Secrets of Success for Start Ups
Secrets of Success for Start-upsBy AMP Financial Planner Paul Carter of Provident Financial Services
People thinking about starting their own business know a business plan is essential and they’ve probably heard that businesses don’t plan to fail, they fail to plan. So what are the keys to success people should address when contemplating the big leap into business?
Unfortunately having a good business idea and the enthusiasm to go with it won’t be enough to ensure success. Not only is a business plan vital to the day to day running of a business, it is necessary when applying for loans, fighting off competition and planning for the future.
As part of preparing a business plan, business owners should prepare a financial plan outlining their future expectations of what reward the business needs to deliver. All too often start-ups fail because the people running the business haven’t identified what they need to do to make running the business sustainable.
One of the critical decisions a new small business owner will make is deciding on the most appropriate structure for the business. This will range from:
- sole trader - a person trading on their own
- a partnership - more than one person owning the business without incorporation
- a trust - an entity that holds assets for the benefit of others
- a company - a legal entity that’s separate from its shareholders.
Each option has different tax and legal obligations so people should consider the pros and cons of each carefully before making a decision.
Registering the business
Depending on what type of business structure is chosen, the registration process will differ. If a company structure is chosen, the business owner needs to register as a company. Registering as a company gives people the advantage of having exclusive rights to their company name across Australia. They can carry out business throughout Australia without having to register the name in each state.
Sole traders, partnerships and trusts have to register their business name with the appropriate state or territory. These requirements may not apply if the business is conducted under the name of the person involved. People should seek advice from their professional advisers in this area.
Protection is paramount
It’s important for small business owners to protect their business. Businesses that are either uninsured or underinsured are at risk if something goes wrong. While some problems can be anticipated and prepared for, it’s the unexpected that could have the biggest impact.
Most small business owners only consider general insurance for worker’s compensation, motor vehicle and property however partnership protection, debt protection and insuring a key person are equally as important in the event of death or total disability. In addition, protecting income if a business owner is unwell or injured is also paramount.
Small business owners must keep the appropriate records. Tight financial management will help keep the business on track. There are many software programs available today which are easy to use.
Almost every transaction made by a business has a tax implication, so it’s important for small business owners to be on top of their obligations. The Federal Government offers a range of tax concessions to small business owners too.
Businesses must be registered for the GST if they are an entity carrying on an enterprise and annual turnover is at or above $75,000.
Business Activity Statements are used to report and pay tax to the ATO.
Getting good accounting advice from a tax adviser is vital.
Healthy cash flow
Cash flow is the life-blood of any business and knowing how to manage and maintain a healthy flow of money into and out of the business is essential to business success.
One of the main reasons businesses fail is lack of funds. To help prevent this from happening, people should carefully work out how much money they will need in start-up phase and any on-going requirements.
Before approaching a lender for finance, business owners need to be prepared with a well-documented business plan, a statement of assets, details of security available to back up the loan and a carefully considered repayment plan.
Getting the word out
Although this should be part of a business plan, marketing the business effectively is an important factor in the success of a business. Marketing is more than just advertising - there is a broad range of tools at a business owner’s disposal.
Small business owners must make sure they are across the legal obligations they have to their staff, including:
- developing employee contracts and understanding the awards under “Fair Work Australia”
- registering with the ATO
- paying wages according to the relevant State or Federal award
- keeping employee records
- complying with occupational health and safety requirements
- being aware of payments and conditions associated with ending employment
- being aware of the Privacy Act and its implications
This is a complex area and people should always seek financial and legal advice on these sorts of issues.
There are also superannuation obligations to think about. Employers must contribute a minimum of nine per cent of an employee’s annual salary to super. These contributions are called Superannuation Guarantee contributions. They should also make sure they are on top of the new Choice of Fund rules and prescribed and default funds which can be used.
There will come a time when retirement is on the horizon and small business owners shouldn’t rely solely on selling their business to fund their post-work life. They should make sure their own super arrangements are going to let them live the lifestyle they want in retirement.
To ensure business owners have control over what happens to their business when they no longer want to or are unable to run it, a succession plan is a must. It will make the transition out of the business not only easier for them and their business, but for their family, employees, suppliers and customers too. A good succession plan can actually increase the value of a business.
Creating the ideal workplace
A happy workplace is a productive one, so it’s important to make sure staff are motivated and that they understand how they can contribute to the success of the business.
It’s important for small business owners to think of themselves as a shareholder of their business. They need to view their business as an investment and make all decisions on the basis that they will not destroy shareholder value, from the day to day running of the business to the people they employ.
Setting up a business is complex. People will most likely need a combination of accounting, legal and financial advice, in addition to government assistance.
About the author: Paul Carter is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706. For more information, contact Paul on 9442 0000.
Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.
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