Tips to starting a successful business
The sad fact is that the majority of small business failures are avoidable. The following points are a few basic tips to ease you into the process of starting a new business and will be discussed in more details below:
- Put a basic plan into place;
- Set some goals for your business;
- Determine your marketing strategy;
- Determine your fixed costs and break-even point;
- Prepare in advance;
- Get some basic accounting and finance education;
- Adopt a ‘lean’ start-up approach;
- Develop a process and procedure manual; and
- Become the (Chief Executive Officer) CEO of your business.
Put a basic plan into place
This is such an obvious step, but yet so many businesses fail to put a plan into action. The thought of preparing a detailed business plan is extremely daunting. The key is to ‘Keep It Simple’! A detailed business plan is very structured, extremely lengthy and can be difficult and time-consuming to prepare.
Your first plan does not need to be a 20-page document covering every aspect of your business. You can put a basic plan together in approximately three pages (two pages written and one page numerical), covering the most important variable within your proposed business.
Always keep in mind that your business plan will be a continuously evolving document to be elaborated, adjusted and adapted to changing circumstances and objectives. Similar to rolling a snowball down a mountain, what was once a small three-page plan, will gain momentum and evolve into a fully detailed and structured plan at a rapid rate. The first step is ‘putting pen to paper’, which is more than the majority of small business will achieve. As you gain results from your basic plan and you realise its full potential for your business, it will be a rewarding document to work on.
We will cover some of the important areas that you can explore in separate headings below.
Set some goals for your business
A good starting point for your business plan is to set some initial goals. What would you like to achieve in your business in the next 1-5 years? Make three headings (Short-Term, Medium-Term and Long-Term) and just start brainstorming the first things that come to your head for each of these categories. Also list any key milestones along the way, for example, reaching a certain level of sales by year one, employing a new staff member, moving into or upgrading your business premises, etc.
Some personal goals here can also be helpful and you can easily become a ‘slave to your business’ otherwise. Why did you want to start the business in the first place? What are you hoping to get out of it? What hours are you planning to work and how will this impact your family and friends?
Determine your marketing strategy
Another area to explore is the key marketing components of your business. What is your point of differentiation from your competitors or Unique Selling Proposition (USP)? For instance, why would a consumer come to your business as opposed to going to an already established competitor?
It is helpful to search for your country or state business name register (ASIC in Australia) to see if your business name is available. It is also handy to do the same with a domain. It may be difficult to obtain a .com as they are often purchased by marketing businesses already, in an attempt to on-sell them at a premium. If the .com is not available (or .com.au in Australia), i.e owned and currently idle, consider an alternative like .net/.net.au, etc. You can always check the renewal date of your desired domain, set a recurring reminder and check it on an annual basis to see if it becomes available in the future.
Once you have a domain, be sure to set up your email accounts to reflect this, rather than a Gmail or outlook email which may appear unprofessional. It may come at a small fee but a worthwhile investment in my view.
Be sure to set up a basic web page for your business from the newly purchased domain. It doesn’t have to be anything special however you would be surprised what you can put together from the many available templates – see providers such as WordPress or Godaddy.
Many businesses have no online presence at all. By having an active website, you can back-link all of your social media accounts and get as much traffic to your site as possible to help with your SEO. This is where your business displays on a search engine when somebody types in and searches for your name, or keywords related to your business and industry.
You can get a professional to assist in this area however, if you run a good business and market well, you will see over time that you will naturally climb up the ‘google ladder’. The more active you are with your website the better you will be. Exercises such as regular updates or blogging will further assist with your SEO position.
Determine your fixed costs and break-even point
As part of your simple business plan above, the final numerical component should be a monthly cash-flow report/projection.
An important starting point is making a list of all of the Fixed Costs that will be incurred as a result of you running your business. These are costs that will be incurred regardless of whether you make any sales or not and include items such as rent, telephone, utilities, motor vehicle, accounting fees, employee wages, insurance, etc. These will typically be a reoccurring cost for a similar amount, so you can perform the exercise for one month and simply transpose the figures into each of the remaining 11 months on your spreadsheet. If any costs are quarterly, biannually or once-off, simply enter these into the required period manually afterwards.
From here, I would then go ahead and input any additional once-off costs that you foresee. For example, you might anticipate purchasing a new piece of equipment in five months’ time once profits build-up (i.e. a new computer, printer, etc.).
Your Costs of Sales (i.e Materials & Supplies, stock, etc) are Variable Costs that increase for every dollar in sales that you produce (as opposed to a fixed cost that will remain the same). To convert your total fixed cost figure into what level of sales you will need to make to cover both fixed and variable costs (i.e. your break-even point), simply divide it by your average profit margin on your sales.
For example, if your average profit margin/mark-up on your sales is 70%, simply divide your total fixed costs by this figure to calculate your break-even point. I.e $10,000/.7 = $14,285. This means that you must make $14,285 to cover all the costs of your business in a particular month (including your desired wage).
Sales – $14,285
You can do this calculation on your annual totals, however, I would recommend performing it monthly, which will allow you to break it down and asses more regularly.
Now that you know your minimum sales target, this should be your primary focus moving forward i.e. what do you have to do to meet these sales markets, how many clients do you need, how many products do you have to sell per day, etc.
