Starting Your Small Business

With your business plan in hand, you can begin the search for funding by determining how much money you’ll need to start and run your business, which includes the amount you’re able to self-fund with your own money or that of close investors (family and friends). Being able to fund the business yourself gives you full control over its operation, while relying on outside investors usually requires ceding some ownership and operational responsibility.

The two main sources of funding options for Australian businesses are debt and equity finance.

The Federal Government’s business funding guide lists a range of funding pathways, including:

•  A traditional loan.
• Hire purchase, in which you rent until you have paid off the debt.
• Private investors such as angel investors.
• Chattel mortgage, in which you borrow money from a lender to purchase an item.
• Fully drawn advance, which is a long-term loan with a fixed interest-rate period.
• Leasing goods. 

Determine whether you’ll receive the funds as a lump sum or as needed. Traditional term loans are best for the former, while lines of credit can be less expensive in the long run.

The repayment schedule may be monthly, weekly or daily depending on the terms of the loan. Your business’s cash flow must meet the repayment requirements.

Know what added fees you may incur such as establishment, late payment penalties and other loan costs.

Confirm that the lender’s customer support is adequate to address potential repayment issues quickly and completely.

One of the first orders of business for your new company is to select a name that’s unique, descriptive and easy to remember. All business names used in Australia are registered with ASIC, and you can register a name for one or three years. 

It’s important to check if your business name is available with ASIC’s online checker tool. Ensure your chosen internet domain name is also available.

Be aware, too, that certain phrases or logos may be trademarked and you are not permitted to use terms that are misleading, such as ‘university’, ‘incorporated’ or even ‘bank’.  If you want to make sure that your business name doesn’t infringe on an existing trademark, head to IP Australia’s trademark search page. 

Before you register your business, you will need to have an Australian Business Number (ABN) or be in the process of applying for one. It costs $44 to register your business name for one year and $102 for three years.

Be sure to complete these steps before opening your doors for business:

• Open a business bank account. This is frequently done as part of funding preparations.
• Hire a bookkeeper or buy small-business accounting software.
• Make sure you have all your startup costs covered.
• Purchase insurance for your business, including workers’ compensation and public liability insurance.
• Choose and install the hardware, software and other equipment your operation will require.

Most businesses will also need to recruit and hire workers to power the operation. Finding the right pace of hiring can be a challenge for a new business. Overhiring can be avoided by establishing and sticking to a hiring budget. This also ensures you have sufficient time and resources for onboarding new hires and monitoring their workloads to prevent overburdening them.

In your business’s first year of operation, it should record several milestones:

• The official launch of your products and services.
• Your first customer.
• The business’s total revenue meets its total costs (break-even point).
• Its revenues consistently exceed costs, allowing proceeds to be invested back in the business (positive cash flow).
• Reaching its first anniversary.

To realise these milestones, your business has to navigate around potential disruptions to your production and marketing plans, such as errors in financial projections, problems with supply or ineffective marketing.

How To Overcome Common Startup Obstacles

The day that cookie entrepreneur Debbi Fields opened the first Mrs. Fields cookie store in the US city of Palo Alto in the late 1970s, she bet her husband that she could break $50 in sales before closing time. Hours passed with no customers arriving. To avoid losing the bet, Fields took to the streets, handing out free samples. She sold $75 worth and happily collected from her husband.

Fields knew right away that if something’s not working, try something else. She also was laser-focused on getting immediate feedback, calculating how much she needed to bring in each hour to be profitable (she estimated it was about $32—those were the days!) Her willingness to adapt and commitment to reaching and maintaining profitability helped her build an empire.

Closer to home, and our leading lights, such as Canva and Atlassian, have had to overcome significant obstacles to reach the level they’re at today. There is no such thing as overnight success. A new business may initially struggle to get the attention of its target market, secure adequate funding or recruit qualified employees. 

These are some responses to common startup glitches.

• Get customer feedback. The only way to find out is to let them try your product or service and then ask them what they think. Create different versions of your “basic model,” whether you’re selling pizzas or pergolas, and conduct A/B tests as you try out variations and combinations.
• Diversify funding sources. In addition to keeping a close watch on your spending, look for ways to diversify your funding sources. Alternatives to banks and venture capital include government grants, incubators, partnerships and crowdfunding.
• Set SMART goals. The SMART approach to goal-setting helps managers confirm that their goals are specific, measurable, achievable, relevant and time-bound. By focusing on tangible and achievable objectives, businesses see the progress they’re making, which boosts motivation. However, you have to avoid over-emphasising short-term goals, especially if they’re more difficult to reach than you expected.
• Hire quality staff. The job candidates with the most stellar qualifications can be difficult to attract to a startup. Many new companies offer employees equity in the business in lieu of high salaries. They also strive to create a positive work culture that aligns with workers’ values.

Your business’s first-year accomplishments are merely the prelude to the challenges and triumphs you’ll encounter as you guide the enterprise into its mature stage. You’ve begun to establish your all-important customer base, found and trained your all-important staff and are generating sufficient revenue to invest some profits back into your operation. It’s time to rework your business’s financial plan to ensure the funds needed to power your growth will be available.

As a startup, your goal was to achieve profitability and consistent revenue generation. However, this is no time to simply stay the course, no matter how well you think the business is doing. The transition from startup to established entity requires reassessing your goals, marketing strategy, and financing approach.

