You Need To Plan To Start A Business
Planning the start of a business is no different. You need a plan that you have sat down and thought about and that you have given some thought to “contingencies” that could occur – for example 2 years ago most people would not have envisaged lockdowns and border closures like we are currently experiencing in Australia. This emergency has highlighted the necessity for people planning on starting a business to really think through what could happen to the business and build “contingency plans” into their overall business plan.
The best plans are committed to writing, rather than just being in your head. In the plan you should consider:
- How is the business going to operate?
- What is the market for the products and services that the business will produce?
- What is your marketing plan built around social media, your website and local media?
- What are your strategies for how sales are going to be made to potential customers?
- What are the working hours for this type of business – will these hours suit you and your family?
- Have you thought about “contingencies” and built them into your plan?
Knowing “Breakeven” Helps
“Breakeven” sales are the level of sales necessary to cover all fixed and variable expenses. This gives the point of no profit or loss.
A fixed expense is an expense that does not vary relative to production or turnover within reasonable production or sales levels. Rent would normally be considered to be a fixed expense and would not vary until such time as it was necessary to obtain larger premises. Management salaries would also normally be considered as a fixed expense. Some staff salaries would also be considered fixed expenses but, in the main, staff salaries that relate to production or sales would normally be termed a variable expense because variable costs normally move directly in relation to increase in production or sales by the business. To calculate the breakeven you also need to know the gross profit percentage for that particular operation within the business.
To determine your breakeven for a particular operation within your business, prepare a list of the fixed expenses relating to the business or to that activity and then prepare a list of their variable expenses that relate to that activity and add these two figures together.
Example: If the fixed costs were $195,750 and the variable costs were $392,000, the total would be $587,750. If the business was achieving a gross profit of 32%, then the calculation of the breakeven sales would be as follows:
|Total of Fixed & Variable Costs||x||100||=||Breakeven Sales|
|Divided by Gross Profit %||1|
|Gross Profit Percentage||32%|
|Gross Profit||$ 587,750|
|Total Expenses||$ 587,750|
Customer Loyalty Ladder
In the first instance, a “Viewer” is someone in the marketplace who could buy from you, but is currently not a prospect or a customer.
“Prospects” are people who are not yet customers, but who have shown some sort of interest in the products or services offered by your business. They might have responded to advertising or social media or may have requested a quotation.
The greatest cost every business has is attracting prospects and then getting these prospects to take the next step to become customers.
“Customers” are people who buy from your business once and then cease. It is important that you do not stop your marketing/promotional activities once someone becomes a customer. In fact, you have only just started because you need to utilise systems, encourage staff attitudes and business knowledge to take customers to the next level.
“Clients” are people who buy from your business more than once, so you need to continue to promote and market your business to them – show them you care!
“Member” a member is a client who has dealt with your business on a number of occasions, who you then offer a “Loyalty Card” or other inducements to make them feel they are an “important component to your business”.
“Advocates” people classified as advocates are different to members because, when asked, they’ll recommend your business. Advocates need to be people who are well recognised by your team as being people who are prepared to be proactive to viewers and prospects, in their support of your business.
“Evangelists” the highest level of customer recognition is an advocate becomes an evangelist. An evangelist openly promotes your business through things they say to other people, comments they make on your website, Facebook and blogs. To develop an evangelist in your business, you need to make communications very easy and encourage members to become advocates and then to become evangelists for your business. Your team need to understand that the first sale to a customer is the beginning of their relationship, which will hopefully culminate in a customer becoming an evangelist for your business.
Then you have a loyalty ladder.
Do You Know Your Competitive Edge?
In developing your “competitive edge” you need to consider what you have to offer, that someone else doesn’t.
- What competitive edge can your business present?
- Does your business have happy customers?
- How do you create happy customers?
- What benefits can you offer to your customers that other businesses cannot?
- Have you considered what the “moment of truth” is in your business? A “moment of truth” occurs every time your business and a customer come in contact with one another. This may be direct contact (as in face-to-face), by telephone, by direct mail, on your website, by social media or indirectly, by way of the delivery firm that you use as a subcontractor.
Getting A Business Ready For Sale
- Are any changes required to improve staff performance and attitude?
- Customers – are they happy? Are there more products or services customers could purchase?
- Suppliers – have key suppliers contributed support, which is reflected in the performance of the business?
- Management – is the management team functioning at an appropriate level? Will the management team be able to drive the business’ performance, if the current owner is no longer involved?
- What type of financial data is available? Are sales dissected into component sales for each business unit within the business and are gross profit percentages and gross profit contribution figures determined for each sales component?
- What is the labour turnover percentage?
- How does the business’ financial performance compare with industry benchmarks?
- What is the “unique selling proposition” of the business?
- If the business is offering credit terms, how effective is the debtors’ system?
- What are the debtors’ days outstanding?
- Has all intellectual property, owned by the business, been appropriately documented and have any ownership disputes been resolved with appropriate documentation?
- Will key staff remain with the business, if the sale was negotiated?
