Owning a small business.
Owning and operating a small business is a great way to achieve many common lifestyle goals, among them being autonomy, flexibility, and the capacity to truly exercise entrepreneurial capacity. And a successful small business can deliver its owners genuine financial reward, too.
But operating a small business is, generally speaking, hard work and does require significant dedication in terms of time and, very often, money. The decision to commence in business (and perhaps the decision not to) will likely have an impact on your life, and the lives of those around you.
For all these reasons we recommend that, before taking the plunge and starting or buying a small business, you do some or (preferably) all of the following:
|Satisfy yourself that you are genuinely passionate about the business, what it does, and the nature of the work you will need to do. Remember, in small business, you will likely wear many hats (at least to begin with) including finance, marketing, IT, human resources, communications, client / supplier management, and much more|
|Prepare a business plan - we can provide you with a free plan or indeed help you to write a business plan. One main purpose of the business plan is to help to identify and navigate potential challenges, and moreover to test the viability of your proposed business|
|Read as much as you can about small business and different perspectives on what is required to operate one successfully. Two relevant books which perhaps express view as opposite ends of the spectrum are:
- What It Takes by Mark Bouris
- The 4 Hour Work Week by Tim Ferriss
We don't necessarily agree with all the views expressed by the authors in these books, but they do provide difference perspectives from the authors about their perceived realities of owning a small business
|Talk to other small business owners about their stories, what they love about their businesses, and what they find to be challenging|
|Take professional advice from the very beginning. There are some important issues that you really need to get right from the get-go, including business structure, insurance, terms and conditions, tax, asset protection, and more. Getting these things right from the beginning will probably save you much time and money later on.|
If you are looking for specific information about buying a small business, see here: Buying an existing business
If you are looking to start a new business, see here: Starting a new business
For information about business structures, see here: Which business structure is right for you?
If you are looking for a consult to discuss your business idea, see here: Consult with Avenue Solutions from $99
Is now the right time?
If you’re up for owning a small business, the good news is that there has really never been a better time to get going - and, as technology continues to remove barriers to entry, opportunities for micro and small businesses should continue to improve.
Small business is good for the Australian economy, a fact readily accepted by governments of all persuasions and at all levels. In its 2015 budget, the federal government announced a raft of measures, mostly around taxation, which were designed to encourage the establishment and growth of small business in Australia. These measures made the deduction of business expenditure more available (including start-up expenditure), and investment became easier to attract (thanks to favourable tax treatment of investment in start-ups). Plus, interest rates remain historically low, the Australian economy is still functioning well by world standards, and the internet is increasingly making the business of doing business that much easier. Of course, you still need to think carefully about your own circumstances, including your financial capacity (can you tolerate reduced income whilst the business establishes itself?) and the time you have to commit to your business.
What are the facts around business success rates?
You've probably heard something along the lines of 'two thirds of business fail in the first year, another half then fail in the second', or some variant of that saying. Pleasingly, the facts are somewhat better.
If we look at businesses with turnover less than $2m per annum, which we can generally term 'small businesses' (about 95% of all business in Australia), of those that commenced operations in June 2012, 85% survived at least 1 year. Over two thirds were still trading 3 years after they started. That's pretty good. Generally speaking, the statistics* tell us that the smaller the business, the higher the risk of failure. If we look at the smallest businesses which have an annual turnover of less than $50k, then about 55% of these survived to 3 years old. Still, that is perhaps better than common discourse on the subject might suggest.
Of course, business survival tells only part of the story of the business and importantly tells us not much about the profitability of the business (many do operate at a loss initially and indeed for some years) or the experience of the business owner.
* Australian Bureau of Statistics 8165.0 Count of Australian Businesses June 2012 to June 2016
How much does it cost to start a small business?
Some small businesses can be established with very little initial capital (from $300 to $1500 depending in the type of business) whilst others will require considerably more (in the range of $2,000 to $5,000 or greater). One of the outcomes of your business plan, if you prepare one, will be that you will have a good idea of your expected establishment costs. Our Advisers can help you with business planning, and we can even provide you with a free business plan template for your use.