Why Start A Business?
Why Start A Business?
There are any number of reasons why you might want to start your own business. A passionate idea, a desire to be independent, in control of your work life, to wish create wealth for yourself and your family. But the truth is, starting and operating a small business brings with it a great deal of hard work and a high risk of failure.
With this in mind it’s important to think long and hard about whether the risks are worthwhile. More importantly, to carefully plan how you will go about mitigating those risks.
Research shows that as many as 4 out of 5 new businesses fail by their fifth year of operation.[i] The good news is, with a little planning and forethought, this doesn’t have to be you. According to the Australian Centre for Business Growth there are five key reasons businesses fail:
- Lack of leadership and management skills
- Insufficient market research and sales skills
- Mismanagement of finances
- Underestimating the impact of external factors
- Poor governance structures
So now that you know some of the possible pitfalls, you can avoid them. And before you go thinking you have to know all that stuff yourself – you don’t. There are plenty of professionals out there who can help ensure you don’t fall victim to any of these factors.
Let’s take a look at some things to consider if you are planning to start a business.
Working Towards The Future
One of the key things to remember when you wade into the waters of setting up your own business is that you are working towards future goals. Any small business owner will tell you, there’s no such thing as a 37.5 hour week, and many of your employees will probably take home more money than you on a weekly basis. Not to mention you will have to carry a great deal of responsibility.
All that said, as a business owner your net worth is based on the value of your business, so on average you will have a higher net worth than PAYG workers of similar age. However, since most small business owners opt to direct any surplus funds back into growing the business, many have much lower superannuation balances. Of course, you can look at your business as ‘super’ if you plan to sell it when you wish to retire.
Protecting Your Investment
Many small business owners use their family home as security for business borrowings. This is a requirement of many lenders because they want to ensure the business owner has a vested interest in the success of the business.
For this reason, having the right insurances in place to protect your home, the business and yourself as the key person in the business is essential.
Using a combination of life and income insurance to protect your home and income, and key person and business overheads insurance to protect your business, you can ensure you are able to continue to meet your obligations whatever life throws at you. A skilled Financial Advisor can help you understand the types and levels of insurance you will need in order to start a business.
Succession Planning For Success
If you read our recent article on Family Business Succession Planning you will gain a good understanding of how important it is to plan for what will happen when you wish to retire, or are no longer able to take an active role in running your business.
This is especially important if you are looking at your business as a continued source of income in retirement, or you have been looking at the business as your ‘superannuation’ and are planning to sell.
Without a clear and effective succession plan you limit the value of the business as a saleable asset, since the owner often ‘is’ the business.
Should you do choose to sell your business, good advice on where you stand in relation to small business capital gains tax (CGT) concessions can significantly reduce a potential tax liability.
If you take one thing from this article, it should be that you don’t have to do this alone. Getting trustworthy, specialist advice is vital. Many small business owners are inclined to go it alone and rely on themselves, but surrounding yourself with advisers you can trust will not only take the pressure off you, allowing you to focus on what you do best, but it will ensure your business does not become one of those statistics.
Your business support team should include a good solicitor, accountant, tax specialist and financial advisor. In the early stages you can also pick up advice from government departments,[ii] Australian Small Business & Family Enterprise Ombudsman[iii] and the Australian Tax Office[iv]. You might also check out your local Chamber of Commerce, to see if they are active and have people who can help with advice and mentoring.
If you would like to start a business and are not sure where to begin, or you need advice on financing, succession planning, business insurance or any other aspect of setting up your business, Manly Financial Planning has the expertise to help. Give us a call on (02) 9976 3388 or contact us via the below link.