SUCCESS SECRETS - Wollermann · Success Secrets for your Small Business 2 Published by: The Advertising Department Pty. Ltd. A.C.N. 003 519 631 12 Pine street, Randwick NSW 2031Australia

SUCCESSSECRETS

for your

SMALLBUSINESS

by Peter Thorpe

How to start and grow your own successfulbusiness in Australia

Success Secrets for your Small Business

2

Published by:The Advertising Department Pty. Ltd. A.C.N. 003 519 63112 Pine street, Randwick NSW 2031Australia Tel: (02) 9314 6879 Fax: (02) 9326 6334Email: [email protected] the Business + Publishing imprint Business + Publishing is an imprint of Business and Professional Publishing Pty Ltd.First published in 2004 © Peter Thorpe

Title: Success Secrets for your Small Business

Author: Peter Thorpe

ISBN 1 875889 75 2

All rights reserved. Apart from any fair dealing for the purposes of study, researchor review, as permitted under Australian copyright law, no part of this publicationmay be reproduced by any means without the written permission of the copyrightowner. Every effort has been made to obtain permission relating to informationreproduced in this publication.

The information in this publication is based on the current state of commercialand industry practice, applicable legislation, general law, and the generalcircumstances as at the date of publication. No person shall rely on any of thecontents of this publication and the publisher and the author expressly exclude allliability for direct and indirect loss suffered by any person resulting in any wayfrom the use of or reliance on this publication or any part of it. Any options andadvice are offered solely in pursuance of the author’s and the publisher’s intentionto provide information, and have not been specifically sought.

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Cartoons by Paul Dorin

Proof reading: Frank McQuade


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“I wish this book had been available when I started out in business”.

Dick Smith

ABOUT THE COMPANION WEBSITEwww.successsecrets.com.au

It would be virtually impossible to put all the information required to startand run a successful small business into one book.

Fortunately, these days, a lot of the information you require is readilyavailable on the Internet. Only problem is – knowing how and where tofind it! With literally billions of webpages out there in cyberspace, wheredo you start looking?

To save you a massive amount of time searching for it – this bookcomes with a FREE companion website. It features useful links to furtherinformation, articles and valuable resources plus some handy tools to helpyou with your business planning and preparation.

The website will be updated regularly and you may visit there as oftenas you like to get ongoing help with your business venture. And, whileevery effort has been made to ensure the information in this book iscurrent at the time of publishing, updates will be posted to the website so,check the website regularly.

I’m sure you will find this resource extremely helpful, both initially asan adjunct to the book and as an ongoing resource to help you with yourcontinued business success.

I look forward to continuing our association online, at:www.successsecrets.com.au

Peter ThorpeAuthor


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Peter Thorpe’s experience in business spans over 30 years. In his earlycareer he held a number of senior management positions, includingGeneral Manager of Sharp Corporation of Australia.

In 1976, he decided to start his own business and since then, he hascreated a number of successful business ventures in the fields ofimporting, retailing, advertising and publishing.

In 1988, he saw an opportunity to capitalise on his extensive knowledgeof small business entrepreneurship and he started his own magazine calledAustralian Small Business Review. The publication was an outstandingsuccess and he was ultimately bought out by a large publishing house.

He created and conducted the highly successful seminar series Be YourOwn Boss. With the assistance of the Commonwealth Bank and YellowPages, the program ran for several years throughout Australia and wasattended by thousands of small business owners and aspiring owners.

Today, he runs his own marketing and advisory company helpingbusiness owners both large and small with their business strategy planningand online marketing. He is the former NSW State President of SWAP (abusiness networking club) and is a sought after keynote speaker on thetopics of business development, marketing and entrepreneurial skills.

If you would like more information about Peter Thorpe, including hisavailability to speak at your next conference or event, please visit hiswebsite:

www.peterthorpe.com.au

About the Author…

Have you ever wondered why some businesses seem to go from strengthto strength, while others just struggle along or worse still, close the doorsnot long after they open?

What do the successful people know that the unsuccessful peopledon’t? Is there really a ‘secret formula’ for starting and running asuccessful business? Is it management skills, flair, vision, knowledge,leadership ability, persistence or just plain luck?

The truth is, it’s usually a combination of all these things and more.There are no ‘secrets’as such to starting and running a successful business.There are however, lots of ‘tricks of the trade’ and shortcuts to success thatwill save you a lot of time, money and heartache.

That’s what this book is all about. Most of the wisdom it contains was gained the hard way – by making

costly and painstaking mistakes. Experience is an wonderful teacher but itcan also be a very expensive one! This book is designed to save you havingto learn these expensive lessons the same way. It is designed to give you abroad overview of the daily problems and challenges you are likely to facein your business and the best way to effectively deal with them.

I have spent almost thirty years running my own business in severaldifferent industries. During that time, I have enjoyed some notablesuccesses however, I have also had my share of setbacks. I once owned abusiness that failed, resulting in my losing virtually every penny I had inthe world. It was a dreadful experience and one that I wouldn’t wish uponmy worst enemy!

Unfortunately, every year thousands of small business owners suffera similar fate. If sharing my experiences through this book results ineven one of these failures being avoided, then the time and effort putinto writing it will have been well worthwhile.

I wish you good luck with your business.

Peter Thorpe

What’s the big secret?

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1. The Small Business Failure Myth

The generally accepted statistics on small business failure are quiteterrifying however, the good news is – they are simply not true!

2. Are You Suited?

Some people were meant to run their own businesses and someare better off working for someone else. Which type are you?

3. Which Business is For You?

Having made the decision to go into business for yourself, the nextquestion you will need to ask is – what sort of business?

4. Buying an Established Business

Should you start up from scratch or buy a business that is alreadyestablished? And, how do you evaluate the goodwill?

5. Which Business Structure Should You Use?

Should you trade as a company, sole trader, partnership or trust?

6. Partnerships

There are plenty of problems involved in business partnerships.Some of the dangers and suggested ways to avoid them.

7. The Franchise Alternative

Franchising is becoming a very popular way of entering into abusiness, especially for first time starters. However, not allfranchise systems are a guarantee of success.

8. Which Franchise Should You Buy?

If you do decide to take the franchise route, your next decisionwill be, which franchise? There are over 700 to choose from.Some tips on how to try to tell the good from the bad.

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18

24

29

36

43

51

55

CONTENTS

SUCCESS SECRETS FOR STARTING OUT

9. The Three Wise Men* (or women)To survive and thrive in business, you need three strong allies – agood bank manager, a good accountant and a good solicitor buthow do you go about selecting them?

10. Alternative Sources of Finance and Business Angels

If you have a great idea for a business or a business with goodpotential for growth but you lack capital – a Business Angel orVenture Capitalist - may be your answer.

11. Home Base or Premises?

There are over 780,000 businesses in Australia operating from ahome base. This is a good choice for many people however, it’s notsuitable for everybody and there are some drawbacks.

12. Leasing Premises

If you decide to lease business premises, you will need to enter intoa lease. A guide to help you through the leasing minefield.

13. Local Government

Many people start out in business and forget about the localcouncil, often at their peril. What to watch out for.

14. Hiring the Right Staff

Good staff are the greatest asset of any business but how do you goabout finding them and then, retaining them when you do?

15. The Seven Steps

There are a number of steps you need to take before starting out inbusiness. A simple checklist.

SUCCESS SECRETS FOR GOOD MANAGEMENT

16. Time Management

You can’t really manage time but you can prioritise the things youhave to do in the time available. Some tips to help you do this.

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69

76

81

86

90

96

102

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17. Bad and Doubtful Debts

A sale is not a sale until you’ve been paid! How to avoid bad debtsand how to deal with slow payers. Credit checking, collectionagencies and some do-it-yourself debt collecting ideas.

18. Matters Legal

Unfortunately, it’s almost impossible to be in business withoutcoming into contact with the law in some form or another. How tominimise the expense and sort through the legalese.

19. Insurance

A checklist of the main types of insurance cover you need to have.

20. Taxation and Your Business

A look at the most common forms of taxation affecting smallbusinesses and how they might impact on your business.

21. Record Keeping

A brief guide to what records you need to keep by law and how toimplement a simple record keeping system.

22. Computers – How to Use Them in Your Business

Computers in business can be both a blessing and a curse. A fewbrief pointers on selecting the right computers and software.

SUCCESS SECRETS FOR SALES, ADVERTISING AND PROMOTION

23. The Sales Challenge

In business, nothing happens until somebody sells something.What makes a good salesperson and how can you become a betterone for your business?

24. Advertising and Promotion

Maximising results from your advertising and promotional dollarsand how to get more bang for your buck.

107

113

117

124

141

146

154

159

25. The Name Game

What you call your business can have a dramatic effect on yoursuccess. Tips for finding a suitable business and domain name.

26. Customer Service

Learn how to treat your customers like kings and queens and keepthem coming back for more.

27. Networking

A highly effective and inexpensive way of promoting your business.

SUCCESS SECRETS FOR BUSINESS PLANNING

28. Pricing for Profit

What price should you sell your goods or services at and how doyou overcome price cutting competition?

29. Projecting Your Cash Flow

How to prepare a cash flow projection for your business.

30. The Business Plan

Whether you need it to raise finance or not, your business plan isstill the key to your ongoing business success.

31. Your Marketing Plan

Marketing is one of the least understood and most critical elementsof running any successful business.

SUCCESS SECRETS FOR GOAL SETTING

32. Goal Setting

To be successful in business, you need to set goals. A simple andstraightforward approach to getting to where you want to go.

Index

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200

210

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228

234

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SECTION 1:

SUCCESS SECRETSFOR

STARTING OUT

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et me start out by giving you some good news. If you arecontemplating starting your own business, you have probably been

told that the failure rates of small businesses in Australia are horrendousand your chances of surviving are similar to that of a snowball in hell! Itis not uncommon to hear people talking in terms of 80 to 90 per centfailure rates for small business start ups.

These drastic figures are enough to scare the pants of anybody and it’sa miracle anyone has the courage to start their own business at all.However, here’s the good news – these figures are totally incorrect!

In actual fact, relatively few small businesses in Australia actually fail(i.e. go bankrupt or are liquidated). Australian Bureau of Statistics dataindicates that only around 7.5 per cent of businesses cease trading eachyear. Furthermore, the majority of these exits are due to either ownershipchanges or closures, unrelated to the financial position of the business.Only around one third of exits are what are commonly referred to as‘business failures’. The majority of business cessations involve solventbusinesses closing for reasons unrelated to their financial position – suchas when the owner retires, dies or seeks a different lifestyle.

Contrary to common perceptions, most Australian businesses survivefor a considerable time. In fact, around two thirds of businesses are stilloperating after five years and almost half are still operating after 10 years.Even after 15 years, around one third of businesses will have survived.

1. THE SMALL BUSINESSESFAILURE MYTH

“Twenty years from now you will be more disappointed by the things you didn’t do, than by the ones you did. So throw off the bowlines. Sail away from the safeharbour. Catch the trade winds in your sails. Explore. Dream. Discover”.

Mark Twain

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The Small Business Failure Myth


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Therefore, in reality, your chances of achieving success are better than 90per cent. And, if you do your homework well and plan thoroughly, you canincrease the odds in your favour even further.

The above facts and figures were extracted from a publicationcalled: Business Failure and Change: An Australian Perspective, I Bickerdyke, R Lattimore and A Madge 2000. ProductivityCommission Staff Research Paper, AusInfo, Canberra and datapublished by the Australian Bureau of Statistics.

So, why do people continue to perpetuate the myth that the majority ofsmall businesses fail? And why aren’t people shouting from the rooftopsthat most of the figures quoted on business failure rates are plainly wrong?There can be no doubt this perpetuated myth of excessively high failurerates would have discouraged many a small business entrepreneur fromtaking up the challenge.

I believe most of the figures you see quoted in the media relate to asurvey that was undertaken a long time ago by one academic. Thisindividual, although well-meaning, had very limited resources and hisfindings were based on a very small sample – typically by recordingbusiness names and then checking years later to see if the business was stillin existence under that name. Little or no follow up research was done intowhether or not the businesses involved had actually failed and if so why.Because no other research was readily available at the time, these figureswere accepted as factual and the myth was perpetuated.

So, why don’t you see the correct figures used in the media now? I believe simply because good news doesn’t sell newspapers and why

spoil a good story by researching it too much! Anyway, now the secret is out – it’s official – so tell everyone you know!

A word of warning:

Just because small business failure is nowhere near as bad as it is reported,does not mean to say that you should not be very concerned about the riskof failure. Starting and running a successful small business is no easy taskand it’s going to require a lot of hard work and dedication on your part.

So, let’s take a closer look at some of the most common causes offailure so you can avoid making these same mistakes.


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Main causes of small business failure

Bad management

By far the largest number of small business failures are directly attributableto poor management. A relatively small percentage of businesses actuallyfail due to outside factors, such as union problems or government policychanges, etc. And while outside factors like this can certainly be a problem,it could also be argued that a good business manager would have takenthese outside factors into account and had a contingency plan.

