Start your own business workbook - Department of State Development

Transcription

Start your
own business
workbook
www.statedevelopment.sa.gov.au/smallbusiness
Contents
Introduction: Using this workbook.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Part A: Testing you and your idea for a small business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1. Do you have what it takes to run a business successfully?.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. Is your business feasible?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3. Will your business be profitable?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
4. Review – Does it make sense?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Part B: Other issues to consider before getting started. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
5. Business structures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
6. Managing staff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
7. Managing risk.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
8.E-business.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Part C: Writing a business plan – Putting it all together. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
9. Putting it all together – Your business plan.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
10. Review – Will it be worthwhile? Will it meet your needs?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Part D: Getting started.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
11. Registering your business name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
12. Licences and permits.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
13. Trusted advisers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
14. Financing your business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
15. Safeguarding your business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
16. Monitoring the performance of your business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
17. Records management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Start your own business workbook
P3
Success in business can’t
be predicted or foretold.
There are, however, some
common factors that underpin
success and these are worth
considering before starting
on the journey.
Introduction:
Using this
workbook
The decision to go into business
is not one to take lightly.
The upside is probably easy to envisage – it can
be challenging, rewarding, fulfilling and enjoyable.
But there is a downside too – if it doesn’t work out
it can be very difficult, distressing, and lead to
financial hardship.
Success in business can’t be predicted or foretold.
There are, however, some common factors that
underpin success and these are worth considering
before starting on the journey.
This workbook has been published by the South
Australian Government Department of State
Development and is intended to be a practical
guide for people considering starting their own
small business. It provides a structured way of
thinking through the issues and making decisions
before you start spending money and actually
setting up the business.
It can also be used once you have set up the
business to review and monitor your progress.
How to use this
workbook
Structure
This workbook is divided into four related parts
which you should read and use in sequence.
Part A is about testing you and your idea for a small
business. In this part we ask: Do you have what it
takes to run a small business successfully? Do you
have a sound business idea? Will it be rewarding?
Does it meet your needs? Can you make this work?
Part B introduces other issues to consider before
starting your business, namely business names,
managing staff, risk, and e-business.
Part C is designed to bring all your thinking together
and provides a structure for you to actually write a
business plan for your business.
Part D tackles some of the practical steps you
need to take to get started, such as registering your
business name, organising licences and permits,
and records management.
Write it down
As you will see, there is an emphasis on writing
things down – because writing it down helps you
to be clear about your ideas and what you are going
to do. It also makes it much easier for other people
(especially your advisers and your financiers) to assist
you if you have a written plan. It also helps you to
review how things are going.
At the end of most chapters there are some
worksheets you can use to develop your thoughts.
These are repeated in Part C, where they come
together to form the basis of your business plan.
Other sources of information
The Department of State Development Future
proof your business workbook follows on and looks
at the most common reasons why small businesses
in South Australia fail and outlines what you can do
to avoid these problems, and what you can do to
manage them if they arise in your business.
P5
1
Part A: Testing you
and your idea for a
small business
Do you have
what it takes to
run a business
successfully?
The bigger picture
Satisfying needs
Let’s start with some basic questions: What are
you doing now? What would you like to be doing?
What would you like to have achieved? What do
you like doing most? What don’t you like doing?
What matters most in small business – your
needs or the customer’s? It is a simple question,
but the answer is absolutely fundamental to
success. You’re probably motivated to go into
small business to satisfy your needs, and you
should stay in small business only if it continues
to meet your needs.
Use Worksheet 1.1: The bigger picture at the end
of this chapter to spell it out and think about these
questions. We will come back to this page later.
Why do you want to start a business?
OK, let’s be clear, why do you want to start a
business? What is motivating you to start a small
business? Will being in your own business satisfy
all your desires and dreams, both personally,
professionally and financially? And what impact
will running your own business have on your
lifestyle and family?
Use Worksheet 1.2: Why go into your own
business? to clarify your thinking.
But the irony is, the key to success (i.e. satisfying
your needs) is to focus on the needs of your
customers and consumers. You have to satisfy
their needs in order to satisfy yours.
Take a look at yourself
To be successful in business (like most things)
you need to play to your strengths, and avoid
your weaknesses. Sometimes the weaknesses
can be avoided or ignored, but if they can’t you’ll
probably need to do something to compensate
for them. Otherwise there’s a big risk that sooner
or later these weaknesses will undermine your
new business.
So what are your strengths and weaknesses?
Do you really know? Do the people who know
you best agree?
Complete Worksheet 1.3: My strengths and
weaknesses – A self–assessment to review your
strengths and weaknesses. Better still, give a copy
of the checklist to some people you trust and ask
them to fill it out about you.
P6
Part A: Testing you
and your idea for a
small business
Feedback
One of the most important tools you’ll ever use to
make your business a success is feedback, especially
feedback from customers, colleagues, staff and
suppliers. Listen to what they tell you.
But more importantly, actively seek feedback and
make it a key part of your plan to improve your
business. You don’t have to like what they say, and
you don’t have to agree. But you do need to thank
them for taking the time to help you (because that
is what they are doing), and you should think
carefully about what they say.
What you do with the feedback is your business,
but a word of caution – if you keep ignoring
feedback you’ll find people will stop trying to help.
Assessing your business skills
Often people want to run a business to take
advantage of specific technical skills they have
But let’s say you are also weak in negotiation, and
the success of your business depends on the ability
to consistently negotiate favourable terms from
suppliers in order to give you a competitive edge. If
you aren’t going to employ anyone else, then you
need to address this weakness yourself. What exactly
do you need to do to compensate for this gap?
Summary
The decision to start your own business is probably
one of the most important decisions you will ever
make. Business can be very rewarding, but not
everyone is suited to the demands of successfully
running a business.
This chapter highlights some of the personal issues
you should consider before setting up your business.
These issues relate to your needs, your strengths and
weaknesses and the skills you bring to the business.
Spending a bit of time at this stage reflecting on
these issues may prove invaluable when you actually
get to the stage of establishing your business.
(i.e. butcher, surveyor, watchmaker, computer
programmer). But running a successful business
needs many other skills.
So let’s take stock. What general skills do you bring
to the new business? Complete Work sheet 1.4:
Assessing my business skills to do a quick review
of your general business skills.
The important questions are: Where are the gaps or
weaknesses? Are any of these gaps or weaknesses
really important to the success of your business? If
so, what exactly are you going to do about it? When
does this weakness need to be corrected?
For example, using Worksheet 1.4, let’s say you are
weak in managing people, but you don’t intend to
employ anyone else in your business. This means this
weakness probably isn’t very important.
P7
The bigger picture
Worksheet 1.1
Part A: Testing you
and your idea for a
small business
Right now
What am I doing?
What’s good
about this?
What’s not
so good?
Where will this
take me five
years from now?
In five years
What would I
like to be doing?
What would
I like to have
achieved?
P8
Why go into your own business?
Worksheet 1.2
Part A: Testing you
and your idea for a
small business
Yes /No
I’m frustrated in my present job.
To make a better living from my
own ideas and abilities.
To build a solid future investment
for myself and family.
To do something different.
To develop an outlet for my creativity.
To make money (my present wage
or salary is not adequate).
My life is not fulfilling; I see no real future
continuing to work for someone else.
I dislike working for a boss.
I’m considering starting my own
business because I’m unemployed.
P9
My strengths
and weaknesses –
A self-assessment
Worksheet 1.3
Part A: Testing you
and your idea for a
small business
Yes /No
Are you a
self- starter?
I do things on my own; nobody needs to
tell me to get going.
If someone gets me started, I can keep going.
I’m fairly laid-back. I don’t put myself
out until I have to.
How do you
feel about
other people?
I like people and can get along with just about anyone.
I relate well to people from all walks of life
and make friends easily.
I don’t need anyone else.
People often annoy me.
Can you lead
others?
I can get most people to go along with my
approach when I start something.
I can give directions if someone initially tells
me what we should do.
I stand back and let someone else get things moving.
I get involved if I feel like it.
Can you take
responsibility?
I like to be in charge of things and see them
through to a satisfactory conclusion.
I’ll step into the driving seat if I have to, but I‘d
prefer someone else to be responsible.
I prefer to stand back and let someone else run the show.
How good
an organiser
are you?
I see the merits in planning and am usually the one to get
things organised when the group wants to do something.
I perform alright until things get a bit complex.
Then I prefer to pass the ball.
I prefer to take things as they come. There’s no sense
getting organised only to have someone or something
upset the apple cart.
P 10
My strengths
and weaknesses –
A self-assessment
Worksheet 1.3
Part A: Testing you
and your idea for a
small business
Yes /No
How good
a worker
are you?
I can keep going until I achieve the goal that has been
set. I don’t mind working hard for something I want.
I’ll work hard but only for so long.
When I’ve had enough, that’s it!
I fail to see that hard work gets you anywhere.
Are you
an effective
decision maker?
I can make decisions quickly and easily.
They usually turn out OK.
I can make decisions if I have plenty of time.
I tend to be hesitant and unsure if I have to make
up my mind fast.
Decisions and I are not a good mix.
My word is my bond. I refrain from saying
things I don’t mean.
I try to be honest most of the time,
but sometimes I say what is easiest.
Does it really matter if the other person
doesn’t know the difference?
Can you
stick to
the task?
Once I’ve made up my mind to do something,
nothing will stop me.
I usually finish what I start – provided it goes well.
If I encounter problems and setbacks, I quit.
Why stress yourself needlessly?
How good
is your
health?
I watch my diet, exercise regularly
and rarely get run down.
I have enough energy for most
things I want to do.
I seem to run out of energy sooner than
most of my friends seem to.
P 11
Assessing my business skills
Worksheet 1.4
Part A: Testing you
and your idea for a
small business
1. Business planning
How do
you rate?
Strong
Ok
Weak
Important
to my
business
Yes /No
I can set realistic and
attainable goals.
I can readily identify
obstacles to achieving
goals and develop
practical strategies
for overcoming them.
I’m familiar with
the business
planning process.
I can prepare a
business plan for my
own enterprise.
Actions I need to take:
P 12
Worksheet 1.4
Part A: Testing you
and your idea for a
small business
2. Problem solving
How do
you rate?
Strong
Ok
Weak
Important
to my
business
Yes /No
I can anticipate
potential problems
in business.
I can analyse
and plan effective
actions to resolve
problems.
I can deal with
the details of
particular problems
without feeling
over-burdened.
I can resolve
problems quickly.
P 13
Worksheet 1.4
Part A: Testing you
and your idea for a
small business
3. Communication
How do
you rate?
Strong
Ok
Weak
Important
to my
business
Yes /No
I can communicate
clearly in writing to
the public, customers,
professional advisers
and members of
my team.
I can communicate
clearly to the public,
customers, professional
advisers and members
of my team verbally.
I’m confident
in public
speaking roles.
I project a strong
image of my business
at all times.
P 14
Worksheet 1.4
Part A: Testing you
and your idea for a
small business
4. Managing people
How do
you rate?
Strong
Ok
Weak
Important
to my
business
Yes /No
I can write a job
description and
selection criteria
to recruit staff.
I can conduct a
selection interview.
I can develop and
deliver an induction
and training program.
I practise the skills
required to supervise,
train and motivate staff.
I’m familiar with antidiscrimination, sexual
harassment and equal
opportunity laws.
I can dismiss an
employee without
creating a claim for
unfair dismissal.
P 15
Worksheet 1.4
Part A: Testing you
and your idea for a
small business
5. Negotiating
How do
you rate?
Strong
Ok
Weak
Important
to my
business
Yes /No
I can negotiate
effectively.
I have the ability to
quickly balance the
value given and value
received.
I’m conversant with the
skills and techniques
of effective business
negotiation.
P 16
Worksheet 1.4
Part A: Testing you
and your idea for a
small business
6. Time management
How do
you rate?
Strong
Ok
Weak
Important
to my
business
Yes /No
I know the skills
necessary for effective
time management.
I can readily assess and
review priorities.
P 17
Worksheet 1.4
Part A: Testing you
and your idea for a
small business
7. Financial management
How do
you rate?
Strong
Ok
Weak
Important
to my
business
Yes /No
I can forecast the need
for funds, and prepare
and use a budget as a
management tool.
I’m familiar with
sources and means of
short-term and longterm financing.
I know the financial
requirements needed
to start my business.
I possess the skills
necessary to negotiate
with both lenders and
investors.
I can set-up and
maintain a set of books
for my business.
I can read and
understand financial
statements.
I can design, install,
maintain and use
financial controls.
P 18
Worksheet 1.4
Part A: Testing you
and your idea for a
small business
Financial management
How do
you rate?
Strong
Ok
Weak
Important
to my
business
Yes /No
I know how to
determine my
break-even point.
I can apply appropriate
debt collection
techniques.
I can monitor inventory
levels and plan a
purchasing program.
I can calculate
an hourly rate for
my labour.
I can calculate a
charge-out rate
for my employees.
I can converse with my
accountant and ask
relevant questions.
P 19
Worksheet 1.4
Part A: Testing you
and your idea for a
small business
8. Marketing
How do
you rate?
Strong
Ok
Weak
Important
to my
business
Yes /No
I can conduct and use
market research to
prepare a marketing
plan for my business.
I have the ability to
analyse the sales
potential of different
market segments.
I can develop and apply
a range of marketing
strategies.
I can plan production
to meet expected
consumer demand.
P 20
Worksheet 1.4
Part A: Testing you
and your idea for a
small business
Marketing
How do
you rate?
Strong
Ok
Weak
Important
to my
business
Yes /No
I’m skilled in organising
and managing the
flow of product to the
customer.
I’m familiar with pricing
strategies and have
settled on a pricing
policy that is suited to
my business.
I’m experienced in
planning suitable
advertising and
promotion programs.
P 21
Worksheet 1.4
Part A: Testing you
and your idea for a
small business
9. Legal and Tax
How do
you rate?
Strong
Ok
Weak
Important
to my
business
Yes /No
I’m familiar with the
legal differences
associated with
different forms of
business ownership
and can make an
informed choice on the
best structure for my
business.
I know which licences,
permits and regulations
apply to my business.
I have a working
knowledge of
contract law.
I understand
the conditions
of my lease.
I have a working
knowledge of
consumer law.
I’m conversant with
my obligations and
rights as a taxpayer.
I can complete BAS
and PAYG withholding
returns.
I can ask relevant
questions of my
legal adviser.
P 22
Worksheet 1.4
Part A: Testing you
and your idea for a
small business
P 23
One of the most important
issues, and one of the most
commonly overlooked
issues when starting a small
business, is to understand
that the world is constantly
changing.
So spend some time thinking
through how change will
affect your business.
2
Part A: Testing you
and your idea for a
small business
Is your
business
feasible?
Introduction
Defining the business
In this section we want to focus on
four related topics:
An obvious place to start is to define, as
clearly, carefully and completely as you can,
what your small business will be. In particular,
make sure you specify:
• The business – clarity about what exactly
is the business
• The market – understanding the market
in which it will compete
• Who you are (your business name).
• Marketing – how will you find and
retain customers?
• What it will use (the key inputs).
• The bigger picture – what’s happening
in the world around you that may affect
your business?
• What it will sell.
Think of this step – testing whether your business
is feasible – as a fact-finding mission to help you
make an informed decision on whether or not to
proceed. After you have confirmed the business is
feasible you can turn your attention to whether it
will be profitable.
• What your business will do (the key activities).
• Where it will be located.
• Who the customers will be.
• Where the customers will be.
• How they will find you or you will find them.
Using Worksheet 2.1: Defining your business
write this down, following the example overleaf.
P 25
Defining your business
Worksheet 2.1 example
ses
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Wh
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Acro
In our Willunga factory we will
design and manufacture a limited
range of distinctive wooden gates
made from cast-off materials
(mainly packing crates, pallets and
found timber), which we will sell
directly to customers throughout
Australia via the internet.
Dis
trib
utio
n
P 26
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Scra
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Who
are
you
?
Part A: Testing you
and your idea for a
small business
Worksheet 2.1
ses
ces
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Who
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?
Part A: Testing you
and your idea for a
small business
Loc
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P 27
Part A: Testing you
and your idea for a
small business
The bigger picture – PESTLE
One of the most important issues, and one of the
most commonly overlooked issues when starting
a small business, is to understand that the world is
constantly changing. So spend some time thinking
through how change will affect your business.
Before you start thinking about the specifics of
your business it is useful to step back and turn your
attention to the big picture. What’s happening in
P 28
the world around you that is going to affect your
business and the market you will be in, and may
affect the way in which your products or services are
perceived?
It’s helpful to think about this question in a
structured or systematic way. One commonly used
method is known by the acronym PESTLE, which is
explained in the table below.
Influence
Examples
Politics
A change of government.
Economics
The Australian dollar rate, interest rates, economic growth,
the labour market and skills shortages.
Society and culture
Demographic change (i.e. the ageing of the baby
boomer generation), generation X, Y etc.
Technology
The internet, cloud computing, the NBN.
