Getting Started in Small Business

3rd Australian & New Zealand

edition

Veechi CurtisAuthor of Small Business For Dummies, MYOB® Software For Dummies and Bookkeeping For Dummies

Getting Started in Small Business For Dummies®, 3rd Australian & New Zealand Edition

Published by

John Wiley & Sons Australia, Ltd.

42 McDougall Street

Milton, Qld 4064

www.dummies.com

Copyright © 2017 John Wiley & Sons Australia, Ltd.

The moral rights of the author have been asserted.

National Library of Australia Cataloguing-in-Publication data:

Author: Curtis, Veechi, author

Title: Getting Started in Small Business For Dummies / Veechi Curtis

Edition: 3rd Australian and New Zealand Edition

ISBN: 9780730333920 (paperback.)

9780730333937 (ebook)

Notes: Includes index

Imprint: For Dummies

Subjects: Small Business — Australia

Small Business — New Zealand

New Business Enterprise — Australia

New Business Enterprise — New Zealand

Success in Business

Dewey Number: 658.022

Trademarks: Wiley, the Wiley logo, For Dummies, the Dummies Man logo, A Reference for the Rest of Us!, The Dummies Way, Making Everything Easier, dummies.com and related trade dress are trademarks or registered trademarks of John Wiley & Sons, Inc. and/or its affiliates in the United States and other countries, and may not be used without written permission. All other trademarks are the property of their respective owners. Wiley Publishing Australia Pty Ltd is not associated with any product or vendor mentioned in this book.

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10 9 8 7 6 5 4 3 2 1

Contents at a GlanceIntroduction ....................................................................................................... 1

Part 1: First Steps ........................................................................................... 5CHAPTER 1: Is Small Business for You? ....................................................................... 7CHAPTER 2: Buying a Business ................................................................................... 23

Part 2: Jump In, Get Wet ......................................................................... 35CHAPTER 3: Planning for Success .............................................................................. 37CHAPTER 4: Getting the Legals Right ......................................................................... 61CHAPTER 5: Creating Your Marketing Plan ............................................................... 77

Part 3: The Nitty-Gritty ............................................................................ 95CHAPTER 6: Becoming an Employer .......................................................................... 97CHAPTER 7: Cooking the Books................................................................................115CHAPTER 8: Understanding Financial Statements ................................................129CHAPTER 9: Calculating Margins and Ratios ..........................................................149

Part 4: The Part of Tens .........................................................................167CHAPTER 10: Ten Things to Do If You Hit Hard Times ............................................169

Index.....................................................................................................................179

Table of Contents v

Table of ContentsINTRODUCTION ............................................................................................... 1

About This Book ................................................................................... 1Foolish Assumptions ............................................................................ 2Icons Used in This Book ....................................................................... 2Where to Go from Here ....................................................................... 3

PART 1: FIRST STEPS ..................................................................................... 5

CHAPTER 1: Is Small Business for You? .................................................... 7Working for Yourself — A Dream Come True? ................................. 8

Doing what you love to do ............................................................. 8Earning pots of money (here’s hoping) ........................................ 8Being your own boss ...................................................................... 9Staying home ................................................................................. 10

Working for Yourself — Reality Strikes ............................................ 11Teetering on the edge .................................................................. 12Working night and day for little pay ........................................... 12Weathering feast and famine ...................................................... 13

Getting the Timing Right .................................................................... 13Timing it right for your idea ......................................................... 14Timing it right for you ................................................................... 15Timing it right for the economy .................................................. 16

Staying Safe or Inventing the Wheel? .............................................. 17Playing it safe ................................................................................. 17Finding your own niche ................................................................ 18Going out on a limb ...................................................................... 18

Getting the Government to Help You .............................................. 19

CHAPTER 2: Buying a Business ...................................................................... 23Weighing Up the Good and the Bad ................................................ 24

Buying an existing business — the upside ................................ 24Buying an existing business — the downside ........................... 25

Asking the Right Questions ............................................................... 26Finding out who owns the intellectual property ....................... 27Analysing sales trends, profit and break-even .......................... 27Clarifying what the purchase price includes.............................. 28

vi Getting Started in Small Business For Dummies

Building a Relationship with the Seller ............................................ 30Dotting Your I’s, Crossing Your T’s .................................................... 31

PART 2: JUMP IN, GET WET .................................................................... 35

CHAPTER 3: Planning for Success ............................................................... 37Getting Started with Your Plan ......................................................... 38

