Congratulations on deciding to go ahead with starting a business. It’s an exciting journey and it will change your life in so many ways.
No doubt someone has raised the statistic with you about how many businesses fail in the first year. Often, this happens simply because the owner realised their heart wasn’t in it. In other cases, it’s because the financial foundations and business structure weren’t correct from the start.
With this in mind, here’s your guide to the key decisions and things to think about early in the process that will help you hit the ground running (in the right direction):
Australian Guide to Starting a Business
Step 1: Build your business plan
Your business plan outlines the main activities of your business, your business goals and the steps you will take to achieve them.
Spending time on a business plan, even if it’s a one-pager, will help you get clear in your head what goods or services you will provide, how you will provide them, how you will market your business and who you need to operate it.
Many business experts also recommend you think about your overall mission and vision for the future at this stage. It will help you get clear on exactly what you are trying to achieve (outside of earning money) and why.
Tip: You can get started with a free business plan template from Xero.
Step 2: Select your structure
There are multiple ways to structure a business, but the two most common for small businesses starting up are sole trader and company. Other structures to consider are a partnership or a trust, or even a combination of different types.
Becoming a sole trader is the cheapest and easiest way to set up your business. You can acquire an ABN for free, and then you are essentially in business. However, cheapest and easiest does not always mean best.
When you operate as a sole trader, 100% of the profit will be taxed in your name. You will also be solely responsible for any debts or other financial burdens that eventuate as part of the business. This can put valuable assets, such as your home, at risk.
If you don’t intend to earn more than the amount to qualify for the GST ($75,000 per annum), you may be happy operating as a sole trader. Beyond this, structuring your business in a new entity (such as a company) might make more sense, both from a financial and a risk perspective.
Operating a company means you and the business are separate legal entities. Setting up a company does cost you money, and there are additional ongoing requirements and costs. An accountant can explain these to you and remind you to operate your company in compliance with regulations, for example by making sure you have a valid Director ID. Importantly, companies pay a flat rate of tax, which for small businesses is 25%.
If you are going to be working with someone else, another option is to trade in a partnership. Partnerships allow 2 or more people/entities to trade under a single banner, with any profit/loss being distributed to the respective partners each year. However, partners are liable for the actions of both themselves and each other, so any debts or obligations are shared, regardless of who signed on the dotted line.
Finally, there is a trust. Like setting up a company, these cost money and have ongoing requirements and costs. In a nutshell, an entity (called the trustee), holds assets and acts on behalf of the beneficiaries. If you are setting up a trust, you will need to find/create an entity willing to contribute the funds and act as a trustee (this can be a person, but is generally better to be a company). Trusts are complex, and there should always be a discussion with a professional prior to establishment.
Importantly, there is no “one size fits all”, and what works for one business or person may not work for another.
Tip: Want to know which business structure is best for you when you’re starting a business? Speak to your accountant today.
Step 3: Access an online accounting system
Having a quality accounting system is the next vital step in starting a business.
Without proper accounting, it isn’t possible to keep track of your finances, and, after all, making money is what it’s all about.
The very first step is to set up a separate bank account for your business. You should be able to do this via your current bank. This will help you keep personal and business finance separate (do this from day one and you will avoid a lot of headaches at tax time).
From there, you need to connect your account with the right accounting software. One of the best and most popular pieces of accounting software is Xero and many bookkeepers and accountants will exclusively use this platform. Xero is also fantastic for non-accountants.
You have the option to operate Xero yourself and do all your accounting and bookkeeping, however you may soon realise you are losing entire days throughout the month, especially if you are paying staff. It makes better sense to bring an accountant and bookkeeper on board as early as possible, so you can hand over this responsibility and ensure your accounts are balanced (though you should always keep an eye on things, and make sure you understand what is going on).
Tip: You don’t have to have full-time financial help; outsourcing is a great solution.
Step 4: Install the right insurance policies
Starting a business comes with more than its fair share of risk, and insuring yourself against problems is another essential step when you are getting set up.
To start with, some forms of insurance are compulsory when you set up a business:
Workers’ compensation insurance if you have employees (check what is required by your state government).
Third-party personal injury insurance if you own a motor vehicle (this is usually part of your vehicle registration fee).
Public liability insurance is compulsory for some types of businesses and covers you for third-party death or injury
Depending on your business, you should also consider the following:
Personal or loss of income insurance
Stock, products and asset insurance
Management liability insurance
Product liability insurance
Professional indemnity insurance
Cyber insurance
Insurance to cover goods in transit
Tip: For more information, take a look at the Australian Government’s Business webpage, which explains more about the different types of insurance. Then reach out to an accountant or financial professional who can help you access a tailored insurance solution. Note that insurance is a financial product, and anyone advising you on the specific insurance you need must be licensed to do so.
Step 5: Clarify your compliance
Finally, your business needs to be legally compliant.
Business compliance is the process of ensuring that you, your business and your employees all follow the laws, standards, ethical practices and regulations surrounding your sector. Some of the biggest news stories in recent times have come from non-compliance with wage requirements, or not paying tax correctly.
The government recommends setting up a compliance program within your business to:
identify and reduce the risk of breaching the Competition and Consumer Act 2010 (CCA)
remedy any breach that may occur
create a culture of compliance within the business.
A compliance program is an excellent way not only to stay above board but also to demonstrate your company's commitment to acting appropriately. The courts have also consistently upheld that ignorance of the law is never considered a defence.
Tip: Depending on the industry you’re in, it might make sense to set up a regular compliance review with your team.
Starting a business? Get it right from day one.
Most businesses find financial experts in the form of a bookkeeper and accountant are the first people they hire. This is because having the right financial foundations is the best way to set a new business up for success.
Your accountant will also have experience and understanding of the small business world, which will help you to side-step common pitfalls and identify new opportunities.
Ready to launch your venture? Book a free 45-minute call with a small business accountant from JVP Advisory.