Starting out in small business without starting small!

By Joanne Mansell

It seems no matter where you start looking, statistics are all too easy to come across that tell you how likely it is you will fail. Doubting but well meaning family and friends will also share their gloom!  How can you start out in business without starting small, while making sure you will stay in business?  Read on to find out!

This article covers the key discoveries I made over my first 3 or 4 years in
business. I hope they help you.

Franchising

Buying into a franchise can offer you some protection - there is less to set up yourself and you can avoid many start up costs such as artwork (graphic design), stationery printing and even ordering/payments infrastructure. Beware of the lure that there is a "name" - you should also be getting business systems to help you become established. Putting a certain name on your doors does not guarantee you business! The product or service may not yet have a reputation in your area, or be established within the industry, so it may take time and effort to build the momentum.

Advertising

Just because you have a great product or service doesn't mean that customers will turn up. This is only the first part of the business equation.  Customers need to what your product is, how good it is and how to find you! Again, with franchises a listing on the parent website isn't enough. Where possible, target advertising to your target group.

A great rule of thumb is to spend 10% of your revenue on advertising. An even better implementation for this is to spend 10% of what you intend to make. Lets look at an example - if you make $100 in your first month that's only $10 for advertising. That might get you a few flyers to hand out by yourself! If you intend to make $50,000 this year that's around $450 per month you would invest in advertising based on before tax dollars and an 11 month working year. The best investment in advertising is taking the time to track your leads and find out what is working.  This may also tell you of other products you could develop that your customers want.

Spending money on larger scale advertising helps build a professional image for your business. Do you look for a company in the yellow pages or check out their website to make sure they aren't "backyard"? Having said that be sure to consider value for money in advertising.

Buying Experience

In small business you become the business manager, marketing manager,
accountant/book-keeper, customer service representative, technician (the person who does the thing that produces the income) and every thing in between. Michael Gerber describes it well in his book "The E-myth...." By saying small businesses are started by technicians who have an "entrepreneurial seizure".


You may be good at doing the work, but you also need to be good at the necessary business systems and infrastructure. If you aren't its worth paying someone who is. On the other end of the financial scale if your technical work is worth $100 an hour, it is in your best interest to "outsource" errands and administrative work.

Legal issues

There is a confusing array of insurances out there. Some types to consider
are public liability and professional indemnity (a must) and key person
insurance, income protection as well as theft or damage insurance. In some industries
you can have your products insured as well. This may include patents to protect your intellectual property.

Registering a business name is not the same as trademarking your name. Seek good advice on this. Investing as little as a thousand dollars now can save you tens or hundreds of thousands later and perhaps even your business itself.  Registering your business name lets you open the doors for business.  Trademarking your business may protect you and keep your doors open.


Registering for GST

Every business needs an ABN (Australian Business Number). This is not the same as registering for GST. Talk to an accountant for exact details on this but as a principle, you must register for GST if your business income will be over $50,000.

 In terms of winning business, many government departments and other businesses will only deal with you (as a supplier) if you are registered for GST. Before registering you need to be aware that you are then obligated to complete a BAS (business activity statement) quarterly or in some cases annually. For businesses that deal mostly with "Mums and Dads," being registered for GST is not advisable because you must charge your clients GST which may make your product more expensive than your competitors.

Finances

Have enough money to be able to support you and your business for at least a year (preferably three) before you start. Conservative figures say it takes around three years to turn a true profit. In "Think and Grow Rich" Napoleon Hill tells of a gold miner who gave up, and stopped inches short of a most lucrative vein and millions of dollars. In your business you might be days or weeks from "the big time" but if you run out of money it does not matter how close you came.

Banks are reluctant to support a new business - they are often unwilling to
bend the rules that require three years of financials before you can get a
loan, lease or overdraft.

Raising finance - the importance of a business plan

The best thing you can do for you and your business is to write a business
plan. This clarifies your thinking about what business you are getting into
and why, and what your key products and services will be. It will help you to check out your market and whether there really is an opportunity. The cashflow projections will help you know how much money you will need at startup.

Having a business plan means that a bank, your parents, your partner, or other investors can make an informed decision.

Statistics

I mentioned earlier that statistics tend to be gloomy and forecast business failure. But statistics can also be your best friend. For example, with advertising track your leads. By comparing leads against the cost of the advertising you will be able to derive a cost per leads (enquiries) and cost
per conversions (enquiries who make a purchase). From these numbers you can also calculate a conversion rate. These stats help you to know where to spend your advertising budget next quarter. Why next quarter not next month? Advertising needs time to work, for the ideas to get out there. Studies say that people need to see a product or service at least 3 times to
be interested in buying.

Systems

While you start out as a "one person band" you need to keep track of your
systems - everything from answering the phone to how to do the banking. The
system says how things are to be done both in method and in quality. It is
also wise to have systems that cover when things are to be done -
advertising or publication deadlines, GST BAS statements etc.

Infrastructure

Do you need a fax machine or website? They are large up front costs but can
be great investments in your business and its image.

Trade your time wisely

Sometimes it makes sense to trade working hours for personal time or
activities, for example to get jobs done which must be dealt with in
business hours. Make sure that you do trade the time (and repay it on the
evenings or weekends) rather than steal the time. Until you get into a
routine it may help to keep a timesheet to track how many hours you are
actually working and what you are doing in that time.

Summary Points

* Raise three years of capital before starting out. You are better to delay
commencement for a year and work on plans and building capital than to
launch in too early and fail.

* Spend the money early. Have the infrastructure (fax, email, website) set
up early so they go on all of your materials including business
cards/brochures. It is harder to add as you go. Invest in intellectual
property rather than waiting until you can afford it.

* Decide on your product lines and avoid the temptation to expand too early.
Choose products that will sell reliably and not require major changes in
infrastructure including advertising.

* Invest in yourself. Do courses to expand your knowledge in weaker areas
such as business planning, book-keeping or computer skills. Although I
recommend outsourcing, I also recommend you are able to do these things
yourself as a backup.

* Take care of yourself. Be sure to take time out to relax. Your business
may be an extension of you but you are not only your business - keep your outside
interests and relationships so there is more to your life than work.



For more information on these concepts, or to book a business or life coaching session with the author, Joanne Mansell please phone 0416 181 654.  The first half hour consultation is complimentary.  For more articles (including business planning basics) see www.kaizencoaching.com.au

Joanne Mansell, Kaizen Coaching – “Mind, Body, Life Fitness”





 

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