Reconsider Your Product Lineup and Target Market

Build on what you have learned about your customers and what they like and dislike about your products to adjust your marketing strategy and plan enhancements to your product lineup. What your customers want and need changes over time, so capitalising on these changes requires that you get ahead of them by constantly analysing the features they prize and those they shun.

You’ve created a community around your business that you can tap through direct contact and social media. Let your customers know that you value their feedback and are attuned to their needs. Expand your online presence and take every opportunity to listen to and respond to the insights your customers and potential customers share with you.

Adjust Your Sales and Marketing Strategy

The best way to grow your business is by finding new sources for generating leads that you can convert into sales. Customer relationship management (CRM) systems collect and analyse information about your current and potential clients from online sources and your direct interaction with the public. The goal is to build awareness of your brand while you identify the most promising leads and learn the demographics of your target audience.

Foster Growth and Engagement Among Your Employees

Your workers’ expectations change as the company transitions from a startup to an established business.

Listening to employees and responding to their needs doesn’t happen once or twice a year but regularly through thoughtful interactions in the workplace and during extracurricular activities. Make them aware of the opportunities for growth and promotion, and support their willingness to take risks and try new things, which makes them more engaged and effective.

Devise a Plan for Sustaining Profitability

Just as you created a business plan as part of your startup preparations, you’ll need a profit plan as the company transitions to its established phase. The plan should cover five areas of analysis:

• Revenue projections estimate sales, pricing and volume for the company’s next year of operations, and potentially long term as well.
• Cost projections consider your direct and indirect costs of producing, distributing and marketing your products, including labour, materials and overheads.
• Cash-flow analysis examines incoming and outgoing money, as well as your business’s cash reserves.
• Balance sheet projections estimate the organisation’s assets, liabilities and equity for the coming year and beyond.
• Income statement projections calculate the revenue, expenses and net income of the business in the short term and long term.

Once your business has successfully passed from startup to established, it’s time to think about your exit strategy, even if you have no immediate plans to move on. The ultimate goal you had in mind when you first imagined starting the business has likely been adjusted as industries, markets and the economy in general evolve. Regardless of your departure plan, the mature phase of the business is when you maximise its value prior to cashing out.

The components of a value-enhancing strategy are a strong brand, diversified revenue streams, intellectual property, operational efficiency and sound financial management.

• Maintain your brand. A strong brand promotes customer loyalty and enhances your company’s visibility in the marketplace. Your business logos and the color and other design elements of your branding help communicate your commitment to customers and strengthen the trust they place in your products.
• Maximise revenue sources. The more revenue streams your business generates, the less risk it faces and the more valuable it becomes. Always be searching for new markets and more attractive offerings for your existing customers. Diversified revenue sources make your business more resilient, which increases its value to potential buyers.
• Take advantage of your intellectual property (IP). Businesses may undervalue their IP assets, such as trademarks, patents and proprietary work processes. Consult with a business advisor or solicitor knowledgeable in IP about potential royalty and licensing opportunities. Any process innovations you’ve developed for your company also enhance its value to suitors.
• Operate more efficiently. Boosting the efficiency of your operations contributes to profitability and worker productivity, both of which improve the lot of your workers and reduce employee turnover. Two ways to enhance your everyday processes are by applying technology judiciously and training employees to give them the skills they need to be more effective.
• Enhance your financial management. Sound business decisions rely on accurate and up-to-date information, which requires maintaining reliable financial records. Investors and potential buyers look first to your business’s financials and will be impressed by their completeness and how well they are organised.

Sometimes the fastest way to succeed in business is by not starting from scratch. But before you start shopping for an existing business to take over, think about the reasons the current owner is selling. 

It could be that they simply have achieved the goal they set when they started out or they’re ready to move on and try something new. However, it could also be because the person expects a downturn or other circumstance that threatens the business’s profitability.

• Keep these factors in mind when you’re considering the purchase of an ongoing business.
• What do the business’s financials look like? Ask to see at least three years of balance sheets, cash flow and income statements.
• How long has the business operated, and why is it being sold? Confirm that there are no legal matters or outstanding debt that will affect the operation post-sale.
• Are there any ongoing contractual obligations or pending liabilities? These may or may not be transferable to a new owner.
• Is the business appropriately staffed? The current workforce may be insufficient to ensure customers’ needs are met and production meets demand. Also confirm that there won’t be a mass exodus of employees following the transition.
• How dependent is the operation on the current owner? If the seller has unique knowledge, skills or relationships with key customers, their departure could hinder the business’s ability to operate profitably.
• How successful have the business’s marketing efforts been? Understand the current marketing channels and confirm that its promotional efforts lead to a steady flow of new customers.
• Are there any unresolved customer complaints or disputes? Verify the effectiveness of the business’s dispute resolution process and its current level of customer satisfaction.
• Which physical assets are included with the purchase price? Usually, all permanent fixtures are considered part of the building, but display cases, equipment and other items that aren’t part of the structure may be removed post-sale.
• Is the business’s technology up to date? IT is an ongoing investment for any business, but you want to start with a solid technology foundation, including high-speed network links and strong data security measures.

Sources for buying businesses include online business marketplaces, business brokers, industry trade associations and classified ads. 

Starting a business is relatively easy, but establishing and maintaining its growth and profitability requires ongoing planning, research and risk-taking.

There are plenty of resources available to point you in the right direction, many of which we’ve listed here. One of the best guides is the Federal Government’s dedicated business hub, which outlines the various steps you need to take to start and maintain your business.