The ultimate guide to preparing to start your very first own small business
Plan well ahead – you will need information on the size of your market, source of supply if retailing or wholesaling, your competitors, both direct and indirect, where you will operate from, cost of setting up your business, forward sales, costs, profit and cash flow projections, licencing information, if required, and what will differentiate you from your competitors – this is a must – better service, lower prices are not good or valid differentiators.
To find the size of your market – type your product into Google and see what come up – narrow the geographically area if you can. If you get lots, you probably have quite a large market; a few will suggest the reverse. The market must be large enough to sustain you and those already in the market.
Next, if you are reselling, you need suppliers – source them, where are they located, the time taken to supply an order, what minimum quantities you need to buy, and will they supply you? Check out the cost of delivery – is it free, or do you have to pay. This is particularly important if you are importing – there are lots of costs associated with freight, shipping, customs and delivery, not to mention the paperwork. Note if you buy overseas you will have to pay for the goods when you order, or at least pay a substantial deposit – try to get FOB (free on board) shipping from your supplier – that means your supplier pays to have the goods delivered to the ship – this can be difficult and expensive when you are in another country and don’t speak the language.
Check out your competitors both direct – selling the same product or service as you, and indirect selling a similar or substitute product as you – e.g. selling motor cycles – cars, vans etc. are indirect competitors. Check websites and see what differentiates each business. It’s best to visit both kinds of competitors and talk to them – most will be happy to supply information about the market, possible gaps in the market, customers, and suppliers, and try to make a relationship with these people – they are not your enemy! Check out and confirm information you already received from suppliers.
Where will you operate from – do you need an office or is it possible to work from home, what possible interruptions will you encounter, bearing in mind your level of discipline when it comes to work, do you have room at home? Do you need a shopfront, where are your competitors positioned? What are the cost of rents, on costs (costs for insurance, lighting, garbage collection etc. known as ‘outgoings’), and the tenure (minimum time months, years), options (can you extend the lease) and terms of the lease – in some shopping centres they demand a percentage of your turnover, and the sale price of your business, and often compulsory refurbishments using their contractors. This is Commercial lease and there is no government department to control property owners.
Almost all business incurs set up costs – some are minimal; some are large, but it needs calculating reasonably accurately, especially if you don’t have a great deal of spare cash. Include all the costs to do the Due Diligence listed here, you may need licences or Council approvals, you might need qualifications, you might need an entity to protect your personal assets from your business assets, you may need an entire shop fit out. This is the amount you will spend before you even make your first sale, so include all promotional costs here too.
Next you need to use all the information you have gleaned to make forecasts. Start with sales and use products, not $’s to begin with and do your projections on a daily basis. So if sell widget a, b, c, d and e then do that. This will prevent overstating your sales – as a final check divide the widgets sold by the available time, so if you get 100 per hours, you have probably overstated your sales. Next, ascribe a value to each widget and get you daily, monthly and annual sales. There could be GST implications here, depending on your annual turnover, so be wary.
Next do your Cost of Goods Sold (COGS). Use the same figures for your materials as you calculated for your sales, and insert the cost for each item – here you will almost always be charged GST, so unless you are registered for GST, include that cost. By subtracting the cost of your materials from your sales you will get your Gross Profit (GP), and by dividing that figure by your sales you’ll get your GP %, and by subtracting that figure from 1, you’ll get your Cost of Goods Sold figure. This will not vary greatly once you are establish, but if you plan to discount, it will increase and your GP will decrease. All of your expenses, plus your profit, must be paid from your GP.
Next do your expenses. Some of these are paid weekly, fortnight, monthly, bi monthly, quarterly, and annually, so be carefully with your calculations. Start with monthly. Write down every expense you will incur. The larger expenses will be rent and outgoings and the smaller will be bank charges, which are separate from Credit card charges, which can be high if you make a lot of sales via a merchant terminal. Do not include personal expenses like lunches, dinners, holidays etc.
Once you have all the expenses, multiply your sales for the average number of days you are open in the month, calculate your GP, and take your expenses away, giving you your monthly net profit. Multiply this by 12 and this is your annual profit, with no tax paid or superannuation contributions. As a guide, your net profit should be at least 1.5 – 2 times your annual gross salary at your place of employment – there are risks in operating a business of your own!
Next you need a cash flow – for small business a cash flow forecasts your bank balance at the end of the periods you are using, because not all profit goes to the bank and there are often payment have to be made from your profit – this is not something you can do if you have no training in this area – get your business coach, bookkeeper or accountant to assist you or at least check your figures.
If you have a full time job, don’t leave it until you have enough booked appointments to equal your sales. Sometimes you can negotiate with your employer to work less days or hours – try that until you are fully established. Sometimes you can negotiate with your employer to outsource to you on ‘contract’ terms – study this carefully and avoid having just 1 large client – they can wield a great deal of power and influence on a small start up business. Otherwise leave on good terms and get references and ensure you have as many contacts as you can get – you may need them
If you start a retailing, wholesaling or importing business, ensure you have at least enough funds to sustain you for the first 18 months, and that includes all your personal commitments like mortgage, insurance, living expenses etc.
Next you want your business to be legal, so you need to check out if you need specific licences, training or Council approvals – you may need a Business Name registered – different areas require different licences and permits.
Next you need your Unique Selling Point (USP). There are other expressions for this, but we’ll use USP. This and everything above is part of your Business Plan, which I recommend you complete. In today’s marketplace you can’t be the same as others in your marketplace – the competition is so fierce you won’t get a foot in the door. You have to know and advertise your USP to have any chance of success.
So, what is an USP – it is what makes your offering different to your competitors. It’s about you and your business – it could be something special you offer, some special or unique process, some exclusive merchandise you sell, your special way of doing business, some qualification you have, some special training you possess, or something special about your staff. It should offer quality, value, convenience, or any other desired attribute your market requires.
Check out your competitors’ website for inspiration, and don’t use jargon – “We are the Best,” “We offer the best service,” “We do the best job.” All of your competitors can and will claim the exact same. Make your USP something strong, memorable and of value. “Only XYZ Company can genuinely offer….” If you claim something you have to follow through, or you will quickly get a very bad reputation that could ruin the chances of your businesses success. Don’t make your USB about the lowest price, because someone will be able to offer it at a lower price and your margins will disappear.
So that is you, the supplier, dealt with. Now you need customers / clients. You must know who these are, how to find them, how to attract them to your business, how to convert them into paying customers and how to retain them and get more customers. This is part of your Marketing Plan – this needs very special attention, as without sales, you have no business. This cannot be overstated!
There is lots of information available about marketing and lead generation, so I will leave that for another time, but in the meantime check this https://ayd.net.au/the-importance-o…eneration-system/, and this https://ayd.net.au/can-you-use-10000-or-more-in-extra-income-this-year/ and there are articles 14 Effective Ways For A Service Business To Get New Clients go here to download or this one for retail, wholesale or importing 19 Super Ways To Get Extra Sales For Retail Businesses go here to download
Hopefully you will now have some idea about how to prepare for your own first small business and avoid many of the pitfalls awaiting the unwary and inexperienced. If you know of anyone who is struggling for sales / income send them a link to this blog, or request they make an immediate appointment for their FREE initial consultation. Don’t let them perish – it’s a very long road back! Thanks for reading this blog, why not subscribe to get it send directly to your inbox weekly?
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