Hunting for online resources ...................................................... 39Using specialised planning software .......................................... 40

Assessing the Environment ............................................................... 40Analysing outside influences ....................................................... 41Testing the waters (don’t get too wet) ........................................ 43Defining your customers.............................................................. 44Checking out the competition ..................................................... 44

Declaring Your Battle Plan ................................................................ 46Looking at your strengths and weaknesses .............................. 46Choosing a strategy ...................................................................... 48Expressing your competitive advantage .................................... 49Building your online business strategy ...................................... 51Developing your marketing plan ................................................ 52Creating a team ............................................................................. 53

Charting a True Course ...................................................................... 53Setting off on your mission .......................................................... 53Saying what you’re about ............................................................. 54Matching goals to your mission .................................................. 55

Presenting Financials ......................................................................... 56Balancing dreams against reality ................................................ 56Building on history to create a picture of the future ................ 57Staying real with benchmarks ..................................................... 58

CHAPTER 4: Getting the Legals Right ....................................................... 61Picking a Business Structure ............................................................. 62

Independent and single ............................................................... 63Tea for two ..................................................................................... 64We’ve got company ....................................................................... 65

Matching the Name to the Game ..................................................... 65Using your own name .................................................................. 67Making sure you’re not on someone else’s patch .................... 67Registering your business name (Australia only) ...................... 70Avoiding trouble (Australia only) ................................................. 71

Protecting Your Ideas and Your Name ............................................ 71

Table of Contents vii

Registering with the Powers That Be ............................................... 73Getting that baby’s number ......................................................... 73Signing up for taxes (unavoidable, I’m afraid) ........................... 74Checking out what else you need ............................................... 75

CHAPTER 5: Creating Your Marketing Plan ........................................ 77Laying Down the Elements of Your Plan ......................................... 78

Writing a decent introduction ..................................................... 79Identifying what it is that makes you different ......................... 79

Defining Your Target Market ............................................................. 80Analysing your customers ........................................................... 81Researching the market ............................................................... 81

Analysing Your Competitors ............................................................. 82Setting Sales Targets .......................................................................... 84

Slicing goals into bite-sized chunks ............................................ 84Expressing goals in other ways ................................................... 85

Creating Strategies to Support Your Targets .................................. 87Building a brand that people want ............................................. 87Getting the products and the price right ................................... 88Planning an advertising strategy ................................................. 90Working your networks ................................................................ 91

PART 3: THE NITTY-GRITTY ................................................................... 95

CHAPTER 6: Becoming an Employer ......................................................... 97Becoming an Employer: The First Steps .......................................... 98

Getting employees to fulfil their part of the deal ..................... 98Covering employees for accidents ............................................100Subscribing to super (Australia only) ........................................101Paying KiwiSaver (New Zealand only) .......................................104

Meeting Minimum Pay and Conditions .........................................106Understanding what laws apply (Australia only) .....................107Creating employment agreements (New Zealand only) ........108Choosing between part-time, full-time or casual....................110

Playing Safe and Playing Fair ..........................................................111Being practical, not pedantic .....................................................111Blonde jokes are over .................................................................112

CHAPTER 7: Cooking the Books ..................................................................115Setting Off on the Right Track .........................................................115

Understanding how cloud accounting works ..........................116

viii Getting Started in Small Business For Dummies

Addressing privacy concerns .....................................................117Figuring out what’s important ...................................................119

Creating a Bookkeeping System .....................................................121Keeping track of bills, receipts and invoices ............................122Organising your information .....................................................124Nitpicking over petty cash .........................................................126

Tracking How Much You Owe .........................................................127

CHAPTER 8: Understanding Financial Statements .....................129Telling a Story with Your Profit & Loss Report ..............................130

Understanding how it all works ................................................130Looking at sales ...........................................................................131Counting the costs ......................................................................132Weighing up your expenses ......................................................134

Taking a Snapshot with Your Balance Sheet .................................134Understanding the fine print .....................................................136Building documentation to support each figure .....................137Appreciating your net worth (someone has to, after all) .......137

Why Profit Doesn’t Always Mean Cash ..........................................138Gazing into the deep, black hole ...............................................139Looking through rose-coloured spectacles .............................139Doing the sums for sustainable growth ...................................140

Budgeting As If You Mean It ............................................................141Creating your first budget ..........................................................142Recognising relationships ..........................................................144Understanding the psychology of budgets ..............................145Developing your budget in tune with your business plan .....146

