There are over 2.17 million businesses in Australia. Most of them are considered small businesses with under 20 employees.
The numbers on business survival from the Australian Bureau of Statistics* is eye opening if you are thinking of starting your own business:
- Most trading businesses are un-incorporated (i.e. sole traders – so really an individual trading under their own name).
- In the period between June 2012 to June 2016 – only 59.9 per cent of sole-traders survived in business. That is a whopping four out of every ten sole-traderships not surviving after four years!
Starting your own business can be very rewarding – but a lot of hard work. I have established two businesses in my time. So, what can you do to ensure you are a survivor? Better still, what can you do to ensure your new business is a success?
Start with a budget
Prepare a budget of what you expect to earn in your first year and what you expect your expenses to be. Sit on this budget for a few days before you revisit the numbers. In my experience in having started my own business and talking with my clients who have done the same, most were overly optimistic in what they would earn in the first year and woefully underestimated expenses for the first year. There is some truth that when you revisit your budget, halve the expected earnings and double the expected expenses. This can be quite a realistic financial outcome.
You also need to be prepared that it may take longer to secure clients or product sales. Thus, it is helpful if you have some savings put aside to help cover your living expenses for a period of time. Have a clear idea in your mind how long you can work on the start-up phase of the business before you will need to start drawing an income to cover the normal living expenses of live such as mortgages, bills and transport expenses.
Some things you may be able to do to help reduce household cash flow whilst you are starting up your business include:
- Change your mortgage repayments or investment property repayments from principle and interest to interest only. Based on a $500,000 mortgage, this could save between $3500 to almost $8000 a year in home repayments.
- Seriously review all the subscriptions you have and regular payment plans to “things” – these days with Pay TV, music subscriptions, magazine subscriptions, sports memberships, gym memberships etc. – the outgoings to add up. It is important to still keep balance in your life whilst you are establishing a business. But if you have not used any of these subscriptions for the last three-months, maybe it’s time to cancel them.
- Be realistic with holiday plans in your first year. I’m not saying cancel holidays all-together, but that big trip to Europe in a year where your income will start at zero again may not be the smartest idea if you are paying for flights with your credit cards. A local holiday is just as good to recharge the mental and physical batteries. Plus, a lot cheaper.
In the next instalment of this piece we’ll look at setting yourself up as a business professionally from day one.
Andrew Zbik, Senior Financial Planner, Omniwealth
