It’s all in the planning – part 2

Starting a retail business entails a mountain of preparation, but help is available for identifying every aspect of the finance plan that needs to be addressed.

In part one of this piece we shared Sue’s journey on starting up her own babywear retail business, what other issues she needs to address to succeed?

Legal aspects

It is important that Sue is mindful of retail legislation applying to physical as well as online shops. She should check the Australian Competition and Consumer Commission website ( to ensure her business is compliant.

Stock costs

She also needs to determine what it costs her to buy goods for resale, including wrapping and display. She needs to ensure she is not paying too much to wholesalers, and the goods need to be sold quickly to avoid stock becoming redundant.

At our centres we often see clients who have become personally attached to the clothing stock they have bought and cannot think of selling it at cost or at a loss. It is important in retail to be clinical with stock so as not to tie up money in a diminishing asset.

What is the profit before expenses are deducted? This is a good acid test to see if the business is within industry benchmarks. If Sue is paying too much for her stock, she may have difficulty making a net profit. Benchmark research – the ATO now provides some benchmarks – is essential to good business planning.

“If the owner’s drawings are not shown, it may indicate that the business is not sustainable in the long term.”

Major costs

If Sue is going to have a physical location, she will need to pay rent. Does she take a longer lease at a lesser monthly rental, or does she opt for a shorter term? Conventional wisdom would suggest a short-term lease is preferable for a new business.

Rent is a major cost and there could be other outgoings, so Sue really needs to plan so she can always cover costs. Landlords do not appreciate tenants breaking lease conditions, and will try to recover outstanding amounts.

Marketing costs including advertising can be expensive, so Sue needs to factor in what she can afford to pay to keep the business in public view.

Priorities should be insurance for public liability and possibly product liability, and general business insurance to cover theft and damage. Insuring against interruption to the business should also be considered so Sue will still have an income in the face of unforeseen events.

An important element in any finance plan is the cost of the monthly loan repayment.

Income important

It is vital that Sue receives an income from the business. This may be minimal in the early stages, but a lender will want to see that the owner has budgeted for an income. If the owner’s drawings are not shown, it may indicate that the business is not sustainable in the long term.

Whatever Sue takes from the business as drawings will be subject to personal income tax. This is calculated on an individual’s total income from all sources. Business income is not treated separately.

“The BEC network is a good starting point for the rudiments of a finance plan, progressing to a full business plan.”


This is a fairly quick overview of a business idea and the need for a comprehensive finance plan. Such ancillary but important issues as council approvals, the hiring of staff and legal requirements, have not been touched on.

Regardless, Sue needs to plan. The BEC network is a good starting point for the rudiments of a finance plan, progressing to a full business plan. The centres can also help identify all issues that need to be addressed.

Replicate & identify

Remember, failing to plan is planning to fail. A well-constructed business plan can replicate a real-life situation and identify viability concerns before the business launches, thereby saving potential owners a lot of money and a lot of sleepless nights.

Mike Hawkins, Executive Officer BEC Australia

This article first appeared in issue 13 of the Inside Small Business quarterly magazine

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