Legal and
institutional
Changes to laws introduced by the government
(i.e. the carbon tax), or decisions by the courts.
Enviromental
and ecology
Climate change, drought, La Nina and El Nino.
Part A: Testing you
and your idea for a
small business
The PESTLE analysis is widely used in business
because:
• It helps to think about what is driving change in
the world – by taking advantage of change, you
are much more likely to be successful.
• It helps you avoid taking action that is doomed to
failure from the outset, for reasons beyond your
control.
Worksheet 2.2: PESTLE analysis provides a
template for this analysis. After completing the
analysis, it’s important to answer the following
questions:
• Are there big changes on the horizon that are
going to affect your business significantly? (If
there aren’t – do the analysis again).
• If there are big changes and they will make
business more difficult, can you take steps to
ensure these changes have very little impact on
the business? If you can’t, re-think going into
business.
• If there are big changes on the horizon and the
changes are positive, what can you do to take
advantage of these?
Market research
A brilliant idea isn’t enough. You need to clearly
identify your target market – the people who will
purchase your product or service – and satisfy their
needs.
Constantly studying the market, and your target
market in particular, is essential for business success.
This involves getting to know who your customers
are, where your product or service fits into the
market, what your competitors offer and what the
needs of your target market are.
Market research is the way to get answers to these
questions. Don’t be put off by the term. Market
research can be low-cost and you can do much of it
yourself if you follow an orderly process.
Small business owners cannot afford to make a large
investment in their business and watch it fail. Market
research helps to reduce some of the risks you will
take. Market research also helps you attach numbers
to your plans and verify your marketing strategy.
Understanding the market
Once you’ve clarified what business you are in,
you need to understand more about the market.
The key issues are:
• Market characteristics
• The product
• The customer or consumer
• The competitors
• How they compete
P 29
Part A: Testing you
and your idea for a
small business
Market characteristics
Market segmentation
The key issues are:
Markets usually have different segments or sub-sets.
For example, the market for cars in Australia, includes
the market for new cars and the market for used
cars. Within these there are also markets for family
cars, small cars, entry-level cars, SUVs, luxury cars,
commercial vehicles, classic cars etc.
• How large is the market?
Try to find out as much as you can about the size
of the market, i.e. the annual sales volume, the
number of potential customers, the geographic
scale (is it confined to your suburb, your city, your
state or region, national or international?).
• Industry trends
Industry trends refer to the major factors shaping
an industry over a period of time (not less than
12 months), and should not be confused with
short-term changes such as new seasons or fads.
Here are some examples:
− There has been a significant over-supply of
wine grapes in the Australian wine industry for
the past decade, leading to declining average
grape prices.
− There has been a significant swing away from
chardonnay to sauvignon blanc in that time,
which has been reflected in the declining
prices for chardonnay grapes but stronger
prices for sauvignon blanc.
− The demand for Australian wine exports
has declined in the past few years with
the appreciation of the Australian dollar,
compounding the pressures caused by
the glut in the supply of grapes.
The most important trend of all is whether the market
you are entering is growing, stable or declining.
P 30
These segments can be defined by product
attributes (colour, design, styling, performance,
safety, country of origin) or by customer attributes
(gender, age, socio-economic status etc.).
The key issue is not that segments exist; the real
issue is what defines these segments and why do
they exist?
• Barriers to entry
As the term implies, barriers to entry make it
harder for new companies to enter a market,
and this is important because there tends to
be a direct correlation between barriers to
entry, the number of competitors, the degree
of competition in the market, and the ability to
sustain profits.
Barriers to entry take many forms, such as, the
amount of start-up capital required, the time
taken for new entrants to acquire special skills,
the shortage of critical inputs and proximity to
customers or distributors.
What are the barriers to entry in your market?
Do they work in your favour and can you use
them to your advantage? Do they constrain
you, particularly if you want to grow?
Part A: Testing you
and your idea for a
small business
• Target market
The customer or consumer
What part of the market are you
going to focus on?
It is sometimes useful to distinguish between the
customer (the purchaser) and the consumer (the
person who actually uses the product). They are not
always one and the same, and if they aren’t, you need
to think carefully about how each behaves. To keep
things simple we’ll assume they are the same.
In the wooden gate business illustrated in
Worksheet 2.1 the product is defined by a
number of attributes or characteristics – it is
distinctive (design), wooden (not metal), and
made of recycled timber (not new timber),
which competes in a segment of a national
market which values appearance (not just
function) and concerns about environmental
sustainability (hence the use of recycled timber).
This means there may be little point in trying to
sell the gates to volume builders competing in
the cost-conscious market for low-cost housing.
On the other hand, there may be a market for
these gates with owner-occupiers who are
renovating or upgrading their own houses.
Use Worksheet 2.3: Market analysis to sort through
your own thinking about what is driving the market
you intend to enter.
The product
It is important to understand what the product is,
what its attributes are (in the eyes of the customer),
the extent to which it is similar or distinct from other
products in the market, and the extent to which
this gives you an advantage or an edge over your
competitors.
The key issue is behaviour – what they do and why
they do it. Some questions to consider:
• Product features – What product features most
appeal to costumers in your market? Why do these
matter to the customer? What are the benefits
that these features provide to the customer?
• Decision-making – How do customers make
decisions? How do they choose between
competing products?
• Income – How much disposable income do the
target customers have to spend on your products?
• Brand – How important is the brand in the buying
decision?
• Marketing – Which promotional media does the
consumer most often view?
• What activities are these consumers most likely
to engage in during their leisure time?
Use Worksheet 2.5: Customer behaviour to record
the key points from your research about customer
behaviour.
For example, let’s assume you are going to open
a coffee shop. There is a fairly standard range of
products (flat white, latte, cappuccino) which are
well known in the market and it wouldn’t help if you
ignored this and served your customers a flat white
whenever they asked for a latte. You’re different but
that’s not helpful. On the other hand, a consistently
high standard of coffee is a positive, especially if your
business is going to depend on repeat clientele.
Use Worksheet 2.4: Product or service attributes
to list the key attributes of the products or services you
will be providing. As much as you can, put yourself in
the shoes of the potential customer – the attributes
you list should be things that matter to them.
P 31
Part A: Testing you
and your idea for a
small business
Competitors
SWOT analysis
The key questions should be obvious here.
Who will be your key competitors? What are
their strengths and weaknesses? What opportunities
does this create for you? What threats do they
pose for your new business? How will you compete
against them?
A SWOT analysis is a widely used analytical tool. It is
a simple but incredibly powerful tool if used properly.
For example, let’s assume you are a new entrant
in a static market (say, coffee shops in Adelaide’s
CBD) and you decide to compete on price by
undercutting the competition. What do you think
will happen? Does price matter? If it does, will the
established competitors just sit back and let you
take market share, or will they lower their prices too?
If they lower their prices will your strategy still work,
especially if you are the newcomer? If there is a price
war, do you have the financial backing to survive?
Do they? If they lower prices too, what do you do
in response?
A useful way to approach these questions is to
conduct a structured SWOT analysis of your key
competitors. This means:
• What are their strengths (S)?
• What are their weaknesses (W)?
• What opportunities does this present to you (O)?
• How do they threaten you (T)?
Use Worksheet 2.6: Who are your competitors?
to summarise your research about your competitors.
Usually the notion of strengths and weaknesses
relates to the business itself; it could be about your
own business or it could be about a competitor’s
business.
Opportunities and threats are about things that are
happening outside the firm (yours or a competitor’s)
that may affect the firm (positively or negatively).
Competing
There are four basic ways in which to compete.
• Differentiation
Differentiation means emphasising something
about your product or service that is different
in the market or market segment, and that
difference matters to the customer. For example,
differentiation can occur through:
− Product quality
− Service quality
− Brand name
− Product features
− Technical superiority
− Distribution channels
− Breadth of product line.
Several of these strategies could be used
simultaneously to differentiate a product or
service. The options are limited only by what
the customer perceives to be different and the
importance placed on the points of difference.
Successful differentiation can sustain higher
margins and higher profitability, provided your
competition can’t copy you.
A thorough analysis of customers, competitors
and your product advantages is required to
differentiate you in the market.
P 32
Part A: Testing you
and your idea for a
small business
• Low cost
• Concentration
This strategy relies on the ability to have the
lowest cost in the industry at all times and
therefore sell at the lowest price in the market.
A low-cost strategy can be achieved by:
Concentration means focusing on one part of the
market or one product line only. This allows the
business to become expert in that area (usually a
small segment of the market) and therefore gain
a competitive advantage over generally much
larger competitors.
− Providing no-frills products.
− Product design (for example, by reducing
the number of parts and simplifying
manufacturing).
− Focusing on a narrow product line.
− Raw material sources.
− Targeting a segment.
− Low-cost distribution methods.
− Focusing on a narrow geographical area.
− Labour cost advantages.
• Niche
− Location advantages.
A niche strategy focuses on one particular [usually
small] segment of the market.
− High-volume production.
− Reduced overheads.
− Experience in producing the product.
All companies will try to reduce their costs from
time to time but this does not mean they are
employing a low-cost strategy. The key point to
note about choosing a low-cost strategy is that
it is difficult to sustain unless a low-cost culture is
embedded in the organisation: everything that
the organisation does must focus not merely on
reducing cost, but on being lowest-cost.
Methods of concentration include:
The segment is generally too small or difficult
for major competitors to enter and the niche
competitor is left to occupy the segment
substantially alone. Niche strategies require that
customers see a significant difference in the
competitor and see real value in the position
that the competitor owns in the market.
Use Worksheet 2.7: How will you compete? to
think about the strengths and weaknesses of your
major competitors, the opportunities and threats
that present to you, and how you think you will
compete against them.
P 33
Marketing Finding your
customers and
keeping them
Part A: Testing you
and your idea for a
small business
Introduction
Marketing strategy
Now that you’ve thought about the market it’s
time to think about marketing and developing a
marketing plan – that is, how you will find your
customers and keep them.
Many different types of strategies can be used to
achieve your objectives. Some of the key strategies
are explained below.
Marketing means attracting and retaining customers.
It’s about matching what people want with what you
supply, and doing so profitably. Marketing is not the
same thing as selling, and it’s not the same thing as
advertising or communications.
Marketing is an essential task. It takes time and there
is a logical process that can be followed to make
marketing effective, efficient and profitable.
Marketing objectives
Your marketing strategy is based on your objectives
for your business and it’s about achieving those
objectives.
Growth in existing product markets
This involves increasing existing product sales in the
existing market. To grow you could:
• Increase market share through continuing
promotional and sales support.
• Increase product usage.
• Increase the frequency of usage.
• Increase the quantity used.
• Develop a new application for current users.
Product development
For example, your business objectives might be:
This means providing new or modified products for
the existing market. This could be achieved by:
• I will make $1 million in turnover
during 2016–2017.
• Adding product features or making product
refinements.
• I will achieve a 25% share of the
South Australian market by 2020.
• Expanding the product line.
• I will earn margins of 10%.
• Developing new products for the same market.
• Gross profits will be 30% of revenue.
P 34
Strategies for growth
• Updating the product to provide a new model.
Part A: Testing you
and your idea for a
small business
Market development
Milking strategy
This means using the existing product
and developing its use in new markets,
for example by:
A milking strategy is designed to gain the
greatest profit out of a product line with the least
investment possible. This means the resources
spent on the product category will be the minimum
needed to maintain the current status. The greatest
profit margin will be drawn from the brand with
minimum price activity. The business focus will be
in other areas. Milking strategies are particularly
appropriate for well-established products with few
growth prospects. They provide a steady cash flow
for the organisation.
• Targeting new segments of the market.
• Expanding geographically.
Non-growth strategies
Withdraw
A decision to withdraw from a market could be
made for many reasons including:
• You have insufficient resources to compete.
• Your business resources are spread too thinly
and you need to be focused in other areas
(or on other product categories).
• The competition in the market is too intense,
which restricts your ability to gain reasonable
volumes and market share.
Hold
When the cost of achieving growth is considered
too high it is often appropriate to invest only to hold
the current market share. This strategy aims to keep
existing consumers loyal to your product and not
concentrate on gaining new customers.
• Price competition in the market is too intense
resulting in little or no profit being made on
the product.
P 35
Part A: Testing you
and your idea for a
small business
A sustainable competitive advantage
Product/Brand positioning
What makes your business better, special or
different? What gives your business an edge? Can
your competitors copy you, or can you sustain this
edge?
Out of the marketing strategy should come a unique
positioning for the product. There should be a clearly
developed product/brand positioning within the
market. Positioning is the way in which consumers
perceive the product/service with respect to the
rest of the market, and is a valid form of competitive
advantage. It should be noted that product
positioning could take years to create in a market, is
difficult to change, and is often the factor that most
determines the success of the product.
If you can establish an edge and sustain it, this gives
you an advantage. In particular, it should be the
reason why you don’t have to compete on price.
Key points about establishing a sustainable
competitive advantage:
• They are substantial enough to make a
difference in the market.
• They are sustainable with regard to
environmental changes.
• They are difficult for competitors to replicate.
Once a position is decided, uniformity is required
over a long time to reinforce the message to the
target market. There must be consistency in the
positioning through all elements of the marketing
mix. Positioning can be based around such factors as:
• They are leveraged into visible attributes that
influence consumer decisions.
• Product attribute.
The means by which a sustainable competitive
advantage can be achieved include differentiation,
low cost, concentration or niche.
• Use or application of the product.
• Consumer benefit.
• Product class.
• Place of origin.
• Type of consumer.
• Competitive position in the market.
P 36
Part A: Testing you
and your idea for a
small business
Market mix
Once you have a clear picture and focus for
your business, it is now time to sit with ‘pen and
paper’ and write a plan for the marketing action.
The marketing mix is made up of:
price, promotion, product and place.
1. Price – Decide what pricing policy you should
have and stick to it. For example, list price,
discounts, allowances and credit policies.
2. Promotion – Big and expensive promotion is
not always the best strategy for a small business.
Examples of types of promotion can include
selling, public relations, networking, word of
mouth and advertising.
3. Product – what product or service are you
offering and can you differentiate the product
by offering additional functions or services?
Look at quality, features, benefits, packaging,
services, guarantees etc.
4. Place – this deals with how should you distribute
your product? Consider locations, retailers,
inventory, transport and warehousing.
Price
The price must correspond with the product
positioning, and also reflect what pricing position
you want to hold in the market. How important is
price to the target market?
In most markets, price is an indicator of quality –
the higher the price the higher the perceived
quality. It is tempting to fall into the trap of using a
cost-based pricing system.
It is also tempting to fall into the trap of trying to
offer ‘a high-quality product at a price that everyone
can afford’. In most cases this is again flawed because
your product will not be perceived as high-quality
solely because of its price. In effect, the price of the
product will override the benefits of the product.
It is wrong to assume that offering people a better
price gives them better value for money. Value for
money is a perception of the price compared
with the benefits derived from the product. In
most markets, and to most people, the price is far
less important than the benefits they will receive
from the product.
All types of pricing decisions should be considered
and planned, including:
• Standard price.
• Price specials.
• Discounts to trade and distributors.
• Payment terms.
• Payment methods.
In reality the price of your product should be ‘what
the market will bear’.
Promotion
The promotional element in the marketing mix
determines how you communicate with customers
and what promotional tools or tactics are used to
achieve the marketing objectives. Again, knowing
the buying behaviour of the target market is very
important. What media do they view, how frequently
do they view it and what is their reason for using it?
The promotional mix must comply with the product
positioning and it should not contradict in any
way the prescribed positioning. Look at emerging
trends and changing patterns. For example, many
businesses use social media as a way of engaging
customers and to promote their products.
Promotional activities may include:
• Advertising
• Sales promotions
• Publicity
• Personal selling
• Events
• Sponsorships
• Materials such as brochures or gifts
• Direct selling
• The internet
• Social media.
P 37
Part A: Testing you
and your idea for a
small business
Product
Place (distribution)
Key product features and their benefits are
paramount. Take into account the buying behaviour
of the target market, competitive products and their
features and benefits. Also consider the product
range with possible line extensions or range
rationalisation. What brand should be adopted
for the product and what will this mean to the
consumer?
In most industries the distribution channels tend
to be fairly well-established. This does not mean
that this part of the marketing mix should not be
reviewed. In fact, changes to the distribution channel
or changes to the way in which you sell to the
channel can provide great opportunities.
Packaging is a consideration as it communicates
what your product is to the consumer.
Service and back-up service all form part of the
product offering. Thus, key decisions about the
product include:
• Features
• Range
• Branding
• Packaging
• Additional accessories.
For service-oriented products, presentation of the
people providing the service is an important part
of the offering. This includes anything that is visible
and important to the customer; for example, does
the customer expect – and product positioning
determine – that you be dressed in formal business
attire or should you be in branded sports shirts? If
the customer sees your office[s], what messages are
conveyed and are the messages complementary to
your product positioning?
P 38
Questions you should address include:
• How and where will the product be placed so that
consumers have access to it, and how will the sale
be made?