CHAPTER 9: Calculating Margins and Ratios ...................................149Understanding Profit Margins ........................................................150

Differentiating between variable costs and fixed expenses.............................................................................150Understanding gross and net profit .........................................151Figuring gross and net profit margins ......................................152Looking at gross profit margins over time...............................153Appreciating how margins and sales connect .........................154

Analysing Margins for Your Own Business ...................................155Calculating margins when you sell products ...........................155Calculating margins when you charge by the hour ................156Calculating margins if you do big projects ...............................157Understanding why gross profit is such a big deal .................158Calculating your net profit margin ............................................159

Table of Contents ix

Estimating Your Break-Even Point ..................................................161Analysing how to make sales match expenses .......................162Looking at things from a cash perspective ..............................163Factoring your personal expenses into the equation ............164

PART 4: THE PART OF TENS ................................................................167

CHAPTER 10: Ten Things to Do If You Hit Hard Times .................169Work Out How Bad Things Really Are ............................................170Get Breathing Space ........................................................................171Innovate! ............................................................................................172Slash Those Expenses ......................................................................172Pull Back Personal Spending ...........................................................173Get Rid of Dead Weight ...................................................................174Chase Up Overdue Accounts ..........................................................175Run Special Offers ............................................................................175Re-Jig Your Margins ..........................................................................176Don’t Be a Shag on a Rock ...............................................................177

INDEX ..................................................................................................................179

Introduction 1

Introduction

I believe that pretty much anyone is capable of running their own business. You don’t need to be a qualified accountant in order to understand your deepest, darkest finances, and nor do

you need to be a marketing guru in order to sell your wares to unsuspecting victims. Instead, all you need is a bit of cash, a will-ingness to work hard and lots of straightforward advice. This book provides the straightforward advice bit — in bucketloads.

Most people have lots of questions when starting out in small business: Are you best to start from scratch or buy a business that’s already up and running? Should you stick to being a sole trader, or incorporate as a company? How do you go about taking on your first employee? What about financial reports, budgets and tax? I try to answer all these questions, and more.

Getting started in your new venture is probably one of the most exciting and creative stages in your life. You get to call your own shots, be your own boss and create something that really belongs to you. Although small business can be a roller-coaster journey at times, the rewards are well worth the ride.

I hope you enjoy this journey, and wish you the very best of luck.

About This BookThis book is designed so you can pick it up at any point and just start reading. Perhaps you want to know about hiring your first employee (Chapter  6) but you’re not the least bit interested in legal structures (Chapter 4). That’s fine — just skip the first five chapters and start off from where you want to be.

Each chapter covers a specific part of running your own business, including business set-up and planning, marketing and people management, money stuff and bookkeeping. I mix advice and explanations with lots of references to other resources, including things such as government assistance programs, useful publica-tions and handy websites.

2 Getting Started in Small Business For Dummies

Foolish AssumptionsWhen you work with small business, you learn to assume nothing. I see everything from clients who time all strategic decisions to fit with the stars (no kidding!), to multimillion-dollar enterprises that have grown out of nothing in a matter of months.

So, in this book I try to assume very little about you. You don’t need to know anything about bookkeeping, marketing, tax or computers, and I try to explain all concepts in the simplest pos-sible way. I focus on the kinds of things I reckon most small busi-nesses are concerned about, combining positive advice about promoting your business and planning for success with practical guidance about the really tricky stuff — like digging yourself out of financial difficulties.

Occasionally, I mention rough dollar costs for things such as set-up expenses or software expenses. I don’t attempt to distinguish between the Aussie and Kiwi dollar because any costs I mention are approximate in the first place.

Icons Used in This BookWant to be streets ahead of the competition? Then look for this handy icon.

Get out your calculator and start doing those sums. This icon flags money stuff, highlighting vital information for anyone with an eye for making a dollar or two.

Tie a knot in your hankie, pin an eggtimer to your shirt but, what-ever you do, don’t forget . . .

Introduction 3

This icon flags tricky, slightly nerdy stuff that’s nice to have, but that you can probably live without!

This icon indicates handy advice or insights into how to improve your business or make life easier.

If you can’t learn from history, you’re doomed to repeat your mistakes. Real-life stories from businesses and people who’ve been there provide all the history lessons you could ever want.

A pitfall for the unwary. Read these warnings carefully (then you can’t say no-one told you . . .).