Failure to plan

Thorough planning and adequate research into any potential businessventure are absolutely essential. Many people start out in business on littlemore than a whim and a prayer, thinking they can learn ‘on-the-job’as theygo along. The classic, “She’ll be right, mate,” approach.

Well, unfortunately – she definitely won’t be right! It’s a hard, cruelworld out there and there are very few second chances.

Lack of capital

Often people underestimate the total cost of setting up a business and don’ttake into account the huge expense involved in just getting to the stagewhere they can open the doors for trading. Many consider only the settingup costs and don’t allow a sufficient period of time to start generating anincome. Note: while there will always be some unforeseen expenses, thisproblem can usually be avoided by having a thorough business plan whichincludes a projected cash flow analysis.

(See chapters on Business Planning and Cash Flow).

Partnership problems

Making a business partnership work effectively is a very difficult task.Potential partners need to be selected with extreme care. There is an oldadage that says, “You don’t really know someone until you live with them.”This could easily be adapted in the business world to – “You don’t reallyknow somebody until you go into partnership with them!”

(See chapter on Partnerships).


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Wrong pricing structure

Another common mistake is failure to price the product or servicecorrectly. Many small business operators go broke simply because theyunderprice themselves. Overpricing can be a problem too but underpricingis a far more common mistake.

(See chapter on Pricing for Profit).

Failure to seek and/or take advice

Many small business owners see legal and financial advice and training inmanagerial skills as far too expensive and not really necessary. While it isusually true that capital is very precious, especially when you start up, afew dollars spent at the outset on getting the correct advice, could save youthousands of dollars later on. A wise person once said, “If you think thecost of knowledge is expensive – you should try the cost of ignorance!”

Credit problems and bad debts

A sale is not a sale – until you have been paid! Too many small businessoperators fail to take sufficient steps to make sure they get paid. Thebusiness graveyard is full of firms that went broke because they carelesslyextended credit to other companies and didn’t get paid themselves!

Neglect and failure to remain ‘hands on’Many a small business goes to the wall simply because the owners don’tspend enough time in the business. Your business is your baby and youmust keep a careful eye on it at all times. You wouldn’t leave your baby inthe care of total strangers, would you? Take the same care with yourbusiness. And, don’t even think about going into business for yourselfunless you are prepared to work hard and for long hours, particularly in theformative years.

Marketing problems

One of the most common reasons a lot of small businesses fail is simplybecause they don’t make enough sales. Not enough emphasis is placed onthe importance of market research and sales and marketing. Knowing yourmarket and what it requires, is vital to your survival.

Make no mistake about it – no matter how good a business manageryou might be – if you don't make enough sales you will go broke! It's as


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simple as that. Make sure you devote a large amount of your time to thesales and marketing side of your business and do your market research.

In simple terms, make sure the market needs what you are planning tosell or better still, make sure you are selling what the market wants!

(See chapters on Sales and Marketing).

Diversification

As a business grows and develops, it’s not uncommon to see the person orpersons who created the business, become involved in activities that aretotally foreign to the business they started. This doesn’t mean you shouldbe afraid to change direction – especially if things are not working out.Just make sure that you don’t lose touch with your core business.

Summary

The saddest thing about small business failures is the fact that most ofthem could be avoided – if the people going into the business simply tookthe time and effort to prepare themselves for the task ahead. Far too manypeople plunge straight into the deep end, with little or no training. Manyhave had no previous experience in the industry they are entering.

In spite of this, these people often risk everything they own on theirability to scrape through. This inevitably involves more than just monetaryrisks. It can also mean ruining your health, the breakdown of a marriage,the loss of friends and personal self-esteem, etc.

Careful planning and preparation can dramatically reduce your chancesof failure. So, do your homework thoroughly and make sure you don’tbecome one of the failure statistics.

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here are really no hard and fast rules for the right type of personalityfor success in small business. After all, there are so many different

types of businesses to choose from and the personality traits required varygreatly from industry to industry. I have seen people I thought would surelyfail, go on to achieve great success and people whom I thought would beoutstandingly successful, fail dismally.

While it’s difficult to predict with any accuracy an individual’s chancesof success or failure, I believe there are some common traits that can beassociated with successful business operators. Below, I have assignedratings points to what I feel are the eight most important traits for successin running your own business.

It should be stressed this is not a scientific test as such and there is nopass or failure mark. The attributes are based mainly on my personalobservations of what it takes to make a successful small business person.It is included in the book simply to make you aware of any areas that mayneed improvement.

How it works

Each of the eight attributes listed is represented by a spoke in a wheel (seefigure 1, page 21). Rate your score on a scale of zero to ten and make amark on each spoke of the wheel where you think you rate. The smallestwheel represents zero and the largest (outer) wheel represents ten.

Finally, join up the marks to form a continuous line. This then becomesyour personal Wheel of Business Success.

2. ARE YOU SUITED TO RUNNINGYOUR OWN BUSINESS?

T

“Aerodynamically, the bumble bee shouldn't be able to fly but the bumble bee doesn't know this so it goes on flying anyway.”Mary Kay Ash – Founder of the cosmetics empire

Are You Suited To Running Your Own Business?


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The larger your wheel, the better it will run. If your wheel has large bumpsor dips in it (see figure 2, page 22) try to improve your areas of weaknessto smooth out your wheel and get it running better.

Attributes and scoring method:

Spoke A. Health

What state of health do you normally enjoy?excellent 8 - 10pretty good 5 - 7average to poor 2 - 4not too good 0 - 1

Spoke B. Family Support

Do you have the total support of your family?behind me 100% 8 - 10reasonably supportive 5 - 7not very supportive at all ` 2 - 4totally against it 0 - 1

Spoke C. Self Confidence

How do you rate your chances of success in business, based on your knowledge of your own ability?

extremely confident 8 - 10reasonably confident 5 - 7not sure 2 - 4very unsure 0 - 1

Spoke D. Industry Experience

What is your experience in the industry chosen? extensive experience 8 - 10some experience 5 - 7very little experience 2 - 4no experience at all 0 - 1


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Spoke E. Management experience

What previous management experience have you had? extensive experience at high level 8 - 10some management experience 5 - 7very little management experience 2 - 4no previous management experience 0 - 1

Spoke F. Capacity for hard work

How hard are you prepared to work in your own business?as hard as it requires to succeed 8 - 10harder than I work now 5 - 7hoping to do less than present job 2 - 4looking for an easier life 0 - 1

Spoke G. Financial

How equipped are you financially?more than enough capital 8 - 10enough to carry me through 5 - 7it will be a bit tight 2 - 4will be lucky to scrape through 0 - 1

Spoke H. Preparation

How would you describe your preparedness for the task ahead? Have you really done your market research and prepared a thorough business plan?

extremely well prepared 8 - 10quite well prepared 5 - 7not very well prepared 2 - 4no preparation at all 0 - 1


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figure 1. Your Wheel of Business Success


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Figure 2. If your wheel looks like this, it won't run verywell at all. Work on improving your areas of weakness –revise your business plan.


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Figure 3. If your wheel has the odd bump or lump in it, itwill still run okay but you may be in for a bumpy ride!Work on improving your weak spots.

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efore we go too much further, we should probably ask the question:Just what is a small business anyway?

The broad definition of a small business in Australia, is any businessthat employs fewer than 20 people. Using this criteria, at last count therewere 1,233,200 private sector small businesses in Australia. Thisrepresented 97 per cent of all the private sector businesses. These smallbusinesses employ around 3.6 million people – 49 per cent of all theemployment in the private sector.

In short – small business is big business!

What do they do?

The following is a guide to the main types of industries they are involvedin: (figures are rounded up or down*)

Construction 21Property and business services 20Retail trade 15Manufacturing 8Health and community services 7Personal and other services 7Transport and storage 4Wholesale trade 5Cultural and recreational services 4Accommodation, cafes and restaurants 3Communication services 2Education 2Finance and insurance 2

=====Total 100% *

3. WHICH BUSINESS IS FOR YOU?

B

“Opportunities? They are all around us. There is power lying latent everywhere, waiting for the observant eye to discover it”.

Orison Swett Marden

Which Business Is For You?


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Women in business

Women are involved in over half of all Australian small businesses. This isdue mainly to the fact that nearly 60 per cent of them are operated by maleand female couples. However, while women are heavily involved inownership, a much smaller percentage actually run the business – i.e. aresolely responsible for the decision making. According to the most recentfigures available from the Australian Bureau of Statistics of the 1.23million small businesses in Australia, 424,000 (34%) were run by women.

So, why are there nearly twice as many male small business owners? Part of the answer probably lies in the simple fact that there are a lot

more men in the workforce than women. However, the percentage ofwomen business owners is growing. This isn’t surprising, since manywomen who work in big companies today, still complain about the ‘glassceiling syndrome’. This is the invisible barrier that many women feel stopsthem from rising to the top in a corporate world, which is still largelydominated by men. Many women will be forced to work for themselves,if they want to realise their full potential.

Unfortunately, perhaps the glass ceiling extends beyond the corporateboardrooms of Australia, out into the country at large. There is someanecdotal evidence to suggest some financiers have tended to placerestrictions on women when it comes to lending for business. One womanI know, told me when she approached her bank manager for a businessloan, the first question he asked her was, “Does your husband know aboutthis?” I wonder if he would have asked her husband the same questionabout his wife?

Anyway, hopefully attitudes towards women in business generally arechanging, albeit slower than we would like. After all, there is no reasonwhy women can’t run businesses just as well –or even better in many casesthan their male counterparts. Most of them have all the right attributes tobe successful.

The proportion of women running their ownbusiness is growing rapidly. Over the past tenyears, there has been an average annual growthrate of over 3% for women owners, which is oneand a half times the growth rate for men.


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Why go into business anyway?

Before we go much further – let me ask you an important question:

“Why do you want to go into your own business anyway?”

Most people usually want to start their own business for three reasons:

• To make more money than they could make working for somebody else

• To be independent and in control of their own destiny• For security of long-term employment.

All of these are good valid reasons for starting a business of your own.However, many people want to start their own business for all the wrongreasons. Here are some of them:

Don’t start your own business because:

• You think you are going to have an easy life with someone elsedoing all the work

• You have a hobby or interest and you think it would be a funway to earn a living. (Make sure your decision is based on sound market research and a thorough business plan – not just a whim)

• You are bored with your job and feel you need a change• You are unemployed and feel you have to buy yourself a job• Somebody else said you would be good at it.

All of the above may seem like good enough reasons to start your ownbusiness but none of them on their own are sufficient to guarantee yoursuccess. Do consider starting out in business for yourself if you have anyor all of the following attributes:

• You are a high achiever and feel you could do a lot better working for yourself

• You are a hard worker and you are prepared to work as long and as hard as it takes to make it succeed


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• You are a positive, entrepreneurial type, with lots of energy and bright ideas and feel you are being stifled by your present employer

• You have a strong desire to build a better future for yourself and your family.

Which business is for you?

You should put a great deal of thought into this question, because you areprobably going to spend a lot of time doing whatever it is you finallydecide to do. Before reaching your final decision, take the following pointsinto consideration:

What is your level of experience in the industry chosen?Do you have sufficient knowledge, experience and industry contactsto be successful?

Do you have sufficient capital? Have you got enough money, not only to buy or set up the businessbut also to carry you through until you start to generate a reasonableincome flow?

Do you have the right temperament for the business? For instance, if you are going to be dealing with the general publicall day in a retail situation, do you genuinely enjoy mixing with alltypes of people? Do you usually get along well with strangers?

Is it something you will genuinely enjoy doing? You will have a far greater chance of being successful if you choose something you like doing. People who enter a business doing something they enjoy are generally far more successful than those who don’t enjoy what they are doing. It’s common sense.

Are the hours of operating the business suitable to your lifestyle?For instance, if it requires a lot of weekend work, are you prepared to sacrifice your leisure time?


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The importance of family support

Are your family behind you all the way or are they very reluctant? A word of warning: Don’t confuse healthy scepticism with reluctance.

It’s natural for a spouse or family members to be concerned about thesecurity aspects and the possibility of losing everything you own. If youare married, it’s important that your spouse* sees your business venture asa calculated risk and that they believe in what you are trying to achieve. Ifthe going gets tough – and there is a good chance it will, particularly inthe early stages – the last thing you will need is the additional pressure ofyour spouse saying,“I told you so!”

Your journey into business should be a step you take together. If yourspouse is totally against the idea and you can’t get him or her to share yourenthusiasm for the project, make sure they understand fully what you aretrying to achieve. Perhaps they have an insight into particular weaknessesin your personality or your plan that you may not have considered. Try toenlist the advice of an independent outsider to review your plans, someonewhom you both know and respect.

While it is still possible to succeed without the support of your spouseor family, it will certainly make life a lot easier if you have their blessings.

Summary

Before making a commitment, talk to as many people as you can,especially other people in their own business. Particularly talk to people inthe same business as the one you are considering. Ask them to tell youabout their findings and experiences, both good and bad. Most people areonly too willing to share them with you.

