideas for bringing your product/service to the market
  • Your overall goals and progress milestones
  • Your financial needs
  • How you will measure success

That doesn't sound too hard, does it? 

The purpose of your business

Sounds simple doesn't it, but you might be surprised how many small business owners can't tell you 'why' they're in business. The purpose of your business is not the same as a mission statement. Google some well-known businesses and you'll find examples of some interesting mission statements:

  • Sony: to be a company that inspires and fulfils curiosity
  • Samsung: inspire the world, create the future
  • Cadbury: Cadbury means quality, this is our promise
  • McDonald's: to be our customer's favourite place and way to eat and drink

You'll notice that none of these statements accurately describes the purpose of the business. For example McDonalds' business purpose is to provide low cost fast food that is consistent across outlets anywhere in the world, notwithstanding country specific differences in product offerings. Be careful not to confuse a mission statement with a business purpose.

Your business purpose needs to describe what you will do, not what you dream of becoming. It is the reason you are starting a business. It will describe the actions you will take as you deliver your product or service.

Examples of a business purpose:

  • To provide an affordable plumbing service to the people of south western Sydney
  • To provide efficient bookkeeping services to businesses in the northern suburbs

Examples of a mission statement:

  • To be the best mechanic in town
  • To provide the best tasting coffee on the surf coast

Your product/service

Start by briefly describing your product or service. Is it unique or are there others offering the same, or similar, product or service already? If there is already competition, what will be your point of difference? Also think about what your business won't provide. Lots of small businesses struggle trying to be all things to all people, instead of focusing on a defined product or service with clear boundaries.

Think about:

  • technical specifications or details of your product or service
  • how your product or service will benefit your customers
  • how you're different from your competitors
  • how you will deliver your product or service

Determine your market

This one sounds pretty easy, but sometimes it can be hard to nail down. Who are your customers? Who will buy your product or use your service? Where are they located? Be realistic and understand that not everyone will be a customer. You'll need to work out the people or businesses that will use your product or service so that you can target your marketing efforts towards them. People buy products or services for three main reasons:

  1. to satisfy basic needs - like buying groceries
  2. to solve problems - like getting their car fixed
  3. to make themselves feel good - like buying new clothes or going on a holiday

Here are some great tips for helping you undertake market research.

Getting to market

Decide the best way to bring your business idea to the market and develop a marketing plan.

Think about:

  • your pricing - you'll need to work out what price your customers will be willing to pay and make sure it allows you to make a profit
  • advertising strategies - consider how will you advertise and promote your business, which method is likely to reach your market most effectively? Channels such as radio, direct mail, letterbox drops and social media have different costs which will need to be factored into your budget
  • how other businesses promote their goods and services, especially the ones that 'think outside the box'. What creative and innovative ways can you promote your business?

Goals and milestones

Milestones are like checkpoints for your business, steps you take to reach your overall goals. You are more likely to achieve goals that are written down and that have realistic timeframes. It will give you something you can measure progress against to keep you on track. You may wish to refresh your memory on SMART goals from part one.

Financial needs

No business can survive without cash. You'll have start-up costs, regular expenses and probably a few unexpected ones. You will need to estimate when you will receive income and when you will have to pay expenses. In a start-up phase it's likely your expenses will be greater than your income so accurately estimating your expenses and making sure you have the funds to cover them is vital to the success of your business. You may need to pay an accountant or bookkeeper to help you if finances are not your strong suit.

As well as projecting cash flow, you'll need to develop other financial forecasts such as a projected profit and loss statement and balance sheet. Consider:

  • Start-up expenses such as fitting out a shop or buying tools of the trade
  • Fixed costs - expenses that won't change, such as rent or advertising
  • Variable costs - expenses that will fluctuate according to your sales, such as materials, stock or motor vehicle running costs
  • Expected revenue - how much money do you expect to make and when do you expect to receive it
  • Do you need to register for GST? If you do you'll need to complete a quarterly BAS statement to the ATO and make any necessary tax payments. 

Your business is unlikely to turn over enough profit to pay you a decent wage for a while. You will need money from another source to pay your personal expenses while you build your business.

