Home – New Forums Starting your journey Free advice for people thinking of starting their own business

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  • #995345
    Chrispro
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    The very first thing you need to do is have a long hard think and work out whether you really should start your own business. Do you have the skills to do so? It may sound a bit silly but I’m completely serious. To expand on this: in my small business career I have a come across a LOT of people who run their own business – but not well. There are numerous tradies (for example) who a few years after finishing their apprenticeship say to themselves “I can start my own plumbing business and keep all the profits instead of only getting $x per hour and the boss gets the rest”. Sounds pretty simple. Yet so many of these people are good plumbers, but not good business people.

    I think the key here is to work out whether you’re the person who should be working IN the business or ON the business. It has been said that a lot of small businesses don’t reach the heights they could because the owner was too busy working in the business rather than on the business. This is true, however in many cases I think the real issue was that the owner was never the right person to be working on the business in the first place. I can’t count the number of times that it has taken a particular trades-person many months to send an invoice; or on the other side of things when I have supplied something to a small business and it has taken many months to get paid (not because they didn’t have the money but basically because they never got around to it). Needless to say, this is not a good way to run a business.

    So, what’s the point of this post? Well, please, before you start a business (or when you’re in the process of doing so) you really need to take a look at yourself and honestly assess whether you have the skills to run the business successfully. You might need to ask others who know you well for some brutally honest assessment as well. It could save you a lot of headaches. Oh, and just because your better half is going to do the books for you does not mean they are an accounting or tax expert!

    Should this post be viewed as something negative? No – I don’t think so. It’s about being honest with yourself. Review what your strengths and weaknesses are. And in doing that you might realise you’re not the right person to run your new business. Does this mean your business dreams are dead and buried? Absolutely not! It means that if you are still convinced about your business idea you might need to think about other ways of making it happen. Like bringing in experts to do your IT, accounting and marketing. Or think outside the square a little – maybe you are mates with a business person who knows you’re a brilliant plumber and he might be interested in coming on as an investor and providing a business manager to do the stuff you’re not good at.

    Food for thought I hope…

    #1201286
    James Millar
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    Chris it’s a great sentiment but I can tell you from many years experience advising SME’s on financial matters, many people make decisions from the heart and not the head. You only need to review the number of posts on this forum from new micro’s that have already started a business and are asking very basic financial questions. How do I determine my prices? How do I calculate GST? When and how do I pay it? What tax do I pay on profit? How do I calculate profit? The truth is that if you don’t have a handle on these things before starting a business then you shouldn’t start one. Nevertheless many still do. Its a fine line between supporting the pursuit of dreams versus preventing people from wasting hard earned savings.

    We partly blame the proliferation of online company and trust establishment websites. The upside is that they provide easier and cheaper access to these services for people that know that they’re doing (maybe 10% to 20% of users). However there are also thousands of people now starting entities with no understanding of the structure or their venture financials. They no longer speak with lawyers and accountants whereas 10 years ago using a professional adviser was the most common way to setup a new entity. So back then we could apply the brakes and provide some perspective before mistakes were made. Now we spend a lot of time rectifying errors and giving unfortunate and avoidable bad news. Or worse cleaning up a failed venture that may have been prevented.

    Helping build better businesses and better lives with expert financial and taxation advice. info@360partners.com.au www.360partners.com.au 03 9005 4900
    #1201287
    Chrispro
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    Yes – absolutely. The heart often overrules the head. And it is all too common for people to start a business just because they have an interest in something and figure it would be cool to get paid for doing what they enjoy. That is great in theory (and I’m not saying it can’t happen), but I wish some people would really take stock of things before taking the plunge.

    I guess it was some of those sort of questions that prompted this post. Though with that said I suppose it is always better to ask those questions than not to – I’ve no doubt asked some dumb questions in my time…

    Yes, I’m sure your right – a lot of websites make it sound incredibly easy when it is not always so. Ironic thing is that I do have some understanding of those structures (but not enough) so still use professionals for assistance in those matters even though I possibly could do it myself.

    #1201288
    Greg_M
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    An old business associate and I were talking yesterday about just this subject as it relates to the construction industry…where many become subcontractors, or self employed.

    We’d both acknowledge that we made most, if not all of the errors you mentioned, but being young and possibly a little stupid acquired some acumen through perseverance and losing a lot of our own money.

    I’m not sure about other industries but using pyramid contracting in building is almost standard practise, which forces many tradespeople into calling themselves self employed contractors, or they don’t have a hope of working at all. They are also “price takers” generally and often don’t have the margins (or knowledge ) to implement better practices.