- If key staff decided to leave, could a new owner effectively operate the business, especially in the short term?
- Have you considered offering a staff retention bonus to retain key people for a period of time after the sale, so an assurance can be given to a purchaser that, at least for a period of time (say 12 months), the key people will remain in the business?
***This article will be continued in the next edition of Business Plus+.
Export Market Development Grant
Firstly, if your business (irrespective of the entity type), with a turnover under $50,000,000, incurred expenditure relative to export activities during 2020/21 your business might be entitled to an Export Market Development Grant under the old system.
To claim an Export Market Development Grant, the grant application can be lodged at any time from now until the closing date, 30th November 2021. Grants of up to $150,000 are available under this scheme from the Australian government, administered by Austrade.
The new system for Export Market Development Grant, which applies from 1st July 2021:
The old system required the business to incur the export market development expenditure during the year and then, at the end of the year, to make an application for part reimbursement of eligible expenditure. The new system becomes an “eligibility-based grant program”.
The applicant business (of any entity type), with a turnover under $20,000,000 in 2020/21, is required to complete a grant application before spending any money on export promotional activities. The grant applications for the new scheme open on 16th August 2021 and will not close until 30th November 2021.
When the grant application has been assessed and approved by Austrade, a grant agreement will then be prepared between Austrade and the applicant. Austrade have indicated that milestone payments will be made to successful applicants.
Grants will be available in three stages, referred to as “Tiers”. The grant funding will only relate to 50% of the cost incurred by the exporter.
Tier 1: Ready to Export
Maximum two years and maximum $40,000 per financial year.
Tier 2: Expanding
Expanding your export promotion activities.
Maximum three years and maximum $80,000 per financial year.
Tier 3: Expanding and Strategic Shift
Expanding your export promotion activities and making a strategic shift, for example targeting a new market or a new type of customer.
Maximum three years and maximum $150,000 per financial year.
In summary, this new scheme could apply to an eligible business for eight years (not necessarily cumulative) and involve payments aggregating $770,000.
If you require assistance in the preparation of your grant application in respect of 2020/21, or assistance in the preparation of the new grant application, applicable for 2021/22, please do not hesitate to contact the accountant in our organisation with whom you normally deal.
“Jab or Job – What Should Business Owners/Managers Do?
“That is a million-dollar question in the current times. In one corner we’ve got the Work Place Health and Safety Act, which talks about an employer’s obligations to ensure that they’ve got a safe workplace for their employees and the people that they interact with, whether that be their clients or the public.
And on the other hand, we have Fair Work Australia saying that the unfair dismissal rules might apply. This has employers asking some very relevant questions. Many are wondering if they can make it mandatory for staff to be vaccinated. We’ve seen what SPC recently did, they mandated that everyone in the business needs to be fully vaccinated. It will take some of these big players to actually start that ball rolling.
My take on this at the moment is because it’s new ground it will be viewed on a case-by-case basis. I think there will be a number of employers who do not follow due process that will most likely end up facing unfair dismissal claims, should they terminate an employee for refusing to get vaccinated. However, if an employer is procedurally fair and the request for the employee to be vaccinated is a reasonable one, they will be in a much better position to defend their stance to terminate an employee who refuses to follow the employer’s reasonable direction to be vaccinated. To determine if a request is reasonable we need to consider a number of factors such as the industry that you work in and the health and safety risk to other staff members and the public. For example: Are you in an industry where you have exposure to high risk persons/such as your clients? An example of that would be the NDIS and Aged Care with many participants being in the high risk categories.
An employer in that space may determine that all staff must be vaccinated to reduce the likelihood of infection amongst staff and their clients. I think that we will also start to see some clients requesting that businesses that they work with only send staff who have been vaccinated to interact with them, examples of this may be: carers, delivery drivers etc.
For employers who do not want to make a full commitment to vaccination I would suggest that an employer aligns themselves with the current health directives from the government – an employer may let staff know that they strongly encourage vaccinations and, if employees need time off to get vaccinated, the employer will support that. This process then starts to build a body of evidence over time to establish that the employer is doing things to ensure the health and wellbeing of its employees and should the employer decide to take a firmer stance on mandatory vaccinations in the future there is a body of evidence in place which shows that the employer has been both reasonable and considerate in their previous requests. In the event that an employer made the decision to mandate vaccinations in their business based on a reasonable obligation to the health, safety and wellbeing of its employees and the public and an employee refused vaccination without a legitimate reason, the employer would be in a much better position to justify disciplinary action or termination in the event that due process was followed and any action taken against the employee was both fair and reasonable”.
Jordan Lowry, Managing Director of the Blackstone Business Group offers all clients a complimentary initial consultation in which they will give guidance on any HR issues or questions that you may have.
|Jordan Lowry, Managing Director||Level 27, 32 Turbot Street,|
|Blackstone Business Group||Brisbane City 4000|
|P: 07 3392 6145||E: firstname.lastname@example.org|
|M: 0418 287 730||W: www.blackstonebusinessgroup.