|
| |
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”
|