Measuring success

If you've put the time into setting your business up properly you'll want to know how you're tracking against your business plans. If your goals are SMART then they should be measurable, so what should you be looking for when comparing your plan to what actually happened?

  • Are your income and expenses in line with what you budgeted? Do you need to revise your cash flow or profit statements?
  • Are you following the plan? If not, why not? Does the plan need to change?
  • Have you reached any of your goals? Which ones? Are your goals still realistic?
  • Does the plan still reflect the business you set out to create?

Depending on your goals and budget, also decide about how often you would like to review your business plan, for example every six months or every 12 months, and make sure you stick to the time frames.
Don't let all this faze you. There are some excellent business plan templates out there that make it as easy as possible for you to complete these really important steps in setting up your business. 

Activity: Business planning - reflection time 

Activity: Business planning - reflection time

5 Getting help

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Now that you've got your business plan sorted, you may have discovered some skills gaps. Think about whether you want to fill these gaps by developing or improving your skills or by seeking out business professionals, mentors or coaches to help you.

Your plan may have highlighted the need for skills in areas such as:

  • financial management
  • advertising and marketing
  • sales and customer service
  • communication and negotiation
  • job scheduling or project management
  • problem-solving
  • networking

It's a big list, and you won't need to know it all but spending money to get good advice in the beginning can be a factor in determining whether or not your business becomes a success.

Scenario: Luca

Luca is a 23 year old house painter who started his own small business three months ago. He's working really hard, has picked up a few big clients and is loving the chance to choose when and where he works.

Luca has a rough business plan he's put together with the help of a business planning app and enough enthusiasm to sink a ship. There's just one little problem. Even though he's very good at painting, his business plan did highlight some areas where his skills are lacking. He's completed the following skills gap table:

Skill gap Upskill Outsource
Managing the finances   Dad - who's an accountant
Marketing and sales Short course through local council  
Planning   Brother Carlo who has a small business of his own
Networking Business breakfasts through the local Chamber of Commerce  
Time management   Family friend, Marisa, also a successful small business owner

As well as this, Luca has asked Marisa to fill an overall mentoring  role for his first 12 months in business. He was worried about his skills gaps but he's worked out how to fill those gaps. All successful small business owners started somewhere and most would not have achieved success without some help. Eventually Luca hopes to build up his own skills so he's less reliant on others but this will take time, so for now he has some good mentors and he can focus on what he does best.

Activity: Skill gaps

Activity - Skill gaps

Upskilling and mentoring

Luca is lucky because he has people close to him that he can ask for help. But what if your table shows areas where you need to upskill or outsource, but you don't know where to start?

Upskilling

There are lots of ways to educate and upskill. Formal or informal, face-to-face, online or a bit of both. There are plenty of ways to learn and a lot of free resources online, so education doesn't have to cost a lot, which is a real bonus for small business newbies.

Small business workshops and seminars are run across the country. You can search for these at business.gov.au or your local council. Some councils and state governments even have web pages or small business hubs dedicated to the local small business community. You'll find topics such as planning, marketing, financial management, innovation, employing staff and exporting, just to name a few.

The ATO runs small business workshops across Australia where you can learn about tax essentials and record-keeping.

Mentoring

Start looking and you'll see there's a whole community of small business owners in various stages of business development who love sharing their experiences and ideas. You've heard the term 'why reinvent the wheel?' … it's spot on in this instance. If you can hear about and learn from other people's experiences, you could be on the fast track to success.

There are mentoring and coaching programs in every state and territory to help you find a mentor. Family friends, relatives and acquaintances are also potential mentor material.
Networking events can be a great way of keeping up to date on what's happening in your industry and can also be a useful place to promote your own business. Our First business app has a networking section that might help.

Paid help

Of course, sometimes you will need to pay a professional for services such as legal or accounting. Word of mouth can be great way of finding appropriate professionals. Once you build up your network of small business friends, there's every chance they've had the same needs at some point and will be able to refer you to practical and affordable help.

Scenario: Siobhan

Siobhan is 19 and has always loved baking, and she's really good at it. She's been studying psychology at uni but it's not inspiring her the way she hoped it would. So after giving it a lot of thought, and with the support of her parents, she's decided to start her own business making high-end designer cakes.
She's going to start her business working from home but as she still lives with her parents she needed approval to take over their kitchen. She'll also have to get a licence to use a domestic kitchen for commercial purposes.