Think long and hard before choosing which business you are going toenter. It will be one of the most important decisions you make in yourentire life, so don’t rush it.

* Note: Throughout this book, when I refer to ‘your spouse’ I amalso referring to your ‘life partner’. I have deliberately avoidedusing ‘spouse or partner’ because of the obvious confusion thiscreates with business partners. In most cases, the ramifications andimplications will be the same.

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nce you have made the decision as to which type of business,your next question is likely to be – “Should I buy an existing

business or should I just start from scratch?”There are a number of advantages in buying a business that has been

in operation for some time. Firstly, a customer or client base shouldalready exists and it should be a lot easier to assess future turnover andprofit. You should also have access to an immediate cash flow and income.

Of course, you will be expected to pay handsomely for this privilege.This usually takes the form of a payment for the business itself – plant,equipment and stock, for example – plus a payment for what is known asthe ‘goodwill’.

Assessing the worth of goodwill is a complex issue. More on that laterbut first, let’s quickly have a look at some of the pros and cons of buyingan established business.

The major benefits can be summed up as follows:

• Proven track record increasing the likelihood of success• Immediate cash flow and income generated from existing

established customer base• Easier to arrange finance on a proven concept however, the

amount required is likely to be a good deal more than the cost of a new startup

• Sometimes experienced staff are happy to stay on with the new owner

4. BUYING AN ESTABLISHED BUSINESS

O

“If you could get up the courage to begin,you have the courage to succeed.”

David Viscott

Buying An Established Business


30

• The purchaser may be able to arrange for the vendor to stay onfor a while to train them in the operation of the business

• The problem of selecting the wrong location is minimised• Lines of credit with suppliers may be already established• Choice of stock items is already determined• Plant and equipment may be available at a greatly written

down cost• The suitability and capability of any equipment is already known.

For more information about buying anestablished business – visit our website and lookin Resources under the topic heading:

Buying a Business.

www.successsecrets.com.au

Possible disadvantages could be:

• You may be paying too much for the goodwill• The figures presented may not be a genuine picture of thebusiness

and may not continue into the long-term future• The business may not continue to perform as promised under the

new ownership• The plant and equipment may be on the way out and in need

of replacement at a high cost• There may be unknown factors that will adversely affect the

business in the future, such as a major competitor about toopen nearby or the closure of a main roadway, etc.

• There may be government regulations or laws about to changethat will affect the business

• The business may be based on a passing trend or fad that is about to change for the worse.

These are just a few of the challenges and questions facing theintending purchaser. Make sure you seek the help of an expert.


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Assessing the value of goodwill

If you are going to buy an established business, you will generally be askedto make a payment for the ‘goodwill’.

So, just what is goodwill and how do you measure its worth? Generally speaking, goodwill is an intangible thing. It’s not something

you can hold in your hand. It may be the methodology of a manufacturingprocess or it could be the rights to some sort of exclusive location orterritory. Usually it involves the right to take over an existing client baseand continue the business, enjoying at least the same level of sales andprofits as the previous owner. Of course, this is always subject to question.

The seller of a business usually perceives the worth of the goodwill tobe much higher than it really is and the buyer usually sees it as being lessthan it is. The reality generally lies somewhere in the middle.

Problems could also arise if the business has been built through somespecial expertise which can’t or won’t be easily passed on. In the case of arestaurant for example, the personality of the previous owner or theirextraordinary cooking ability, may have attracted a large following.Perhaps the new owners will not be able to duplicate this. Maybe when theold owner leaves, the customers will follow to his or her new business.

Note: Stopping the previous owner from opening in competition to youcan be overcome to some extent with non-compete clauses in the contractof sale but be warned – these are sometimes difficult to enforce. Courts aregenerally reluctant to deny people the right to earn a living.

Warning: Banks and financial institutions arereluctant to lend money on goodwill because ofthe difficulty in assessing its true worth and thepossible inability of being able to realise this‘asset’– especially in a forced sale.

Calculation of goodwill

There are numerous different methods of calculating goodwill and someare more suited to certain types of businesses than others. How youmeasure the goodwill of a hotel for example, would be totally different tothe method you would use to measure the goodwill of a lawn mowing run.


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Calculating the multiplier

There is no hard and fast rule for calculating the multiplying factor forgoodwill and it can be affected by many things. For instance, how long hasthe business been established and can it be reasonably expected that theprofits will continue at the present rate? What is the degree of exclusivityand how long can that be expected to continue?

If you can’t forecast these with any certainty for more than one year,then the goodwill may not be worth much at all. If, on the other hand youcan expect them to continue long term, goodwill may be worth three orfour times the super profit amount or even more, in some circumstances.

In business however, as in life, predicting the future with any greatdegree of certainty is a precarious occupation. From my own experience,very few businesses have a goodwill value of much more than one year’ssuper profit and I would adopt this as your starting point.

Any calculation of goodwill should always err on the conservative side.

WARNING: Be extremely careful when assessing the value of goodwill.

Seek professional help

It is wise to seek the advice of an independent accountant and solicitor,both with extensive experience in the chosen industry. A good friend ofmine, Max Hitchins, a well-known hotel broker, told me of a case wherean accountant advised a purchaser that the returns on a particular hotellooked quite good. Max claims that by industry standards they were in factquite poor and well below what would be accepted by the industry as‘good’. The accountant had had no previous experience in the hotelbusiness. Consequently, the purchaser paid far more for the business thanit was worth.

One final word of caution on evaluating goodwill. Be very careful ofpeople who quote figures in so called ‘black’ or ‘under the counter’money. It is not uncommon for people selling businesses – particularlycash businesses – to talk about the hidden amount of money that doesn’tgo through the books, thereby avoiding the scrutiny of the Tax Office. Andof course, because there is no record kept of this so called ‘black money’you usually have no way of checking whether it really exists.


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Recent changes to the law now oblige accountants and business brokersto make the Taxation Department aware of such practices and there arehefty fines and possible imprisonment for offenders. Consequently, thepractice is much less common these days, however I have no doubt that itstill goes on.

My advice to an intending business purchaser would be to leave this outof your calculations altogether.

Be very careful of people who, when selling abusiness, quote figures in so called ‘black money’. Apart from the fact it’s illegal, unless you can seeit in the books in black and white, chances are it’snot there anyway. Work on this simple principle –if in doubt – leave it out!

Summary

In the final analysis, the amount you pay for the goodwill when buying anestablished business, should be weighed against the cost of starting up anidentical business from scratch.

There are some clear advantages to starting out from scratch, such asbeing able to select the location and introduce your own personal touch tothe business. However, you will find raising finance a much biggerproblem and the high cost of trial and error may be greater than payingthe price for an existing business. You may also have to face the problemof a long period of time with little or no income in a new start up business.

Assessing the true worth of a business and particularly the value of anygoodwill, is extremely difficult. Seek the advice of your ‘three wisepersons’– your accountant, your bank manager and your solicitor.

If it’s at all possible, find somebody with experience in the business ofyour choice, who is prepared to give you an unbiased assessment. See ifyou can find a retired person or someone who is in a similar business ina different non-competing area. Seek their opinion and most importantly,ask them the $64,000 question:

Would they buy the business themselves?

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hether you are setting up a new business from scratch or takingover an existing one, you must first decide which type of structure

you are going to operate the business under. There are a number ofoptions, the most common ones being:

• Sole trader• Company• Partnership• Trust

The decision as to which one you use, should not be entered intolightly, as it may have far reaching implications later on and could affectsuch things as capital gains considerations, should you decide to sell thebusiness or take in a partner. It can also have a dramatic effect on howmuch tax you are liable for.

The type of structure you use, will depend on your individual situationand it’s advisable to talk to your solicitor and accountant about the optionsavailable to you before you start. However, as with most legal matters, it’sprudent to have a reasonable working knowledge of the types of structuresavailable and how they operate, before seeking advice. This will save youboth time and money.

5. WHICH BUSINESS STRUCTURESHOULD YOU USE?

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“Many a man has taken the first step. And with every additional step, you enhance immensely the value of your first.”

Ralph Waldo Emerson

Which Business Structure Should You Use?


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What follows is a general look at the various types of structures andtheir advantages and disadvantages. There are several aspects you need toconsider. These include:

• Taxation – how to minimise the amount you have to pay• Capital gains tax considerations and possible income splitting

opportunities• The cost vs benefits of running the structure

Note: it’s important to consider the ongoing costs as well as just the setting up costs

• Aspects of the limited liability of the individuals involved• Any legislation which might limit your choice of structure• Any adverse effects on the prospects of raising finance for

the venture• The need to pay PAYG Instalment Tax

On the next page you will find an overview of the most commonstructures. It must be stressed that the laws involved, both state and federal,change from time to time and from state to state and this informationshould be used as a rough guide only. It should not be substituted forproper professional advice.

The structure you use to run your business canhave far reaching ramifications. Many a personhas regretted not thinking more about the type ofstructure they used, when they go to sell thebusiness or take in a partner later on.


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TYPES OF BUSINESS STRUCTURES*

Advantages Disadvantages

SOLE TRADERLow cost of entryEasy to set upNo big legal costs

No separate business taxreturn required

No registration required(if using your own name)

Personal liabilityfor all debts

Need to payPAYG instalment tax

When you die, it dies

PARTNERSHIP Partnership itself does not pay tax(but partners do)

Relatively inexpensiveto set up and run (although PartnershipAgreement recommended)

Personal liabilityfor all debts

Possible liability for partners’debts and actions

Relationship problems

COMPANY Limited liability(now greatly reduced)

Possible income splittingopportunities

Expensive to set up and run

Separate tax & companyreturns required

Knowledge of director’sresponsibilities needed

TRUSTSPossible income sharing with family(note: becoming moredifficult to do andconstantly under review)

Expensive to set up and run

Complicated toadminister

Disgruntled relativesmay sue later

* The above information is intended as a guide only. You should seek professional advice before taking any action.

Structure


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Here is a brief overview of the different business structures:

Sole trader

There are a number of advantages of being a sole trader and these days,with the reduction of limited liability for company directors plus themounting costs and complexity of compliance for companies, it’s wellworth considering this alternative.

If you do decide to trade under your own name, there is no need to evenregister your business name. i.e. If your name is John Smith and you decideto use that as your trading name, there is no legal requirement to registerthat name. If, however, you decide to use the name John Smith TelevisionRepairs or John Smith’s Record Bar you will need to register your namewith the relevant body in your state or territory. A small fee is payableinitially, followed by a periodical renewal fee.

For details of where to go to register a businessname in your state or territory and checkavailabilities, visit our website under Resourcesand see: Resources – Business Names

The major disadvantage of being a sole trader is, you are personallyliable for all debts incurred in the business name, just as if you hadincurred them in your own name. In the event of the business failing, yourcreditors have full rights to claim against your personal assets, such asyour home, your car, anything you own of value that is in your name.

While this may sound pretty drastic, it’s worth bearing in mind thateven if you have a company structure, you will probably still find yourselfsigning personal guarantees for loans and for goods and services extendedto you on credit. In the final analysis, this may well have the same effectas being a sole trader, so far as personal liability is concerned.

You should discuss the benefits both ways with your solicitor andaccountant and based on their advice, make a valued judgment as towhether the expense of forming and running a company is warranted. Ifyou are not going to incur large trade debts, it may well be easier andcheaper to trade as a sole trader or partnership.



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Important note: A registered business name is not a company. It issimply the registration of your chosen trading name. Unlike acompany name, which is covered nationally, registering yourbusiness name in your state or territory does not stop peopleregistering that same name in other states or territories.

If you wanted to protect your business name in other states andterritories, you would need to register it in every state and territoryplus you would need to have a registered office in each one. Ofcourse, this would be expensive and the name you have chosen maynot be available everywhere.

Company structures

If you do decide to form a company, you will be required to use the wordsPty. Ltd. after your business name, e.g. John Smith’s Record Bar Pty. Ltd.or Pty. Limited.You can register a business name in the name of a companyand then trade under that business name. e.g. XYZ & Co. Pty. Ltd., tradingas John Smith’s Record Bar but you are required to spell out your fulltrading name as well as your company name and ACN or ABN number onall documentation and as you can see, it can become quite long winded andtherefore, it is not recommended you do it this way.

Buying a shelf company

The most popular way of starting up a company for most small businessoperators is to buy what is known as a ‘shelf company’ and then change itsname. Shelf companies derived their name through the practice of lawyerscreating companies and then literally putting them ‘on a shelf’ waiting forsomebody to come along and buy them. In their efforts to come up withnames that were not already registered, they usually made up names frompeople’s initials or some other obscure selection method and consequentlythey often had strange sounding names, like Jejupapong Pty Ltd, and thatsort of thing. It also used to take quite a while to set up a company.

These days however, there are specialists who can set up a company foryou under your choice of name, usually in one the two days, so the practiceof putting them on the shelf is virtually a thing of the past. You may as wellget your company registered in your choice of name from the outset.