• Will you be using wholesalers, distributors, retailers
or going direct to the consumer?
• Is a combination of distribution points appropriate
and, if so, how will you balance the flow of
product, discounts given, and territories covered
by each distribution point?
In effect, the distribution points are also your
customers and require as much consideration
regarding buying habits as you give end-users.
Specific communication campaigns can address the
distribution channel and have success as great as,
or greater than, those that address the consumer.
Therefore, this suggests that a strategy for dealing
with the distribution points needs to be developed
and enacted in the same way that a strategy is
developed for consumers.
Part A: Testing you
and your idea for a
small business
A marketing plan
A marketing plan is simply a way of putting all
of this together.
Once you have determined the initial strategy,
you may find that new issues arise in previous
steps of the process. These should be worked and
reworked into the entire marketing strategy. If key
elements of the process are missing, it is very likely
that the strategy devised will be flawed. Working
through the whole process (if necessary with the
help of marketing professionals) is important to
getting the strategy right.
A good marketing strategy, correctly implemented,
will give your company the edge over the
competition and help guarantee business success.
If you don’t think the concept is feasible you have
two options:
• You can rethink, review and modify the concept
until you come up with a feasible alternative.
• You can go no further with this idea, satisfied in
the knowledge that this process has saved you a
lot of time, money and unnecessary risk.
Conclusion
It’s a sobering reality that a significant proportion of
small businesses in South Australia fail before they
reach their second anniversary. One reason is that the
underlying concept for the business is not feasible.
The step-by-step guide outlined in this chapter is
intended to help you think through whether your
business is feasible.
Use Worksheet 2.8: Preparing your marketing
plan to check that you’ve covered all the necessary
elements in your marketing strategy.
Is your business feasible?
Use Worksheet 2.9: Is your business feasible? to
summarise your conclusions. What are the major
reasons for proceeding? What are the major reasons
against proceeding? What is your conclusion?
If your analysis suggests the concept is feasible, then
move on to Chapter 3 of this workbook, which looks
at the profitability of the concept.
P 39
Worksheet 2.1
ses
ces
o
r
P
Pro
duc
t
ials
ter
Ma
Used
Our
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e
Part A: Testing you
and your idea for a
small business
My Small Business
Loc
atio
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s,
er
tom ?
cus us
i nd find
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or how
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s?
P 40
n
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Dist
PESTLE analysis
Worksheet 2.2
Step 1. Brainstorm
Step 3. Analyse
Part A: Testing you
and your idea for a
small business
Use a blank piece of paper to brainstorm the relevant
factors that apply to your business.
How will these key factors influence your business?
Write this in the third column of the table, taking
care to distinguish between the positive or beneficial
changes and the negative or harmful changes.
Step 2. Prioritise
Highlight the most important factors
(i.e. the ones you think will have the biggest impact).
Write these in the second column in the table below.
Influence
Step 2
What are the most
important factors?
Step 4. Conclude
What could you do to take advantage of these
changes or minimise the negative impact they may
have on your business? Write this in the last column.
Step 3
How will this affect
my business?
Step 4
What can I do to
take advantage of
this (if it is positive)
or reduce the impact
(if it is negative)?
Politics
Economy
Society
& Culture
Technology
Legal
Environment
P 41
Market analysis
Worksheet 2.3
Part A: Testing you
and your idea for a
small business
Market issue
Size of the market
Industry trends
Market
segmentation
Barriers to entry
Target market
Other (specify)
P 42
Market research
(summarise key data,
facts, evidence,
conclusions)
So what? (what are
the implications
for your business?)
Product or service attributes
Worksheet 2.4
Part A: Testing you
and your idea for a
small business
Product or service
Key attributes
Product 1
Product 2
Product 3
Product 4
Product 5
P 43
Customer behaviour
Worksheet 2.5
Part A: Testing you
and your idea for a
small business
Key questions
What are the features
of your products
(or service) that most
appeal to customers?
Why is that so?
How do customers
decide what to buy?
How much disposable
income do your
customers have?
How important
is brand awareness
and recognition
to your customers?
What promotional
channels do your
customers most often use?
What leisure activities do
your customers engage in?
Any other key insights?
P 44
Your response
Customer behaviour
Worksheet 2.5
Part A: Testing you
and your idea for a
small business
Key questions
Implications for your business?
What are the features
of your products
(or service) that most
appeal to customers?
Why is that so?
How do customers
decide what to buy?
How much disposable
income do your
customers have?
How important
is brand awareness
and recognition
to your customers?
What promotional
channels do your
customers most often use?
What leisure activities do
your customers engage in?
Any other key insights?
P 45
Who are your competitors?
Worksheet 2.6
Part A: Testing you
and your idea for a
small business
Competitor (insert name)
1
2
3
4
5
6
P 46
Key facts
Who are your competitors?
Worksheet 2.6
Part A: Testing you
and your idea for a
small business
Competitor (insert name)
Key facts
7
8
9
10
11
12
P 47
How will you compete?
Worksheet 2.7
Part A: Testing you
and your idea for a
small business
P 48
Competitor (insert name):
Them
Strengths:
What gives them an
edge in the market?
Weaknesses:
What makes them vulnerable
to new competition?
You
Opportunities:
Thinking about their
strengths and weaknesses,
what are the best ways you
can create an advantage
in the market over them,
and keep it?
Threats:
What are the biggest threats
they pose to you? How will
they react when you start
business (or they find out
you are going to start –
will they wait?)
Start your
Startown
yourbusiness
own business
workbook
workbook
Worksheet 2.7
Part A: Testing you
and your idea for a
small business
You
What are you going to do
to take advantage of the
opportunities you see to
compete against them?
(If you can’t think of anything,
you are far too passive).
What are you going to do to
counteract the threat that they
pose to you? (If you can’t think
of anything, you’re in trouble).
Them
How will they react to you
(round 1)? (If you aren’t sure,
put yourself in their shoes –
what would you do?).
You
What will you do in response?
Them
What will they do then
(round 2)?
You
What will you do next?
P 49
Preparing your marketing plan
Worksheet 2.8
Part A: Testing you
and your idea for a
small business
Key Element
What to include and/or
take into account
Marketing
objectives
What you must do to maintain
a competitive edge may cover:
• Competitive prices
• Increasing sales by territory and product
• The number of customers
• Increasing the value of sales per customer
• Your business profile
• Improving the standard of customer service
• Introducing new products or services
• Ensure the objectives you set can be converted
to numbers and can therefore be measured;
this makes them easier to manage.
Defining your
target market
Segment the market by dividing it into smaller
groups based on customer characteristics such as
geography, demographics and psychographics
(personality, lifestyle etc.) or buying situations
such as desired benefits, rate of usage and buying
conditions etc.
Select the segment(s) you wish to target, based
on such factors such as customer demand, your
relative competitive position and profitability.
P 50
Task completed?
Yes/No
Worksheet 2.8
Part A: Testing you
and your idea for a
small business
Key Element
take into account
Analysis of
your present
market position
Industry:
Task completed?
Yes/No
• Size of the domestic market
• Size of the export market
• Your existing market share
• Your potential market share
Customers:
• Who your customers (or potential customers) are
• Why your customers do business with you
• Demographic and other characteristics
• The methods you use, or propose to use,
to communicate with your customers
• How effective such methods are
• Quality of service
• What your customers’ prime decision-making
motivations are, such as price, quality, service
Products and services:
• A description of what you offer
• What makes your products
and services competitive
• How they are differentiated
• How they satisfy customers
• Quality, design and appearance
• Costs of producing and distributing
• Your unique selling position (USP)
• What the production time is
P 51
Worksheet 2.8
Part A: Testing you
and your idea for a
small business
Key Element
take into account
Pricing Policy
• The value that customers perceive
in your products and services
• Benefits that you offer
• Cost of producing and distributing
your products and services
• Strengths of your products and services
relative to those of your competitors
• Your business image
• Prices charged by your competitors
(exercise care: their products and services
may not be truly comparable to your own)
• Sensitivity of customer demand to price variations
• Alternatives to changes in price
• Impact of price changes on your sales
volume and profits
Marketing
strategies for
each product
or customer
group (how do
we get there?)
Product strategies:
• Number of items to be included in your
product or service range
• Opportunities for introducing better or
exclusive products in the future
• Labelling and packaging
• Branding
• Product or service launches
• Approaches to raise the standard
of customer service
• Warranties or guarantees you propose
to extend to your customers
• Budget
P 52
Task completed?
Yes/No
Worksheet 2.8
Part A: Testing you
and your idea for a
small business
Key Element
take into account
Marketing
strategies for
each product
or customer
group (how do
we get there?)
Price strategies:
Task completed?
Yes/No
• Target returns on investment
• How do you propose to price your products and
services so they are attractive to your customers
• How you intend to maintain or improve
your profit margins
Place strategies:
• System for distributing your products and
services (e.g. retail, wholesale, sales staff, agents)
• Where you propose to locate
your business and why
• Budget
Promotional strategies
• Advertising
• Direct marketing
• Sales promotion
• Sponsorship
• Public relations
• Communication methods with customers
and potential customers
• Appearance of premises and staff
• Range and standard of sales literature
• Budget
P 53
Worksheet 2.8
Part A: Testing you
and your idea for a
small business
Key Element
take into account
Action plan
• What has to be done
• When it has to be done
• Who will be responsible for carrying out the
various tasks in the plan?
Monitoring,
evaluation
and control
P 54
• What you propose to monitor and measure
• Who will be responsible for carrying out this task?
Task completed?
Yes/No
Is your business feasible?
Worksheet 2.9
Part A: Testing you
and your idea for a
small business
Arguments in favour of going ahead
Arguments against continuing
Conclusion
P 55
3
Part A: Testing you
and your idea for a
small business
Will your
business be
profitable?
Introduction
If you aren’t really interested in the financial aspects
of your business, and you aren’t interested in making
a profit, then you are talking about a hobby, not a
business.
So far you’ve done the work and decided the
business is feasible. Now you want to know whether
it adds up – will it be profitable?
Understanding the financial aspects of business is
fundamental to success. The purpose of this section
is to give you a working knowledge of some key
financial concepts, help you to produce some
financial forecasts, and help you to use them. After
you’ve prepared your own forecasts you would be
wise to discuss them with your accountant before
you outlay money to actually start the business.
Worksheet 3.1: Estimating business needs and
Worksheet 3.2: One-off start-up costs provide
templates for estimating your start-up capital
requirements.
Sources of capital
Capital
Speak to your accountant about the various options
for financing this phase of your business. The major
sources of capital, before you have actually started
to trade, are listed below, with the easiest and
(probably) the cheapest sources listed first:
Why you need capital
• Your own savings
You need capital to start your business, to run
your business and to grow your business.
In the start-up stage, before you begin operations,
you will need capital for a wide range of purposes.
The nature of this capital will depend on the type
of small business you are going to run. For example,
you may need capital to buy or lease premises and
equipment, buy stock, pay for professional advice
from accountants and lawyers, and to fit out your
work premises and pay for a range of once-off
expenses that are inevitable at this stage of business.
P 56
If your business fails you will probably lose most, if
not all, of this money, so think carefully about how
much start-up capital you need, and be mindful that
investing too little can be as harmful to your chances
of success as investing too much capital. Getting
it just right isn’t easy, and this is where spending
money on some professional advice up front might
be money well spent.
• Family, friends and colleagues
• Suppliers
• Banks
• Business angels and venture capitalists
• Public listing.
Part A: Testing you
and your idea for a
small business
Working capital
Pricing rules
Working capital refers to the money you need
for normal business operations. The major
components of working capital are cash on hand
(and in the bank), accounts receivable (money
people owe you), stock and other current assets.
You need these funds to pay for normal operating
expenses such as wages and salaries, accounts
payable (to suppliers, for example) and other
current liabilities such as utilities, insurance rates
and taxes.
At the end of the day there is only one rule about
pricing – you charge what the market will bear.
If this is less than it costs you to provide your goods
and services, putting up prices won’t help. You have
to work out how to operate profitably or get out of
that line of business.
In the early months of your business your cash
expenses will probably exceed your cash income
and you will need working capital to cover the
shortfall.
Income
Income is driven by two related factors: the quantity
of goods and services you sell and the price at which
you sell them. The two are related because, as a
general rule, the demand for goods and services
is inversely related to their price. That is, demand
increases as prices fall, and market supply tends to
increase as prices go up.
Pricing
The price at which you sell your goods or services
must be sufficient to do three things:
• Cover the cost of the goods or raw materials used
in the product or service.
• Make a sufficient contribution towards covering
the annual operating expenses of your business.
• Make a sufficient contribution towards the desired
net profit you want from your business.
If the price is considerably more than it costs you to
provide, enjoy it while it lasts. Unless there are high
barriers to entry into your market you can be pretty
sure someone else will notice and you’ll find yourself
with more competitors soon enough.
Expenses/Costs
It is important that you try to get an accurate picture
of your likely operating expenses, that is, the normal
day-to-day and week-to-week expenses you expect
to incur as part of running your business, apart from
the cost of acquiring the goods and services you
are selling. You should be able to get reasonable
estimates of these operating costs by talking to
suppliers.
Worksheet 3.4: Estimating operating expenses
provides some prompts to help you with this task.
Note that you do not include stock purchases,
depreciation or loan repayments in calculating
your operating expenses. The reasons why will be
explained below. When you have completed this
worksheet, try to compare your expected expenses
with the average for your industry. An accountant
or business adviser should be able to help you with
this task.
You will need to research the price your competitors
are charging, as you will normally meet resistance
from customers if your price is noticeably higher or
lower than those of your competitors.
Worksheet 3.3: Estimating income can be used
to estimate the likely income you expect your
business to earn.
P 57
Part A: Testing you
and your idea for a
small business
Gross profit, mark-ups and margins
The main choices are:
There are three concepts you should understand:
• Set aside some of the funds to replace the
assets used to produce the income earned –
the depreciation expense provides an estimate
of this cost.
• Gross profit, which is the total sales or turnover
less the expenses directly incurred in earning
those sales [which is usually the cost of the goods
or services sold]. You need to understand gross
profit because it pays for all the other expenses
of the business, provides funds for growth, and
provides the balance (net profit), which is your
share of the proceeds.
• Mark-up, which in retailing and some other
businesses is the dollar increase in the wholesale
price (the price you pay) to set the selling price.
For example, if you pay a researcher $65 an hour
and charge that researcher out to clients at $110
an hour, your mark-up is $45.
• Margin or gross margin is the percentage of
gross profits on sales. For example, if annual
turnover is $400,000 and the cost of the goods sold
is $150,000 then the gross profit margin or gross
margin is $400,000 minus $150,000 (i.e. $250,000)
divided by the total sales, which is 62.5%.
Profit and loss
The gross profits from running your business are
used to do many things, all of which have priority
before you take your share. These include:
• Paying the business’s operating expenses.
• Repaying borrowed funds.
• Paying tax (GST and other taxes).
After attending to these obligations (if you ignore
them you’ll find yourself in trouble with your
creditors and you won’t be able to sustain your
business) you have some choices to make about
what to do with the balance of the gross profits.
• Make provision for bad debts.
• Grow your business (for example, by putting funds
into more marketing, a wider range of products,
expanded premises, entering new markets).
• Provide income for yourself (out of which you’ll
need to pay your own personal income tax).
Worksheet 3.5: Estimating your annual profit
(or loss) can be used to assist you with this task.
Scenarios and sensitivity analysis
It is important when preparing estimates and
forecasts that you don’t just focus on one scenario
and one set of numbers. You need to think of
several plausible scenarios and test the implications
of those scenarios on your forecasts.
For example, let’s say you plan to sell ice creams
at the Test cricket next summer, and based on the
average attendance of 96,800 over the previous
three Tests you plan to sell 48,400 ice creams based
on a ratio of one for every two people attending.
You plan to charge $4 per ice cream, and therefore
forecast earning a gross income of $193,600.
Not bad for five days’ work, you think.
But what if the cricket is washed out on one day –
what impact would that have on attendance and
sales? Who is touring next year and how will that
affect attendance?
In 2010–11 almost 135,000 people went to the
Adelaide Test match, but the year before only
52,000 people went. The difference in income
between these two scenarios is huge – $270,000
in one case and only $104,000 in the other.
And the facts show both are realistic outcomes.
As you can see, the average result masks the wide
disparity from year to year. Scenarios and sensitivity
analysis help to understand the consequences of
such variance. It should be part of your approach
to planning.
P 58
Part A: Testing you
and your idea for a
small business
Cash flow
Why is cash flow important?
Forecasting and managing cash flow are the most
critical skills needed to maintain the life of a business.
Growth comes from profits but survival comes from
cash flow. You must be able to pay your bills and
meet your financial obligations when they fall due.
The short-term consequences of poor cash flow may
include loss of business, loss of opportunity, damage
to your business reputation and staff turnover.
Ultimately your creditors could force you out of
business, regardless of whether it is profitable or not.
The key tool you need is a cash flow forecast.
