The period between Christmas and New Year is one in which many of us start to think about the year that’s drawn to an end, and what we want to achieve or do differently in the new year. Whilst many of us set goals such as being more organised or improving our health and fitness, some of us set the goal to start our own business. In Australia, there are more than 2 million small businesses, so that’s not surprising!
Whilst the prospect of starting a business can seem really exciting – think no asking the boss for annual leave to have a few days off, choosing the hours to work which suit you, developing an idea you are passionate about, being your own boss, the truth is that over half of small businesses fail during the first three years of operation. So what are some things we might want to think about before we start a business? In this blog post we look at 5 tips for starting a new business in the new year. Bear in mind that these are just 5 of my personal tips, there are many, many more you should be aware of. Feel free to chat to the team at Dexterous if you have any questions about starting a business.
1. Don’t quit your day job (yet)
Sometimes you can get so excited by a business idea, that you want to turn up first day back at work and hand in your resignation letter. My advice is unless you have a few years’ savings in the bank to cover your mortgage/rent and living expenses, then don’t. Not just yet. Treat your business idea as a side hustle. To start with. Then gradually wind-down your full-time hours.
Real-life example: A client of mine is a psychologist. He worked for a big company as head of psychology research, but desperately wanted to go out on his own. He had a young family and knew he only had enough cash in the bank to cover three months of living expenses. He started a sole-practice providing psychology services on a Saturday out of a spare room in a medical practice. As he built his client base, he spoke to his boss and came to an agreement where he would work part-time, 4 days per week. This has recently become 3 days a week. It has removed the start-up cash flow stress as he still worked for his employer while he was gradually building his own business. He now is at a stage where he is also drawing income from his business.
2. Start testing
Whilst you’re working on your ‘side-hustle’, make sure you test your idea. What you may think is a great idea, others may not or there may not be a market for it. Find objective people to test your idea on (because let’s face it, mum’s generally think any idea you come up with is a great one!).
Real-life example: A friend of mine started a skincare business. She would make her products from home, and give them away to family and friends as presents for their birthdays. They always loved the products, but she wanted honest feedback. She reached out through her network to find testers who would try her products at cost price, in exchange for providing honest feedback. The feedback she received helped her improve her products, and she also realised that her ‘favourite’ product, was not actually that well received by the group and was not very marketable.
3. Develop a business budget
Work out how much money you think you will need to start your business. Then double it. One thing about businesses is that things end up costing a lot more than you think they will, especially when you are just starting out. A good tip is also ensure you run your startup costs by an accountant who can often quickly recognise if there are costs you have forgotten.
Real-life example: Maria, a client, was starting a business selling baby wares. She had come to me with her business budget. Quickly I realised there was a very important line item missing – product insurance! Being in the baby industry, product insurance is generally quite expensive, and once we factored in product insurance, it really changed her budgeted numbers. This made her re-evaluate whether she had enough start-up capital to begin her business, and also whether the selling price she was considering selling her items at needed to be increased.
4. Develop a personal budget
Work out how much money you think you will need to start your business. Then double it. One thing about businesses is that things end up costing a lot more than you think they will, especially when you are just starting out. A good tip is also ensure you run your startup costs by an accountant who can often quickly recognise if there are costs you have forgotten.
Real-life example: Remember the client of mine who was a psychologist from tip 1? When he put together his personal budget he calculated that his savings would cover only 3 months of living expenses.
5. Put a plan in place
How many times have you heard friends say “I have a great idea for a business but I just don’t know where to start”. The best place to start is simply to start. Putting a plan in place doesn’t necessarily mean having a detailed business plan, but what it does mean is mapping your idea and considering what steps are required so that it can become a business.
Real-life example: A relative of mine had an idea for a business, but didn’t know where to start. She had downloaded a 100+ plus business plan template online, and felt completely overwhelmed by the level of detail. Instead, I told her to use the headings in the business plan as a checklist and ensure you have covered the points in the checklist as they apply to her business. For example – what is the idea? Who is the target market? How do you register your business? What insurances do you need? In this example, I was able to help her but it is often a good idea to book a 1-2 hour consultation with an accountant or business advisor who can help identify if there’s any areas, particularly compliance related, that you have missed and need to be aware of.
Starting a business can bring so much excitement, fulfilment and flexibility. However, it can also be very stressful and there are so many factors, particularly financial, that you need to consider before starting. These 5 tips were based on common scenarios I have seen throughout my professional and personal life, however there are many others that could have been added to the list. If you have any questions, or would like to discuss starting a business, get in touch with the team at Dexterous.
