The Australian dream is to start a business of your own. There is one business for every ten people living in Australia. Going out on your own and ‘having a go’ is inherently Australian, it’s in the cultural DNA.
Starting a small business in Australia
Small business ownership provides you with the freedom of being your own boss and taking responsibility for your destiny. However, there are many structural and administrative options to consider. If starting a business were easy, then every Australian would do it. The following provides some initial insights to consider prior to starting your Australian success story.
Is it a Business?
Before starting a business in Australia, consider whether or not you are indeed starting a business. If there is a money-making activity that just so happens to coincide with recreation or pleasure, you may be able to enjoy the benefits of a hobby status. This can apply to many creative forms of service. However, as a business with the intent to make a profit, it is crucial to clearly identify as a business with an ABN. Start your journey by deciding if it’s a business or a hobby.
How to succeed in Business
(Fail to Plan, Plan to Fail)
Once it’s established that your business is a money-making enterprise with the goal of making a profit, plan your business. Identify how your business will operate, determine the market that you are targeting, and form an exit strategy for both failure and success.
Create a Business Plan
The first step anyone should take is forming a business plan. There are many online resources and templates to help inform what will go into your business plan. A business plan will be crucial when it comes to gaining financing from either banks or investors.
The purpose of the business plan is to establish what the company does, how cash flow will be generated, what the management structure looks like, and how the business will enter the market. Simply putting these ideas on paper will help inform your future business strategy and help give a sanity check to your business operation.
Analyse the Market
Many businesses have started and failed based on a whim that their products and services are desirable. A marketing plan or analysis will inform how your business will gain access to the economy. A strong marketing plan establishes who your customer will be, and how they will find your business or vice-versa.
A marketing plan will establish your value proposition and identify how much opportunity there is for selling your product or service. With market forces at play, it is important to identify your competition and establish your advantage.
Develop an exit strategy for your business
Identify what both success and failure ‘look’ like. Anyone starting a small business identifies their plan for success. Success could be having a business that generates enough profit to keep your family comfortable. Some entrepreneurs may aim to sell their business and retire before they are forty.
Identifying success is easy, but it is also important to identify what failure looks like. After all, approximately 40% of Australian small businesses don’t survive greater than four years. It is important to know at what point it will be time to close your business if the desired profit is not achieved. Use SMART goal setting to establish criteria for your business success.
Support the Business
Once your business plan is established, businesses need support behind them in terms of finances to cover early operating costs, as well as identifying and adhering to the legal requirements of running a business.
Small Business Financing
In the early stages of your business, there is often not enough cash flow from operating activities to sustain setting up the business. Your business will need to be funded somehow.
Part of the business plan is establishing how long it will take for the business to generate revenue to cover the costs of goods sold and operating activities. There are a few ways you may be able to fund your business, depending on the circumstances.
- Apply for a Business Loan. Financial institutions are willing to finance businesses as long as the business fundamentals are strong and there is a clear path to revenue. In some cases, loan payments can even be deferred for the early stages.
- Venture Capitalists (VCs) fund early enterprises, especially those that focus on new innovation. If your pitch can appeal to big future business potential and profitability, gaining VC funding may be a solution.
- Crowdfunding: Sometimes it is easier to ask one million people for one dollar, instead of one person for a million dollars. If your business has a social appeal or a feel-good story associated with it, crowdfunding through online platforms may help fund starting your business.
- It could be that the business is funded by yourself, friends, or family members. If this is the case, be very aware of how these relationships may be affected. Be selective about who you start a business with.
Regardless of how the business is financed, you will need to demonstrate how your business will justify the investment in the early stages. It’s important to have a cash flow plan as part of your business plan, to justify every expense.
Business Structure
There are many structures that the business can take. For each business structure, there are different legal obligations and tax requirements. The following gives a brief overview of the structures available in Australia.
- Sole Trader: A sole trader is an individual with no employees. The business profit is generally associated with that individual’s income.
- Company: Companies are larger organisations. A company will pay a 30% tax rate and has a board of directors to take responsibility and provide oversight.
- Partnership: Partnerships are two or more individuals where the responsibility of the business is shared equally among the partners.
- Trust: A trust is a structure where one entity operates the business on behalf of other beneficiaries. The trust structure is generally rigid and difficult to change in the future.
- Co-operative: Co-operatives are formed to create benefits for membership. Cooperatives are not usually established. Costs are shared by the membership.
Business Legal Requirements
Whether the business is a small kiosk selling coffee and cake, a technology start-up, or a large operation spanning multiple states or even countries, key legal requirements must be identified to provide safety for the business owners and the community. Some of the legal requirements of a business include the following:
- Setting up an ABN, business registration, and holding relevant licences from local, state, or federal governments
- Registering the business name
- Intellectual property protections, especially for new innovations
- Tax obligations and reporting requirements
- Insurances
- Corporate governance, human resource requirements, and occupational health and safety needs.
Conclusion – Starting a small business in Australia
Starting a business is an exciting and fun venture for any Australian. There is often much at stake when starting a new business and it is essential to consider the full scope of what is needed for your own situation. There are many online resources provided by the Australian government.
For further information, download the checklist for starting a business from business.gov.au.