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13 12 49smallbusiness.wa.gov.au

The small business specialists

Business Basics- starting your business

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Business Basics - Starting your businessSmall Business Development Corporation

© Small Business Development Corporation 2017ISBN: 978 0 9874484 3 9

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission from the Small Business Development Corporation. Requests and enquiries concerning reproduction and rights should be addressed to the Small Business Commissioner, Small Business Development Corporation, GPO Box C111, Perth, Western Australia.

The quotations included in this workbook are drawn from clients’ case studies and success stories.

DisclaimerThis information or advice is provided as a service to the citizens of Western Australia and it is made available in good faith and is derived from sources believed to be accurate and reliable. Nevertheless, the reliability and accuracy of the information or advice provided cannot be guaranteed and the Small Business Development Corporation, its officers, employees and agents expressly disclaim any liability for loss or damage suffered by any person caused by the negligence of the Small Business Development Corporation, its officers, employees and agents as a result of any person relying upon the information or advice, whether the loss or damage is direct or indirect.

Published by:Small Business Development CorporationLevel 2, 140 William StreetPerth WA 6000T: 13 12 49F: (08) 6552 3399E: info@smallbusiness.wa.gov.au

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ContentsAbout the Small Business Development CorporationIntroductionCommon business mythsTop 10 business tips8 steps to launch your small business

1. Are you ready?2. Assess your business idea3. Build your business plan4. Choose your business structure5. Legal obligations6. Build your support team7. Figure out your finances8. Market your business

Final step - complete the ‘Are you ready?’ checklistNotes

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Useful contacts

Contact Phone Website

Small Business Development Corporation (SBDC)

13 12 49 smallbusiness.wa.gov.au

Business Local 13 12 49 smallbusiness.wa.gov.au/businesslocal

Australian Securities Investment Commission (ASIC)

1300 300 630 asic.gov.au

Australian Taxation Office (ATO) 13 28 66 ato.gov.au

Department of Commerce (Wageline) 1300 655 266 commerce.wa.gov.au/labour-relations

Department of Commerce (WorkSafe) 1300 30 78 77 commerce.wa.gov.au/worksafe

Fair Work Australia 13 13 94 fairwork.gov.au

IP Australia 1300 65 1010 ipaustralia.gov.au

.au Domain Administration 1300 732 929 auda.org.au

CPA Australia 1300 73 73 73 cpaaustralia.com.au

Institute of Chartered Accountants 1300 137 322 charteredaccountants.com.au

National Insurance Brokers Association (02) 9964 9400 niba.com.au

Australian Bureau of Statistics 1300 135 070 abs.gov.au

Law Society of WA (08) 9324 8600 lawsocietywa.asn.au

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About the Small Business Development Corporation

The Small Business Development Corporation (SBDC) is the only agency in the Western Australian Government dedicated to helping small business start and prosper. It has been providing practical support to small business owners since 1984. We can offer you the following.

WorkshopsTailored low cost business skills workshops are delivered across a range of subjects, including business planning, online opportunities, marketing and financial understanding.

One-on-one advice You can access our free confidential advice and guidance services online, by phone, email or via face-to-face meetings. Our business information centre in the Perth CBD provides a walk-in service for clients seeking general information or help with business licensing and regulatory requirements.

Commercial tenancy advisory serviceWe provide free information and guidance on the Commercial Tenancy (Retail Shops) Agreements Act 1985, and other aspects of commercial lease negotiations and operation, with specialist commercial tenancy advisers assisting in face-to-face meetings or by phone.

The advice is supported by free publications providing detailed information, available to download from our website.

Alternative dispute resolution (ADR) serviceThe ADR service is a low-cost, non-litigious means of resolving business-to-business and business-to-government disputes involving small businesses. The service is particularly useful in resolving retail tenancy disputes.

Stay in touch

W: smallbusiness.wa.gov.au (where you can also sign up to receive our monthly e-newsletter)

E: info@smallbusiness.wa.gov.au

T: 13 12 49

F: facebook.com/smallbusinesswa or search for our Facebook group ‘I’m a small business owner in Western Australia’

Business Local serviceAcross the State, you can also access business advice through Business Local – our outreach advisory service. Business Local advisers understand how to do business in your area, and can provideguidance on a wide range of issues relating to solving problems, and growing and developing yourbusiness. Visit smallbusiness.wa.gov.au/businesslocal to find the provider for your region.