Prepare in advance
If you are thinking of quitting your wage employment to start your own business, spend at least three months completing the above exercises and any other planning and setting up required before you put in your resignation. Use after business hours, weekends, public holidays or leave entitlements to prepare in advance rather than taking a holiday or socialising with friends or family.
By planning and preparing whilst you are still earning a steady income will help you get a head start, minimise risk and improve your chances of success in your early period of trade. Although preparing and planning will help your business succeed in the future, it will impact your short-term cash flow if you wait until after you have resigned to begin this process. Preparing in advance, whilst you are still gainfully employed, will allow you to hit the ground running as soon as you commence your business and ensure you can maximise your revenue from day one.
Get some basic accounting and finance education
Although many new business owners will seek assistance from a professional business advisor or accountant, getting some basic accounting and finance knowledge on your own accord will dramatically boost your chances off business success.
Some key questions to answer and areas to get a better understanding of (which I will cover in future articles) include:
Profit & Loss/Statement of Financial Performance
Cost of Sales/Goods
Goods & Services Tax (GST)
PAYG (Pay As You Go) Withholding
PAYG (Pay As You Go) Instalments
Fuel Tax Credits
Fringe Benefits Tax
Adopt a ‘lean’ start-up approach
When starting a new enterprise from scratch (as opposed to buying an existing business or franchise), consider taking a lean start-up approach. Rather than starting out big and investing large amounts of capital to have the latest technology and equipment, consider starting with the bare essentials and for as little cost as possible. By starting lean, you are taking a more gradual approach to your business. As profits grow, you will continue to invest these back into the business to gradually upgrade and/or purchase new items as the business proves it can afford them.
The three major benefits of this include:
- If you decide that business is not for you, it is quite easy just to walk away as you have not invested large amounts of money.
- It will ensure you have greater amounts of surplus capital at your discretion, which will be essential to your businesses survival. Not only will this help fund your living costs during the development period (when profits are minimal), it will also be a saviour in the event of unforeseen circumstances. In your businesses infancy, you are open to higher amounts of risk as your processes and procedures are still developing. As you go through this period of trial and error, costly mistakes will often arise. Without a health ‘cash buffer’, your business could easily be over before it begins.
- Growth will be more steady and manageable. This will ensure the consistent quality of your products or services and enable you to refine and develop the internal aspects of your business.
If you invest large sums or borrow money to grow too rapidly, your business will lack a solid foundation and most likely crumble on itself. All it takes is one major customer not to pay and you could be unable to meet large wage or loan repayments in any given week.
Some examples of taking a ‘lean approach’, might include:
Starting a ‘home-based’ or mobile operation rather than getting locked into an expensive lease on a premise.
Purchasing second-hand or base model furniture, equipment and/or vehicles (if required).
Employing minimal staff initially, and doing so on a casual or trial basis for as long as possible. If staffing costs get too expensive or a particular employee is not working out, it will be very easy to adapt and downscale.
Develop a process and procedure manual
The best thing you could ever do for your business and its future success is to create a well-documented process and procedure manual that covers all the steps involved in relation to every aspect of your business. Some of the greatest business in the world have masted this approach and capitalised on it through the creating of hundreds of franchises.
From your internal operations, human resources down to the way you deliver your products or services, and internal process guide will ensure you limit mistakes and are consistent in all of the areas of your business. A good online program that I use for my business is Process.st. This gives you the ability to create checklist templates with videos, pictures, document uploads and web links. Any given task to be completed can be searched for in the home screen, a checklist template can then be generated and the task completed according to the given instructions on the checklist. The more time you invest in developing your processes, the better your business will become.
Similar to your business plan, this will be an evolving document that could take a couple of years to master. My advice is to work on it bit by bit every day or week. Each time you developed a detailed checklist template, you then have the ability to delegate that task and never perform it yourself again. For instance, if you have to repeat yourself with the same instructions over and over to the same or multiple staff member, by turning them to your newly developed process with an instructional video and resources, you can then focus on the tasks that are more important and directly related to generating sales or growing your business.
Become the (Chief Executive Officer) CEO of your business
Just because you might be good and delivering the products and or services in your new business, does not at all mean you will be good and operating a business in this area.
Being a good worker in a particular industry and a good business owner are two totally different skills and need to be separated from each other. As mentioned above, steps to improve your accounting and financial education, preparing a business plan and developing your processes and procedure is a great move towards being a ‘good business owner’ and not just an employee of your business.
Your enterprise is made up of multiple levels, the technicians who perform the day-to-day business operations, management who oversee the technicians and their ability to follow the processes and procedures and the business owner/CEO who manages and operates the business as a whole.
Your job as the CEO is to look at ways to grow and constantly develop and improve the business as well as making the high-level decisions.
Initially, you will be forced to do all of these roles on your own, ie. technical work, managing staff and also operating the business. As your processes develop and your profits grow, you should employ people as soon as possible to be solely responsible for the technical and management roles within your business so that you can focus on the growth and development components.
There are entire books written on this topic so I won’t go into any more details, however, I would recommend – The E-Myth by Michel Gerber, as it looks at process development and the importance of separating these business roles in a lot of detail.
There is far more to consider when starting a business, however, these are the most common and important areas that I focus on with my customers and have explored over the years. By considering all of the above, you will dramatically increase your overall chances of success by not becoming one of the 80% who will fail in the first 3-5 years.
I will endeavour to cover some of these topics in a single article in the future, however, hopefully, there is enough information to get you thinking and open up the mind to explore further on your own accord.