    I no longer employ anyone, but this same associate does, it now costs him not much shy of $80 per hour to put the lowest common denominator onto a site on proper wages.

    The above rate can look pretty attractive to a “newbie” (or even a portion of it if you’re not working regularly), so when someone say’s I’ll give you $40 an hour to call yourself a business, they jump at it.

    Despite a lot of noise from bureaucrats, taxation dept, government and the unions the status quo hasn’t changed much in the 40 odd years I’ve been involved.

    I don’t know if you guy’s can suggest any real answers but until there is one I suspect dills will keep going into business in this industry, and any others where the cost of direct employment has got out of control.

    #1201289
    James Millar
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    Yes Greg there are industries that are a special case like construction and other forms of individual skill based consulting. As you point out, those individuals are almost compelled to incorporate (a company) by the principal contractor. Obviously this assists the principal avoid some of the many compliance issues that apply to individual contractor relationships. So they jump online, start a company and away they go.

    Fortunately in those cases (individual consultants and tradies that incorporate), they aren’t really running or starting a “business” so they don’t outlay much if any on resources or equipment, leases etc. Not a lot to lose and less to go wrong. There is little to no business goodwill so restructuring has been easy in the past. The downside is many think they can split income or shelter at the corporate tax rate but unfortunately both PSI and Part4A apply to preclude that for a one man show in most of these cases. I would guess 9 out of 10 accountants wouldn’t know much if any about the application of Part4A alienation of personal income requirements which sit in the background and separate to the PSI legislation. Most think its just a case of passing the prescriptive PSI tests and then they are all good to split. This is simply not the case.

    Anyway back on point. People will keep wasting money on businesses that had no real hope even in the best of hands. Chasing a dream of self employment and financial freedom only to learn the hard way. Get advice first!

    Helping build better businesses and better lives with expert financial and taxation advice. info@360partners.com.au www.360partners.com.au 03 9005 4900
    #1201290
    James Millar
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    Chrispro, post: 238545, member: 84887 wrote:
    Yes – absolutely. The heart often overrules the head. And it is all too common for people to start a business just because they have an interest in something and figure it would be cool to get paid for doing what they enjoy. That is great in theory (and I’m not saying it can’t happen), but I wish some people would really take stock of things before taking the plunge.

    I guess it was some of those sort of questions that prompted this post. Though with that said I suppose it is always better to ask those questions than not to – I’ve no doubt asked some dumb questions in my time…

    Yes, I’m sure your right – a lot of websites make it sound incredibly easy when it is not always so. Ironic thing is that I do have some understanding of those structures (but not enough) so still use professionals for assistance in those matters even though I possibly could do it myself.

    Absolutely nothing wrong with asking any questions (simple, stupid or otherwise). However taking action, signing agreements, starting entities and spending money prior to understanding is risky and in some cases outright foolish.

    The smartest thing you can do in life is know your own limits and seek professional help to fill the gaps. I guess the problem is that accountants come in all shapes and sizes and some are more capable than others at making a genuine difference at this stage.

    Helping build better businesses and better lives with expert financial and taxation advice. info@360partners.com.au www.360partners.com.au 03 9005 4900
    #1201291
    bb1
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    Guys although I agree with you I also disagree with you (I have a bad habit of doing that).

    You also run the risk of paralysis by analysis, or spending the next 10 year learning, learning and analyzing to the point where the great idea never gets of the ground, and 10 others overtake you by the time you even think of putting your toe in the water.

    Sometimes you just have to jump into the deep end and learn on the job, isn’t that how we all start off.

    #1201292
    James Millar
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    bb1, post: 238556, member: 53375 wrote:
    Sometimes you just have to jump into the deep end and learn on the job, isn’t that how we all start off.

    True Bert, but you know how to swim pretty well. Most don’t and they sink to the bottom.

    I think the saying goes…”A good plan today is better than a perfect plan tomorrow.” I would add. ….”No plan at all is just foolish.”

    Helping build better businesses and better lives with expert financial and taxation advice. info@360partners.com.au www.360partners.com.au 03 9005 4900
    #1201293
    bb1
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    JamesMillar, post: 238557, member: 5318 wrote:
    I think the saying goes…”A good plan today is better than a perfect plan tomorrow.” I would add. ….”No plan at all is just foolish.”

    Don’t worry I agree with you on that James

    #1201294
    Rohan@TD
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    Chrispro, post: 238523, member: 84887 wrote:
    So, what’s the point of this post? Well, please, before you start a business (or when you’re in the process of doing so) you really need to take a look at yourself and honestly assess whether you have the skills to run the business successfully.