Fortunately, preparing a forecast is quite easy once
you collect a few important pieces of information. It
is critical that you spend time to get that information
and ensure it is as accurate as possible. After that, it is
just a matter of setting out some figures in columns.
Forecasting cash flow is about three things:
• Forecasting how much cash will flow into and out
of the business.
• Forecasting when cash flows into and out of the
business.
• Working out how much cash is on hand (i.e. cash
at bank) on set dates, based on those volumes
and timings.
Estimating the amount of cash available at any given
time allows you to make decisions and choices (to
some degree) to manage the flow in a manner that
best suits your needs.
Sources and uses of cash
Cash flows into the business from:
• Sales (when they have been paid for).
• Owners’ contributions of funds.
• Bank and other loans.
Cash flows out of the business at the beginning to:
• Buy things (i.e. plant, equipment and stock).
And, once the business is running,
cash will flow out to:
• Pay operating expenses such as wages,
rent and utilities.
• Buy replacement stock.
• Repay bank loans and other borrowings.
• Provide cash to the owner for personal
living expenses.
It is easy to see that if more cash flows in than out
over a given period, then the cash at bank will
increase. And, of course, the reverse can happen –
more cash out than in will reduce the cash at bank.
If your cash flow forecast shows a negative bank
balance, then it will be necessary to either borrow
to cover the temporary shortfall (for example, by
using an agreed bank overdraft), or make other
arrangements to either bring cash flowing into the
business earlier, or delay cash going out.
Preparing a cash flow forecast
A cash flow chart is a worksheet that shows the
sources of cash coming in and the uses of cash
(cash going out) in the first column, and sequence
of dates (usually weeks or months) across the
first row. A template for cash flow forecasting is
presented in Worksheet 3.6: Cash flow forecast.
There are lots of financial packages to choose from
to assist you with cash flow forecasting, or you could
use a spreadsheet to develop your own. The most
important thing is to understand what a cash flow
forecast means and how you can use it to manage
your business.
It is recommended you discuss preparing the cash
flow forecast with your accountant or business
adviser. Your accountant may be able to put
the details into an already prepared computer
spreadsheet, which will make the routine
calculations easier. However, the accountant will
not provide the information – that is up to you.
• Pay one-off establishment costs.
• Pay some operating expense items in advance,
such as insurance and rent.
P 59
Cash flow forecasting
Helpful tips
Part A: Testing you
and your idea for a
small business
Issue
1
Business
seasonality
Most business activity follows seasons. Sales of the product may relate to
the weather – winter or summer, or to the holiday season – Christmas or
Easter. It may relate to gift-giving time. When would you be thinking of
starting your business? Before the season in order to be well established
when the season breaks? Just at the beginning of the season? In the first
instance you will have low cash inflows from sales for some time.
2
Estimating
monthly sales
What total sales do you estimate for each month? Allow that the business
is just starting and will have few, if any, customers in the early months –
and a lower level of sales in its first year than later in its life. Discuss this
with your accountant or business adviser.
A starting point may be the sales from your sales target divided by 12 for an
‘average’, and then revise how long it may take to get to that ‘average’ level.
P 60
3
Credit accounts
If you sell your products or services on credit, how long will people take
to pay? Be careful to estimate when they will actually pay – not when you
say they should pay. If you offer 30 days’ credit, will it be 45 days before you
have the cash in hand? Credit card purchases by customers are generally
treated as cash sales.
4
Capital
contributions
Initial capital will be contributed from the business owners and
from loan funds and come into your business bank account in
the first month of operations.
5
Capital purchases These will probably be made in the first and second months
of the life of your business.
and payments
6
Regular weekly
or fortnightly
payments
If you employ staff you will need to pay wages,
either weekly or fortnightly.
7
Regular monthly
payments
Some payments, such as rent, leases, bank charges and
motor vehicle running expenses, etc., will be made every month.
8
Regular quarterly Some payments such as rates will be made every quarter.
Try to estimate in which particular months the payments will be made.
payments
9
Single annual
payments
Some payments, such as insurance and property taxes, will
be made only once each year. In which month will these be due?
Part A: Testing you
and your idea for a
small business
Using your cash flow forecast
Tax
There are four key things you should do with your
cash flow forecast:
Tax is a complicated issue, the details and intricacies
of which are beyond the scope of this workbook.
You should consult an accountant about these
matters for specific advice relevant to your own
circumstances.
• Double-check
− Have you placed all the payments in
the correct months?
− Is it possible that you have
underestimated your sales?
− Would you be able to make some
purchases (e.g. of plant) several months
after the start of the business?
− Can you make some annual payments halfyearly, quarterly, monthly instead?
− Are your owner’s drawings too high? In most
instances you will not be able to draw cash
from the business for your own needs for a
number of months. If you try to draw cash
from your business too early in its life, you
will be withdrawing working capital.
• Update
Revise the forecast as you get more information,
especially about regular payments or receipts,
and as the business develops. Hopefully you will
see a transition towards stronger net cash flows
over time.
• Negative cash flow?
Are there any months in which the bottom row –
Cash At Bank Month End – is negative? If so,
this means you anticipate over-drawing your
bank account. As mentioned earlier, an overdrawn
account is really a loan. You cannot overdraw
your account without prior arrangement with
your bank.
• Discuss
You should discuss your finished cash flow
forecast with your accountant or business
adviser regularly.
Notwithstanding this qualification, some general
points can be made which are relevant to all small
businesses.
Goods and Services Tax (GST)
GST is a tax paid to the Commonwealth Government,
although all of the income from GST is paid directly
to the states.
Most (but not all) small businesses will need to be
registered for GST purposes and will need to add
10% GST to their sales. In turn, most purchases incur
GST at the same rate. GST is an ad valorem tax, which
means it is based on the value of the transaction.
Your obligation to pay the GST is calculated on the
value of your net sales: that is, the amount of gross
sales in the period (usually quarterly) less the value
of the goods and services purchased that were
subject to GST in the same period.
Payroll Tax
Payroll tax is a state government tax and the
money is spent within the state.
In South Australia the liability to pay payroll tax
arises where an employer has an annual wages
bill in excess of $600,000 for services rendered by
employees anywhere in Australia if any of those
services are rendered or performed in South
Australia. An annual wages bill of more than
$600,000 equates to a monthly bill of more than
$50,000, or a weekly bill of at least $12,500.
You should speak to your accountant or contact
Revenue SA (Web: www.revenuesa.sa.gov.au ) to
understand the current rate of payroll tax in South
Australia and the intricacies as to what constitutes
wages, and the requirements for registration and
payments.
P 61
Income Tax
Key ratios
Income tax is paid to the Commonwealth
Government, and is payable by individuals and
businesses. The rate paid by individuals increases
in increments as their level of income increases,
whereas companies pay a flat rate regardless of their
income. Like GST, income tax is levied on net income:
that is, the gross income earned in a period less
the costs incurred to earn that income in the same
period.
As with taxation, it is beyond the scope of this
workbook to delve into the details of financial
analysis, and particularly the use of certain ratios to
analyse and understand the performance of your
business.
For the purposes of this workbook the important
point is to understand that, depending on how
you have structured your business affairs, both you
and your company may need to pay income tax. If
you have established a company to run your small
business and it pays income tax, that doesn’t mean
you don’t have to pay income tax as an individual
taxpayer.
For further information and advice on these matters,
consult your accountant.
Suffice to say there are a number of commonly used
key ratios (for example, return on equity, which is the
relationship or ratio of net income to total equity)
that you can use to analyse the performance of your
business. Given the focus is on establishing your
small business, you should seek the advice of your
accountant to understand which key ratios may be
of most value in analysing the performance of your
business.
Conclusion
Making a profit is essential to surviving in business.
But the key to running a sustainable and rewarding
business is something more.
The profit you make must be commensurate with
the effort and the risk you are taking in your business.
And you have to manage your cash flow so that you
can pay your bills when they fall due (to keep your
creditors happy) and have sufficient funds left over to
repay your debts, pay your taxes, grow your business
and provide you with the income you require.
P 62
Estimating business needs
Worksheet 3.1
Part A: Testing you
and your idea for a
small business
Item
Specifics
Estimated
cost
P 63
One-off start-up costs
Worksheet 3.2
Part A: Testing you
and your idea for a
small business
Item
Accounting
Advertising –
including artwork and
signwriting
Business stationery
(design and logo)
Cleaning materials and
equipment
Utilities, connection,
transfer, bond
Fittings, furniture,
display fixtures
Lease drawing
up, stamp duty,
registration
Legal fees
Licences, planning
application
Loan fees –
establishment,
valuation, stamp duty
etc.
Plant and equipment
purchase, lease (small
items)
P 64
Specifics
Estimated
Expenditure
One-off start-up costs
Worksheet 3.2
Part A: Testing you
and your idea for a
small business
Item
Specifics
Estimated
Expenditure
Rates, taxes and other
outgoings
Registration of
business name,
trademark
Rental bond and
first month’s rent
Refurbishing,
repainting premises
Staff recruitment,
training
Stock
(3–4 months)
Storage systems
Communication
equipment,
installation, transfer
Workplace regulations
– occupational health
and safety, fire
Any others
not listed above
Total
P 65
Estimating income
Worksheet 3.3
Part A: Testing you and your idea for a
small business
Note that there are various accounting packages
or spreadsheets you could use for this purpose,
especially if you want to estimate income more
frequently (e.g. weekly), or for a longer period.
The steps you should take are:
Product
1
Unit Price
Quantity
1. For each product, estimate the unit quantity
you will sell and the unit price.
Income
2. Multiply price and quantity to give income.
3. Add the income earned from each product
to estimate your total monthly income and
your total annual income.
July
2
Unit Price
4. Conduct a sensitivity analysis.
Quantity
Income
3
Unit Price
Quantity
Income
4
Unit Price
Quantity
Income
Total income
P 66
Aug
Sept
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Total
P 67
Estimating operating expenses
Worksheet 3.4
Part A: Testing you
and your idea for a
small business
Expense
1
Accounting fees
2
Administration/office expenses
3
Advertising
4
Bank charges
5
Bank interest
6
Debt collection
7
Donations
8
Insurances
9
Leased equipment
10
Legal expenses
11
Light and power
12
Marketing
13
Maintenance of plant and fixtures
14
Motor vehicle registration
and running
15
Printing, stationery, postage
16
Rates and property taxes
17
Rent
18
Salaries and wages (not your own)
19
Security
20
Staff superannuation
21
Subscriptions
22
Telephone
23
Travel and accommodation
24
Other (specify)
Total estimated
operating expenses
Add 5% for
overlooked expenses
Total estimated
operating expenses
P 68
Amount
Monthly
Annual
Estimating your
annual profit (or loss)
Worksheet 3.5
Part A: Testing you
and your idea for a
small business
1.Use Worksheet 3.3 to provide your estimate
of sales.
3.Use Worksheet 3.4 to provide your estimate
of annual operating expenses.
2. The easiest way to estimate the cost of goods
sold at this stage (before you have actually started
business) is to use the typical gross margin in the
industry you are entering. For example, if you have
estimated sales of $200,000 and the gross margin
is 65% then your cost of goods sold will be 35%
(100-65), which is $70,000.
4. The balance (earnings before interest, tax
and depreciation) is derived from deducting
operating expenses from the gross profit.
Product
A
How to
calculate
Cost of
goods sold
B
Value of
opening stock
C
Plus stock purchases
during the year
D
Less the value of
closing stock
=b+c+d
$
Gross profit
=a–e
$
Operating expenses
Use gross
margin
$
Earning before
interest, tax and
depreciation
=f–g
$
E
F
H
Less
Amount
$
Sales
Less
G
5. Remember – you have to pay tax
and repay your borrowings (interest at least)
from this amount before you claim your share.
P 69
Cash flow forecast
Key issue
Are there any months in which the cash at the end of the month (the last line) is negative? This means you
expect to overdraw your bank account. You cannot overdraw your account without the prior agreement of
your bank. Ignoring the issue won’t help. What are you going to do about this?
Worksheet 3.6
Part A: Testing you
and your idea for a
small business
July
Estimated cash in:
Cash from sales
Other cash in
Total estimated cash in (a)
Estimated cash out:
Payments for supplies
Wages and salaries
Loan repayments
Rent
Lease payments
Etc.
Total estimated cash out (b)
Cash flow – Cash in – cash out ((a)-(b) = (c))
Cash at bank at start of month (d)
Cash at month end ((d) + (c))
P 70
Aug
Sept
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
P 71
Before you start spending
money, there are a
few important issues
you should consider.
4
Part A: Testing you
and your idea for a
small business
Review – Does
it make sense?
If you have got this far that means your analysis:
• Suggests you’ve got what it takes in terms of skills
and aptitudes to run a small business successfully.
• Confirms the idea for your small business is feasible.
• Suggests it will also be profitable.
If that’s the case you’ve addressed the most
important issues and things are looking good.
Congratulations!
But before you start spending money there are a
few more issues you should consider, and these are
outlined in Part B of this workbook.
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5
Part B: Other issues
to consider before
getting started
Business
structures
Introduction
One of the early decisions you will face when going
into business is what form of legal structure you
should adopt. The basic choices are:
• An unincorporated entity such as sole trader
or a partnership.
• An incorporated entity, i.e. a proprietary company.
• Operating as a trust.
• Operating as a co-operative.
Choosing an appropriate legal structure will depend
on many factors, including:
• Limiting your exposure to liability
for business debts.
• The size of the business and the number
of people involved.
• Taxation issues.
• Simplicity and cost-effectiveness.
These options are discussed on the following page.
The issues relating to business names are discussed
in Part D of this workbook. However, it is important
you obtain professional advice from your solicitor
and accountant before you make the decision – it
may save a lot of heartache in the long run.
Unincorporated entity
There are two options for an unincorporated entity:
• Sole trader – In this option the owner is the sole
trader, and this structure is appropriate where
the business is small, the capital investment is
minimal, and the potential losses are not large.
• Partnership – This is a suitable option when two
or more people carry on a business in common
with a view to making a profit. This is appropriate
where the number of people involved is small and
the degree of risk involved in the business is such
that limited liability is not considered necessary.
Proprietary company
A proprietary company is a legal entity that is
separate from its shareholders (owners). When you
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form a company you form a legal entity that can
acquire and sell property, take legal action (and
be sued) and sign documents. It is a separate legal
entity, which can own assets, incur liabilities, and
make profits and losses quite separately from its
shareholders.
A proprietary company is the preferred option where
limited liability is desired, and the marginal tax rate
of shareholder members of a family running the
business exceed the company tax rate.
Trust
A trust is formed when a business is transferred to a
trustee to hold assets, to run the business, distribute
income to beneficiaries and observe the provisions
of the trust deed. A trust is often chosen when more
than one family is involved in running the business.
Co-operative
A co-operative is a body corporate. It can be formed
by at least five people or two corporations and is
registered under the Co-operatives Act 1997 (the
Act). A co-operative can be formed to provide goods
or services to its members or to the general public. A
co-operative is voluntarily owned and controlled by
the people for whom it was established and who use
its services.
There are two types of co-operatives under the Act:
• Trading co-operatives – these have a share
capital and may distribute profits.
• Non-trading co-operatives – these do not
distribute profits or surpluses to members
but they may or may not have share capital.
Summary
There is no specific formula to determine which
structure best suits your business needs, but some
forms are more suitable than others.
Use Worksheet 5.1: Choosing a business structure
to help you decide which structures may suit your
business.
Choosing a
business structure
Worksheet 5.1
to consider before
getting started
Structure
Characteristics of your business
Sole trader
Business is small.
Relevant
Not Relevant
Minimal capital investment.
Potential losses not large.
Partnership
Two or more owners.
Proprietary
company
Limited liability is desired.
Marginal tax rate of owners is
greater than the marginal personal
tax rate.
Trust
More than one family involved.
Which option do you think is best for your business?
P 75
Before you employ
someone it is important
to consider what it will
actually cost, and compare
that with the benefits.
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6
to consider before
getting started
Managing
staff
Introduction
Your obligations as an employer
Productive employees are perhaps your most
valuable asset, but finding and keeping the right
staff can be a major challenge in business.
Managing staff is a key area of risk, not least because
you have to comply with a number of regulations. As
an employer, your responsibilities include the need to:
This section covers your options when considering
whether to take on staff, your role as an employer
and some practical tips on recruiting and managing
staff.
• Determine whether an award, industrial
agreement or enterprise agreement applies to
your employees and to pay according to their
provisions.
Understanding the cost
of employing someone
• Contribute to your employees’ superannuation
at a prescribed minimum rate.
• Have workers’ compensation insurance in place.
Before you employ someone it is important to
consider what it will actually cost, and compare that
with the benefits. The cost is more than the wages
and includes:
• Maintain time and wages records for each
employee.
• On-costs such as superannuation, workers’
compensation insurance, annual leave, and
provision for long-service leave, which typically
can add between 25% and 30% to the wage.
• Take steps to prevent discrimination against
employees on a range of grounds.