This is also preferable because it can take you up to a year just to getyour business name listed in the telephone directories!


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Note: Companies are becoming more and more expensive to run, asthe various government bodies require an ever increasing amount ofinformation and documentation. As a company, you will be requiredto pay an annual review fee to the Australian Securities & InvestmentCommission (ASIC) each year and file a separate tax return for thecompany, as well as your own personal income tax returns.

In theory, your personal liability in a company is limited to the amountoutstanding on unpaid capital on shares, plus any outstanding PAYG orWithholding tax. Be warned however, these days more and more creditorsare suing the directors of failed companies. For instance, if your companybecomes insolvent (unable to meet its debts, as and when they fall due) andyou as a director knowingly continue to trade, you could be held personallyresponsible for any debts incurred. You should also be aware that yourresponsibilities as a company director are quite onerous and due careshould be taken to exercise those responsibilities at all times.

There are a number of traps for young players with running a companyand ignorance of company law is little or no defence for directors foundguilty of breaching the Companies Act. Penalties are quite severe andinclude jail sentences as well as huge fines for breaches. Ask your solicitorand/or accountant to advise you of your responsibilities under the Act andstudy up on the appropriate literature.

ACN – Australian Company numbers

When you form a company you are now issued with what is known as anAustralian Company Number (ACN). This number has to appear onvirtually all your paperwork. This includes your letterhead, invoices,receipts, purchase order forms, cheques, circulars, price lists and any formof legal document and the company’s common seal. It must be in a legibletype, no smaller than 8 point – that’s this big.

The Australian Institute of Company Directors (a non-profit organisation) offers a range ofservices to members and non-members. Thisincludes a series of courses and publicationssuitable for small business operators. Visit:

www.companydirectors.com.au


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Make sure you include it on all the necessary documentation to avoid afine and expensive overprinting.

(see Your Business and Taxation chapter for more information aboutACNs and ABNs)

The ACN or ABN is not required on businesscards, with compliments slips, packagingmaterials, envelopes and items which are notconsidered documents. e.g. company vehicles, TVcommercials and the like.

Trusts

The main advantage of operating your business through a trust, is theability of perhaps being able to distribute your income throughout variousmembers of your family. Be warned however, this may have majorramifications in the future.

For example, a situation could arise where a family member is paid anincome out of a family trust from a very early age – possibly even frombirth. Later, this person becomes involved in a bitter family dispute anddecides to sue the trust for his or her “rightful” share of the business!

While this is not an every day occurrence, it could happen and carefulconsideration should be given before entering into any such arrangement.

It’s also worth noting that the federal government have made someeffort lately to crack down on people using trusts to minimise paying theirfair share of taxation. Probably the only reason they haven’t gone a lotfurther, is because many politicians themselves use family trusts to limittheir own tax liability. A large number of politicians are former lawyers!

Discuss your individual situation with your solicitor and accountant butbear in mind, the solicitor could stand to gain quite a bit of money fromsetting up a trust. While I’m not suggesting that most solicitors will giveyou anything but the best advice, it can be a little bit like asking yourhairdresser if you need a haircut! Just make sure you fully understand theramifications of what you are getting yourself into.

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ithout doubt, the most difficult business structure of all to operatesuccessfully is a partnership – be it between two people or ten

people. The more people involved, the more differing opinions you willhave and the more difficult they will be to resolve.

Over the years, I’ve known a great many people involved inpartnerships and I’ve been involved in a few myself. I have seen very fewthat I could say have worked out successfully, at least to the satisfaction ofall the partners concerned. Often the partners start out as good friends andend up in bitter disputes. In some cases this leads not only to the loss of thefriendship but also to the parties involved becoming mortal enemies.

My advice to anybody considering going into a partnership in businessis simple:

Don’t do it if you can possibly avoid it!

Of course, there are exceptions to every rule however, if it’s at all possiblefor you to set up the business on your own, my advice would be do it. Theone exception to this rule is – a partnership with your spouse.

Having your spouse involved in your business can have distinctadvantages. For starters, he or she will be more committed to the successof the venture and more likely to work for low (or no) wages, with theexpectation of better things to come.

Naturally, there can still be problems and in the event of a marriagebreakdown, things can become pretty messy however, the advantages willprobably outweigh the disadvantages most of the time.

6. PARTNERSHIPS“When two people in business always agree,

one of them is unnecessary.”Anon

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Partnerships

Partnerships

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The problems with partnerships

The main problems with partnerships usually arise out of disputes over oneor more of the following:

• Who does the greatest amount of work and whether the otherparty is pulling their weight

• Money problems – particularly where one partner has put inmore than another

• Spouse problems – especially where one or more of the spousesinvolved is working in the business

• Management decisions – where each partner has a different idea of what needs to be done or different values.

The main reason people go into partnerships is to:

• Introduce more capital• Gain added expertise• Share the risk• Share and thereby minimise expenses• Have someone to talk to and share the problems with.

Let’s examine each of the above reasons individually and look at some ofthe possible alternatives:

To introduce more capital

I have seen people take a partner into their business for what later turns outto be a relatively insignificant amount of money. It should be rememberedthat the person putting in the capital could be entitled to half of the profitsfor the rest of the business’ life! Plus, having to to buy this person out at alater date if things don’t work out, could prove to be a very costly exercise.

Alternative:You may be a lot better off borrowing just a little bit more and goingit alone. Interest on the extra borrowings may work out a lot cheaperin the long run and you will have one less wage to find every week.Note: See Alternative Sources of Finance and Business Angels –chapter 10 for other possible sources of finance.

Partnerships

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To gain added expertise

This sounds like a good idea, especially if the person setting up thebusiness is lacking in expertise in a particular area. However, I wouldquestion the wisdom of entering into a business partnership, if you aretotally dependent on the other partner for their expertise.

In such an arrangement, the partner with all the expertise would havean enormous advantage over the other party. Also, what if somethinghappens to that partner? What if they become ill or get run over by a bus?Not a very nice thought but these things do happen! And, what if there’s adispute or disagreement and the other partner walks out, taking theirexpertise with them!

Alternative:Consider what steps you would need to take to acquire the expertiseyourself. Another alternative could be to simply employ somebodywho has the expertise. At least that way, you still maintain control. Ifan employee proves to be unsatisfactory, you can always replacethem. Note: While this latter suggestion is a better alternative, Iwould still question the sense in entering into any type of business inthe first place, if you don’t possess enough expertise to at least runthe business yourself in an emergency. This is not a hard and fastrule but one well worth thinking about.

To share the risks

There are obvious benefits in this however, there can be just as manynegatives. When you take in a partner, you are also taking on responsibilityfor their commitments and any bad decisions they might make.

You will also have to share the profits with them.

Alternative:Why not look at starting on a smaller scale and building up as yougo along? Perhaps you could find somebody who is prepared to lendyou the money on the promise of a high return if the venturesucceeds – ideally with no recourse if the business fails. Findingsuch a person will depend on how attractive your businessproposition is and how good a salesperson you are!

Partnerships

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To share and minimise expenses

Remember, when you take other people into your business, you are alsoadding to your expenses. This is especially true if that extra person is goingto be drawing a wage every week. It’s far easier to find one wage out of abusiness than two.

Alternative:If it’s office or factory space you need, consider renting a servicedoffice or sharing premises with another business. Many businesseshave more space than they need and would be happy to sublet partof their space and share expenses. Note: If you decide to do this,make sure they have permission to sublet from their landlord and getyour solicitor to draw up an agreement to protect you from beingsuddenly thrown out on to the street.

Having someone to talk to and share the problems with

Once again, a common reason for taking in a partner but not a very soundone when you fully consider it.

Alternative:While it’s nice to have a shoulder to cry on occasionally, there are anumber of options which I feel are more sensible. For starters, if youare just looking for someone to share ideas with, I would suggest youfind a mentor. Someone who is well versed in your industry, whowouldn’t mind giving you advice when you need it. You may bepleasantly surprised at how many people there are like this aroundand the cost might be simply the odd lunch or cup of coffee orperhaps there is something you can do for them in return?

The good thing about a mentor is, you don’t have to give them halfof your profits and you don’t have to take the advice if you don’tagree with it! It is also likely that they can offer better advicebecause they are removed from the day-to-day running of thebusiness. They are also impartial and not simply protecting theirown vested interests.

Yet another alternative is to join industry groups or your localChamber of Commerce or you could even consider paying someone

Partnerships

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to give you professional advice. It could be far cheaper to pay anindustry consultant for advice, rather than giving someone else amajor share in your business – forever.

Partnership agreements

My advice would be to study all of the above and consider the alternativesbefore entering into a partnership of any kind. And if you are stilldetermined to proceed with a partnership after all that, then at least makesure you draw up a formal Partnership Agreement.

This should take into account the rights and duties of all the partnersinvolved. It should also spell out the term of the partnership, thecommencement date and should include some sort of agreed method forresolving disputes.

For instance, it may say that in cases where a dispute cannot be resolvedby the partners, then such a dispute will be resolved by an independentarbitrator appointed by an agreed selection method. It should also makeclear the liabilities of each partner and their entitlement to and share of theprofits of the business. Your solicitor will be able to advise you with thewording and the main points to cover. Once again, to save time and money,have some sort of heads of agreement covering the major points betweenthe parties drafted up before you go to see the solicitor.

Verbal agreements

Sam Goldwyn, the Hollywood movie producer, was once quoted assaying, “Verbal agreements aren’t worth the paper they are written on!”

It is quite legal to trade as a partnership without a written partnershipagreement and this is quite common, especially in the case of husband andwife or other family owned businesses. However, even in a familybusiness, it’s wise to have something in writing (perhaps even more so)because of the possibility of a family dispute which may affect therelationship and ultimately the business.

If you don’t have an agreement in writing before you start, chances areyou will live to regret it. I have heard many people after the event sayingthings like, “I just thought it was understood that he would do this or shewould do that”. The best time to sort out what is expected of each partner,is before the business even starts.


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Partnerships

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Even if you don’t need to use it for legal purposes, a partnershipagreement is a good way of spelling out each partner’s duties. If you don’thave a written agreement in place, in the event of an unresolvable dispute,you will be subject to the Partnership Act and will be forced to accept thefull rulings of that Act.

Warning: Make sure you include a dissolutionclause in your Partnership Agreement.

In other words, spell out exactly how thepartnership will dissolve in case of anunresolvable dispute or other problems.

Limited partnerships

In some states there are (already existing or moves to introduce) what isknown as Limited Partnerships. These structures allow a partner to investa certain amount of money into a partnership with the liability of that partybeing limited to the amount invested. The law on limited partnerships,particularly that affecting taxation aspects, has recently been changed.Consult your solicitor and/or accountant for further information on thelatest situation in your state or territory.

Cross partnership agreements

One way of lessening the pressure on a partnership is to enter into a crosspartnership arrangement. This can be a very effective alternative to aformal partnership. I call this a ‘Claytons partnership’. In other words –it’s the partnership you have, when you’re not having a partnership!

This arrangement presents a way of still working together without thetotal sharing arrangements involved in a normal partnership. The key tothis arrangement is to break up the business into separate parts. Each partydecides which part of the business he or she will be responsible for andthen each party does their own thing.

In many situations this can work perfectly well. Many businesses canbe effectively split into two or more separate identities.

For instance, let’s say that two people wanted to set up a businessmaking and selling clothing. One person is a tailor and the other, asalesperson. Instead of forming a partnership and putting all their

Partnerships

resources and finances together, they might consider two completelyseparate and independent businesses.

One could be the XYZ Manufacturing Co and the other the XYZ SalesCompany. Each business would be responsible for its own expenses andprofit or loss situation. Both businesses are still independent but dependenton each other.

It sounds complicated but it can be made to work. You are simplybreaking the business up into two separate profit centres. This is a commonmanagement practice in many large firms today.

The beauty of this arrangement is, you don’t have all the usual problemsassociated with a partnership. If the owner of one company wants to taketheir spouse on an all-expenses-paid business trip around the world, itcomes out of his or her share of the profits from within their business.

Of course, the above arrangement will not work in every type ofbusiness situation but with the use of a little bit of lateral thinking, it canbe applied in many. It’s worth thinking about and it could save you a lot ofthe heartaches that all too often accompany many traditional businesspartnership arrangements.

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For more information about partnerships and totake the Partnership Compatibility Test – visit ourwebsite, see – Resources – Partnerships


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ranchising has undergone massive growth in recent years and it hasbeen estimated that the industry now contributes 12 per cent of thenational GDP of Australia. It accounts for around one in every three

retail sales and employs over 45,000 people. Franchising is here to stay.Generally speaking, the success rate of franchised businesses is far

higher than that of non-franchised businesses however, this certainly doesnot mean that all franchised businesses are good businesses.

On the contrary, of the hundreds of systems on offer, not all of them arereal long term money making propositions and some are simply not worththe money. One well known franchise chain featured in the news recentlywith cases of franchisees paying hundreds of thousands of dollars for littleor no return. It’s definitely a case of buyer beware and any propositionshould be approached with extreme caution.