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IntroductionThis workbook will help you get your business idea off the ground. It provides a place to record information about your business idea, to help decide if it’s worth pursuing.

Starting a business can be confusing; trying to assess the risks and benefits of something which will become a major part of your life for a number of years is not easy.

Before you start your business you will need to talk to many people, conduct research and gather information.

Experience shows several key decisions need to be made before starting a business. It is important that they are based on sound financial and market information. This workbook leads you through the steps to make the right decisions. You may decide:

• To start a business when you have saved more money, or gained additional knowledge or skills.

• That the right time is now – the opportunities are there and the risks for you are at their lowest.

• Not to proceed with this particular business idea, but to keep looking for further inspiration.

If you decide to go ahead, the material in this workbook will provide the basis to develop a comprehensive business plan.

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Common business mythsNot everything you hear about starting a small business is true.

Myth 1 - The government will give me money to start my businessFact: Usually there is no funding to assist your business. While there may occasionally be financial support for particular industries or projects, the competition is fierce and all money must be accounted for – you don’t get anything for nothing. Search for ‘Grants and Assistance’ at business.gov.au for more information.

Myth 2 - I need to register my businessFact: While there is no generic ‘business registration’, as a minimum you will need to register for an ABN (Australian Business Number) and, if you intend to operate under any name other than your own, you will need to register your business name. There may also be individual industry registrations applicable to your business.

Myth 3 - My business will be really small and based at home, so I don’t need any licencesFact: Regardless of where you operate your business, you will probably need some type of permit or licence. Aside from industry or activity specific licences, most local councils will require you to get a home business licence. Visit our Business Licence Finder at smallbusiness.wa.gov.au to search for licences and permits you may need.

Myth 4 - I need to register for GSTFact: You only need to register for GST if your business is likely to turnover $75,000 or more during a 12 month period. However, you can register for GST before reaching that threshold if you wish.

Myth 5 - Running your own business will be much easier than working for someone elseFact: This is definitely a myth. Running your own business may be more rewarding, but the thousands of small business owners will tell you it is definitely not easier.

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Top 10 business tips from real business owners

Start with a business plan from the very beginning, then use it - don’t put it in the bottom drawer and forget about it.

Focus on the ‘bread and butter’ of your business. It may not be the most romantic or rewarding part of your business, but the thing that takes you the least time and makes the most profit is the main area you should be developing initially.

I am hopeless at setting goals. However, I have learnt my lesson the hard way and now realise how important goals are to developing a business.

It took me three years to establish systems in my business – before that it was all in my head. I couldn’t go on holidays or have much of a life outside my business because I was the only one who knew what was going on. Now that everything is written down in the form of operational manuals, it’s so much easier for everyone. Plus I can go on holiday!

My biggest tip is if you don’t like bookkeeping, don’t do it. My bookkeeper comes in for two hours every week and is well worth the money.

Every year my accountant would show me my profit/loss and balance sheet and I wouldn’t have a clue what he was talking about. After feeling stupid for about two years I decided to learn a bit more about finance. I’m definitely not an accountant, but at least now I understand how my business is tracking.

Be creative with your marketing and have a plan. I used to blindly advertise in the newspaper until I realised that I could reach a lot more people for free through other channels such as social media.

Don’t forget how important your staff are. I was so caught up in running my business that I forgot to thank them. They were slaving away and I didn’t even stop to buy them lunch.

Understand your lease. My business was located in a small complex of four shops. I had a furniture/gift shop and there was a hairdresser, beauty salon and a café. As part of our lease agreement, we had to pay the outgoings of water. I had a huge shop so paid the highest water bill each month, but actually consumed the lowest volume of water.

Never stop learning. There are so many great books, blogs, courses, webinars, newsletters on business – soak up as much as you can.

To learn more tips from real business owners join our Facebook group ‘I’m a small business owner in Western Australia’.

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Step 1 – Are you ready?

Going into business for yourself for the first time will change your lifestyle, professionally and personally, and can involve a significant financial commitment.

There may be many reasons why you are thinking about starting your own business; perhaps you have a great business idea, an opportunity to take on a franchise, or to purchase an existing business. For most people it’s a combination of many factors including a desire to make money, enjoy greater autonomy and freedom, take an opportunity to work at something they enjoy doing or the prospect of building an enterprise to pass on to their children.