Where to Go from HereGetting Started in Small Business For Dummies isn’t a gripping novel to be read from cover to cover. Each section is designed so you can skim through it quickly, find the answer to whatever you want to know, and then set aside the book until next time.

However, if you’re new to business and you’re just getting your-self on the road, I suggest you read Chapters  1,  2 and  3 before doing much else. That’s because some of the decisions you make when getting started affect everything else that follows, and if you can get off to a good, clean start, your chances of success are going to be that much higher.

1First Steps

IN THIS PART . . .

Find out whether you’re ready for the changes in your life that starting your own business brings.

Decide whether to buy an existing business, or start from scratch.

CHAPTER 1 Is Small Business for You? 7

Chapter 1

IN THIS CHAPTER

Working for yourself — the good things that make it all worthwhile

Working for yourself — the bad things that no-one wants to talk about

Making sure the time is right (now, where is my crystal ball?)

Figuring out your business strategy

Digging up government advice, free of charge

Is Small Business for You?

I love small business. For me, small business is about believing in yourself, being passionate about what you do and creating opportunities. Our culture of getting up, getting out and giving

it a go fits perfectly with this entrepreneurial existence, explain-ing why so many Australians and New Zealanders are hooked on the self-employed way of life.

Although starting your own business can be daunting at first, the everyday challenges don’t leave you with much time to regret your decision. Besides, being self-employed is a pretty addic-tive thing: Working your own hours, being responsible for your decisions and raking in handsome profits (here’s hoping) are just some of the attractions of being your own boss.

In this chapter, I talk about what it means to start your own busi-ness. I take you on a roller-coaster ride over the highs and lows

8 PART 1 First Steps

of small business terrain (for every upside to being out there on your own, a downside exists, too), through to making the decision when to actually ‘open shop’. After all, the success of any venture depends on timing — the best time for the business, the best time for the economy and the best time for you.

So put on your stackhat, hold on tight and get ready for the trip of a lifetime . . .

Working for Yourself — A Dream Come True?

If you ask most small business people what they like the best about working for themselves, you’re likely to get a pretty cyni-cal reply — something about the delights of working for peanuts and the thrills of doing bookwork in the wee hours of the night. But dig a little deeper, and most self-employed people warm to the question.

Doing what you love to doDoing what you’re passionate about has a lot going for it. If you want to play the trumpet day and night, you’re likely to be happi-est as a professional musician. If you love hanging off cliffs on the end of a rope, you’re going to dig being a climbing instructor. And if you’ve never quite gotten over your LEGO phase, you probably need to go and build houses.

Happy people love what they do for a living. Besides, being self-employed is often the only way you can get to do just that. (Nine- to-five jobs tend to be rather thin on the ground for trumpet players or climbing instructors!)

Earning pots of money (here’s hoping)With many trades and professions, your income always has a pre-defined upper limit, no matter how hard you work — teachers,

CHAPTER 1 Is Small Business for You? 9

carpenters or nurses on the regular payroll are limited in the amount of pay they can get. However, by setting up your own business, whether you’re tutoring private students, building house extensions or doing private home nursing, your earning potential immediately increases.

Statistics that compare the taxable income of self-employed individuals with those of employees working in similar indus-tries or professions are hard to come by. However, if you start up a low-risk kind of business — home-tutoring, for example — the financial benefits of becoming self-employed are small but relatively guaranteed. On the other hand, if you start up a high-risk business — say, launching a new invention — you could end up losing everything you have. Or, you could just wind up a millionaire.

Being your own bossNo-one is going to dispute being your own boss is fantastic. And no matter how much you stuff things up, no-one can give you the boot — except perhaps your customers — leaving you with a feel-ing of security that’s hard to beat. Here are some other reasons being your own boss feels so good:

» You get to set your own rules: Your rules may involve anything from setting enormously high standards, to declaring mufti days seven days a week.

» You choose when (and how often) you work: Of course, choosing when you work often means working 24 hours a day, seven days a week. However, in theory you can pick and choose which hours you work and when you take holidays.

» You follow your own instincts: You can do what you think is right, as opposed to doing what someone else thinks is right. I know firsthand how frustrating it is to be forced to do stuff the wrong way, or the slow way, just because the person who is giving the orders happens to be your boss.

» You can use your conscience: You can make decisions that may not be the best from an economic point of view, but are good decisions in terms of your own conscience. For example, before listing as a public company, and way before