That said, let’s have a look at some of the advantages and disadvantagesof franchised businesses.

Exactly what is a franchised business?

The concept of franchising is relatively simple and in theory at least, it’s agreat idea. This is the major reason for its rapid growth.

Franchising simply involves taking a proven business concept orsystem and duplicating it in another place or area of the market. This iswhat is known as ‘business format franchising’ and it first appeared inAustralia in the early 1970s with the introduction of McDonalds and someother American fast food outlets.

7. THE FRANCHISE ALTERNATIVE

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“Buying a franchise is a way of going into businessfor yourself but not by yourself.”

Anon.

The Franchise Alternative


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Under a typical franchise system, the franchisor sells the rights to abusiness system and the use of the name and branding to the franchisee fora fee. There is usually an ongoing charge, known as a royalty ormanagement fee, which is usually based on a percentage of sales turnover,plus an advertising levy for ongoing promotion and advertising.

Around half of all the franchise systems operating in Australia arebusiness format franchises and the other half are mainly petroleumindustry franchised outlets. In the early days, most franchise concepts werefor fast food but as the concept of franchising matures, we are seeing amuch greater variety of industries being franchised. This now includesfields as diverse as industrial hose pipes and education, to suburbanlawyers and graphic designers.

Major benefits

The major advantage of a franchise lies in buying a proven businessconcept with the full benefit of somebody else’s experience andknowledge. You should also have their guidance and assistance along theway. Other advantages could include any or all of the following:

• Group promotion and bulk buying power • Less time to establish a positive cash flow • Exclusive territory, note – not all of them offer this – check it out• A ‘ready made’market • Savings on the purchase of plant and equipment • The security of a reliable source of supply for product • Initial and ongoing training • A good idea of how much capital is needed before you start out• A strong element of recognition of the concept by the public

through the use of a common image and brand.

A good franchisor will also usually undertake ongoing market researchto determine trends and demands, hopefully leading to continualimprovement and where necessary, the introduction of new products. Thistype of research can be very expensive and is not generally available tosmall independent business owners.

You also have the benefit of being able to talk to the other franchisees.


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Sharing ideas and experiences with other people with similar interests toyou, can help overcome the feeling of loneliness and isolation experiencedby many independent business operators.

Disadvantages

It is very important to stress not all franchise concepts are safe, secureinvestments. Nor is it any sort of a guarantee of success for people who arelazy, incompetent, careless or just unsuited to running their own business.

There have been some notable failures of franchise concepts inAustralia. I know of several people who have bought franchises and lostheavily. You should take the same amount of care or more when buyinginto a franchise as you would buying any business.

One of the major disadvantages of purchasing a franchise is, youactually have very little control over your own destiny, generally you arelocked into the system. If you are unfortunate enough to purchase afranchise from an unscrupulous or incompetent franchisor, you may wellfind yourself in a situation where you can do very little about it. Often youare locked into a location by a long lease and the franchisor controls thesupply of goods and the advertising and promotion of them. If the goodsare not up to scratch or the supply is unreliable or you are located in thewrong place, you could find yourself between a rock and a hard place.

The following is a summary of some the possible disadvantages:

• Higher cost of entry (into the franchise system) • Loss of independence and the need to follow exact procedures • Risk of the franchise system itself collapsing• Possible lack of ability to be able to expand into other areas • Risk that the franchise will become unprofitable • Possibility that the franchisor will include conditions in the

franchise agreement which disadvantage the franchisee.

While the profitability of a franchise might be comparable or evenhigher to that of an independent business, it’s fair to say that most franchiseconcepts are not ‘get-rich-quick’ schemes. Generally, they are moresuitable for the person who wants to minimise the risk involved in settingup a business and is prepared to take the ‘slow and steady’ approach to


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starting their own business. It can also be good for people who are enteringbusiness for the first time because you have someone to guide you along.

Most franchises are not get-rich-quick schemes.However, there are not too many get-rich-quicksmall businesses of the non-franchise type either –certainly not legal ones anyway! Most of the peopleI know who got rich from a small business, got thatway by working hard over a long period of time.

Financing a franchise

Most of the major banks now have a franchise division, which specialisesin financing franchisees. The competition between banks offering financeto franchisees is fairly severe and you will generally find them helpful.

You are usually required to have about 30 to 40 per cent of the purchaseprice before seeking a loan, although this will vary depending on thebank, the type of franchise you are buying and the overall amount ofcapital required. Plus of course the amount of collateral you are preparedto put up as security for the loan.

Banks generally keep a list of ‘acceptable’ franchise concepts (onesthey will readily lend money on). This is an added safeguard for you. Theymay or may not admit to the existence of such a list or tell you who is oris not on it but I would be very wary of borrowing money to purchase afranchise system if a bank advised against it or seemed reluctant to lendon it. It must be stressed however, that even if a bank does approve a loanon a franchised business, it’s still no guarantee whatsoever that the conceptis sound or fail-proof.

Summary

There is a lot to be said for having the full benefit of somebody else’shindsight and anyone considering going into business should at leastexplore and consider the franchise alternative. While the cost of entrymight appear high, it may well be worth the expense to minimise the riskof failure – especially if you have no previous experience in running yourown business.

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hould you decide to buy a franchised business, your next task will beto evaluate which system you are going to buy into. With over 700 to

choose from in Australia, this can be an extremely difficult decision.There are a number of factors you need to consider. Firstly, what type

of business are you best suited to? With some franchise systems you needto have experience in a particular trade before they will accept you. Thisapplies to such things as real estate, coaching, plumbing, etc. However, thegreatest percentage of business format franchises do not require anyspecialist experience and training is usually provided.

All good franchisors require their potential franchisees to go through ascreening process, to make sure that they are ‘suitable’ to the system.During this screening process, the franchisor will generally be looking atyour managerial skills and your temperament, as well as your financialcapacity. They may also consider your people skills and your appearance,amongst other things.

In some of the best franchises, this screening process is very intensive.In the case of one large, well-known franchise system, it’s said that thereare over 100 applicants rejected for every one accepted! They obviouslybelieve that there is a lot more to becoming a successful franchisee thansimply being able to cook a hamburger!

In many ways, buying into a franchise is a bit like entering into amarriage agreement – it can only work out satisfactorily if the two partiesare compatible. As with any business, you should consider whether thesystem fulfils your wants and needs. Are you looking for a satisfying andrewarding career or just simply a chance to earn big money? If you haveenjoyed a challenging management career to date, are you going to behappy with simply putting a scoop of ice cream on the end of a cone or areyou going to be looking for something that provides a greater challenge?

8. WHICH FRANCHISE SHOULD YOU BUY?

S

“Choose a job you love and you will never have to work a day in your life.”

Confucius

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On the other hand, you may well be at the stage of your business careerwhere you would be very happy with a less complicated life. I know of onehigh-ranking bank executive who bought an ice cream franchise and isvery happy with his new career!

You should also give consideration to the type of lifestyle you want. Forinstance, there is not much point in buying a fast food outlet if you are notprepared to work on weekends and late at night. Don’t kid yourself that youwill be able to pay someone else to do this part of the job for you. You willprobably find honest, reliable staff are hard to come by and theresponsibility will ultimately rest with you. Naturally, you should alsoconsider the financial aspects and make sure that the system you arebuying will be able to provide you with sufficient income to at leastmaintain your present lifestyle and hopefully, improve it.

Get professional advice

With so many franchise systems out there to choose from, you should beable to find something that suits. There are a number of organisations thatcan help you with your choice, including specialist Franchise Consultantswho will give you advice for a fee or in some cases, for ‘free’.

There are also a number of legal firms that now have franchiseconsultancies as a part of their practice, as well as accountants whospecialise in the area.

Be warned, some consultants get a fee from thefranchisor for finding suitable applicants so, theadvice you receive may not be totally unbiased.If you do seek the advice of a consultant, ask atthe outset if they receive any form of paymentfrom franchisors and get it in writing.

Before signing any agreement or documentation to purchase afranchise, make sure that you deal with an accountant and particularly asolicitor who specialises in franchising. The franchise department of yourbank should be able to make recommendations in this area.

When assessing a franchise opportunity, it’s necessary to make surethat the franchise documents comply with the regulations set down in the


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Franchising Code of Conduct. This covers all the issues such as thefranchise agreement, the disclosure document, the lease requirements,marketing guidelines, franchise territory, supplies, franchisor andfranchisee obligations and termination of the franchise agreement.

Buying a franchise usually involves a large financial outlay, so makesure you get independent professional advice about the proposal and aboutthe franchisor and the product or service.

The Franchising Council of Australia Ltd., is the peak body forfranchising in Australia. Most large Australian franchises are members. Itmust be stressed however that membership of FCA does not give any sortof special guarantee of integrity or competence.

Evaluating a franchise system

So, how do you go about evaluating a franchise system? Firstly, you must assess whether you possess the skills required to

successfully operate the business system you are considering oralternatively, that you can easily acquire them.

One of the best forms of checking out the claims of franchisors is totalk to as many of the other franchisees in the system as possible.Reputable franchisors will not mind you talking to their other franchiseesand most people will be happy to share their experiences with you.

When talking to other franchisees in the system, don’t just ask them ifthey are happy doing what they are doing. Ask them if the profits and salesperformance are up to expectations and promises. Is the level of ongoingsupport, such as training, advertising and promotion satisfactory?

Warning: when you are approaching other franchisees, be mindful ofthat person’s time. Don’t walk in on them unannounced in the middle oftheir lunchtime rush hour and expect them to drop everything and starttalking to you. Remember, they are trying to run a business too!

The Franchising Council of Australia Ltd., isthe peak body for franchising in Australia. Theyrepresent franchisors, franchisees and serviceproviders for the sector. You will find lots ofvaluable information on their website:

www.franchise.org.au.


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Check out the credentials of the franchisor with a fine tooth comb. Thisincludes getting a mercantile report from a credit service agency, such asDun & Bradstreet. Check with the Department of Fair Trading to see if anylitigation has been brought down against the system operators. Ask yourbank to assist you in checking out their bona fides.

Make sure that the system you are thinking of joining is well establishedand the product or service being offered is not just a short-term fad that islikely to eventually go out of fashion. Check out how many outlets are inoperation and how long they have been going. How many of the outlets areowned and operated by the franchisors themselves? Generally speaking,the more they own themselves the better.

Have they experienced strong, steady growth or have they simplymushroomed up overnight? Have they ever terminated any of theirfranchisees and if so, what were the reasons? What is the background andexperience level of the people operating the franchise system? What levelof support and ongoing training are they offering? Ask to meet the personor persons you will be dealing with after you have bought the system. Thisis important, as you will probably have to work closely with that person inthe future. It’s always easier to deal with a person whom you like and trust.

Ask the franchisor if you can work for a shorttime in one of the outlets (without pay) just to getan idea of what the business is all about.

This is a good way to get a feel for the businessand to see if you are suited. Often, you get adifferent view from the ‘inside’.

The agreement

At the heart of any good franchise system is a good Franchise Agreement.While it’s likely to be a long and detailed document, it should be writtenin plain English and be easy to understand. Of course, do not even thinkabout signing any agreement without seeing your solicitor first! However,before you do this, you should be reasonably clear of just what yourobligations are going to be and also the obligations of the franchisor.


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There are many aspects that you need to consider, such as:

• What are the terms of terminating the contract if you want to sell? • What is the duration of the agreement and the terms of renewal?• Is there a renewal fee? • Will you be paid for any goodwill you create if you sell it? • Can you easily sell the business if you decide you don’t like it? • If you are buying a geographical territory, make sure it is clearly

defined and that other people can’t open up too close to you.

Note, this last point is very important. A friend of mine purchased anoutlet in a Sydney suburb for a very large, well-known car rental franchisesystem with branches world-wide. Due to the enthusiasm of an overzealous local franchise salesman, within a very short space of time theyopened 12 outlets in the Sydney metropolitan area. He later discovered thatthis same system had only two outlets for the whole of San Francisco! Hesoon discovered the local market was hopelessly over-catered to and heeventually had to get out, losing a good deal of money.

Check how many outlets the company is intending to open and makesure the market demand is adequate.

Summary

Take your time in assessing any franchise system; it doesn’t matter if thismeans six months or even longer. It’s quite common for people to take thislong to properly evaluate a franchise. Remember, if you make the wrongchoice, you will have a long time to think about your regrets.

Be very wary of franchisors whose major concern seems to be gettingyour signature on the dotted line and your deposit cheque. Goodfranchisors will be just as concerned about you, as you are about them(perhaps even more so)! A failed franchisee is bad for their reputation.

And finally, don’t fall in love with the idea of the business and forget todo your homework properly.

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his advice is as true today as it ever was but where do you find thesethree wise people? *And yes, there are an ever increasing number of

women appearing in all of these professions but the ‘three wise persons’doesn’t quite have the same ring to it!