• Other direct costs such as protective clothing,
tools, plant and equipment and work stations.
• Your time to supervise and manage staff,
including training and performance management.
• Meet taxation obligations relating to group
tax, payroll tax and fringe benefits tax.
• Maintain the workplace in a safe and
healthy condition.
• If it becomes necessary, terminate employment in
a manner that is fair and complies with legislation.
This is an area where you should seek professional
advice from your industry association, chamber of
commerce or legal adviser.
Employment options
There are a number of employment options to
consider: full-time, part-time, casual, fixed-term,
apprentice or trainee and subcontractor.
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to consider before
getting started
Employee or subcontractor
Managing and supervising staff
You should understand the difference between
an employee and a subcontractor because your
obligations are different for each. The Australian
Taxation Office (ATO) (Web: www.ato.gov.au /
Telephone: 13 28 66) uses test questions to make
the distinction that you can use.
Managing a business means that you need to take as
much care over your investment in people as you do
over your money investment or your customers.
Refer to Worksheet 6.1:
Employee or subcontractor.
Hiring staff
Your aim is to hire employees who will be
productive and add value to your business.
Five key steps are required to achieve this goal.
1. Prepare a job description.
2. Access recruitment sources.
3. Prepare to interview job applicants.
4. Conduct interviews.
5. Appoint the successful applicant.
Worksheet 6.2: Hiring new staff provides some
practical tips on the steps to follow. An alternative
is to engage a professional recruitment firm to
perform this service for you.
Probation
It is common practice to specify a period, usually
three months from the date of commencement,
during which new employees are ‘on probation’. A
probation period gives you the opportunity as the
employer to assess the new employee’s performance.
All of the employee’s rights and entitlements apply
during probation, except that they cannot claim for
wrongful dismissal if their employment is terminated
during the probation period.
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If you are going to employ people you want them
to succeed. It’s not in your interests to simply expect
your staff to either sink or swim. You need to put in
some effort to help them help you. If they are sinking
then that’s costing you – time, money and lost
business opportunities.
Your behaviour
A good manager models the kind of work
performance, manners, customer service and
courtesy that they expect of their employees.
Courtesy, fairness, consistency and managers who
give good, well-thought-out reasons for saying yes
or no will gain respect.
Induction
Induction should not be something you do on an ad
hoc basis. A structured induction process is a small
investment in time and effort that helps to make
new staff feel welcome, understand their new job
and workplace quickly, and set them up for success.
Worksheet 6.3: Induction checklist provides some
practical steps to implement a structured induction
process.
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to consider before
getting started
Training and development
Managers will have more time to manage and expand the business if they train their employees well. To
help you become a better manager and trainer there are several organisations that offer short courses that
you might find helpful, and your local Business Advisory Centre can offer you further advice. To find your
nearest centre in metropolitan or regional South Australia visit the Department of State Development Small
Business website: www.statedevelopment.sa.gov.au/industry/smallbusiness/getting-advice#Business Advisory
Centres or request details via email: DSDSmallBusinessStrategy@sa.gov.au
Delegating
Delegating means giving authority and responsibility to another person to carry out certain activities.
As your business grows, it will become necessary for you to delegate some tasks so you can concentrate
on what’s really important. Here are some practical dos and don’ts to delegating effectively:
Do
Don’t
Give a thorough briefing
when handing over tasks
Hoard information
Delegate the entire task
to one person
Delegate half a task
Encourage questions to
clarify the task
Do all the talking
Give advice without interfering
Fail to point out the
pitfalls or key issues
Keep an eye on progress
Impose controls as an
after thought
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to consider before
getting started
Performance management
Dismissing employees
If you and your employee(s) are to make the business
work well, and progress towards a worthwhile
working relationship, then you should consider
making regular performance appraisals part of
your routine.
It is likely that you will be faced with terminating
an employee’s services at some stage. Dismissal is a
major decision and it is recommended you obtain
professional advice from your solicitor or employer
association before you act.
The essential elements of a performance
management system include setting goals, clarifying
expectations, monitoring performance, providing
and receiving constructive feedback, rewarding and
reinforcing good performance and correcting or
discouraging poor performance.
Following are four practical tips to observe when
faced with terminating employment:
Ideally, a formal performance appraisal should be
done every six months and be set out in such a way
that both you and the employee can comment
about how they evaluate their work performance,
your (and their) expectations and discuss any
requests for further training or on- the-job
opportunities that might be required.
• Keep good records which show you have
followed all of the required steps.
In a way, this appraisal is conducted much like a
job interview, but this time the employee also has
the opportunity to make comments about the
things that make their job satisfying or difficult.
Both you and your employee should see this as an
opportunity to share suggestions about improving
work processes and customer relations, identify
training needs and talk about their future career
opportunities. It can also provide you with a chance
to praise the employee formally for good work done
and to give constructive criticism that can assist him
or her to improve skills and performance in areas
where they need help.
• Give warnings and counsel employees before
dismissing them.
• Avoid dismissing people for reasons other than
poor work performance or redundancy.
• Communicate clearly with the employee (verbally
and in writing) giving reasons and outlining their
entitlements.
Work health and safety (WHS)
Your obligations as an employer are to:
• Provide a safe and healthy work environment.
• Provide safe systems of work.
• Provide plant (i.e. machinery and equipment)
and substances in a safe condition.
• Provide adequate facilities.
• Provide adequate information, instruction
and training to your workers.
• Keep your registration details up to date
and appoint a rehabilitation and return
to work co-ordinator (if required).
• Pay your ReturnToWorkSA employer premium.
If someone is injured you are required to:
• Report your worker’s injury.
• Lodge a claim for compensation.
• Support your worker to stay at work or
return to work as soon as possible.
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to consider before
getting started
It is recommended that new business owners
who wish to understand their Work Health & Safety
(WHS) obligations more fully, access the SafeWork
SA website at www.safework.sa.gov.au
SafeWork SA has recently instigated a business
advisory program specifically focused on assisting
small business. For assistance telephone the
SafeWork SA Help Centre on: 1300 365 255.
Other contacts:
ReturnToWorkSA
Web: www.rtwsa.com
Telephone: 13 18 55
Business SA
Web: www.business-sa.com
Telephone: 08 8300 0000
Your trade and employer organisation.
Summary
The decision to hire employees represents one of the
most significant steps you will take in your business.
Finding good staff is only part of the challenge. It’s
in your interests to set your staff up for success, and
that requires time and effort from you. At all times
your behaviour as the business owner and employer
will define the standard of acceptable behaviour in
your business.
If you employ staff you must dedicate a portion of
your time and effort to their management. That’s
your role and it’s one that you delegate at your peril.
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Employee or subcontractor
Worksheet 6.1
to consider before
getting started
Complete this
worksheet to help
you understand the
difference between
employing staff and
engaging subcontractors.
Check with your
accountant to clarify
the implications for
your business.
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Employee
Yes/No
Subcontractor
Work under the
direction and
control of the
business owner.
Have freedom to
decide the way the
work is done.
Paid for the time
they work.
Paid for results
achieved.
Paid leave
(sick, annual etc.).
Not paid leave
Use materials
or equipment
provided
by the business
to do the job.
Provide most of
the materials and
equipment needed
to do the job
Work hours set
by agreement or
award.
Free to accept
or refuse work.
Take no
commercial
risk and cannot
make profit or
loss from the work
performed.
Takes on
commercial risks
and can make
a profit or suffer
a loss.
Recognised
part of
the business.
Able to provide
services to other
businesses or the
general public.
Yes/No
Hiring new staff
Worksheet 6.2
to consider before
getting started
Step
1
How to do this
Prepare a job
description
Task completed
Yes/No
Define the job responsibilities.
List the duties, tasks and activities to be performed.
Wherever possible, make them measurable.
Determine the level of competency required.
Identify the essential (minimum) as well as
the desired personal requirements.
Write down the selection criteria that applicants
must address in their formal application.
The same criteria will be used to determine
the best applicant for the job.
Research the wages and conditions of
employment.
2
Access
recruitment
sources
Compile your job advertisement, taking care to
avoid any suggestion of discrimination.
Place your advertisement in media suited to the
type of job and your budget. Options include
newspapers, your website, employment agencies,
community bulletin boards, trade and professional
journals.
3
Prepare to
interview job
applicants
Prepare a shortlist of candidates based on your
selection criteria.
Choose a suitable venue for the interviews that
offers privacy.
Prepare a series of questions you intend to ask
related to the job description and selection criteria.
Take care to ensure none of the questions could
be construed as discriminatory (i.e. don’t ask about
age, marital status or sexual preference).
Schedule the interviews. Allocate sufficient time to
each applicant and inform applicants of anything
they need to bring to the interview.
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Hiring new staff
Worksheet 6.2
to consider before
getting started
Step
4
How to do this
Conduct
interviews
Introduce yourself and any other
interview panel members.
Pose broad questions at the start to help the
applicants relax and feel comfortable with you.
Ask your series of questions.
Let the applicants do most of the talking.
Outline the terms and conditions of employment
you are offering, including rate of pay and working
hours.
Ask for referees to be nominated.
Give applicants the opportunity to ask questions.
Close the interview by indicating
when a decision will be made.
5
Appoint
successful
applicant
Check with referees.
Choose the successful applicant by listing reasons
for your selection on paper and matching against
selection criteria.
Notify all applicants.
Issue a letter of appointment covering start
date, award or agreement under which the
person will be employed, probationary period
if applicable, leave arrangements, hours of work,
remuneration etc.
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Task completed
Yes/No
Induction checklist
Worksheet 6.3
to consider before
getting started
When
What to do
Before they start
Confirm start date, location and start time.
Date completed
Advise other staff.
Set up workstation, phone, IT access, tools
and equipment necessary to do the job.
Confirm dress code and advise
of any other requirements.
First day
Welcome.
Introduce other staff.
Tour of workplace, including facilities.
Safety induction – key hazards and WHS risks,
location of emergency exits etc.
Reiterate job, key tasks and probation period.
Provide any other relevant and useful information.
End of the
first week
Check – does the job meet the employee’s initial
expectations? Any surprises (good or bad)?
Agree performance objectives.
Agree method and frequency of performance
reviews (monthly, half-yearly, annual?).
Ask for their feedback.
End of the
first month
Meet with new staff member to discuss work
progress – how are things going?
End of the first
three months
Meet with new staff member to discuss work
progress – how are things going?
End of the
first six months
Conduct the first formal appraisal of performance.
P 85
It is important to realise
that you can’t avoid risk –
that isn’t the aim of risk
management.
Business is inherently risky,
and the rewards should be
commensurate with the risks
you take.
The key issue is deciding what
degree of risk is acceptable.
7
to consider before
getting started
Managing
risk
Introduction
What could possibly go wrong?
One of the most important issues, and one of the
most commonly overlooked issues when starting
a business, is understanding the risks involved and
thinking through what risks are acceptable and
which are not. On the flip side of risk is opportunity –
what would you need to do to take advantage if the
business took off faster than you expected?
Let’s start with the big picture.
Worksheet 7.1: What could possibly go wrong?
provides a framework for thinking through what the
risks are in your proposed business. In this context
it is useful to refer back to the PESTLE analysis you
completed earlier (see Worksheet 2.2).
For the purposes of this workbook we’ll focus
on risk (the downside).
The objective of risk management
It is important to realise that you can’t avoid risk
– that isn’t the aim of risk management. Business
is inherently risky, and the rewards should be
commensurate with the risks you take. The key issue
is deciding what degree of risk is acceptable.
Likelihood
The likelihood of something going wrong is usually a
subjective judgement you have to make. You need to
strike a balance between being overly optimistic and
overly pessimistic. For example, the likelihood that
you’ll be injured in a car accident is statistically fairly
small. What is more likely is you’ll be involved in a
car accident of some kind, but on the other hand it’s
much less likely that you’ll be struck by lightning.
In a nutshell, this means thinking about:
Consequence or impact
• What could possibly go wrong (the risk).
If the event did occur (the risk materialised), what
would be the impact on you? The key point here is
that the consequence varies from person to person.
A billionaire who loses $20,000 setting up a small
business is going to be much less concerned than a
person for whom $20,000 represents their life savings.
• The likelihood that it could go wrong.
• What the impact would be if it did eventuate
(the consequence).
• Given the likelihood and the consequence,
whether the risk is acceptable.
• Where the risks are unacceptable, what
can be done to lessen the impact on your
business (mitigation).
P 87
to consider before
getting started
Acceptable and unacceptable risks
Thinking about the likelihood of an event and the consequences if that event were to occur is the key to
deciding which risks are acceptable, and which aren’t. The diagram below illustrates the way likelihood and
consequence combine to help you think about what risk is acceptable and what isn’t.
Catastrophic
Consequence
Extreme
Moderate
Little
Nil
Extremely
unlikely
Unlikely
Expected
Certain
Likelihood/frequency
The darker blue areas represent unacceptable
risks. Any event that would be catastrophic to your
business (for example, a fire burning down your
premises) should be unacceptable. Equally, any event
that has no consequence, no matter how likely (for
example, you have one or two days’ illness in the
year) isn’t worth worrying about.
The more difficult judgement comes when you think
about events that are expected, for example, and
when they occur they will have a moderate to extreme
impact on your business. What would you do?
The key point is you have to do something about the
risks you find unacceptable – you can’t ignore them.
What you do to reduce or mitigate these risks is up to
you. But if you can’t mitigate unacceptable risks, you
probably shouldn’t proceed.
Use Worksheet 7.2: Risk worksheet to analyse
the risks in your business and decide what you
will do to mitigate the unacceptable risk.
P 88
Likely
Managing risks – An example
Let’s assume your small business is a one-person
operation – you are an electrician providing services
to households. You have a vehicle with tools,
you obtain clients directly and through referrals
from other trades, and you work throughout the
metropolitan area. The risk we are considering is the
loss of mobility.
How might this occur?
• Something could happen to the vehicle – it
breaks down, it’s in an accident or is stolen.
• Something could happen to you, the driver –
you could be injured or lose your driver’s licence.
How likely is this? Realistically, it’s somewhere
between likely and unlikely.
What would be the consequence if this did
occur? If you were immobile for a day or two the
consequences are probably slight. But if you were
immobile for an extended period of weeks or
months the consequence could be extreme or
catastrophic, depending on your circumstances
to consider before
getting started
(i.e. loss of income, lost clientele and possibly the
collapse of your business if you can’t pay your
creditors).
You can’t ignore this risk – it could be catastrophic.
What cost-effective options do you have (there is
no point in spending more on eliminating a risk
than the cost of the event if it occurs). Some of the
options are illustrated in the table below.
The impact on your business
if you lose your mobility
Issue
Note that in this example, the last mitigating option
(employ a driver) may be so expensive that you
couldn’t afford it. The obvious solution is don’t put
yourself in a position where you could lose your
driver’s licence.
How might this happen?
What mitigating options do you have?
Vehicle failure
Get a reliable vehicle (often a trade-off between
up-front cost of purchasing or leasing a vehicle
and the longer-term operating costs).
Vehicle accident
Take out insurance to fund repairs or replace
vehicle if it is written off.
Vehicle stolen
Lock your car.
Park it in secure parking areas.
Insurance.
Injury to driver (you)
Take out insurance to cover loss of income.
Loss of licence
Install a speed-governing device in the
vehicle to prevent speeding.
Self-test for fitness for work (drug and
alcohol testing) to avoid DUI offences.
Pay close attention to road rules (speeding
and drink driving in particular) to avoid infringements.
Employ a driver if licence lost.
Summary
Understanding and managing risk is often overlooked when people think about starting a business, or they
just think of risk in terms of insurance. Not managing risk is one of the reasons why so many businesses fail,
and why many others are unable to capitalise on the opportunities that come their way. Understanding and
managing risk should be integral to planning your new business.
P 89
What could possibly
go wrong?
Worksheet 7.1
to consider before
getting started
P 90
Risk type
Examples
Human
From individuals or organisations, illness, death, workplace
safety, harassment, industrial action, malfeasance
Operational
Disruption to supplies and operations, loss of access to
essential assets, failures in distribution
Reputational
Loss of business partner or employee confidence, harm
to professional standing, or damage to reputation in the market
Procedural
Failures of accountability, internal systems and controls,
organisation, fraud
Project
Risks of cost overruns, jobs taking too long, insufficient
product or service quality
Financial
Business failure (i.e. poor cash flow, poor debtor control),
stock market, interest rates, unemployment, fluctuations in
exchange rates
Technical
Advances in technology, technical failure
Natural
Threats from weather, natural disaster, accident, disease
Political
Changes in tax regimes, government policy, new laws and
regulations, public opinion, foreign influence
What could possibly
go wrong?
