If you’ve been dreaming about one day overseeing your very own mini empire, you’re in luck, because now is a great time to launch a small business, says Anne Nalder, CEO of the Small Business Association of Australia. “With a newly elected government in place, we’ve got a period of financial stability, which can be used to build momentum in a small business,” she explains.
Got an idea for bringing a new product or service to market? The following information could help get you – and your budding business – across the starting line.
1. HOW MUCH MONEY DO I NEED TO GET MY BUSINESS STARTED?
The puffiness of your financial cushion ultimately depends on whether you’re planning on running the business as a side hustle until you can make the leap from your job, or you’re opting to leave work.
If it’s the latter, you’ll need a detailed financial plan and cash-flow management plan to arrive at your magic figure, but a year’s worth of personal income is a reasonable amount, says Westpac’s general manager for SME Banking, Ganesh Chandrasekkar: “Realistically, you need the financial cushion to be able to support your lifestyle, family and financial obligations for at least 12 months.”
To borrow this amount, you will need to have a solid credit rating. For this, the banks will look over at least two years’ worth of credit history before deciding.
2. HOW MUCH SHOULD I SET ASIDE FOR MY SALARY?
A It’s a struggle every small business owner faces – pay yourself too little and it’s baked beans for dinner every night; pay yourself too much and you could put your business at risk.
According to Jacqui Attard, CEO of business consultancy Realise Business, it’s useful to ask yourself what you have to earn every month in order to pay yourself and run your business. “This figure is called a ‘break even’,” Attard explains. “It’s only once you understand what your break even is that you can pad it somewhat to work out what you can comfortably pay yourself without negatively impacting your business.”
If you’re buying an existing business, Nalder suggests reading its profit-and-loss statement to see what the previous owner paid themselves.
3. HOW CAN I BEST TAKE CARE OF MY EMPLOYEES’ FINANCE NEEDS?
A As an employer, you’re responsible not only for paying your employees a salary, but also superannuation, holiday pay and any entitlements they’re eligible for, such as parental leave, sick leave and overtime rates.
The best way to get started is by checking Fair Work (fairwork.gov.au), says Attard. “If you’re confused, call the Fairwork helpline [13 13 94] to get advice, or reach out to a freelance HR manager or business adviser.”
The Fair Work Ombudsman has a pay calculator you can use (calculate. fairwork.gov.au), but if you’re only thinking of offering the award rate, it’s also worth asking yourself whether it’s a move that’s likely to hurt the business or cost you more money in the long-run. “You may not get the best candidates for the job, or you’ll experience a high turnover in staff, so it’s something to think about,” Chandrasekkar explains.
4. WHAT’S THE BEST WAY TO KEEP TRACK OF MY FINANCES?
A It’s time to empty the shoeboxes of those fading receipts and step into the 21st century. Small businesses that embrace accounting software and bookkeeping apps are four to five times more likely to be successful, says Chandrasekkar. “A small business can spend 12 hours doing paperwork each week, and our Westpac Small Business Report revealed they spend eight hours each week chasing invoices. New technology can minimise how much time you spend on admin.”
Bookkeeping software is an effective tool, but one of the best investments any small-business owner can make is employing the services of a bookkeeper to stay on top of your creditors and debtors, says Attard.
“A freelance bookkeeper will charge anywhere between $60 and $90 an hour, but depending on the type of business you have, you may only need them from four to eight hours a month,” she says.
5. COULD I GET BY WITHOUT HELP TO SAVE ON COSTS?
A Much like the saying ‘behind every successful woman there is a tribe of other successful women who have her back’ goes, behind every successful small business is a team of advisers working to help you stay on top of everything. That said, you should consider employing a good accountant, that aforementioned bookkeeper, a business adviser, lawyer and HR consultant – even if only on a freelance or consulting basis.
Thinking about outsourcing to a virtual assistant you discovered on a freelancer website? Attard warns that offshoring comes with a certain amount of risk attached. “You’ll need to find someone who understands Australian tax law and someone who’s licensed to do that in Australia, otherwise you could be opening up a big can of worms for yourself.”
6. HOW DO I MINIMISE MY OVERHEADS?
A The first step is to figure out what your essential costs are, says Nalder. And, no, that doesn’t include a glamorous office space. “I’ve seen businesses spend hundreds of thousands of dollars more than they needed to on an office lease and new computers,” she says. And if your business involves stock, don’t create too much of it. “I always recommend the ‘lean and mean’ approach – go for high productivity at first and grow as you need to.”
7. AT WHICH POINT DO I REINVEST IN MY BUSINESS?
A Thinking about spending $10,000 on a new fancy-pants website because you think it will attract more business? Chandrasekkar insists you reconsider, explaining it’s never wise to make any kind of investment in the business without taking a step back and looking at where the gaps are.
“You need to be strategic in how you reinvest. For example, do you need to spend money to boost productivity or do you need to find new channels for sales? Know your data before you open your wallet,” he says.
Regardless of whether you reinvest or use that money to buy a sports car, remember to put aside enough cash reserves in a separate bank account to pay GST and taxes.
For more practical advice on how to stay in control of your business, check out Westpac Business Hub