Let’s deal with them one at a time:

Choosing an accountant

John Cornell, Paul Hogan’s good mate and manager, is perhaps notsomebody who immediately springs to mind as your typical business guru.However, in an interview about his business affairs, he once made thefollowing very astute observation:

“Years ago, if you were in business, you used to hire a part-timebookkeeper to come into your office for half a day a week at a cost ofaround $50 a time. This was your entire expenditure on accountancy. Now,your accountant probably charges $250 an hour and you go and visit him.Furthermore, he is probably located on the top floor of a luxury downtownoffice block with sweeping views and original oil paintings on the walls!”

For a bloke who always played the part of a moron on television, thatwas a pretty smart observation from old ‘Strop’!

They were the good old days – what happened?Unfortunately the laws of this country, particularly those relating to

taxation, are generally made by solicitors or ex-solicitors. It has beenestimated that around 35 per cent of our politicians are ex-legal people and

9. THE THREE WISE MEN (or women)*

“To survive and prosper in business you need threeaccomplices: a good accountant, a good solicitor and a good bank manager.”

Anon

T

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it seems like they just love to keep their mates in work! So, the system justcontinues to get more and more complex and despite the myriad promisesfrom governments of all persuasions to make the tax system simpler, itcontinues to get more complicated.

Getting the right advice from a good accountant as early as possible,can make a huge difference to your bottom line and could even affect yourvery survival, so it’s vitally important to get an accountant that’s right foryou. Some accountants seem to adopt the attitude that they are working forthe taxation office (not you) and that it’s their duty to see that you pay themaximum amount of tax possible. While it’s their legal duty to make sureyou pay the correct amount of tax due, you certainly don’t need someonewho is going to create ways for you to pay more tax than you have to!

Let’s get one thing very straight and clear right now: I am not for onemoment suggesting that you should try to get out of paying any tax thatyou legally owe or that you should even consider paying less than your fairshare. I am simply saying that if you can legally avoid paying more tax thanyou have to, then you should. That is your right in a free country.

Tax avoidance is quite legal, tax evasion on the other hand is not andthere are some very stiff penalties, including large fines and prisonsentences if you are caught engaging in the latter.

Note: Accountants who will tell you of ways tocheat the system are a dying breed. A number oflaws have been passed in recent years that makeaccountants personally liable, if they advise youto take illegal actions to evade taxation.

By the way, even if you do find an accountant who is foolish enoughor gung ho enough to give you advice on how to avoid paying tax, sayingyou were simply acting on the advice given by them, is no defence. If it’snot legal, you will still be personally liable and have to face theconsequences.

A good accountant is not there just to show you ways of minimisingyour tax. He or she can also assist you with developing your business andadvice on business decisions. A good accountants can become yourpersonal business mentor. Unfortunately, even though accountants today

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are trained in all sorts of skills to assist you in your business, only arelatively small number of them become involved in services outside thetraditional accountancy role of tax compliance.

During my many years in business, I have had several accountants andit’s probably fair to say that, like the Curate’s egg, all of them were good inparts. And, not unexpectedly, all of them had some shortcomings. Businessand taxation law is now so complex, it’s unfair to expect one person toknow it all and more and more solicitors are getting into the act.

A friend of mine who gives advice in financial planning, says that youshould hire the best tax solicitor you can find and the cheapest accountant.I can’t tell you if it works or not but it’s an interesting theory and he is nowa multi-millionaire!

Of course, the best legal advice available doesn’t come cheaply andthere are two problems with this:

a. You probably can’t afford it;b. You probably don’t need it – at least not in the early stages of

your business life.

It may make good sense for a high flying entrepreneur who is earning$10,000 a week to seek the best taxation advice available. And if youraccountant is able to save you $1,000,000 in tax, then you probably won’tmind paying $200,000 for his or her services. However, if you are not quitein this league yet, you are going to have to settle for someone a little bitdown the line.

In making your selection, the first question you should ask yourself is,“What do I expect of my accountant?” Do you have a major tax problem?Are you earning megabucks and you want to set yourself up in an offshoretax haven or are you just looking for some sound, sensible advice ontaxation and record keeping?

Important note: It should be pointed out here – there is a big differencebetween an accountant and a bookkeeper. Many small business startershave a tendency to confuse the two functions. Generally, you will not useyour accountant to keep your books for you on a day-to-day basis.Bookkeeping or record keeping, is a separate job from the normal dutiesof your accountant. The average accountant charges far too much on anhourly rate to do general bookkeeping or record keeping.

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Although some accountancy firms do offer bookkeeping as anadditional service, the best and cheapest way is usually to do it yourself orget a family member to do it for you. There are some excellent off the shelfcomputer programs, like MYOB, available to assist you with this.

If the bookkeeping side of your business gets toomuch for you, there are plenty of professionalbookkeeping services available in most areas.Generally, their prices are reasonable and theirservices are quick and efficient. This can alsorelease your time to do more productive things.

The selection process

Once you have sorted out the question of exactly what it is you require ofyour accountant, you must then go through the process of finding one whois right for you. Accountants are just like any other segment of thecommunity, they come in a variety of types. There are conservativeaccountants, creative accountants, caring accountants and entrepreneurialaccountants. There are expensive ones, cheap ones, efficient ones andinefficient ones. Unfortunately, there are also some who are expensive andinefficient, too!

Your task is to find the one who best suits your needs at the time. It’simportant to bear this in mind, because it’s possible to outgrow youraccountant, just like your premises or the equipment in your business.

That might sound a bit strange and maybe your accountant willbecome a close friend and mentor over the years and you may wish tostick with the same one. They may even grow with you. And by the way,I should mention this can happen in reverse. I once had an accountant whooutgrew me! He got swallowed up as part of a big firm who only wantedto deal with big clients and he immediately doubled my bill. If youcouldn’t afford to pay the price, they didn’t want to know you.

Don’t be afraid to change if you are unhappy with the service you aregetting from your accountant or if you find somebody else who offers youa better deal. I have often heard people bemoaning the inefficiency or eventhe charges of their accountant but then adding, “I should make a changebut he/she has been doing my books for years.” Don’t fall into this trap.

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Always have an open mind and be receptive to offers of a better deal or abetter service.

This brings up another important point – don’t be frightened to queryyour accountant’s (or solicitor’s) bill, if you feel it’s unjustified or over thetop. There are some unscrupulous operators out there who will send you aridiculously high bill and then drop it by quite a large amount if you queryit. These types may be in the minority but they do exist and you should beever vigilant in trying to avoid being ripped off.

I once had an accountant who increased his bill by what I thought wasan unfair amount. I pointed out to him his bill was about 40 per cent morethan he had charged me for the previous year, way ahead of inflation. I alsosuggested that he had not really done any more work in that year than theprevious one. I was pleasantly surprised to see the bill reduced by severalhundred dollars. Not a bad result for the cost of a telephone call and a bitof moaning and groaning!

Needless to say he is no longer my accountant but this experiencetaught me a valuable lesson – never pay a bill if you feel it’s not right or tooexpensive – always query it.

Summary

Choose your accountant carefully. Get someone who is familiar with yourindustry. Ask other people in your industry for recommendations.

Don’t be afraid to ask up front what the fees are likely to be. It’s no goodhaving an accountant who you are too frightened to talk to, in case theysend you a bill! Above all, get somebody that you feel comfortable with.You should be able to talk to your accountant in the same way as you wouldtalk to a friend. You should not feel in any way intimidated by their superiorknowledge; after all, you are paying the bill and they are working for you.

That doesn’t mean to say that you should be arrogant either. Treat youraccountant with the same respect and courtesy you would like to be treatedwith yourself. Find somebody you can work with and you feel comfortablewith. Someone you respect, trust and can confide in.

Wherever possible, involve your accountant in the important decisionsin your business. Don’t just go and see them once a year at tax time, afterall the damage has been done. Even if you don’t take their advice, you willat least have somebody to play devil’s advocate and point out any pitfalls.

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Choosing a solicitor

Solicitors can be and usually are, outrageously expensive. Of course, theyare a necessary part of doing business and you won’t go far without them.They can also save you or make you thousands of dollars by giving you theright advice.

These days, the law is so specialised you will probably need more thanone solicitor during your business life. The tricky part lies in knowingwhen you have to use them and when you can do without them. Thisdoesn’t mean that you should always try and do your own thing, this canbe disastrous. It simply means that if you can resolve a matter withoutresorting to the courts, then do so.

Be warned: Many solicitors genuinely believethat money grows on trees and that you have oneof these trees growing in your backyard!

Wherever possible, get a quote first and shoparound if it’s going to be a big task.

Before you consult your lawyer, have a good idea of what you wanthim or her to do for you. If at all possible, draft up a rough of anyagreements, etc. to save time. Remember, with these people - time reallyis money!

For straight-forward legal matters (like signing a lease on premises) agood suburban solicitor in a small practice is fine and they will generallycharge you a lot less than their big practice counterparts. They may alsogive you better service on relatively mundane matters, which are subjectto a scale of charges and may be looked on as something more of anuisance to a big firm.

Try to ensure your solicitor has other clients involved in your industry.You may be surprised at how helpful this can be. A solicitor involved inyour industry can help you in other ways, apart from just legal matters. Agood solicitor with his or her ear to the ground, can supply you withinformation about what is happening in your industry and point outopportunities and even provide valuable contacts.


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Summary

Finally, in choosing your general solicitor, as in the case of youraccountant, you should find somebody that you can easily talk to and youfeel comfortable with. Don’t put up with mumbo jumbo or legalese. Makesure that you have a reasonably good understanding of what is going on inany legal matters. Don’t just blindly put yourself in their hands.

I’m not suggesting that you become a ‘bush lawyer’but a good workingknowledge of business law will be a big help during your business career.And you will be surprised at what you can pick up by listening intently,reading legal documents thoroughly and asking questions when you don’tunderstand particular points.

Choosing your bank manager

Last but not least, there is the elusive, so called, ‘good’ bank manager.Where on earth do you find one of these when you need one?

Unfortunately, ‘good’ bank managers aren’t as easy to find as they usedto be. Changes in the banking industry and deregulation of banks haveseen to that. Indeed, most banks now have a system where if you ring upto apply for a loan, you are automatically transferred to their loansdepartment. You may even find yourself talking to someone from anotherstate, let alone your own branch!

The banks would argue that this new system is better than the oldsystem, where you developed a close working relationship with your localbank manager, because you are dealing with a ‘loans specialist’. However,this tends to de-personalise the system and everybody gets treated as anumber in the computer, rather than a person.

Some banks still do give their individual managers a certain amount ofleeway to negotiate, particularly when it comes to overdraft limits – apopular form of funding working capital for small businesses.Unfortunately, this leeway is being curtailed more and more.

As to which bank has the best system and which bank has the best bankmanagers, it’s difficult to say. I have heard stories from business owners ofpoor treatment by the manager of a certain bank and then a short time later,someone else will tell me they have a terrific bank manager with adifferent branch of the same bank.

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Of course, a lot depends on the customer’s attitude and how honest heor she has been with the manager in the first place. It’s amazing howmany people make no arrangement with the bank or fail to keep theirmanager informed about the conditions in their business and then getterribly upset when the bank bounces a cheque on them.

You should always keep your manager advised if you look like goingover your limit. Bank managers hate nasty little surprises and they willquickly lose their sense of humour in such cases.

Summary

Finding a good bank manager you can work with can sometimes be a caseof trial and error. Recommendations from other business people can bevery helpful, especially if the person is well known to the manager and isprepared to take you in and personally introduce you.

Here’s a tip: If it’s at all convenient, try to bank with a large, busybranch, (you can always have signatures at a more convenient smallerbranch location for day-to-day transactions). The reason for this is, bankstend to give their big branch managers a much bigger discretionary limit(the amount the manager can approve at his own discretion before he hasto refer to head office). However, if you are a fairly small business thismay not be so helpful because in a large branch, you could find yourselfdealing with one of the clerks, rather than the manager.

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any a good business idea has gone begging simply because theperson or persons with the idea, were unable to raise the necessary

capital to commence operations. And a good deal of small businesses fail– or fail to reach their full potential – simply because they lack thenecessary funds to grow and expand the business.

Sometimes, even a relatively small injection of funds can turn a goodidea into a successful business venture. If you have a great idea for abusiness or a business with good potential for growth but lack capital andyou don’t have sufficient collateral to borrow from conventional sourceslike a bank – a Business Angel may be your answer.

Business Angels, Private Investors and Venture Capitalists

The term ‘business angel’ was first used in the theatre, where financiersinvested in theatrical productions and contributed their skills and contactsto ensure the success of a particular production.

These days however, business angels invest in a wide range ofcommercial ventures. In the small business area, business angels areusually high net worth individuals. However, they can also be companies,that have acquired excess funds and wish to invest their capital,management expertise and contacts to help other smaller companies grow.

Business angels or private investors, are often overlooked by smallbusiness owners seeking ‘venture capital’ (investment money for abusiness, usually with a high risk attached) because they fear bringing

10. ALTERNATIVE SOURCES OF FINANCE AND

BUSINESS ANGELS“Money alone sets all the world in motion.”