Worksheet 7.1
to consider before
getting started
In your small business
P 91
Risk worksheet
Worksheet 7.2
Consequence
to consider before
getting started
Catastrophic
5
Extreme
4
Moderate
3
Little
2
Nil
1
Extremely
unlikely
Unlikely
Likely
Expected
Certain
Likelihood/frequency
1. Write down the key risks (if you can’t think of 10 you’re not trying).
2. Rank each risk according to likelihood and consequence using the table above.
3. Which of these require action? (Those darker blue in the table).
4. For each risk that requires action, what can you do to reduce the risk so that it is acceptable?
Key Risk
1
2
3
4
5
6
7
8
9
10
P 92
Rating
Unacceptable?
Risk worksheet
Worksheet 7.2
Unacceptable risk
to consider before
getting started
Options to mitigate
What exactly will
you do to mitigate?
1
2
3
4
5
P 93
8
to consider before
getting started
E-business
Introduction
An e-business strategy will probably be an
integral part of most new small businesses.
The main business uses of the internet are:
The cost to use the internet could be:
• Buying, selling and advertising goods
and services to customers and consumers.
• Data transferred.
• Communicating with businesses and
customers around the world.
• Broadband contract.
• Promoting products and services by
electronically publishing brochures,
manuals, product updates, etc.
• Achieving a competitive edge by researching
information on customers, competitors,
products, industry trends etc.
Selecting an internet service
provider (ISP)
To find an appropriate ISP ask business contacts
or your industry association, and watch for
advertisements in the press or search the internet.
You should choose an ISP that:
• Is in a city near you.
• Has a good reputation.
• Is business-focused.
• Runs a help desk.
• Is competitively priced.
• Provides training if required.
• Provides a connection with a local phone call
(this may not be available in some remote areas).
P 94
Don’t shop by price alone. The cheaper a provider,
the more likely they may be skimping on some part
of their service.
• Timed connection fee to ISP.
Some ISPs provide different price structures
or packages.
Connecting to the internet
(world wide web)
Access to the World Wide Web (www) and e-mail is
via a modem that connects your computer to your ISP.
To connect your business to the internet you need:
• A computer, tablet or at least a smart phone.
• A modem.
• An account with an ISP.
• Internet software such as a web browser
and e-mail software.
to consider before
getting started
Domain names
A domain name is registered within the Domain
Name System and gives your business authority
over a particular space in the internet. You need a
domain name to establish an internet presence for
your small business.
It is best to register your domain name and your
own email address before starting a new business
so you can be certain you have your own digital
space and can save on printing costs down the track.
You can conduct an initial search for any conflicting
ownership of names and logos at www.IPAustralia.
gov.au (Telephone: 1300 65 1010). If your customers
are also overseas you may consider registering
domain names in other countries.
If you decide to use a web hosting company or
other IT service provider to register your domain,
make sure you are the listed owner of the domain.
A ‘Who is’ search tells you who is the owner of any
domain name.
For links to the various domain names registers
in Australia, visit the .au Domain Administration
Ltd (auDA) website: www.auda.org.au
(Telephone: 1300 732 929).
Setting up your website
To set up your website you can use the services of your
ISP or a specialist website design organisation or choose
to invest in web skills and develop the site yourself.
The site should:
• Be easy to find.
• Clearly explain and describe goods,
related terms and conditions.
• Be convenient and attractive without
too many ‘bells and whistles’.
• Be easy to update by yourself.
You should decide on the look and feel you
want for your business, bearing in mind your
target market. Consider engaging the services of a
graphic designer to develop a common theme that
will work throughout the business from website to
business cards.
This can be developed electronically as a cascading
style sheet (CSS) that can be used on most software
platforms.
One concept you should understand is search engine
optimisation, which means ensuring search engines
such as Google find your website and rank it highly.
Generally, the earlier your website is found by a search
engine, and the more frequently it appears in search
results lists, the more visitors your site will attract from
people using search engines.
E-commerce on your website
You may use the services of the same ISP that will
host your site or use a specialist website design
organisation. If you want your customers to pay
online, you will need to have a ‘merchant services
agreement’ with a bank or PayPal. This needs to
include approval to accept credit card details over the
internet. Check whether the services offered by your
bank and your ISP are compatible.
For e-commerce purposes your website needs to:
• Describe the products or services that you offer.
• Explain the terms and conditions of sale, including
warranties and after-sales service.
• Provide assurances about what you do with the
personal data that you collect.
• Enable your customers to select products for
purchase.
• Enable your customers to provide credit card
details or arrange other payment.
• Enable your customers to provide delivery
information.
• Provide an order form to allow your customers to
fax or phone their orders with credit card details if
they have a concern about security.
• If you accept credit card details directly on your
website you will need a secure sockets layer (SSL)
certificate that can be obtained through your
domain registrar or your web developer. The SSL
certificate keeps the credit card information in an
encrypted format.
P 95
to consider before
getting started
The design of your website should be carefully
thought through, both in the customer experience
(front end) and programming (back end). Choose a
software platform that allows flexibility to change
to another web developer and to change content
yourself.
Online sales can be a great way of increasing your
potential market. Many online classified directories
and auction sites exist to facilitate the process for you
in exchange for a small fee.
If online sales are going to be a key part of your
business strategy, a ‘shopping cart’ can manage
stock and provide invoices and reporting systems to
help manage the business. If you also sell products
in person you will have to decide whether you use
your shopping cart for all sales or choose one that
integrates with your invoicing software to effectively
manage the paperwork in one place rather than two.
There are four main ways of completing payments
through a shopping cart:
1. Once the sale is completed you can allow
customers to pay directly into your bank account.
2. You can use an external credit card processing
company (such as PayPal).
3. You can collect credit card numbers yourself for
manual processing through an EFTPOS terminal
(security restrictions apply).
4. You can arrange for a secure gateway with your
bank for the transaction to occur directly through
to your bank account from their credit card centre
(most secure but most costly to set up).
As mentioned previously, websites that collect
payment or payment details should be protected by
a ‘digital certificate’ to provide an SSL for transactions.
This needs to be purchased and installed on the
website.
Other ways of getting new customers
Pay per click (PPC) advertising is a useful tool for
generating new customers and understanding the
buying process. Because you are paying based on the
action of potential customers, you can fine-tune the
words that are a call to action. Careful choice of words
is essential to ensure that the cost per click is relative
to the number of actual sales it generates. If your
advert ‘over- promises’ then you will be charged for
lots of clicks but not many of them will convert into
sales. In the reverse situation, if you ‘under-promise’
you will not get many customers either.
A recent growth area is ‘affiliate marketing’, where
others promote your business in exchange for a
commission. As with any business relationship, time
should be spent evaluating the need for such a
relationship.
Outsourcing is often needed for a small business to
assemble a wide range of skills. More recently, the
concept of ‘crowdsourcing’ as a way of gaining skills
through an intermediary website means that you
can access a wide range of expertise. Crowdsourcing
provides many opportunities but it should be
remembered that any outsourced tasks need to be
project- managed to be useful.
Currently, Google provides many opportunities to
promote your business free. Consider Google Places,
YouTube and Picasa.
Maintaining your website
The essentials of maintaining your website require
you to:
• Check the website regularly to ensure that it is
functioning properly and the links are not broken.
• Make sure you control the content of the site and
that objectionable content has not been added.
• Update your website regularly to keep your
customers interested and ensure the information
is current.
• Check incoming mail regularly and insert a
message if there is likely to be a delay in response
(if you are away).
P 96
to consider before
getting started
Social media
Further information
Decide on an e-business ‘posturing’ strategy. This is
crucial for a service business but, equally, can help
all by creating an information outlet that allows
people to understand more of what you do and what
problems you solve. Social media is a good outlet for
this (depending on your customer demographic).
Two commonly used options are Facebook (usually
for a younger customer group) or LinkedIn (for
business professionals). In addition, you could
consider having a blog (free through Word Press
and Google’s Blogger, for example) as a repository
for articles and knowledge you want to share to
demonstrate your knowledge. These avenues allow
customers to follow your ‘conversation’ and eventually
become customers.
.au Domain Administration Ltd (auDA)
www.auda.org.au
Telephone: 1300 732 929
Note that this is also an avenue for competitors
to track your activity, and many businesses
monitor Twitter using @ and # searches using their
competitors’ names to see what the public are saying.
Promotion
There are a wide range of internet directories that
may be useful to promote your new venture, so
carefully plan a consistent description and keywords
that relate to your business. Most of these will be
free but it will take some time to become listed.
Concentrate on the ones that relate most closely
to you either geographically or in your area of
specialisation.
For businesses wanting to register a domain name or
view the rules and policies for registration of domain
names.
Department of Communications
www.digitalbusiness.gov.au
Practical advice, tips and tools about getting online,
creating a website, marketing, security and legal
considerations.
Australian Competition & Consumer Commission
(ACCC):
Consumer product safety online report:
www.accc.gov.au/publications/consumer-productsafety-online
This report is for Australian and overseas-based
businesses that supply, or intend to supply, products
to Australian consumers via the internet. It advises
of the steps you can take to address product safety
issues and foster better outcomes for consumers.
Stay Smart Online
www.staysmartonline.gov.au/business
Telephone: 1800 753 178
Helps you understand cyber security risks and
and how to protect your personal and financial
information online.
P 97
9
Part C: Writing a
business plan –
Putting it all together
Putting it all
together - Your
business plan
Introduction
This section of the workbook is where you can
put the work from the previous sections together
into a business plan for your business.
By focusing on these four areas your business
plan will also be in a form which you can use in
discussions with your financiers, your accountant,
potential business partners and others.
The focus of the business plan is on four key areas:
What’s important?
1. What you bring to the business.
Before you go any further, a word of caution.
2. Is the business feasible?
Having a business plan is important but plans
don’t make money. You have to use them.
Think of business planning as the first step in
a four-step process that you must follow all the
time if you are going to be successful.
3. Is it profitable?
4. Risk (what could possibly go wrong?).
These areas are relevant regardless of what
your business is, whereas other issues, such as
employing staff, may not be relevant.
That process is:
Plan
Decide what are you going to do and why.
Do
Implement the plan and while you are doing so make sure you
gather data about the results of your efforts.
Check
Review the results and decide whether you need to make
any changes in the doing.
Act
If you are getting the results you wanted, keep going and then
go back to the plan and decide what’s next.
If you aren’t getting the results you wanted, implement the
necessary changes to achieve the results you want.
If that doesn’t work go back to your plan.
P 98
In five years time
Business plan What you bring to
this business
What I would
like to be doing
Part C: Writing
a business plan –
What I would
like to have achieved
Why am I starting
my own business?
Date
P 99
My strengths and weaknesses –
An honest reflection
this business
Part C: Writing a
business plan –
Attribute
Are you a self-starter?
How do you feel
about other people?
Can you lead others?
Can you take
responsibility?
How good an
organiser are you?
How good a worker
are you?
Are you an effective
decision-maker?
Can you stick
to the task?
How good is your health?
Date
P 100
Strength
My strengths and weaknesses –
An honest reflection
this business
Part C: Writing a
business plan –
Attribute
Weakness
Are you a self-starter?
How do you feel
about other people?
Can you lead others?
Can you take
responsibility?
How good an
organiser are you?
How good a worker
are you?
Are you an effective
decision-maker?
Can you stick
to the task?
How good is your health?
Date
P 101
Assessing my skills
this business
Part C: Writing a
business plan –
Skill
Strong
Business
planning
Problem solving
Communications
Managing people
Negotiating
Financial
management
Marketing
Legal and tax
knowledge
Time
management
Date
P 102
Rating your skills
Ok
Weak
Assessing my skills
this business
Part C: Writing a
business plan –
Skill
Important to my business?
Yes
No
What action will you take if
it is important and you are
weak in this area?
Business
planning
Problem solving
Communications
Managing people
Negotiating
Financial
management
Marketing
Legal and tax
knowledge
Time
management
Date
P 103
Business plan Is the business
feasible?
Define your
small business
Part C: Writing a
business plan –
What is its name?
Where will you be
located?
What products or
services will you sell?
What processes
will you use?
Date
P 104
feasible?
What materials
or inputs will you use?
Part C: Writing a
business plan –
Who are your customers?
Where are your customers
located?
How will you find your
customers (or how will
they find you)?
How will you get your
products or services to
your customers?
Date
P 105
PESTLE analysis
feasible?
Influence
What are the most
important factors?
Part C: Writing a
business plan –
Politics
Economy
Society
& Culture
P 106
my business?
What can I do to
take advantage of
PESTLE analysis
feasible?
Influence
Part C: Writing a
business plan –
What are the most
important factors?
my business?
What can I do to
take advantage of
Technology
Legal
Environment
Date
P 107
Market analysis
feasible?
Market issue
Part C: Writing a
business plan –
Market research
(summarise key data, facts,
evidence and conclusions)
Size of the
market
Industry
trends
Market
segmentation
Date
P 108
So what? (what does this
mean for your business?)
Market analysis
feasible?
Market issue
Part C: Writing a
business plan –
Market research
(summarise key data, facts,
evidence and conclusions)
So what? (what does this
mean for your business?)
Barriers
to entry
Target
market
Other issues
(specify)
Date
P 109
Product or service attributes
feasible?
Part C: Writing a
business plan –
Product or service
Product 1:
Product 2:
Product 3:
Product 4:
Product 5:
Product 6:
Date
P 110
Key attributes
Customer behaviour
feasible?
Key questions
Your response
Part C: Writing a
business plan –
What are the
features of
your products
(or service) that
most appeal to
customers?
Why is that so?
How do your
customers decide
what to buy?
How much
disposable
income do your
customers have?
How important is
brand awareness
and recognition
to your customers?
Date
P 111
Customer behaviour
feasible?
Key questions
Part C: Writing a
business plan –
What promotion
channels do your
customers most
often use?
What activities do
your customers
engage in during
their leisure?
Any other key
insights?
Date
P 112
Your response
Customer behaviour
feasible?
Part C: Writing a
business plan –
Competitor
Key facts
1
2
3
4
Date
P 113
feasible?
Part C: Writing a
business plan –
P 114
Them
Strengths:
What gives them an
edge in the market?
Weaknesses:
to new competition?
You
Opportunities:
and keep it?
Threats:
What are the biggest
threats they pose to you?
How will they react when
you start business (or they
find out you are going to
start – will they wait?)
feasible?
You
Part C: Writing a
business plan –
Them
You
Them
(round 2)?
You
Date
P 115
feasible?
Part C: Writing a
business plan –
P 116
Them
Strengths:
What gives them an
edge in the market?
Weaknesses:
to new competition?
You
Opportunities:
and keep it?
Threats:
feasible?
You
Part C: Writing a
business plan –
Them
You
Them
(round 2)?
You
Date
P 117
feasible?
Part C: Writing a
business plan –
P 118
Them
Strengths:
What gives them an
edge in the market?
Weaknesses:
to new competition?
You
Opportunities:
and keep it?
Threats:
feasible?
You
Part C: Writing a
business plan –
Them
You
Them
(round 2)?
You
Date
P 119
feasible?
Part C: Writing a
business plan –
P 120
Them
Strengths:
What gives them an
edge in the market?
Weaknesses:
to new competition?
You
Opportunities:
and keep it?
Threats:
feasible?
You
Part C: Writing a
business plan –
Them
You
Them
(round 2)?
You
Date
P 121
Conclusion
feasible?
Arguments in favour of going ahead
Part C: Writing a
business plan –
P 122
Arguments against continuing
Estimating business needs
Business plan Will your business
be profitable?
Item
Specifics
Estimated Cost
Part C: Writing a
business plan –
Estimated total cost
Date
P 123
Estimating one-off
establishment costs
be profitable?
Part C: Writing a
business plan –
Item
Accounting fees
Advertising – including
artwork and signwriting
Business stationery
(design and logo)
Cleaning materials and
equipment
Utilities, connection,
transfer, bond
Fittings, furniture,
display fixtures
Lease drawing up,
stamp duty,
registration
Legal fees
Licences, planning
application
Loan fees – establishment,
valuation, stamp duty etc.
Plant and
equipment purchase,
lease (small items)
Rates, taxes and other
outgoings
P 124
Supplier
Estimated expenditure
Estimating one-off
establishment costs
be profitable?
Item
Part C: Writing a
business plan –
Registration of business
name, trademark
Supplier
Estimated expenditure
Rental bond and
first month’s rent
Refurbishing, repainting
premises
Staff recruitment, training
Stock (3–4 months)
Storage systems
Communication equipment,
installation, transfer
Workplace regulations –
Workplace health and
safety, fire regulations
Any others not listed above
Estimated total one-off
establishment costs
Date
P 125
Estimating income
be profitable?
Part C: Writing a
business plan –
Product
1
July
Unit price
Quantity
Income
2
Unit price
Quantity
Income
3
Unit price
Quantity
Income
4
Unit price
Quantity
Income
Total Income
P 126
Aug
Sept
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Total
Date
P 127
Estimating operating expenses
be profitable?