Why do you want to start this business? I’m not happy in my present situation

I’m unemployed and need a job

I want a better lifestyle

I want to spend more time with my family

I’m bored and want a challenge

I’m looking for more flexibility in my life

I want to take advantage of a great opportunity

I have great skills and experience and want to use them

I want to help others

I want to make lots of money

Other: ______________________________________________________________________

What do you hope to gain?

In relation to money, time, family, career, professional challenges, values and lifestyle. Describe the top three things you hope to gain by running your own business:

1. ___________________________________________________________________________

2. ___________________________________________________________________________

3. ___________________________________________________________________________

Whether your business succeeds or fails will dependon many things including your abilities, initiative and capacity to work, as well as the economic and business environment.

To give yourself every chance of success, first consider your personal suitability for going into business.

There are no right or wrong answers to the questions below – they are intended to make you stop and consider your suitability and reasons for going into business.

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How do you rate your experience and natural ability in the following areas?For each item, tick the most appropriate answer.

Poor Average Good Excellent

Planning and goal setting

Time management

Marketing

Industry knowledge

Industry experience

Networking confidence

Motivation

Communication skills

Decision making

Negotiating

Social media

Customer service

Financial management

Staff management

Continually learning is one of the keys to business success. If you scored poorly in any of the areas above, maybe you need to take action.

There are many ways to further your knowledge and skills. Check out the resources and services available through:

• Small Business Development Corporation (SBDC)

• Business Local (an outreach service of the SBDC)

• Australian Taxation Office

• Department of Commerce

• Chamber of Commerce and Industry

• Universities and TAFEs

• Financial institutions

• Industry and business associations

• Internet (webinars, business blogs etc.)

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Step 2 – Assess your business idea

The only way you can know if your idea is going to work is by undertaking market research. Consider the following:

Be clear about what your business is aiming doWill it:• Fill a gap in the market?• Enter an existing market where demand is greater

than supply?• Provide a real difference for customers?

Research your ideaDepending on your industry, a great deal of information is probably already available in published reports or studies from these sources. • Australian Bureau of Statistics – abs.gov.au• The State Library of WA – slwa.wa.gov.au• IBIS World – visit the SBDC’s business information

centre• FMRC Business Benchmarks – also available

through the SBDC• Your industry or business association• Local councils

To gain a better understanding of whether your business idea has the potential to succeed it is also a good idea to conduct your own research, for example:

• Survey a range of people about your business idea, such as potential customers, suppliers, competitors and industry members. By asking potential customers you may get fresh ideas about your product or service offerings.

• Conduct a focus group discussion.

• Monitor social media discussions and forums.

Analysing your resultsAvoid conducting research just to prove your preconceived ideas, keep an open mind. Also be objective when analysing the results. Remember these golden rules:

• Flawed survey questions produce flawed results.

• Be aware of your own biases.

• Be honest with yourself.

• The better the research, the more informed the decisions.

Don’t ignore the results if they are different from what you expected. If your research shows that a proposed business venture has a high probability of failure, then it would be unwise for you to proceed.

Remember to consider what’s happening within your industry at a broader level (industry trends and projections) and how this might impact on your business, for example growth opportunities, or industry decline.

Above all, remember that market research, like any tool, must be used effectively to achieve useful results.

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What are the main strengths, weaknesses, opportunities and threats your business may face now and in the future? Analyse your business idea and the areas you may need to work on. When completing the SWOT analysis below, choose up to five examples in each category that are likely to have the greatest impact on the success of your business.

Tools to help you assess your business idea

SWOT Analysis

Strengths Strengths are the internal resources or capabilities of your business that are better than your competition and positively contribute to your profitability.

WeaknessesWeaknesses are the internal resources or capabilities of your business that are below your competition and may damage your profitability. Weaknesses need to be improved or you need to seek outside support.

Opportunities Opportunities are external factors or conditions that the business can exploit to build success. Take advantage of opportunities by using your strengths, supported by the most appropriate marketing strategies to enhance your competitive edge.

ThreatsThreats are external factors that could adversely affect the success of your business. You usually have little or no control over them, but you need to be prepared for their impact.

Tools to help you assess your business idea

SWOT Analysis

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Step 3 - Build your business planThe information you compile during this workshop can be used to help prepare a business plan. A business plan should describe your business, its objectives, strategies, target market and financial forecasts. It’s a blueprint for the future of your business.

Although it initially may seem like a lot of work, a well prepared business plan can save time and money in the long run and help you secure major contracts or funding.

