How To Start Your Own Business
23rd OF July 2011
By Anthony Bell, Finance Expert
Before jumping into registering with the Australian Tax Office for an Australian Business Number ("ABN"), I'd recommend you take a step back and begin your business plan, start to consider some of the following:
- What is your business and what will it do?
- Who will its customers be and how will you reach them?
- Who is the competition and how will you be different?
- What are your budget forecasts and when will you make a profit?
- What investment will you need to make to get into the business?
- Why are you going into this business?
- What are going to be the strengths and weaknesses of the business?
The above are only a starting point, but if you can answer each of them truthfully and with a bit of detail, you will have given yourself the base of a good plan.
These responses will then help you and your advisor determine which business structure is going to best suit your business. Getting your structure right from the start can make an enormous difference to your asset protection and tax position after the business starts. Your structure might be registering a company with ASIC, or setting up a trust of some kind. It’s rare that anyone serious about a new business would operate as a sole trader or under a partnership.
With your structure confirmed and established, now you can apply for your ABN. In applying for an ABN, if it's a new structure, you will also apply for a Tax File Number. Depending on your expected levels of sales and staffing, you might also register yourself for GST (it is compulsory if your expected sales are more than $75,000 per annum) and for PAYG withholding taxes if you are going to employ any staff.
Part of your business planning needs to also consider your start up costs. Assuming your business will be brand new without any existing revenue, keeping an eye on your start up costs is critical, as every dollar you spend is coming out of the capital, you can invest in your business' development and growth. Prioritise what you spend your money on at start up. The important areas to not cut corners on are your structuring, tax registrations, business planning and insurances. If location is not overly critical, try and save as much as you can on occupancy when you start out. Your first office or warehouse doesn't need to match that of a Fortune 500 company!
Raising money for a start up is a tough ask. With no trading history, any investor is going to have to base their decision on how appealing they find your business proposal. In a start up, the investor will put particular weight on the experience of you and those who will be running the business. They will also look at the niche in which your business will be operating, and what competitive advantages it will have in the market. If you can raise money from an investor, a downside of getting investment at start up is having to give up a greater share of the business ownership to compensate the investor for taking such a risk.
Getting bank lending for a new business can be extremely difficult, as bank lending criteria generally revolve around your ability to service a loan, which in turn is dependent on the income of the business - difficult to show at start up! If you are going to be running the business in your spare time and keeping your day job, you could look to apply for a personal loan, or an extension on your home loan if you have equity in your house.
Going into business means taking a chance. Statistics tell us that most people won’t take the risk to start their own business, and for those that do, a large percentage will either close the business within a few years of starting it, or struggle to make it viable. This shouldn’t deter you though. With some planning and organisation, you can tilt the odds more in your favour.
The members of our community who have generated the greatest wealth and self satisfaction have generally done it by going into business, and many without grabbing the public’s attention.
The best way to look at going into business is as a challenge, not something to fear. It will mean going outside of your comfort zone, but how many things do we do on a daily basis that once scared us? Be brave and take up the challenge!
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