Siobhan has a reputation among family and friends for producing amazing cakes so she's pretty confident she can turn her skills into a viable business. She's built a basic website but knows she'll need a better online presence if she's going to build her brand and attract new customers. Problem is, she doesn't know how to do it.

Siobhan's based in Melbourne, so she googles 'help for small business Melbourne' and finds the Small Business Victoria website. She finds a selection of marketing and online workshops, most of them free or offered for a small fee. She then googles her local council and finds out they have a business hub that supports the local small business community by providing training and other tools and resources designed specifically for small business.

Over the following year Siobhan joined the local small business community and built a network of people, like her who were running small businesses from their homes. They have been a constant source of encouragement and motivation for her and she's picked up some wonderful ideas. Best of all, through this network she found someone to help her launch an amazing new website and develop an online marketing strategy.

6 Legally speaking

When it comes to small business, there's a whole heap of licences, permits, approvals, registrations, codes of practice, standards and guidelines that might affect your business.

Luckily there's an easy way to get your head around all the rules. 

Case study: Bethany

Bethany is a 24 year-old animal lover who works as a qualified vet nurse at a veterinary practice in Townsville. Over the years she's gotten to know the regular clients and their pets really well. Bethany hears her clients talking about how hard it is to find somewhere to get their pets groomed, walked when they can't do it, or somewhere to stay when they go on holidays. Some of the elderly clients in particular, have trouble with some of these jobs.

Bethany realises that developing a service for pets could be a really good small business idea. As a vet nurse, she has a lot of experience dealing with animals and has a good rapport with the clients. She knows she can reduce her hours at the clinic if she needed the time to build her business.

Bethany started to turn her idea into a business plan. She lives on acreage with her family so there's lots of room to develop a pet grooming salon and pet accommodation, as long as her family are OK with the idea. Then she thinks about maybe needing some form of 'licence' and freezes. Rules and regulations are not Bethany's strong point and she starts to worry.

Bethany googles 'small business licences' and finds ABLIS - the Australian Business Licence Information Service. She enters details of her business idea and finds out that she will need:

  • An Australian Business Number (ABN)
  • To register a business name with the ASIC's business names register
  • Kennel/cattery licence (Townsville) if she decides to take in pets for overnight stays
  • Local council permission if she wants to erect kennels on the property

Wow … what started out as a simple idea has suddenly taken on a life of its own!

Bethany decides to start her business off with dog walking and pet grooming and walking services on the weekends and see how it goes. She'll only need an ABN and to register a business name and she can get started. She can continue to work full-time while she builds her business and sorts out the other licences she'll need to expand. Before her business grows to include pet accommodation, Bethany also wants to prepare a detailed business plan, including set-up costs, so she has a path to follow and way to measure success.

Activity: Know the rules 

Activity: Know the rules

7 Understanding risk and insurance

Risk is the potential of losing something of value - and you can't avoid it. Planning for risk includes insuring against the financial consequences of an unexpected event. When it comes to your small business, there's a lot to think about. Here are some events that may result in a financial loss:

  • Your tools of the trade are stolen or destroyed
  • Your business vehicle is stolen or destroyed
  • Your work premises are damaged or destroyed
  • Your devices that you use to carry on your business and keep records become damaged or destroyed
  • You become sick or injured and can't earn an income
  • You injure someone while working
  • You damage someone's property while working
Case study: Jin

Jin is a 25 year-old electrician. He's been working for himself as a sub-contractor for the past year and has been doing really well. He's put a lot of effort into building his business and has achieved steady revenue growth each quarter in his second year of business.

Jin's feeling really good about how his business is tracking and then one weekend a terrible bushfire spread through Jin's neighbourhood and his home and most of his personal belongings were destroyed. Jin's work van was insured and he hoped his work tools would be covered under his home contents policy. He called his insurer to report the loss and find out how quickly he could be reimbursed for his losses.

Jin was shattered to find out that only $1,000 worth of his trade tools were covered under his home contents policy which is not even close to the $10,000 worth of tools and equipment that were lost. To make matters worse he can only guess the value of the tools lost because he hasn't kept proper records.