There are no rules about what the plan should cover or the level of detail. It depends on what you want to use it for – to obtain finance, or as an operational and management tool for yourself.

There are some very practical resources on putting together a business plan on the our website.

Step 4 – Choose your business structureOnce you have established the viability of your business idea, you will need to decide on the structure that best suits your business and its particular circumstances. Some things to consider:

• how the entity will be managed with regards to income taxes, capital gains and land tax

• asset protection

• control and succession

• flexibility to adjust as circumstances change

• exit strategy

• set-up and maintenance costs

Your aim should be to minimise taxation, protect your assets, and retain control. The four most common structures in Australia are:

Sole traderA sole trader is the simplest of business arrangements giving you, the sole owner, all the decision making power. You are also able to hire staff.

PartnershipA partnership is formed when two or more people (up to 20) go into business together, partnerships can be general or limited. We strongly recommend that you create a formal partnership agreement’, which outlines how the partnership will operate, including the sharing of any profits and losses, and the responsibilities of each partner.

CompanyA company is a separate legal entity that is capable of holding assets in its own name and conducting business in its own right. A company is owned by members (shareholders) and run by directors. Independent contractors can also set up a ‘one person company’ listing themselves as sole director and member.

TrustUnlike a company, a trust is not a legal entity. They are often used in connection with running a business for the benefit of others.

For detailed information on business structures and their implications visit ato.gov.au

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Issues to consider Sole trader Partnership Company Trust

Is the structure difficult to set up? No No Yes Yes

Is it expensive to register? No No Yes Yes

Do I retain complete control? Yes No No No

Are there complex reporting requirements?

No No Yes Yes

Will my assets (house etc.) be under threat if my business goes into debt?

Yes Yes Not as likely Not as likely

Do I receive full profits made from the business?

Yes No No No

Can I employ staff? Yes Yes Yes Yes

Do I have to pay my own workers’ compensation, superannuation, etc.?

No NoYes

(if employed by the company)

Yes(if employed by

the trust)

Can I change the legal structure easily? Yes No No No

Do I have the ability to plan tax through avenues like income splitting?

No Yes Yes Yes

Is it easier to raise capital? No Yes Yes Yes

Is it easy to dissolve or exit? Yes Yes Yes No

Comparison of business structures

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Registering a business name

The name of your business is a major element of its identity and image. Choose one that reflects what your business is about, and will continue to be relevant as the business grows and evolves. If you decide to use your personal name for your business e.g. John Smith, there is no need to register it. However, if you want to call your business ‘John Smith & Co’, this would need to be registered as ‘& Co’ is not part of your personal name.

The business name registration service operates through the Australian Securities and Investments Commission (ASIC). To register a new business name you will need an Australian Business Number (ABN).Applications cost $34 for one year or $80 for three years.

W: asic.gov.au

Registering a domain name

Your domain name is your website’s address on the internet (eg. yourbusiness.com.au). It’s a valuable part of your business identity and an important marketing tool to help customers find and identify with your business.

It is important to check the availability of your preferred domain name. Go to ausregistry.com.au to check availability and to choose an authorised registrar to take you through the process. Registrars are the retail channel for domain name registrations; they can also assist with other online needs. Prices, products and services will vary depending on which registrar you use.

W: auda.org.au W: ausregistry.com.au

Starting a new business is an exciting time, but there are a few things you must do before you can begin trading. This section covers how to comply with mandatory regulations, protecting your intellectual property and registering your business and domain names. While there is no single place to ‘register’ your business, by following these directions you will be able to quickly and easily get your new business up and running.

Registrations and licences

Licences

Your industry and geographical location will determine which licences you need before you can start trading. Visit our website and follow the link to Business Licence Finder. Once you have entered your details, you will receive a personalised report showing which licences, registrations and codes of conduct you need to address before you start your business.

W: smallbusiness.wa.gov.au

Obtaining an Australian Business Number (ABN)

Businesses use an ABN when dealing with other businesses and the government. While an ABN is not mandatory, if you are unable to quote an ABN in your invoice, businesses dealing with you are legally required to withhold tax (at a rate of 49%) from any payments they make to you. You can obtain an ABN online for free from the Australian Business Register.

W: abr.gov.au

Step 5 - Legal obligations

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Register for tax

The most common initial tax registrations required by small businesses are:

Tax file number (TFN)

All businesses need a tax file number (TFN). Sole traders use their individual TFN, while partnerships, trusts and companies need a separate TFN for the business.

