If you are reading this post, you likely have some interest in starting a new business or you have setup a business. Whatever stage you are at, it’s a great read to know what to consider when starting a business.
The first step is for you to understand the Minimum Lovable Product (MLP) for your business. When you are starting a new venture, do not invest all your runway into building the best product possible. That could mean end of your business journey. Provide a basic product which solves a real pain point of your customers. This is called finding your Market-Product Fit which means finding a product which fits into the needs of the market and there are paying customers (in most cases).
Once you have decided on your MLP, it is time to learn some business accounting and becoming financially literate for your own good.
We help so many tradesman and the one thing that we come across is that a lot of them are good at what they do (plumbing, cleaning, etc.) but not good at knowing how the business is doing. A business fails without profit or cash so it’s very important for you to learn these skills form the get go. You do not need to become a Chartered Accountant to run a business, but you should be aware about what is happening in your business from the financial perspective. You are the captain of your boat, so you will need to direct it when the times are tough and for this you need to be prepared!
If you are sure about going ahead with the project and you want to start putting a word out there in the market, we strongly suggest you to first consider the best structure to set your business up in. This could be any combination of sole trader, partnership, trust, company, superannuation fund. Going into a wrong business structure could cost you millions of dollars, literally! Speak to your accountant and explain to them what it is you are seeking to achieve with the business and let them help you.
You would need an Australian Business Number (ABN) and a Tax File Number (TFN) for the trading entity. You can apply online yourself (again if you are not sure what you are doing then the accountant should be able to organize this for you). You will need a business name and a domain name (if you have a website). You can check if your desired domain name is available at Go Daddy (https://au.godaddy.com).
Since your legal structure is now set up, you want to open a bank account in the name of the trading entity.
Useful Tip: Make sure to keep your banking clean. This is your chance to save thousands of dollars in accounting fees. If you are contributing to the business initially then transfer money from your account to the business bank account and then make sure you use the business bank account for business expenses only and personal accounts for personal expenses. You do not want to mix them.
Well done on getting through this far!
Now that your set up is done, you can work on your budget to make sure you know that you are going to get through this period of development.
You will incur a lot of expenses in the initial stage without much or any revenue which means that you should either have lots of savings which you are prepared to use up or have another source of income that will keep you going without having to rely on the business to pay you for your time or services.
Your budget should factor in at least the following costs:
• Accounting Fees ($2,000+)
• Legal Fees (in some cases. Could be $3,000+)
• Cost of Product Development or Supplies (This varies by industry, but you should have a good idea for your industry.)
• Marketing (This varies by the methods used. There are heaps of free marketing tools and some very expensive marketing tools too. Marketing is generally determined by trial and error method. Ask our team if you want to know about the tools available.)
• Website Cost ($300 per year)
• Tools Cost (There are options to hire tools too, so you can look into that if the business is short on capital initially)
• Office Rent & Outgoings (If office space required)
Please know that these are just the major costs to set up. There are many more incidental costs which we have not accounted for in the list above, but they will come.
A good budget is like a lighthouse – it will keep guiding you to progress in the business. We have attached a budget template to help you. Once you have prepared a budget, we recommend you show it to your Accountant or take opinions from some of your friends who are financially knowledgeable. Once you have the final budget prepared, make sure you can commit to these expenses.
Now, it is time to get your accounting software. If you have very minimal income and expenses, then you can start with Excel Spreadsheet. However, if you have more than 20-30 expenses in a month then it is worth investing in an accounting software as it will pay for itself. And they are not that expensive nowadays.
Our top 3 software picks:
1. Quickbooks Online (https://quickbooks.intuit.com/au/pricing/)
2. Xero (https://www.xero.com/au/pricing/)
3. MYOB Online (https://www.myob.com/au/accounting-software/compare)
QuickBooks is the best of the lot. Please note that we are authorized partners for all three and if you would like your software at 5% lifetime discount on monthly fees then get in touch with us via email and we will be happy to pass you on the discount. You can hire a bookkeeper to help you with the bookkeeping or if you have some bookkeeping skills and want to learn more about these software products then you can buy one of our software training course. They are incredible valuable at $699 per software or $1599 for all 3.
We cannot stress enough to have detailed shareholder agreements. When the grapes turn sour, these agreements are going to save you and the company. Even if you are going in the business with a family or friend, you should get this done at the start.
Now, if you think you are ready to conquer the Everest then it is time you start to work on your MLP. Remember that your MLP is just that. It does not need to be best version of your product or services.
“If You’re Not Embarrassed By The First Version Of Your Product, You’ve Launched Too Late”, says Reid Hoffman of LinkedIN.