If Jin had thought about this earlier he could have taken out a specific trade tools policy that would cover his tools whether they are in his van, in his garage or on-site. Jin can't work without tools so this is a huge setback both financially and for his business.

While Jin is talking to his insurer they ask him if he has public liability insurance. Jin doesn't even know what this is but learns that if you own a business you may be liable for damage or injury caused to another person or their property while you are working and that public liability insurance would cover him if he was sued. Jin finds out he can take out $5 million worth of cover for a small monthly premium.
Jin's loss made him realise that he needs to make sure he is adequately insured for all potential losses that could impact his business and income. He writes down all the things of value that he needs to keep his business running:

Asset Value Insured?
Work van $15,000 Yes, comprehensively with 123 Insurance
Work tools $10,000 $1,000 cover through his home contents insurance
Lap-top $3,000 No - to be organised
Income $1,000 a week $1,000 a month cover through Easy Industry Super Fund
Public-liability $5 million No - to be organised

From his list, Jin can see he needs to get cover for his trade tools, lap-top and public liability and he will need to increase his income protection insurance.

Activity: Assessing risk 

Activity: Assessing risk

8 Tax and record keeping

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As we have already talked about in the other parts, good record keeping is essential for any business. It helps you manage your cash flow, keeps you organised, helps you meet your tax responsibilities and most of all, it lets you know how your business is going.

The four requirements from the ATO are that record keeping must:

  • explain all transactions
  • be in writing
  • be in English
  • be kept for five years (although some records need to be kept longer) 

If you're unsure about the records you need to keep, the ATO has a Record keeping evaluation tool that can help you.

The ATO's website has extensive information on what you can and can not claim, and when you can claim it. Talk to your accountant about what deductions you can claim from your business, as they will be best placed to provide you with specific advice for your situation.

A few tax  tips to remember is that you:

  • can not claim deductions for private or domestic expenses, or any costs relating to entertainment or fines.  There are specific options available for sole traders and how you can claim business expenses.
  • can claim operational expenses, such as wages, advertising, and stationery supplies, in the financial year that you incur them. The ATO has an extensive list of these items, including information specific to small businesses.
  • can claim on the depreciation of assets, including motor vehicles, machinery and equipment, furniture and capital assets such as buildings over a longer period of time.  Check out the General depreciation rules from the ATO for more information.
  • must keep copies of your bank and credit statements. If your bank provides these electronically, you can save them as a PDF for future reference.
  • can only claim a percentage of costs for an asset you use for both personal and business purposes, for example an electronic device that you use for managing business email and banking, but also use it for personal social media or to read books in the evening.
Case study: Alex

Alex is a 22 year-old fully qualified hairdresser and beautician who has been running a salon from the front room of her home for the past eight months. She's been struggling to make ends meet as she's had to spend quite a lot of money on equipment and supplies to set up her salon, as well as advertising to get the word out there.

There hasn't been much time for Alex to organise any of her paperwork in between answering the phone, fulfilling appointments, cleaning the salon and replenishing supplies. She only takes cash for the work she does and has been paying cash for her equipment and supplies, she has no electronic record of her transactions.

Alex struggles with paperwork but she does have an ABN. She hasn't registered for GST as she doesn't expect her income to be very high. When the ATO contacts her about lodging her first Instalment Activity Statement, she doesn't know where to start. A friend puts her onto a local accountant for help.
Alex finds out that she should have been keeping a record of all her business income and keeping receipts for all her purchases so she can deduct them against her income. Otherwise she has no way to show what her taxable income is so the ATO can work out how much tax she needs to pay.

Alex's accountant shows her how to fill in a simple Excel spreadsheet at the end of every day, detailing her income and any business expenses. Alex also now knows she needs to get a receipt for all business purchases and keep them as proof that they are business expenses. She can use the spreadsheet to help her to complete her Instalment Activity Statement each quarter, and it tells her how profitable her business is.

Tax and record keeping - Test yourself

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Next steps

9 First Business - the smart phone app

Now that you have completed this online resource, and have decided that you are ready to bring your idea to life, download the First Business app to help guide you through more of the requirements for kick starting your new business venture!


Related links


Last updated: 03 Feb 2017