W: ato.gov.au

Goods and services tax (GST)

You need to register for GST if you are a business and

• your current /expected turnover is $75,000 or more; and/or

• you are a taxi operator (regardless of turnover).

Once you reach the threshold, you are required to register for GST within 21 days. You may choose to register for GST even if your turnover has not reached the $75,000 threshold as you can then claim credits for any GST you have paid on goods and services used in your business.

W: ato.gov.au

Pay as you go (PAYG) withholding

This is the system for withholding amounts from payments you make to employees and businesses so they can meet their end of year tax liabilities, including:

• Payments you make as an employer to employees, company directors and office holders. Personal drawings are not considered a wage and sole traders and partnerships are not required to withhold amounts from these drawings. It’s a good idea to set money aside to cover any personal income tax payments you may need to make.

• Payments under labour hire arrangements.

• Payments under voluntary agreements.

• Payments to businesses that do not quote their ABN.

You must apply to register for PAYG withholding by the day on which you are first required to withhold an amount from a payment.

How to apply for registration

There is no cost to apply for any ATO registration. However, your accountant or tax agent may charge a fee to assist you with registering. You can register your business for tax purposes:

• Online at the Australian Business Register (abr.gov.au) where you can apply for an ABN, GST, PAYG, and FBT in a single application.

• Through your accountant or tax agent.

Protecting your intellectual property

When starting a new business, registering a new business name or developing a new product, you should consider protecting your original business idea – your intellectual property (IP). Registering a business name or domain name doesn’t automatically give you exclusive rights to that name. There are a number of options for protecting aspects of your business. The three most common forms of IP protection are:

• copyright

• trademark

• patent

IP Australia can provides practical information and ongoing support.

W: ipaustralia.gov.au

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Insurance

The only compulsory insurance you need as a small business owner in WA is workers’ compensation (if you have employees). It’s up to you to decide, based on your business type, activities, and industry, what other insurance you may need.

Keep in mind that many insurance companies will require you to have business registrations and licences in place before they agree to provide insurance.

There are various types of insurance available to protect your business, which can be divided into three main categories:

• liability

• employees

• assets and revenue

Insurance is a complex area, so make sure you understand all the terms and conditions of the insurance contract and obtain independent advice from a broker before you sign.

Insurance cover may be arranged through an insurance company, agent or broker. Insurance brokers are required by law to act as your representatives and work in your interest, whereas insurance agents are acting in the interests of the insurance companies.

You can contact a broker through the National Insurance Brokers Association (niba.com.au) or the Insurance Brokers Network of Australia (ibna.com.au)

If you want to liaise directly with an insurance company, the Insurance Council of Australia (insurancecouncil.com.au) provides information and contact details of its members.

W: niba.com.auW: ibna.com.au

W: insurancecouncil.com.au

Legal documents

It is important for small businesses to legally protect themselves. While obtaining professionally drafted contracts and/or terms and conditions can be costly, in the long run it could save you thousands of dollars in litigation fees and unknown hours of stress. It is very important not to sign any contract or document you don’t understand.

Contracts

A business contract is a legally binding agreement between two or more parties to do, or not to do, certain things. For example, a business contract could be for the sale of goods or supply of services at a certain price. There are many different types of contracts including:

• the sale and purchase of a business agreement

• partnership agreements

• leases of business premises

• leases of plant and equipment

• employment agreements

The process for creating a contract generally includes information exchange, discussion, negotiation and employment agreements.

Terms and conditions

Drafting terms and conditions may not be the most enjoyable part of starting a business, however it is important. Neglecting this part of your business could impact your daily operations and finances, for example a weak credit management policy could delay payments and impact on your cash flow. If you don’t specify terms and conditions you put yourself at risk of uncertainty and misunderstandings.

Policies and procedures

Documented policies and procedures are important so that everyone is aligned with the business operations. Written systems also help to minimise risk. Some common policies and procedures relate to:

• customer privacy

• equal opportunities

• employee conduct

• complaints management

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Drafting legal documents

Start drafting your own documents by drawing on what your competitors are using and information you can find online through sites like docracy.com. Then take your draft documents to a contract lawyer for review. The Law Society of WA has a ‘find a lawyer’ section on its website.

W: lawsocietywa.asn.au

Employing staff

Your staff are one of your greatest business assets, so it’s vital that you hire the right people for the job. Once you’ve found good staff it’s important to look after them and to address a number of legal obligations A basic overview is provided below.