Publilius Syrus – 100 BC

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Alternative Sources of Finance


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‘outsiders’ into the business will result in them losing control and perhapseven ownership of the business. However, for some, this may be the onlyway of raising the finance necessary to start a successful business and itshould definitely not be ruled out. Furthermore, business angels not onlycontribute much needed capital, they often also contribute their expertise,knowledge and valuable business contacts to the venture.

Business angels are usually retired, former business owners orexecutives with time on their hand and money to invest. They are generallylooking for a chance to become involved in a project that will keep themactive and involved in the business community, while at the same timeproviding them the opportunity to earn a good return on their investment.You may even be lucky enough to find a business angel who has directexperience in your trade or industry.

They can play a quite active role in the business and the level ofinvolvement is usually agreed upon by negotiation. They may want a lot ofinvolvement in the business or they may prefer to simply be a minorinvestor and just play the role of ‘mentor’. They may even just invest andnominate an outside business consultant to contribute the expertise.

Some business angels will invest in several projects at the same time,while others will focus on one large project. Likewise, they may decide toinvest for a long term in one specific project or for a short term acrossseveral projects.

You may also elect to go with an individual angel or a group of angels.This is where a team of angels band together to contribute capital andexpertise, usually for larger ventures – (this also lessens the individual’srisk). Here you have the added benefit of even greater expertise andcontacts but of course, the down-side of this is, there may be too manycooks in the kitchen!

How much will they invest?

Typically, angels can invest anything from $100,000 to $2 million perbusiness, although even higher amounts of up to $5 million are notunheard of. The proportion of funds invested can also vary greatly from arelatively small percentage to 100 per cent in some cases. The latter wouldbe highly unlikely however, as an investor will be more likely to invest ifthey see that you also stand to lose a fair amount if the venture fails.


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It is possible to find investors who do not require any guarantee that thebusiness will succeed or that the invested money will be repaid in the eventthe venture fails. You would never find a bank or other financial institutionprepared to take these sorts of risks.

In return for their investment, angels usually require a share of thebusiness. The size of the share will depend on the size of the investmentrequired. In the case of a company, they will also require a seat on thecompany’s board.

Send me an Angel…

So, where do you find one (or more) of these angels? There are a number of organisations that offer the services of

‘marrying’ business angels – investors or venture capitalists – withpotential businesses, usually for a flat fee or perhaps even a percentage ofthe investment raised. You should be aware however, before you go off insearch of an angel, there are several things you will need to have in placebefore you will even be considered.

Firstly, your business idea or project must have potential for rapidgrowth. It will also usually be a new or innovative idea, although this is notessential. It may simply involve a new or better way of doing somethingthat already exists. Suffice the say, most business angles will be lookingfor something a bit more challenging than a corner store or a lawn mowingrun – unless it has the ability to be built into a chain or franchised.

You will also need in place:

• A clear and concise business model or system • A rock solid business plan• A precise amount of money you are seeking for investment • Full financial forecasts • Full details of the people involved in the business and their

areas of expertise• Extensive market research and evidence of the market potential• A sound marketing and promotional plan• The level of return the investor can expect and how and when this

will be paid• An exit plan for the investor(s) i.e. When and how will the invested

capital will be repaid?


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Note: For existing businesses, you will also need a full set of accountsincluding full financial statements, tax returns and an evaluation of thebusiness’ net worth.

For more information about Business Angels,Venture Capitalists and Private Investors andlinks to useful resources, see the Resourcessection of our website under Finance.


What Financiers want – The 5CsWhether you find an angel or borrow through a financial institution, thereare some basic ground rules for borrowing money, as follows:

Firstly, financiers lend to people not to ideas. This means professionalsubmissions to raise finance are essential. Borrowers must demonstratethat they have what financiers call the: Five ‘Cs’. This stands for:

Capital, Character, Capacity, Conditions and Collateral.

Capital

This simply refers to the amount of money you want to borrow and howlong you want it for.

Character

This refers to the personal integrity and reputation of the people behindthe business. Have you got a good personal track record? Are there anyfinancial ‘skeletons’in your closet? If you have had credit problems in thepast, it is probably better to come clean and talk about them up frontbecause chances are they are going to be discovered in due course.

Capacity

Financiers will be looking closely at your capacity to repay the loan, notjust the interest. They will be looking for the capacity, management abilityand commitment to service the interest, repay the capital and generate areturn to your business. Your proposal to borrow money should beintegrated with your business plan to demonstrate that your proposition isa good lending opportunity for the financier.

Conditions

Consideration will also be given to the conditions of the market at thetime. Is it growing or declining? Is it likely to be affected by any outsidefactors or influences? Is the business climate favourable?

Collateral

And finally, collateral. What assets do you have that can be called on ifyou fail to meet your commitment? While financiers will be looking forsecurity, the viability of the business will be the primary consideration andthe security issues follow. Banks will usually only move on your assetswhen all other means of collecting have been exhausted.

In the eyes of a bank, if they have to take this action, they would viewit as a bad lending decision in the first place.

Be warned: While banks and other financialinstitutions are reluctant to move on your assets,(i.e. to sell your home, for example) rest assuredthey will, if all other avenues of repayment areexhausted. If you are not prepared to take thisrisk, don’t borrow the money.

Repayment

These days, the key word in any lending proposition is repayment. There was a time when financiers looked at the ‘serviceability’ of a

loan (ie your ability to pay the interest on the amount borrowed). Todayhowever, it is not good enough to just pay interest only. The borrower’s‘exit’ strategy must be presented. In other words, lenders want to knowhow and when the money is likely to be repaid in full.

The onus is firmly on the borrower to create an individually stronglending case. The emphasis for financiers is on clever credit assessment.

Don’t be daunted by all this

First and foremost, remember financiers do want to lend money tobusiness. They are in business to lend money and business is an importantmarket segment.


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Just bear in mind, financiers will be looking for you to:

• Demonstrate sound management skills• Provide accurate financial data • Provide regular and timely financial reports• Prepare cash flow projections with substance, and • Demonstrate your capacity to pay interest and repay capital.

Financiers will also:

• Favour a professional presentation and an accounting firm’sinvolvement in the provision of frequent financial reporting

• Expect that such advisers should have made the client aware of any weakness in their finance submission prior to its presentation to the financier

• Prefer businesses to obtain all finance from the one source • Prefer not to deal with trust structures

Relationship banking

Banks are now placing a greater emphasis on ‘relationship banking’getting close to their customers, getting to know the business and thecharacter of the people who run the business. They want to see soundbusiness management demonstrated. Evaluation of lending proposalstoday concentrate on management capabilities and the viability of abusiness. Security is considered only after the proposal passes this stage.

Financiers are no longer simply security lenders but at the same time,they will not lend without security.


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Summary

Securing a loan can be very expensive. Try to limit the amount you haveto borrow for your business by collecting your outstanding debtors on timeand minimising your stock holdings. I have seen lots of people take outbigger and bigger overdrafts, simply to fund their debtors’ businessesrather than their own! Don’t increase your overdraft and then get lazy aboutcollecting money owed to you.

Remember, the lower your overdraft is, the more profitable yourbusiness will be and the more money you will be able to put in your ownpocket. When it comes to business finance – a dollar saved, really is adollar earned!

Home Base Or Premises?

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ome based businesses make up a very large proportion of the totalsmall business population in Australia. At the last Census, there were

an estimated 784,800 home based small businesses. This represents 67 percent of all the small businesses in Australia.

With the advent of the internet, mobile phones and all the othertremendous advances in technology, today, working from home is a veryreal option for many small business operators. This is especially the caseif you are going to start out small, perhaps as a one person operator or ahusband and wife team, etc.

Working from a home base is highly recommended, if at all practical,because it’s obviously cheaper and avoids the need for you to sign a longlease on premises. Starting out from a home base is also a good way of‘testing the water’ before plunging into the deep end. Many a smallbusiness has failed, leaving the proprietors stuck with a long lease, usuallybacked by personal guarantees, that has to be paid.

It must be stressed however, that there are limitations to operating abusiness from home and several factors need to be considered. Workingfrom home can be especially difficult if you need to hire staff (outside offamily members). You should also consider the following factors:

• Will clients be comfortable visiting you at home? • Is the layout, design and location of the home suitable? • Is there enough room to carry on the business without disrupting

the family routine too much? • Are you likely to run into problems with local council because the

zoning is strictly residential? • Are you likely to get complaints from neighbours about pollution,

noise or other disturbances?

11. HOME BASE OR PREMISES?

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“Even if you're on the right track, you'll get run over if you just sit there.”

Will Rogers


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If you can overcome these problems, there are a number of benefits tobe gained by operating from a home base. For starters, there is the savingin travelling time to and from the workplace and the ability to be able towork at any hour of the day or night when necessary. Of course, this canalso be terrible a trap. When the work has piled up, it’s very difficult whenrunning a home-based business to avoid the temptation of spending everyspare moment you have, working in the business.

Self discipline

You must also decide if you are the type of person who is easily self-motivated. Many people thrive on their daily contact with other peopleoutside the home and working from home can be a very lonely experience.There is always a danger of becoming introverted and depressed.

You will also need a high degree of self discipline. Even though whenyou are working from home you may be able to vary your hours from thenormal working hours, I don’t recommend it. I have worked from homefor a number of years and found it imperative to maintain a strict timeroutine. I always try to shower, shave and dress for ‘work’ in the normalway, making sure I am at my desk by no later than 9AM every morning.It’s very important to establish a solid working routine.

A friend of mine who runs a training business from home, tells me shegets up every morning and dresses as if she were going to the office. Shethen gets into her car and drives around the block, arriving back at thehouse ‘ready for work’. She finds this exercise necessary to get her mindinto the ‘work mode’. As silly as this may sound, if you have troublestarting in the mornings, you should give it a try. You might be surprised athow well it works for you.

When working from a home base, it’s essential also to establish yourwork routine with the rest of the family. If you have a spouse and childrenliving at home, sit down with them and spell out your timetable. When youare working they should consider that you have literally ‘gone to work’ andyou are not able to be interrupted with noise or other distractions. Establisha solid routine. Let them know that you will be having morning tea andlunch at a certain time. This way if they need to talk to you about non-business matters, they can do so at these allotted times, rather thancontinually interrupting your work flow.


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Generally speaking, expenses attached to running a business fromhome are tax deductible. This includes such items as part of the electricityand telephone bills. To substantiate these claims however, you will need tosatisfy the taxation office that a certain part of the home has been set asidestrictly for the business.

So far as the home itself is concerned, you should be able to claim a partof your mortgage repayments as a legitimate business expense. Be warnedhowever, if you do take this course of action you could lose part of the taxfree capital gain on your home, should you decide to sell it. You may findthe loss of the tax free capital gain and substantiating a claim are just notworth the hassle for the small concession allowed. Speak to youraccountant about this before taking action.

Warning: If you decide to claim part of yourmortgage as a tax deduction for the business, youcould lose part of the tax free capital gain on yourhome when you go to sell it.

Speak to your accountant before doing this.

Maintaining a professional image

If you do decide to work from home, it’s important to maintain aprofessional image at all times. This is particularly important when itcomes to answering the telephone. Make sure incoming calls are answeredin a professional manner, even though you might be the only personanswering the telephone. It sounds much more professional to answer thephone in the name of the business. For instance, “Good morning, XYZImporting, Rob Smith speaking,” sounds a lot more business like andprofessional than a simple, “Hello”.

Avoid having your children answer the phone or domestic backgroundnoises such as washing machines going or dogs barking. Install a separatetelephone line which is used strictly for business. Don’t use your businessphone line when using the internet. If your business takes you out of thehome during normal business hours, use electronic voice mail to recordmessages or divert your phone to an answering or messaging service. Youwill find the extra business gained more than covers the cost.


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You could of course divert your calls to your mobile phone but this cancreate problems. Apart from the fact that you will be constantlyinterrupted, you probably won’t have the information you need toeffectively answer queries when you are out of the office. You will also besubject to any outside noise from your location and you may find yourmobile phone drops out, resulting in you missing calls altogether.

Whether you work from home or from outside premises, don’t missbusiness simply through being difficult to contact. Good communicationsare vital to your business success.

The Serviced Office option

If you are in a situation where you either can’t operate from home or don’twant to but you still don’t feel confident enough to sign a long lease onbusiness premises, there is another option – the Serviced Office.

Serviced offices are an excellent alternative for the small businessoperator. There are now a large number of these centres in most capitalcities and major regional centres. Usually they provide immediateoccupancy of a fully furnished office, complete with telephone answeringand secretarial services on a user pays basis. This often includes wordprocessing, computer services, reception, telephone answering,photocopying, fax, mail, courier service, boardroom and kitchen facilities.

The great thing about these centres is that you have all the modernconveniences of a well-equipped office at your fingertips without thecapital outlay for expensive items like laser printers and photocopiers. Andusually, you only pay for these services as and when you use them. Someserviced offices come with storage space in the industrial areas orsweeping views from the top floor of a prestigious building in the heart ofthe central business district. One in the heart of the Sydney CBD, evenboasts an indoor swimming pool and gym and some also offer the use ofoffice facilities interstate and overseas for people who travel.