    As part of our business planning support we advise our clients to SWOT themselves, identify their development needs and then add achieving those to their business plans. We have had a good response from it. Most people are more focused on which widget to utilise than their own ability.

    #1201295
    Chrispro
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    @ Greg_M – yeah, the construction industry is rife with the practice and I’m not sure I have any better suggestions than what I’ve given in my first post.

    @ JamesMillar – indeed, that’s the point to any lurkers reading this thread – be honest with yourself and know your limits. Good point also Bert, and I think James hit the nail on the head here: “No plan at all is just foolish.”

    @ Rohan – the point here is that your clients are smart enough to come see you in the first place. What concerns me are the numerous people out there who don’t seek any direction until too late.

    #1201296
    Mischelle
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    LOL, Chris if I knew everything I do now when I first started, god life would have been easier :). LOL LOL OK, I will be honest……

    I started my business 16 years ago, it has had it’s ups and down.

    When I started I knew diddly squat about running a business, I really should have taken a step back and questioned myself, but I made the decision to go for it, but I did do a lot of planning and research, I quit my very good management mining job and jumped in, BUT I got a contract bookkeeper and a very skilled admin person to run all aspects of the back end of my business.

    I knew nothing about accounts, tax, ASIC, websites, branding, marketing, sales, pretty much anything to do with a business, and worst of all I had no interest in learning these things, I wanted to focus on doing what I do best and get money rolling in, which could have back fired completely, but somehow my staff kept me in line and now we are a strong business with a solid client base.

    Over the years I have learned many of the thing I hate on the business side, I forced myself to learn them and I still have very skilled admin and accounts people supporting me.

    Rohan, yes I do a SWOT on myself and my business every year and I did one 16 years ago before I jumped in :)

    In hindsight, if I questioned myself too much 16 years ago I probably would never have taken the leap.

    BUT I believe some people should never start a business, they have ideas that they don’t research and don’t understand if there’s actually a need and then they wonder why their business is failing.

    #1201297
    Rohan@TD
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    Also, you don’t know, what you don’t know. SWOTs are great tools when done objectively, but not everybody has those self assessment skills or the knowledge to know what they don’t have. Even using a SWOT, opportunities and threats are often misdiagnosed due to a lack of business/industry knowledge.

    #1201298
    Chrispro
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    Mischelle, post: 238608, member: 60404 wrote:
    LOL, Chris if I knew everything I do now when I first started, god life would have been easier :). LOL LOL OK, I will be honest……

    I started my business 16 years ago, it has had it’s ups and down.

    When I started I knew diddly squat about running a business, I really should have taken a step back and questioned myself, but I made the decision to go for it, but I did do a lot of planning and research, I quit my very good management mining job and jumped in, BUT I got a contract bookkeeper and a very skilled admin person to run all aspects of the back end of my business.

    I knew nothing about accounts, tax, ASIC, websites, branding, marketing, sales, pretty much anything to do with a business, and worst of all I had no interest in learning these things, I wanted to focus on doing what I do best and get money rolling in, which could have back fired completely, but somehow my staff kept me in line and now we are a strong business with a solid client base.

    Over the years I have learned many of the thing I hate on the business side, I forced myself to learn them and I still have very skilled admin and accounts people supporting me.

    Rohan, yes I do a SWOT on myself and my business every year and I did one 16 years ago before I jumped in :)

    In hindsight, if I questioned myself too much 16 years ago I probably would never have taken the leap.

    BUT I believe some people should never start a business, they have ideas that they don’t research and don’t understand if there’s actually a need and then they wonder why their business is failing.

    Well done Mischelle. The great thing is that you did do the research, you understood your weaknesses and you did something about them. Trust me, if there as anyone who could have been caught by analysis paralysis it would have been me! It has happened before and it will likely happen again. But in terms of my business I observed that most people in my industry failed within a few years because they over-capitalised – they lease a shop, bring in a heap of stock and put on a couple of staff before there is even any work there. So I resolved from the start to do the opposite – I used a small shared office space, did everything myself (except some book-keeping, etc which I contracted out) and carried virtually no stock. Operating with minimal expenses is definitely what allowed me to survive so long, including the GFC. It’s not that I knew everything – far from it in fact since I am still learning every single day – but I went in with my eyes wide open and a decent understanding of what the major risks were.

    #1201299
    Mischelle
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    Hi Chrispro,

    I totally agree with the over capitalizing, we also started with a shared office, which was brilliant actually because you are surrounded with people in the same boat as you and often with different skills sets, so you can bounce things off them, and also gave my admin person someone to talk to when I was out with clients :)

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