Which labour relations system applies?

In general, your business structure will determine which system you are covered by.

Business structure

State systemWageline

commerce.wa.gov.au

Federal systemFair Work

commerce.wa.gov.au

Work safetyWorkSafe

commerce.wa.gov.au

TaxationATO

ato.gov.au

Sole trader ×

Partnership ×

Insurance for employees

As an employer you are required to hold workers’ compensation insurance to protect your employees. You might also have to extend your cover to include sub-contractors.

If you are working for yourself as a sole trader or in a partnership it is not compulsory to take out workers’ compensation insurance. As an alternative, many small business owners protect themselves with income protection insurance.

Taxation and superannuation for employees

Having employees brings taxation and superannuation obligations. The first thing is to clarify the status of your workers; your obligations will differ if they are employees or contractors and will differ depending on your business structure. In general, obligations relate to:

• pay as you go (PAYG) withholding

• superannuation guarantee

• fringe benefits tax (FBT)

• payroll tax

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Location and leasing

Your business can operate from home, a business incubator, commercial premises or through a shared working space. Each location has advantages and disadvantages; there are many factors to consider, such as your type of business and your customers’ buying habits.

Operating from home

This may seem appealing due to the cost savings and convenience; however you need to consider the following:

• Will working from home fit in with your current and future family situation?

• Will your local council allow you to operate from home?

• Be aware that capital gains tax may apply if you sell your home.

A business incubator

A business incubator provides a physical location in which a new business can start, supported by business advice and shared services.

While there are many types of incubator, typically it would have space to accommodate around 15-50 small businesses, all working towards ‘graduating’ from the facility within two to three years. During this time, business owners generally have access to advice and support services.

Leasing commercial premises

A lease is a legally binding contract, so it is essential you fully understand the terms and also conditions before making a commitment. It’s important to understand your rights and obligations in relation to

the lease in case disputes arise and who to contact for help. Seek legal and commercial advice before:

• making any commitments to buy, lease, take on an assignment or incur any other obligations

• signing any lease related documents

• payment a deposit or other monies

• occupying leased premises

You should also seek business and property advice to ensure the lease is based on sound businessand property principles. Read the overview of leasing commercial premises at our website and then make an appointment with one of our specialist leasing advisers.

Co-working spaces/virtual office

Co-working spaces allow you to rent desk space and benefit from shared facilities. There is also often a focus on encouraging members to create a collaborative community. This differs from a virtual office which usually provides communication and address services but not dedicated office space. Both options allow you to present a professional image for your business and access to meeting rooms.

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Step 6 – Build your support teamIt is advisable to surround yourself with trusted and reliable advisers who can help you with start-up issues and then assist you as your business develops.

Professionals and organisations that can help with your business development include:

AccountantVisit cpaaustralia.com.au or charteredaccountants.com.au

LawyerVisit lawsocietywa.asn.au

Small Business Development CorporationVisit smallbusiness.wa.gov.au or call 13 12 49

Business Local service providersTo find the provider in your area visit smallbusiness.wa.gov.au/businesslocal

Industry associationThe easiest way to find your industry association is to search online.

Business mentorAsk a business person you admire to provide advice and support while you set up your business.

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Step 7 – Figure out your financesPart of being a small business owner is knowing how to set up and manage your business finances. Finance is the foundation of your business. Understanding your finances will help generate income, plan future growth, meet legal obligations and maximise your profits.

Can you afford to start this business?

Carefully consider how much it will cost to get your business idea up and running. If you are in doubt, seek professional advice. It is always better to overestimate your anticipated expenses.

How much money will you need?

It’s not just understanding your start-up costs, you also need to assess how you will access the money to fund your plans. You need to consider the health of your financial position and if you have significant assets, do you want them to be considered (and therefore possibly at risk) as part of this business venture. List your financial assets including:

• annual income (if you plan to continue working while starting your business)

• assets (equity in your home or other investments)

• shares

• cash

Will your business support you?

• Will you have sufficient income to live on during the early stages of starting your business?

• Could you work part-time while establishing your business or do you have sufficient savings to live on?

• Once your business is established, will it provide you with enough income for your desired lifestyle?

Business benchmarks

Business benchmarks provide industry averages for business expenses that can be used to help your financial forecasting. Ask one of our staff for help with this.

Where to obtain finance

If you have insufficient personal savings, you may need to source finance from elsewhere.