Part C: Writing a
business plan –
Expense
Monthly
1
Accountancy fees
2
Administration/office expenses
3
Advertising
4
Bank charges
5
Bank interest
6
Debt collection
7
Donations
8
Insurances
9
Leased equipment
10
Legal expenses
11
Light and power
12
Marketing
13
Maintenance of plant and fixtures
14
Motor vehicle registration and running
15
Printing, stationery, postage
16
Rates and property taxes
17
Rent
18
Salaries and wages (not your own)
19
Security
20
Staff superannuation
21
Subscriptions
22
Telephone
23
Travel and accommodation
24
Other (specify)
Estimated operating expenses
Add 5% for overlooked expenses
Total estimated operating expenses
Date
P 128
Amount
Annual
Estimating your
annual profit (or loss)
be profitable?
Part C: Writing a
business plan –
Item
a
How to calculate
Amount ($)
Sales
Less
$
Cost of goods sold
b
Value of opening
stock
$
c
Plus stock
purchases during
the year
$
d
Less the value of
closing stock
$
e
Gross profit
f
g
Less
h
= b+c+d
$
= a-e
$
Operating expenses Use gross margin
$
Earnings before
interest, tax and
depreciation
$
= f-g
Date
P 129
Cash flow forecast
be profitable?
Part C: Writing a
business plan –
July
Estimated cash in:
Cash from sales
Other cash in
Total estimated cash in (a)
Estimated cash out:
Payments for supplies
Wages and salaries
Loan repayments
Rent
Lease payments
Etc.
Total estimated cash out (b)
Cash flow – cash in – cash out ((a)-(b) = (c))
Cash at bank at start of month (d)
Cash at month end ((d) + (c))
Date
P 130
Aug
Sept
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Key issue
Are there any months in which the cash at the end of the month (the last line of the forecast) is negative?
This means you expect to overdraw your bank account. You cannot overdraw your account without the prior
agreement of your bank. Ignoring the issue won’t help. What are you going to do about this?
P 131
Cash flow forecast
be profitable?
Month
Part C: Writing a
business plan –
Cash in bank
at month end
is negative?
(yes or no)
June
July
August
September
October
November
December
P 132
If yes, what action
are you going to take
to rectify this?
Cash flow forecast
be profitable?
Month
Part C: Writing a
business plan –
Cash in bank
at month end
is negative?
(yes or no)
If yes, what action
are you going to take
to rectify this?
January
February
March
April
May
June
Date
P 133
Business plan - Risk
Part C: Writing a
business plan –
Risk Type
Examples
Human
From individuals or organisations, illness,
death, workplace safety, harassment,
industrial action, malfeasance etc.
Operational
Disruption to supplies and operations,
loss of access to essential assets, failures
in distribution etc.
Reputational
Loss of business partner or employee
confidence, harm to professional
standing, or damage to reputation in
the market.
Procedural
Failures of accountability, internal
systems and controls, organisation,
fraud etc.
Date
P 134
What could go wrong
in your business?
Part C: Writing a
business plan –
Risk Type
Examples
Project
Risks of cost overruns, jobs taking too
long, insufficient product or service
quality etc.
Financial
Business failure (i.e. poor cash flow,
poor debtor control), stock market,
interest rates, unemployment,
fluctuations in exchange rates etc.
Technical
Advances in technology,
technical failure etc.
Natural
Threats from weather, natural
disaster, accident, disease etc.
Political
Changes in tax regimes, government
policy, new laws and regulations, public
opinion, foreign influence etc.
What could go wrong
in your business?
Date
P 135
Managing the
unacceptable risks
Unacceptable risk
Part C: Writing a
business plan –
1
2
3
4
5
Date
P 136
Options to mitigate
What exactly will
you do to mitigate?
Managing the
unacceptable risks
Unacceptable risk
Part C: Writing a
business plan –
Options to mitigate
What exactly will
you do to mitigate?
6
7
8
9
10
Date
P 137
10
Part C: Writing a
business plan –
Review – Will it
be worthwhile?
Will it meet
your needs?
Does it tick the boxes?
As you can see, the process of planning your
business can take a lot of time and effort. It is
important to remember, though, that this is not
wasted effort, especially if it helps you to avoid
some of the pitfalls that you might otherwise have
encountered.
And the time you put into planning is nothing
compared to the effort you’re going to put in to
making your small business work.
So before you take that final step and actually start to
spend money and set up the business, ask yourself
again the questions you answered in Worksheet 1.
• What would you like to be doing in five years’
time?
• What would you like to have achieved in
five years’ time?
Will your business take you there?
The last question –
What will success look like?
This is the final question you need to answer
before you take the plunge.
Take the time to think about this and write the
answers on the following page. And once you’ve
established your small business, keep coming back
to these answers to decide whether all the effort is
really worth your while.
P 138
What will success look
like (how will I know if
this business is successful)?
Part C: Writing a
business plan –
1
2
3
4
5
Date
P 139
Choosing a name is
important and there are
a number of requirements
that apply, especially if you
want to protect the name
and establish a brand.
11
Part D:
Getting started
Registering
your business
name
Introduction
Company names
Choosing a name is important and there are a
number of requirements that apply, especially if you
want to protect the name and establish a brand.
You should also be aware that your business may
have more than one name; you could have a
business name, company name, domain name or
trademark.
A company name, or registerable body, must be
registered with the Australian Securities and
Investment Commission (ASIC). If a company
wishes to trade using a name other than its
registered company name, it must register that
trading name as a business name.
Which name are we talking about?
Business names
A business name is the name under which a business
operates. The registration of business names is
compulsory in every state and territory from which
a business operates, and must be completed before
the business starts trading. Registration identifies the
owners of that business.
Any business entity can choose to trade under a
business name. In South Australia, you can also
conduct a business under your own name (or joint
names of yourself and partners) the surname(s) of
the person(s) conducting the business, with first
names or initials or a combination of these, provided
no other word or words are added.
Australian Securities and Investment
Commission (ASIC) administers business names
in South Australia (Web: www.asic.gov.au /
Telephone: 1300 300 630).
ASIC is responsible for the administration
of company names in Australia
(Web: www.asic.gov.au / Telephone: 1300 300 630).
Trademarks
A trademark can be a letter, number, word, phrase,
sound, smell, shape, logo, picture, and aspect of
packaging, or any combination of these. Trademarks
can be registered, and once you register a trademark
in Australia, you have exclusive legal right to use,
license or sell it.
You can still use a trademark if you do not register a
trademark. There is protection against unauthorised
use of your trademark under trade practices or fairtrading legislation and it is possible to take action
under common law to protect against unauthorised
use. However, registering your trademark is advisable
because it can be expensive and time-consuming to
take action under common law.
IP Australia is responsible for the administration
of trade marks (Web: www.ipaustralia.gov.au /
Telephone: 1300 65 1010).
P 141
Part D:
Getting started
Domain names
A domain name is the unique name that is both
intuitive and easy to remember and is registered
within the Domain Name System and gives your
business authority over a particular space in the
internet.
It is best to register your domain name and your own
email address before you start a new business so you
can be certain you have your own digital space and
save on printing costs down the track. If you have
customers overseas you may consider registering
domain names in other countries.
.au Domain Administration Ltd (auDA) is the
policy authority and industry self-regulatory body
for the .au domain space (Web: www.auda.org.au /
Telephone: 1300 732 929).
Protecting your business name
Unlike trademarks, business names and company
names do not necessarily provide proprietary rights
for the use of the trading name. Business, company
and domain names are best protected when they are
also registered as trademarks.
Choosing a name
The choice of name is entirely up to you, but the
name chosen must not be misleading, offensive,
already registered, or be likely to be confused with a
name already registered.
A business name is important because it can help
to create an image for your business, be easily
remembered by customers and potential customers,
tell the marketplace what the business is all about,
give the business respectability and may highlight
points of difference over other businesses.
Your decision on an appropriate business name
should be made carefully. Like most things in
business, it is best to approach this task in a
systematic manner by establishing a simple set
of criteria to help you decide whether or not a
proposed name is appropriate.
When choosing a new business or company name,
you should:
• Search the business names and company names
registers, which determine whether the name you
have selected is already being used. Visit ASIC at
www.asic.gov.au (Telephone: 1300 300 630).
• Then, if you intend to use your company or
business name as a trading name you should also
undertake a trade mark (TM) check. If your new
name is identical or similar to another person’s
registered trade mark, you could be sued for
infringement. Even if you decide to operate
without a registered trade mark, you should
search the trade marks register to ensure you
are not infringing someone else’s trade mark.
For more information visit IP Australia:
http://pericles.ipaustralia.gov.au/ols/tmcheck/
(Telephone: 1300 65 1010).
• Check the domain names registers. For links to
the various domain names registers in Australia,
visit the .au Domain Administration website at:
www.auda.org.au (Telephone: 1300 732 929).
It is important to understand that if you register
a particular business name and then later seek a
trademark, you are not automatically entitled to the
same name as a trademark. A domain name may not
be available to you either. This means you need to
check a variety of registers to determine whether the
name you want is available as a business or company
name, trademark and domain name.
Summary
Worksheet 11.1: Which name? provides a simple
template you can use to decide which names you
require for your business.
P 142
Which name?
Worksheet 11.1
Is it required?
Yes/No
Part D:
Getting started
What are your
preferred options?
Have you registered
the name? Yes/No
Business name
Company name
Trademark
Domain name
P 143
South Australia has a wellestablished system you
can use to find out what
licences and permits you
require to start and run
your business.
12
Part D:
Getting started
Licences
and permits
Introduction
Lodging applications
South Australia has a well-established system you
can use to find out what licences and permits you
require to start and run your business.
All licence applications and fees must be lodged
directly with the department or agency nominated.
Australian Business Licence
Information Service (ABLIS)
If you are starting, operating, growing, or closing
a business ABLIS helps you find the government
licences, permits, approvals, registrations, codes of
practice, standards and guidelines you need to know
about to meet your compliance responsibilities.
ABLIS maintains direct, ongoing contact with
all Commonwealth, state and local government
departments and agencies, ensuring licence and
associated information is current.
Visit the ABLIS website (https://ablis.business.gov.
au/pages/home.aspx) to find out which government
licences and registrations apply to your business,
and create and download a personalised report
containing:
• A summary of state or territory, local and
Australian government requirements relevant to
your business.
• Information about licence fees, how to apply,
periods of cover and renewals.
• How to access application and renewal forms.
• Where to go for more help and information.
South Australia ABLIS customer support desk:
Telephone: 1800 188 018
Australian Business Account (ABA)
The Australian Business Account (ABA)
(https://account.business.gov.au ) allows you to take
control of your regulatory activities online 24/7.
It provides businesses a single entry point to access
online services across government jurisdictions with
online functionality to:
• Set-up your ‘business profile’ to pre-fill online
transactions with government and store them
for future reference.
• Receive notifications from government agencies
on relevant business related matters.
• Manage Federal, State and Local governmentrelated licences, permits and registrations.
• Save your ABLIS search results to a
“to do list” using ABA.
• Create and maintain an online identity
for interacting with all levels of Australian
Government.
• Track and manage compliance obligations.
• Keep a central record of transactions with
government.
• Subscribe to notifications of relevant
regulatory changes and other relevant
government information.
P 145
Getting the right advice
from the start will help you
think about your proposed
business plans and can
prevent you from making a
bad investment or becoming
a small business casualty.
13
Part D:
Getting started
Trusted
advisers
Introduction
Studies of business failures show that half fail within
three years and three-quarters close within five
years. Getting the right advice from the start will help
you think about your proposed business plans and
can prevent you from making a bad investment or
becoming a small business casualty.
You can’t do it alone – you don’t have all the answers
(you probably don’t even know all the questions)
and you certainly won’t have the time. You should
consider establishing a team of professional advisers
who form a sort of extended management team
and are an integral part of your managerial decisionmaking.
The key advisers you need can be easily
remembered by the acronym BASIC:
• Banker
• Attorney (lawyer or solicitor)
• Self (you)
• Insurance broker
• Chartered accountant or CPA.
Your team of advisers is there to advise and support
you, but at the end of the day you make the
decisions and responsibility rests with you.
Your accountant
You might have some skills in keeping books
and preparing financial statements and tax
returns, but are they enough to make your
business succeed? After all, you are in business
to grow your enterprise and make a profit, and
for this you will need specialist help.
Most businesses fail because of poor management,
inadequate cash resources and poor cash control.
You should not go it alone unless you really
understand the world of accounting and finance.
Your accountant is more than someone who helps
you with your tax returns, as important and essential
though that is. A good accountant will be as
committed as you are to making the right choices
for your business.
For example, your accountant can help you by:
• Reviewing your business plan and your
projections and providing some objective advice
on the likelihood of your plan succeeding.
• Advising on the right business structure for your
business.
• Providing advice on financing options, helping
you find money at the best market rates, and
helping to put the case for finance together.
• Assisting you with a record keeping system.
• Advising on key ratios to keep on top of your
business.
Most important of all, if you feel all is not going to
plan you should immediately talk to your accountant,
who can advise you and help solve your business
problems.
Summary
Teamwork is one of the keys to success in business.
From the outset you should establish a team of
trusted advisers who can support you and your
business, and you should make a habit of using them
to help you succeed.
P 147
14
Part D:
Getting started
Financing
your business
Introduction
In business, finance is the ultimate reality. Careful preparation is essential when it comes to borrowing.
It begins with a study of the financial requirements of your business and matching appropriate loan
facilities to those requirements.
Once you have identified your financial requirements, you will need to sell the proposal to your financier.
Your ability to sustain your business as it grows will probably depend on establishing a successful
relationship with your financier.
Determining your financial requirements
Distinguish between fixed or permanent investment capital and working capital. Fixed or permanent
capital is used to fund fixed assets such as land, buildings, plant, machinery, vehicles, fixtures and fittings.
Assessing the requirements of a business for fixed capital therefore involves identifying all required items
of expenditure in this category, determining when they will be required and totalling the cost of each.
The working capital requirements of most small businesses will revolve around five key elements – stock,
debtors, cash, creditors and bank overdraft. The following checklist outlines the major considerations
associated with each.
P 148
Aspect
Amount required
How should it be estimated?
Stock
Minimum necessary to support
turnover.
Relate to turnover by dividing annual sales at
cost by the number of times stock is expected
to turn over each year (stock turnover).
Debtors
Minimum required to support
credit sales.
Relate to credit sales by multiplying estimated
sales each month by percentage anticipated
to be on credit.
Cash
Buffer for incidentals and
emergencies.
Relate to type of business and cash flow;
e.g. if you have few cash transactions and
ready access to short-term funds, cash on
hand can be very low.
Creditors
Maximum possible, while
maintaining good.
Relate to monthly purchases by multiplying
estimated purchases at cost by credit terms
allowed.
Bank overdraft
Realistic amount based on
projected cash needs.
Relate to cash flow – bank will expect facility
to fluctuate fully from maximum utilisation to
position when the overdraft is not used and
credit funds are in the account.
Part D:
Getting started
Types of finance
The fundamental principle of financing a business is to match short-term finance with shortterm needs, medium-term finance with medium-term requirements and long-term stable
sources of capital to longer-term needs.
In many cases, this matching principle will result in a package of several different types of loans,
tailored to the needs of the business. This could mean, for example, an overdraft for working
requirements, leasing finance for plant and equipment and a term loan for stock.
The table below describes the most common types of debt finance available to small businesses
and offers practical tips for their use.
Type
Purpose
Tip
Overdraft
Short-term working capital
or for seasonal requirements.
Ensure it moves from overdrawn
balance into credit regularly.
Commercial bills
Short-term, including
seasonal requirements.
Interest is payable in advance of
exchange bridging purposes and
working capital needs.
Leasing finance
Lease of plant, equipment
and motor vehicles.
Working capital will not be depleted
as deposit is not required.
Hire purchase and asset Acquisition of plant,
equipment and motor
purchase finance
You will need to provide a deposit.
Term loans
Purchase of land, buildings,
plant and equipment;
assistance with associated
set-up costs.
Negotiate fixed or variable interest rate
and tailor repayments to the cash flow
of new businesses etc. your business.
Personal instalment
Purchase of motor vehicles,
equipment etc.
Finance usually made available for
modest loans and may be secured
uncredited.
Mortgage loans
Purchase of land, buildings
and other fixed assets.
Interest-only loans are obtainable
from some lenders.
Factoring
Injection of funds from sale
of the receivables.
Usually only available to businesses
with credit of a business at a discount
sales in excess of $200,000 per annum.
Trade finance
Assist importers and
exporters fund international
transactions.
Banks can also advise on the
creditworthiness of overseas buyers.
vehicles.
P 149
Part D:
Getting started
The loan application
Are you a good risk?
The time, effort and expense incurred in
preparing a well-researched and thorough
business finance application are well worth it.
There are four immediate benefits:
If you understand what a lender is looking for,
preparation of your finance application can be
more effective and questions likely to be posed at
the loan interview can be anticipated.
• It tells you where your business stands
financially.
An easy way to remember the critical factors in a
business loan assessment is the approach offered
by the five ‘c’s: Character, Capital, Conditions,
Capacity and Collateral.
• It draws a quicker response from a lender.
• It is likely to result in a loan package which is
tailored to the needs of your business.
