STARTING A BUSINESS CHECKLIST
- BCV
Starting a business can be overwhelming so we have put together a checklist that includes the tasks you need to think about to get going.
1. Market Research
So, you have decided to start a business, but it’s a good idea to figure out who your customers are first and identify any competitors.
- Are there many competitors doing what you do in the same location?
- How much do your competitors charge?
- How much do you want to charge for your goods/services?
- Is this pricing in line with the competition?
2. Budgeting and Forecasting
The purpose of a budget is to predict the money-making potential of your business.
- How much is it going to cost to start up the business. Do you need tools, a work car, office space, a website etc.
- Do you need to borrow money, or can you rely on savings?
- What do you need to charge customers?
- Can you afford staff?
3. Pricing
The first rule of pricing is that you need to get more money out of a sale than it cost you to make it. Which means you need to know the cost of goods or services you sell.
Cost of goods or services sold (COGS) tells you what your business spends to deliver a product or service to your customer. It is treated differently to general costs like rent or employee wages.
To Identify what the COGS is in your business look for expenses that:
- Only occur when a service or good is provided
- Go up and down as sales go up and down
Fixed costs are those that the business needs to pay regardless of how successful your sales are.
Usually fixed costs include:
- Rent or mortgage payments for the business premises
- Utilities like water, electricity, gas and internet
- Administrative costs
Once you work out your COGS this will give you the minimum amount you have to charge to make money, but it helps to have a system to work out what you should charge. There are a couple of common pricing strategies.
Cost-plus
Simply add a markup to everything you sell. There are sometimes industry-standard markups which is a good place to start. An Accountant experienced in your industry will be able to help with this.
Market-based
Check out your competitors’ prices. And if you are offering more convenience or a premium experience then go higher. Otherwise match the average if you don’t want to turn away price sensitive consumers.
You have two levers for making money in business – your margin and your sales volume. They are both affected by price, so spend some time working out what you should charge.
4. Set up your business structure
Your business structure can affect how much tax you pay, and how you’re treated by the law.
Sole trader
- A sole trader owns and runs the business alone but can hire workers to assist them.
Advantages of a sole trader
It’s easy to set up as a sole trader and tax is simple. You just declare income on your personal tax return.
Disadvantages of a sole trader
A sole trader doesn’t have any special legal status, which means the owner is personally responsible for what the business does. If the business gets into debt or legal trouble, so does the owner. Your choice of insurance becomes very important.
Partnership
- A partnership is owned by two or more people. There are no rules about how it’s divided. One partner can own 99% of the business.
Advantages of a partnership
It’s easy to set up as a partnership, though it’s recommended you have an official letter that sets out the agreement between partners. Tax is simple too. You just declare your share of business income on your personal tax return or complete a partnership tax return form available from the ATO.
Disadvantages of a partnership
If the business gets into financial or legal strife, the partners do too. You could also get into difficulty if one of the other partners does something wrong.
What’s in a partnership agreement?
A simple business partnership agreement should:
- state the legal name of the partnership and say what you do;
- name the owners and show how many shares each has;
- appoint a primary business officer;
- say when and how income is distributed among the partners
- include a process for resolving disputes
- identify how bookkeeping and finances will be managed
- outline how the partnership can be wrapped up (and how debts or profits would be distributed)
As you can imagine, even a simple business partnership agreement can get lengthy and complicated. Search the internet for examples or, better still, ask an accountant or lawyer to help.
Company
- A company is legally separate from its owner (or owners), which means you’re less exposed to legal or financial issues. A company can be owned by one person or many.
Advantages of a company
You get some legal and financial protection if things go wrong – your accountant or a lawyer can give you the lowdown. Companies also generally pay a lower tax rate.
Disadvantages of a company
It will cost you more to operate as a company than as a sole trader or partnership. There’s also more admin. You’ll need to know how the company will operate before you get started, and you’ll have to regularly submit paperwork to the Australian Security and Investments Commission.
Trust
A trust can also be used. They are more complex than sole trader, partnership or company structures, but they may be useful for estate and tax planning. Speak to an accountant to see if this is the right structure for you.
Don’t be too concerned as you are not locked into one structure forever. A lot of businesses start out as sole traders or partnerships and grow into companies. You might change your business structure if you start getting bigger and doing more complex projects which carry a greater financial or legal risk for you.
5. Small business accounting
Accounting tracks money as it comes and goes from a business. Keeping on top of your accounting means you can manage your business better.
Bookkeeping – which means keeping records of business transactions
A reliable and up-to-date picture of income versus costs will tell you:
- if you’re profitable (or at least moving in that direction)
- if you have enough cash coming in to pay upcoming bills
- everything you (or your tax agent) needs to know to do tax returns
You can do the bookkeeping yourself or you can hire a professional to help you with this, depending on your comfort with computers and numbers.
Keeping the books: the early days
Keep tabs on your expenses as soon as you start incurring them. Hold onto receipts and write down what each one was for. Create a separate business bank account as soon as you can. Then your bank statement will double as a record of all your expenses.
Creating reports to help manage the business
If you’re working in the business, you’ll have a rough idea of how things are going. But you’ll want to base your strategic decisions on something more than instinct and gut feel. Small business accounting gives you the insights you need.
Things to check weekly
Sales: There’s no money without sales, so it makes sense to keep a close watch on them. Just remember to consider the wider context. For example, extra sales often come with extra costs.
Profit: Make sure you get to keep some of those sales dollars after costs and taxes are taken out. Check your net profit margin, too. It shows what percentage of sales revenue becomes profit.
Wages: Wages are probably your most variable cost. It pays to keep an eye on them. Smart staffing decisions can go a long way to improving profitability.
Money owed to you: Check your invoices are getting paid. Late payments mean less money in the bank, which creates all sorts of unpleasant knock-on effects for the business and your personal wellbeing.
Things to check monthly
Budget vs actuals: See if things are going as planned. If not, why not?
Liabilities: Stay on top of what’s owed across loans, bills and taxes.
Cost of goods sold: Stay aware of inventory, transportation and storage costs to get your pricing right.
How to stay on top of the numbers
Your small business accountant or bookkeeper can help pick the most important numbers for your business. But using accounting software like Xero, can save you time and help you stay on top of your numbers. Many products can help you pay bills, send invoices and manage your payroll.
Dealing with taxes
Tax is one of the first things that come to mind when you think about small business accounting, and for good reason. Mistakes can be costly.
The three most common forms of tax are:
- Income tax: Where you pay a portion of profits to the government.
- GST: Where you add a tax to your sale prices and later pay that money to the government. This only applies if you’re GST registered.
- Employee-related taxes: Where you collect tax from employee pay and send it to the government. Employers in some states and territories may also have to pay payroll taxes.
Lowering your business taxes
Business costs reduce your taxable income and therefore your tax bill, so make sure they’re all accounted for. You need specialist knowledge to work out what all your deductible costs are. Get help from a tax agent.
Get help from a professional
Here at BCV Financial Solutions we have a number of Accountants who can help you set up your business if you are unsure about what structure would best suit you. They can also help you obtain your ABN and talk you through the pros and cons of the different accounting software packages available.
If you would like to make an appointment, then please give us a call on 9781 4533 or email us at enquiries@bcvfs.com.au