Keep in mind, if you plan to borrow finance through an investor or bank they will require a detailed business plan outlining your operations and financial strategy. They will want to know where their money is going and often want collateral, in the form of equity in property, as a guarantee. Possible sources of finance include:

• banks and financial institutions

• family and friends

• government grants

• crowd funding

W: business.gov.au/grantfinder

Financial forecasting

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A lack of planning and control of cash is often the reason small businesses fail. Good forecasting can help reduce your business risk. Much like a map helps you plan a road trip, a financial forecast helps you achieve your business goals.

A financial forecast is a plan or budget for your business. It is the best guess of financial outcomes for your business over a period of time. Usually, financial forecasts are an estimate of income and expenses over the period of a year.

You can develop your own financial forecast by listing establishment costs and planned income over a period of 12 months to generate an annual cash flow forecast.

Establishment costs

You need to work out how much money is required to start the business and whether you have sufficient savings or need to obtain finance. Costs will vary depending on whether you start a new business, buy an existing business, or buy a franchise. Just opening the doors to start operating will incur some expenses, even if you are operating from home. For example, you may have to:

• pay legal, accounting and consulting fees

• pay for licences, permits and the connection of utilities

• arrange insurance

• buy furniture, equipment, office supplies and retail shop fit-out

• pay for advertising, printing and starting inventory

• include an amount for working capital - cash to fund your business until you actually receive payments from customers

Expenses forecast

An expenses forecast estimates your ongoing operating expenses (overheads, outgoings, fixed costs) for the year. This is how much it will cost to run your business. The selling price of your products or services must include an amount to recover these expenses.This forecast will include the list of expenses developed for your profit and loss statement. Base your forecast on research and benchmarks of similar businesses. You can also call suppliers and ask for quotes. For other costs, you will have to make a best guess about how much you are likely to spend. Typical business expenses include:

• accounting and legal fees

• advertising and promotion

• employees’ salaries

• insurance

• interest and bank charges

• printing, stationery and postage

• rent of premises

• telephone and Internet

• training

• business travel

• vehicle operating expenses

Cost of goods sold forecast

If you are selling a physical product, forecasting the cost of goods sold (also called COGS, cost of sales, direct cost of sales) forecast answers the question of how much it will cost to produce or stock your product.

COGS vary directly with sales or production; the more items you sell or make, the more stock or components you need to buy. The COGS forecast therefore relates directly to the sales forecast. To calculate the COGS forecast, include all the direct costs of getting your products into inventory and ready for sale. For example:

• the wholesale cost of buying completed goods, raw materials or parts

• freight and insurance costs

• direct labour costs involved in manufacturing the product

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Sales forecast

Sales forecasts are estimates of your sales for the forecast period. The sales forecast establishes the level of activity used in all other forecasting and budgeting for the business. If your sales forecast varies significantly from your actual results, your cash flow and profitability forecasts will similarly be inaccurate. Regularly update your forecasts taking market intelligence, buying signals from customers and results from marketing activities into account.

To get started, consider how much you can realistically sell in the next 12 months, and how much revenue this will generate. If you are starting a new business and don’t have a trading history, base your sales estimates on market research, industry information, and business strategies.

Cash flow forecast

A cash flow forecast indicates the likely future movement of cash in and out of the business. It’s an estimate of the amount of money you expect to flow in (receipts or revenue) and out (payments) and includes all your projected income and expenses. forecast usually covers the next 12 months; however it

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Record keeping

Creating an efficient system for collecting income and paying employees, suppliers and taxes is an essential part of operating a small business. Whether you choose to operate a manual or electronic financial record keeping system, it should be easy to use, reliable, accurate, and provide information when you need it and in an accessible format.

Manual record keeping systems

Manual record keeping systems consist of paper based journals for each financial year. They are a good way to learn about bookkeeping and accounting, and keep control of your financial records when you are starting out. A range of commercial manual record keeping systems are available, alternatively you could use an Excel spreadsheet.

Electronic record keeping systems

Electronic record keeping systems are efficient and generally provide complete accounting functionality. The majority are cloud-based which means you can access them anywhere, through any mobile device or your desktop computer. Some of the most popular include:

• Xero

• Cashflow Manager

• MYOB

• Quick Books

• Waveapps Before choosing a system, consider the particular needs of your business and make sure it is compatible with the system your bookkeeper or accountant uses. Do some training to gain confidence and to make sure you get the most out of your accounting system.