• It helps you obtain the most competitive
interest rate and fee structure available.
Many lenders have a standard form of application.
While such pro-formas may not have to be used,
the information provided should enable the lender
to make an informed credit decision.
P 150
Assessment factor
Issues addressed
Character
Honesty, reliability, trustworthiness.
Integrity.
Credit worthiness.
Track record, if any, in business.
Business skills and acumen.
Capital
Financial strength.
Quality of assets.
Liquidity of assets.
Debt-equity ratio.
Conditions
General economic outlook.
Conditions in your industry.
Implications for profitability and debt servicing capacity.
Capacity
Ability to service the loan and meet other commitments.
Ability of your business to withstand a setback.
Your capacity to manage the business profitably.
Collateral
Your willingness to pledge security.
Nature and acceptance of security offered.
Adequacy of security.
Part D:
Getting started
Negotiating a business loan
The following table describes actions you should take and provides practical tips to negotiate
your business loan.
Action
Tip
Be thoroughly familiar with
your finance application or
business plan
If you invite your accountant or business adviser to accompany you
to the loan interview, answer all questions in the first instance.
Practise the language of the
financier
By adopting and practising some of the more common terms, you
will be seen as an experienced operator, well-versed in matters
financial and an able negotiator.
Develop a firm appreciation
of the value of your business
to the financier
Have, at your fingertips, full details of services utilised, services you
may tap in the future and free revenue generated by the lender as a
result of its association with you.
The lender will be seeking to appraise your business acumen and
financial management skills.
Use the information to win a point or to obtain a concession when
negotiations are under way.
Establish your negotiation
strategy in advance
Determine what aspects of the financing arrangement are highly
important to you (non-negotiable), any aspects on which you are
prepared to deal or seek trade-offs (negotiable) and what you are
prepared to give up early to demonstrate a spirit of co-operation
(negotiating issues of low importance).
Determine the risk profile of
your business
Identify the weaknesses of your business and where it may be
vulnerable in the eyes of a financier.
P 151
Part D:
Getting started
Action
Tip
Negotiate the
interest rate payable
Choose between a fixed or variable interest rate. If variable, link the
interest rate to a market indicator.
Advance sound reasons to minimise perceived risk and seek the
lowest risk margin possible.
Choose any fixed term with care.
Negotiate the
repayment schedule
Determine an appropriate repayment term suited to your cash flow.
Consider interest-only finance where appropriate.
Ensure the payment arrangement is flexible.
Remember that the greater the frequency of payment of
interest, the higher the return for the lender.
Check whether repayments are required in advance or in arrears.
Negotiate the security
arrangement
Is the loan to be fully secured, partially secured or unsecured?
Negotiate the amount
of fees payable
Determine once-only costs payable.
If it is secured, ensure the security adequately meets the lenders
requirements without being excessive.
Express fees as a percentage of the amount being borrowed to
determine the effective cost of borrowing.
Be alert to repayment fees if you repay a fixed term loan early.
Negotiate other issues
Be prepared to negotiate the terms of settlement and covenants
and restrictions such as future presentation of financial information
and ability to borrow further.
P 152
Part D:
Getting started
Action
Tip
Organise an interview
with the financier
Be on time and be well-presented.
Know where any
deficiencies are in your
proposal
Be prepared to acknowledge deficiencies but answer related
questions in a positive manner.
Maintain effectiveness of
negotiation at all times
Do not:
Use the interview to demonstrate commitment, enthusiasm
and business acumen.
• become aggressive or argumentative
• be over optimistic and disregard the facts that all businesses have
weaknesses and are vulnerable to risks
• expect the lender to have more faith in your business than you do.
Indicate concisely the present and future financial needs
Summarise the essence
of your business and demonstrate that you wish to build
of your proposal at the
conclusion of negotiations a relationship of mutual trust and confidence.
with the financier
Maintaining a successful
relationship with your financier
Your financier, whether it is a bank or some other
financial organisation, plays a pivotal role in the
operations and success of your business. For longterm stability, an unofficial partnership needs to
be developed between you and your financier.
The following practical tips are offered to help you
maintain good relations with your financier:
• Establish rapport and mutual confidence.
• Conduct all business affairs professionally.
• Do all homework necessary to determine precisely
the financial needs of your business.
• Keep your financier regularly informed on
progress and developments with your business
by providing accurate and timely financial
information.
• If difficulties are encountered with a loan or
a problem is foreseen, take the initiative and
make an appointment to discuss the situation
with the financier.
Summary
The ability to identify the financial needs of your
business and source the funds necessary to operate
and grow will be critical to sustaining your business.
As with most other aspects of business, the time
and effort you take to plan and prepare for your
discussions with financiers, and your willingness to
establish an appropriate relationship with them, will
influence your chances of success.
P 153
15
Part D:
Getting started
Safeguarding
your business
Introduction
As discussed in Chapter 7, the ability to understand and manage risk is a key skill you need to run
a successful and sustainable business. One way to reduce or manage the risk of operating your own
business is through insurance.
Insurance principles
There are a few key principles you should understand.
Principle
What it means to you
Duty of disclosure
You owe the insurer a duty to disclose all material facts when
you complete a proposal for insurance or are renewing or claiming
under a policy.
Indemnity principle
To indemnify someone means to cover that person for their
loss in a certain situation. Most insurances (except life assurance)
are based on this principle. This means you can only recover the
replacement value of your loss.
Written contracts
Under the Insurance Contracts Act 1984, all contracts must be
in writing. A cover note can be arranged over the phone but this
is a temporary measure.
Insurance
An insurance agent usually works for a single company and will
usually only be able to provide insurance offered by that company
or those companies which their company represents. An agent’s
primary responsibility is to their company, not to you.
Insurance broker
A broker does not work for a particular company. A broker can
therefore assess the best company for your insurance requirements.
A broker is your agent, not the insurance company’s agent.
This means that your interests should always be put before those
of the insurer.
P 154
Part D:
Getting started
Insurance protection
You can obtain insurance protection for liabilities, assets and income. This is summarised in the table below.
Liabilities
To employees
Workers’ compensation is compulsory
Visit ReturnToWorkSA: (Web: www.rtwsa.com
Telephone: 13 18 55)
To the public
Payments may be made for damage to property
and bodily or personal injury.
Assets
Income
Can cover damage caused by fire, storm and tempest,
malicious damage, burglary, machinery breakdown,
computer damage, and marine and motor vehicles.
Loss of profits or
revenue
Loss of profits.
Provides income in the event of sickness or accident.
Business owner
involved in personal
accident
Life assurance and
superannuation
Payable on death, permanent disablement
or at a specified age.
Partnership
insurance
Owned by one partner on the life of another so the
survivor can purchase the deceased partner’s share
and not have to close or sell the business.
Key
Covers the death or total disability of a key employee
and provides financial support until a replacement
employee is found and trained.
Summary
Insurance is a key component of managing the business risks you will encounter –
but it is not the only method you will use to manage risk.
Insurance is especially useful for managing the more serious, even catastrophic,
risks that could threaten your ability to continue in business if they were to eventuate.
P 155
You will need a sound
understanding of
the entire operations
to control your
business effectively.
P 156
16
Part D:
Getting started
Monitoring the
performance of
your business
Introduction
Once your business has been launched, it has to be
controlled or navigated like a ship. A ship will have
a destination in the same way that your business
has an objective. To reach its destination, a ship has
a number of navigational aids that can measure
progress. Your business needs similar kinds of aids to
control it.
If a ship veers off course, a measuring instrument
tells the captain so corrective action can be taken.
Similarly, your business needs measuring instruments
in key areas where going far off course for too long
will have serious consequences.
You will need a sound understanding of the entire
operations to control your business effectively. This
means getting reliable information, being aware of
the significance and uses of that information and
developing your capacity to identify and resolve
problems before they become deep-seated.
This section focuses on three key areas where small
businesses are especially vulnerable – cash, debtors
and internal controls – and provides some practical
management strategies.
Controlling cash
A cash budget can be used as a planning and
control tool, but it will not do the control job. It will,
however, highlight financial tight spots and indicate
weaknesses requiring attention.
The control of cash involves controls in a number
of other areas. Worksheet 16.1: Key factors and
warning signs affecting your cash position
summarises the areas on which you should focus.
Your cash budget is one of your most important
management tools. It should be referred to regularly
and forecast results should be compared to actual
results at least each month. Monthly comparisons
will show how the business is performing and alert
you to take corrective action where necessary.
Control of debtors
Debtors owe you money. You need to decide
whether it is in your interests to extend credit
to customers, but if you do, you need to take
responsibility for managing debtors. The cost of
extending credit includes the cost of funds tied up
in debtors, and the cost of bad debts, slow- paying
accounts and administration.
Controlling debtors focuses on three related areas.
Credit policy
If you are offering credit to customers you should
have a policy that is appropriate and realistic for your
industry.
Screening potential credit customers
There are a number of tools you can use to screen
credit customers, including obtaining and checking
references, obtaining credit reports from a mercantile
agency or a bank, and conducting searches at the
Australian Securities and Investment Commission
(ASIC) (Web: www.asic.gov.au /
Telephone: 1300 300 630) to confirm details provided.
P 157
Part D:
Getting started
You should also regularly conduct an ageing
analysis of your debtors as a useful indicator of any
deterioration in their quality.
In particular, you should focus on your major debtors
– the failure of just one or two large debtors could
have a devastating effect on your business.
Collecting money from debtors
You should implement a fair but firm collection
procedure (such as credit stickers on overdue
accounts, telephone calls, email communications,
collection letters), and be fully aware of the telltale signs of a deteriorating customer account (e.g.
accounts only partially paid, late payments, delaying
tactics such as cheques not signed, or mistakes with
dates or amounts on cheques).
Internal controls
You need to keep tight internal control of your
business, especially where you employ staff. In these
situations you are part of the office team but you are
also an unofficial auditor, which means you need to
take the time to check that the internal processes
and controls are being used and are effective.
Worksheet 16.2: Internal control checklist
provides a checklist that will help you to exercise
effective internal controls in your business.
Further controls
This workbook has focused mainly on financial
controls, but it is also important to realise that you
can use a range of non-financial controls as well.
For example, such factors as absenteeism, employee
turnover, salesforce performance, new product
development, plant safety, employee productivity,
public relations, market share and product quality
all need to be controlled to ensure that established
standards or business goals are met.
Lead indicators and lag indicators
It is useful to distinguish between lead and lag
indicators. Lead indicators are used to look forward
and detect possible problems before they grow too
big. Lag indicators look backwards and tell you what
has happened.
P 158
For example, the tell-tale signs of a deteriorating
customer account referred to above are lead
indicators. A monthly report that tells you your
accounts receivable have deteriorated over the
previous month is a lag indicator. If you wanted
to prevent that from happening it’s too late – you
should have been paying attention to the lead
indicators of debtors in stress.
Balanced scorecard
Focusing on the financial aspects of your business
isn’t going to be enough to ensure success; it is
necessary, but not sufficient. The concept of the
so-called balanced scorecard is a response to that
weakness, and it may assist you in managing your
small business.
Typically, a balanced scorecard will focus on:
• The traditional elements of financial performance.
• The customer and the customer’s needs,
especially customer service and product quality –
after all, customer satisfaction is fundamental to
success in most businesses.
• Internal business processes, because all businesses
need efficient and effective internal processes to
be successful.
• Learning and growth – because these underpin
the development of knowledge, new skills,
innovation and staff satisfaction.
Summary
It is important that you establish processes for
systematically collecting information about the
performance of your business from the outset, and
that you use this information regularly to make
informed decisions about managing your business.
As a very minimum, you should have good processes
in place to manage cash, debtors and your internal
business controls.
Key factors and warning signs
affecting your cash position
Worksheet 16.1
Part D:
Getting started
Factors
Sales
Debtors
Costs
Cash sales
Warning sign
Sales declining and
revenues falling off
as a consequence
Debtors are slower
than expected
in paying their
accounts
Increases in
prices for raw
materials, supplies,
labour and other
operating costs
The proportion of
cash sales is falling
and more sales are
on credit
Have you seen any evidence of this? Yes/No
July
August
September
October
November
December
January
February
March
April
May
June
If you have seen evidence of this (yes), what are you going to do?
(These are warning signs – don’t just stand there watching.)
P 159
Internal control checklist
Worksheet 16.2
Part D:
Getting started
P 160
Internal control
1
Open the mail
2
List mail receipts
3
Review the listing of
mail receipts carried
forward to the cash
4
Personally sign all
cheques
5
Personally approve
all documentation in
support of payments
6
Review the bank
reconciliation; at
random intervals,
perform a bank
reconciliation
7
Review notices to
be sent out to tardy
debtors
8
Personally approve
all debt write-offs and
discounts
Actions I need to take
Internal control checklist
Worksheet 16.2
Part D:
Getting started
Internal control
9
Actions I need to take
Periodically test-check
accounts payable
statements
10 Personally do all the
hiring and firing
11 Personally approve
and sign payroll
cheques or bank
documentation
where a direct credit
system is used
12 Become familiar with
all fixed assets of your
business
13 Periodically supervise
a physical inventory
check
14 Require all
employees to
take periodic
holidays
15 Use the services of an
external accountant to
review your accounting
records and systems
P 161
17
Part D:
Getting started
Records
management
Introduction
Summary
You’re not alone if you hate paperwork. Who could
honestly say they love it? But if you want to succeed
in small business you need to get over that attitude.
By all means, buy a good shredder to deal with
some of the paperwork, but to run a successful small
business your approach to records management will
need to be a lot more sophisticated.
No one is pretending that keeping on top of
paperwork brings much pleasure, and busy people
usually give it a low priority. Most people need
little prompting to do something else before doing
paperwork, and of course there’s always something
else to do.
Tips to manage your paperwork
Once you’ve decided to go into small business it
is your responsibility to keep records, keep them up
to date and to review them regularly to make sure
the business is really performing to expectations.
If you don’t keep control of the paperwork you
may soon lose control of your business.
P 162
But to be successful in business you have to keep
on top of paperwork. You just don’t have a choice.
So start your business with a positive attitude to
paperwork as it will help you stay in control – and it
is necessary to comply with a vast array of statutory
obligations that you can’t avoid.
Part D:
Getting started
Tips to manage your paperwork
1
Know what
to keep
You are required by law to keep some records, such as employment and
taxation records. The first step is to know what to keep.
2
Dispose
Get rid of paper you don’t need. Buy a good shredder and use it, especially
if you have any concerns about privacy – names, addresses etc.
3
Organise the
paperwork
Break it up into ‘piles’ – by topic, deadline, type, year, whatever, and work
through it systematically.
4
Prioritise
Work out what is urgent and what is important. Deal with the urgent
and schedule time to deal with the important matters – don’t just leave
it to one side until it too becomes urgent.
5
Electronic
records
Manual records management is costly and inefficient compared
with electronic systems. Investigate and invest in a good records
management system.
6
Back-up
Back up your records, and make sure the hard copies of important
documents are stored in a safe and secure place, such as a fire- proof safe.
7
Handle once
Be disciplined – make a decision on every piece of paper that crosses your desk,
even if it’s only a decision to seek advice, or decide when to review it again.
8
Streamline
processes
Regularly review your record-keeping processes to ensure they are simple,
efficient and effective as possible.
9
Keep at it
Don’t let the paperwork accumulate – make it part of your daily routine.
10
Use it
There are essentially two reasons why you keep records:
• evidence of a transaction which you need to keep
• they are sources of data which you need to capture and analyse
to understand what’s happening in your business.
In many ways, the most fundamental tip of all is use the data at your fingertips.
P 163
Notes
P 164
Notes
P 165
Notes
P 166
Disclaimer
The Government of South Australia gives no
warranty and makes no representation, whether
express or implied, as to the accuracy of information
contained within this Workbook or the suitability
of the information for any purpose. Any use of the
information contained in this Workbook (whether
authorised or not) is at the users’ sole risk and
the Government of South Australia disclaims
responsibility for any loss or damage incurred as
a result of such use. The information is provided
solely on the basis that users of the information
will make their own assessment of the accuracy of
the information and users are advised to verify all
information contained within this document.
Any information about the law in Australia or South
Australia is provided as general information only and
is not legal advice. This Workbook is a starting point
only and is not a substitute for legal or professional
advice. While the Department has attempted to
ensure the information is accurate at the time of
publishing, no responsibility will be accepted for any
errors or omissions and the Government of South
Australia will not be liable for any loss or damage
incurred by any person as a consequence of any use,
reference or reliance on this information. Any such
use, reference or reliance shall be at the sole risk of
that person who should seek their own legal and or/
professional advice if required.
Copyright
Produced by the South Australian
Department of State Development
© July 2015
Department of State Development
GPO Box 320, Adelaide SA 5001
Telephone +61 8 8303 2400
Email DSDSmallBusinessStrategy@sa.gov.au
www.statedevelopment.sa.gov.au/smallbusiness

Start your own business workbook - Department of State Development

Transcription

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