YBR

Setting your business up for success

In this article:

By Mark Bouris

Creating a thriving and sustainable new small businesses is not easy. If you’re thinking of starting a new venture, be sure you have the core components right.

So what do you need to know first?

Ultimately every business needs capital. So, setting up your financials carefully should be top of your priority list. I think there are four key financial disciplines.

The first is funding

Don’t get started looking for funding uninformed. You need to know who are the business lenders, what are the terms, is it secured or is unsecured, what’s the interest rate and what will the repayment schedule look like.

It’s important to understand in this phase how much debt is acceptable. I don’t think a small business should take on more than 30 per cent of the value of the business. That means saving up some money or ensuring the business could be self-funded. Other than that I don’t think you should take on any more in the beginning without the certainty of knowing how you’re going to repay it.

The second discipline is around cash flow

Understand the amount you can spend before earning money. If you spend $100 will you make $120?  

Also what is the return on investment for your business? In other words for every $100,000 you invest in to the business, you need to be sure you’re going to get $120,000 over a period of 12 months. Whatever the investment is, I’d always recommend a plan to get at least a 20 per cent return. Why 20 per cent? Because not only are you supposed to get an interest rate return on the capital but you are also going to be working in the business so you need to get a return for your effort. Otherwise you might as well just put the $100,000 in the bank and not worry about it at all.

There’s a whole lot of processes around cash flow that needs to be in place correctly early on so that you can actually keep track of where your money is going. You either need cash flow expertise or to employ someone to manage it for you. That includes handling items like GST collections and BAS statements.

 

Take the first step

The third financial discipline is general accounting

You do need monthly management of your accounts to know whether you’re making a profit or not making profit.

And the fourth item of financial management that you’ve got to get right is your pricing. This is really understanding your market and the price you can charge. Know what your competitors are charging and decide if you want to charge a lower price or the same price. If you’re charging the same price, ask yourself, ‘why is someone going to come to me and not the competitor?’ Don’t forget to also work out what the demand is for your product.

Finally, you’ve also got to make sure there’s a profit in for you. There’s no point in selling something that costs more than you are selling it for.

If you simply look at it in terms of – ‘if I buy this item for $100 and I sell it for $120, I’m making $20’ – that’s not looking at the full picture. Consider the rent of the premises, the price of your staff, costs such as electricity, computers and IT support. Don’t forget as well if there’s a GST component that you need to take it out of the gross.

Understand the cumulative cost and then the total allocated cost per item relative to the sale price. Then ask yourself, ‘am I making a profit’.  That’s called cost management accounting and these basic fundamentals many people don’t know.

So after financials what else is key to success in the early years?

One of the most important things is to create a brand or awareness around a message for your product or service. Now if you’re a food outlet that could be being known for quality, or it for being vegan or for serving entirely beef. The business has to have a strong brand, it has to stand for something and you’ve got to build awareness around it.

Creating awareness is what gets you a flow of customers and you need to find out where to get more of them.  Many times this is affected by amenities. How easy is it to park? What is the visibility of the business? How easy is it to find online?

Remember you can’t superficially decide that your brand stands for that promise, you also need to execute. That means everyone in your organisation will need to execute on this faithfully. You’ve got to be something and you’ve got to deliver it consistently.

If you get these core fundamentals right and deliver them well, you should begin to see your business grow.

With business success you’ll find new challenges and decisions such as how to continue to drive growth. Will you make acquisitions or are you going to grow it organically? Can you grow your business organically with the current funding or do you have to borrow more money? It may be necessary to engage with a banker to find someone who can actually do it for you or someone like a Yellow Brick Road advisor.

When the business becomes too big, you have to put people in place who can do faithfully what you would do if you were in their position. It becomes more of a management game. This also means giving them the ability to make their own decisions and being able to trust in their decision making process. That comes down to how you recruit, train and retain.  

One of the final things I think successful modern day small businesses needs to consider, is how to utilise technology to forward the business.

There is now accounting software with cloud technology to make your account management much less time consuming. I think particularly in industries such as retail, technology can play a really big part in terms of merchanting.  

There are also options, banks can set you up with to do credit card transactions on your mobile phone. That way you don’t have to send an invoice and wait for your customer to pay several weeks later. This also takes the headache of having to collect money when people owe it to you.

Immediate billing is one of the most important things you can do as it helps you manage your debtors and helps your cash flow.  This also takes away people’s opportunity to say no I’m not paying you that. You flush them out early.

I also think technology plays a big role in advertising for small businesses. People are all online these days. Understanding how to utilise platforms like Google ads and Facebook advertising can be really cost efficient and effective in getting your messages out there. Always be willing to learn and branch out to try new things. Knowing how to use social media and digital channels well can help you find influencers and new customers.

Starting a business is tough but with the right knowledge and tools, you can set yourself up for success. Good luck!

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