Credit management

Credit management is the process of controlling and collecting payments from your customers. A good credit management system will help you reduce the amount of capital tied up with debtors (people who owe you money) and minimise your exposure to bad debts. Good credit management is vital to your cash flow. It is possible to be profitable on paper but lack the cash to continue operating your business.

Tax invoice vs invoice

If your business is registered for GST then you should issue tax invoices, however, if you are not registered for GST you will just issue invoices. For more detailed information, including invoice examples download the ATO guide ‘How to set out tax invoices and invoices’ from ato.gov.au.

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Step 8 - Market your businessBy the time you start promoting your business you should have already determined if your idea is likely to succeed and have completed a developed business plan. Marketing is the final step and many consider it to be the most enjoyable.

Many small businesses come up with a great business idea but then fail to market it successfully. You need to get out and spread the word about your product or service to the right people in the right way. Advertising and selling are part of the process, but there is much more involved.

Your business plan should include a marketing overview, which covers what you are selling, to whom and how it meets their need. Use your overview to develop your ‘elevator pitch’. It is so called because it is based on being in an elevator (lift) with a potential major customer, and before reaching their floor you have 30 seconds to tell them about your company. Make sure to include:

• what your main product or service is

• what is special about your business

• why customers need your product or service

Spend time developing and practising your elevator speech so you can fluently tell everyone about your business.

Your next step is to develop a marketing strategy. This will help you focus on increasing sales volume and guide your business to achieving its goals.

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Final step - complete the ‘Are you ready?’ checklistCongratulations, you’ve successfully completed our Business Basics workshop. The questionnaire below will help you to determine how close you are in turning your business dream into a reality. Use the traffic light colours to tick the most appropriate response to each question.

Are you ready?

1 Have you assessed your personal readiness for this type of business?

2 Have you rated your business and personal skills?

Assess your business idea

3 Have you determined if there is a market for your product or service?

4 Have you conducted industry research?

5 Have you surveyed potential customers about your business concept?

6 Have you completed a SWOT analysis?

7 Have you analysed and compared your competitors?

Build your business plan

9 Have you completed your business plan?

Choose your business structure

10 Have you sought advice from your accountant regarding business structures?

11 Have you determined which business structure you will operate under?

Legal obligations

12 Have you used the SBDC’s Business Licence FInder?

13 Have you registered for an ABN?

14 Have you registered a business name?

15 Have you registered a domain name?

16 Have you registered for all relevant taxes?

17 If applicable, have you protected your IP?

18 Have you researched your insurance needs?

19 Have you drafted legal documents for your business?

20 If you are employing staff, have you determined your legal obligations?

21 Have you determined where your business will be located?

22 If leasing commercial premises, have you sought advice from the SBDC?

Build your support team

23 Have you gathered a good support team (e.g. accountant, lawyer)?

24 Have you made an appointment to meet with one of the SBDC’s specialist advisers?

Figure out your finances

25 Have you determined if you can afford to start this business?

26 If necessary, have you secured a reliable funding source?

27 Have you drafted financial forecasts (e.g. expenses, sales, cash flow )

28 Have you determined which record keeping system you will use?

29 Have you developed a credit management policy?

30 Have you completed SBDC’s Understanding your Business Financials workshop?

Market your business

31 Have you undertaken research on your target market?

32 Do you understand who your competitors are?

33 Have you completed your marketing strategy?

Have you attended the SBDC’s workshops?

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Your results

Mostly GREENCongratulations! You are well on the way to turning your business dream into a reality. Book into our range of business start-up workshops to ensure you have all the information needed to make your business a success.

Mostly ORANGEYou’re making great progress, just a little bit more work and you will have completed most of the necessary steps to get your business started. If you need help to complete your business start-up preparation then contact us to arrange an appointment with one of our specialist advisers.

Mostly REDYou’ve still got some way to go until your business idea starts to take shape, but don’t give up! Go back through the checklist and work your way through each of the steps. Remember, we are here to help through our range of workshops and one-to-one advice.

Other SBDC workshops

SBDC offer a range of other low cost workshops that are perfect for businesses starting out or in their first few years of operation. All of our workshops can be booked online at smallbusiness.wa.gov.au at a minimal cost.

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Small Business Development Corporation

Level 2140 William Street PERTH WA 6000info@smallbusiness.wa.gov.au

smallbusiness.wa.gov.au

13 12 49

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