If you need to use a boardroom or conference room, these are oftenavailable on an hourly charge. This means you are not paying big rentalsfor meeting room that sit idle for 80 to 90 per cent of the time.

Another advantage of the serviced office is, if you find that yourbusiness outgrows the space, you usually can rent more. There are no long-term leases to sign and most of them operate on a monthly rental basis.


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In a serviced office complex, you also have the added benefit of havingother small business operators around you. This provides an opportunity tonetwork and do reciprocal business.

Summary

Before paying out big money for a luxurious, prestige location, carefullyevaluate how many clients will actually be coming to see you, rather thanyou going to visit them. And remember, there is always the risk that if youlook too far up market, your potential clients may think you are going tobe too expensive!

A lot will depend on the industry you are in and the image you need toproject. Take a good look around at the sort of premises your competitorsare operating from and use this as a guide. Look in your local telephonedirectory, the internet or the classified section of your daily newspapersunder the ‘business premises to let’section and check out the alternatives.

If you can possibly manage it, try working from home, at least in theearly stages. Alternatively, a good, well-run serviced office presents a veryviable and cost effective compromise between working from home andsigning up for a long lease on business premises.

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hould you decide to operate your business from a leased premises, youare going to have to face the daunting prospect of signing a lease.

Leases are a minefield for the unwary. They contain delayed action minesthat can go off six months, one year or three years later, usually when yourbusiness is facing its darkest hour. The best way to overcome theseproblems is to tackle them right from the outset.

Paul Brennan, is a solicitor based in Mooloolaba, Queensland. Paul hasspecialised in small business for a number of years and offers the followingadvice for successfully negotiating a lease:

Firstly, remember – there is no such thing as a standard lease. There is,however, a fairly standard procedure, which you may not like but you willbe forced to accept. This standard procedure is put into motion once youhave agreed to the lease offered.

The lessor’s solicitors will provide a lengthy document – sometimes 30pages or more – which invariably contains clauses that were not discussed.If they had been discussed, you would not have agreed to them!

To add to this, the lessor’s lawyers will insist that no amendments bemade to the lease. The willingness to negotiate the terms will generallydepend upon the desirability of the premises. It also used to be the case thatthe lessee had to pay the lessor’s legal costs however, it’s now becomingmore common for the lessor to bear a proportion of their own legal costs.

12. LEASING PREMISES“The mechanics of running a business are really not

very complicated when you get down to essentials. You have to make some stuff and sell it to somebody else for more than it cost you. That’s about all there is to it, except for a few million details.”

John L. McCaffre, Former President, International Harvester

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Leasing Premises

Leasing Premises

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Why is the lease of your business so important?

The lease document only ever becomes important if there is a disputebetween lessor and lessee. Unfortunately, this is all too common. If youhave an argument over the rent review or repairs, you will rush to yourcopy of the lease.

If you have not taken care in negotiating the lease, you will find that thelessor has you ‘over a barrel’. The secret is to know what to ask for whennegotiating a lease, what to look for when reviewing a lease and to agreeon the important terms at the negotiation stage, so that the discretion of thelessor is limited.

Here is a useful guide to successfully negotiating a lease:

1. Keep it simple

Try to ensure the lessor’s solicitor is using a Law Society approvedprecedent. Most states have approved precedents which are ‘fairly’balanced.

2. Subletting and assignment

You may want to cover part of the rent by taking in tenants. If you don’tspecify this, the lease may exclude your right to do so.

3. Rent

Most people concentrate on getting a good deal with their rent. What theydon’t appreciate is that the rent will increase each year, sometimesstaggeringly so.

Apart from a fixed percentage increase, there are two types of rentreview – the Consumer Price Index (CPI), which keeps up with inflationand the market review, which brings the rent into line with other rentalvalues. This can be a killer, because it means that even if your rent isparticularly reasonable in the first year, a subsequent market review woulddestroy the benefit.

Expect a CPI review every year, but try to avoid market reviews. Onlyagree to them every two or three years at most. Also, try to think ahead. Ifyour premises are in an area where rents are destined to increase over thelonger term or say, when a specific development is completed, try toarrange it so that the review is done before the development is completed.

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4. Guarantees

If you are taking the lease in the name of your company, they will wantpersonal guarantees, usually by the directors of the company. This is agood reason for not having your spouse involved in the company,especially if he or she is not playing an active role.

Remember, you can now have companies with only one share holderand director.

5. Deposit

This is usually three month’s rent and is kept by the lessor without interest.See if the lessor will agree to a bank guarantee instead. This simplyinvolves the bank guaranteeing the amount without you actually having topay out the money. If you can’t get a bank guarantee, ensure the bond iskept in a real estate agent’s trust account and not just taken by the vendor.

Instead of lodging a deposit, see if the lessor willagree to a bank guarantee instead. There is amodest fee from the bank for this service but it’susually minimal and avoids you having totie up your precious working capital.

6. Repairs

You would probably expect the lessor to be responsible but that’s notalways the case. Check it out.

7. Put the agreement in writing

The estate agent should do this for you. If not, set out the agreement usingthe above headings. Mark any correspondence, ‘Subject to lease”. Try tokeep diary notes of any conversations you have with the real estate agents.

8. Rental term

Remember, you are committing yourself to a particular term. If yourbusiness doesn’t succeed and you want to get out or if it does succeed andyou need more or better space, you are still committed to the full term ofthe lease.

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Further Points to note:

Instruct a solicitor

Represent yourself on a murder trial or do your own conveyancing if youmust but do not enter into a lease without your lawyer reviewing it!

Any small business person who thinks they can do without the servicesof a lawyer when entering into a lease, had better have a very good lawyerreviewing it – they are going to need one!

Read it

You don’t have to tell me that legal documents are dull and written in adifficult manner. I know – I have to read them for a living! I appreciatethere is so much small print nowadays, in everything from car leaseagreements to credit card agreements. A lease you must read, however.

Your lawyer will usually send you the lease with a covering letter. Sitdown with a pencil and go through it, paragraph by paragraph. Make anote in the margin of any point you do not understand or are unhappy aboutand discuss it with your lawyer.

Insurance

A lease usually requires you to take out insurance. The clauses which dealwith insurance are lengthy and may occur in three different places in thelease. Don’t try to understand it. Just photocopy the relevant pages andsend them to your insurance brokers. It will then be their problem.

Outgoings

These are usually included but if not, get details of them in writing. Someleases have complicated outgoings provisions. Make sure that the realestate agent has given you an estimate of the outgoings.

Demolition/renovation clauses

In my mind, this usually spells trouble and is to be avoided. If the lessor isrenovating the premises or plans to knock them down, forget it and findsomething else. You may find yourself surrounded with dust and buildingworks and with a lessor who still expects to get your rent, while you haveto carry on business on a building site!

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Option to renew

Leases are often for three years, with an option to renew for a further threeyears. The lease will provide that you must give notice three monthsbefore expiry. If you don’t do this, you will lose your option and your rightto the premises. Make a note in your diary or somewhere you won’t forgetto take up your option.

Use of premises

The lease will limit your use of the premises to certain activities. Makesure it covers your needs.

Assignment

Make sure that you can transfer the lease to someone else, should you findit necessary to vacate the premises before the lease expires.

Look around

Remember to exhaustively look around for the right premises. Visit thepremises several times, ask other tenants what the landlord is like andwhether the landlord maintains the building properly.

Summary

Getting a lease is one thing, living with it is another. It’s a bit like playingleapfrog with a unicorn. You’ve got to keep on your toes. Get it wrong andyou are in big trouble!

Paul Brennan is a lawyer, author and speaker specialising in small tomedium business clients and can be contacted at Brennans, solicitorsand migration agents, Mooloolaba, Queensland (07) 5444 2166.

Local Government

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eople starting a business for the first time, generally consider stateand federal government requirements and go to great lengths to make

sure they have all the appropriate licenses but often forget all about thelocal council, usually at their peril.

Controls exercised by local government can be quite onerous andshould never be disregarded or overlooked. This applies particularly to theuse of premises or land for business purposes. Business activities startedwithout local council approval can even be closed down by the council.This could be after you have spent considerable time, money and effort instarting up, promoting and generally developing your venture.

Local governments in all states of Australia not only exerciseconsiderable controls over the land and premises of businesses but also themeans by which businesses identify and advertise themselves.

Here are a couple of typical case scenarios:

Case one:

Fred Jones pays $45,000 plus stock at valuation for a small shop in aresidential area. He either doesn’t think about council or believes that thereshould be no problem, as the shop has been in existence for some time.

Six months after he has taken over the business, a planning officer fromthe local council arrives and questions him about the shop. The officerpoints out that the land is zoned residential and commercial activities areprohibited. Subsequently, Jones receives a notice from the councilrequiring him to stop trading as he is contravening the planning laws.

13. LOCAL GOVERNMENT

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“If you are going to sin, sin against God, not the bureaucracy. God will forgive you, the bureaucracy won’t.”

Hyman G. Rickover

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Case two:

Smith & Co, wishes to establish a warehouse and offices near the centralbusiness district. The leasing agent shows them a property and points outthat other warehousing activities are occurring in the area.

They commence operations and some time later the local councilinspector arrives and asks if they have development consent to use thepremises as a warehouse. Of course, they had not thought to go to thecouncil. They subsequently receive a notice from council requiring themto lodge a development application and threatening legal proceedings toprevent the business continuing, if they do not comply with the notice.

The above situations are typical and happen all too regularly. Imaginethe shock of a proprietor of a business being threatened with closure –particularly where he or she has paid a lot of money for the given locationand worked hard to establish the business.

The difference between the two case studies above is:

• In Jones’case, the zoning prohibits his shop from operating;

• In Smith & Co’s case, the zoning permits the activity only with the consent of the council. That is, it’s only illegal while no development consent exists.

Jones could have severe legal problems and may lose his entireinvestment. If he bought a business which has been operating for manyyears, he may be able to claim that he can continue to operate, contrary tothe zoning. However, this depends on certain legal principles and facts tosupport them. It doesn’t follow that because a business has been operatingin the past, this gives it any legitimacy in terms of zoning or planning laws.

Note: The law relating to ‘existing use’ is a separate and complexsubject in itself. It’s also important to bear in mind that zoning laws changefrom time to time.

Smith & Co can apply to the council for development approval and theymay be lucky enough to get it but it doesn’t necessarily follow that consentwill be granted. There may be planning reasons why council will refuse theapplication. Whatever the circumstances, it’s more than likely that in orderto protect the business, expensive and time-consuming legal proceedingsmay be required.

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Development and building approvals

In general terms, all states contain town planning and local governmentlegislation, which require that in order to use land or buildings forparticular activities, council grants a development consent, depending onhow the land is zoned. Also, before altering or erecting a new building, abuilding approval must generally be obtained. This is distinct and separatefrom the development approval. Without either approval being granted, thecouncil may be entitled to seek to have the business closed until it’sregularised by a proper application and approval.

In cases where an approval cannot be given (because it’s contrary tozoning or the council is not prepared to approve it for planning or buildingreasons) the applicant is forced into legal conflict unless he or she acceptsthe decision of the council and walks away from the premises.

The only safe way to approach the purchase of a business or taking ofa lease to establish a business, is to ensure, prior to making a commitment,either by payment of purchase money, exchange of contracts or entry intoa lease, that the necessary development and building approvals have beengiven for the building and its use.

If you propose to use an existing building in a manner different to theway in which it was previously used or differently from the use permittedby zoning, you should apply to the council for a consent.

If you fail to obtain a development consent before commencingoperations and the council is successful in preventing you from operatingfrom the premises, you are likely to be at real risk under your lease. Mostcommercial leases now require tenants to obtain the necessary statutoryapprovals for their businesses, including council approvals.

Note: If you fail to obtain approval and are unable to operate from thepremises, you may still be obliged under the lease to pay rent until suchtimes as the premises are re-let.

It is generally naive and commercially unsound to believe that thelandlord will play any role in ensuring that the premises can be used for thetype of business you wish to establish. The tenant/business person cannotcomplain that the owner should have told them. The landlord is generallynot responsible for any failure to obtain approvals, although in certaincircumstances it may be possible for you to sue the vendor, leasing agentsor landowner for false statements as to how the building could be used.

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This is, however, a legal remedy which would involve expense andinconvenience and this is the last thing business people need, particularlyin their formative years.

Advertising

Advertising is another area where businesses can fall foul of localgovernment. Most businesses will want to ‘hang out their shingle’ toidentify the existence of their services and products. This usually takes theform of signage, either electronic or simply painted on the wall of thepremises. Outdoor advertising is usually controlled by local governmentand signs require approval.

This means that if you paint the wall of a building with your businessname and detail some of the services available or products sold, the localcouncil may need to be approached first and an approval obtained. Apartfrom certain exemptions (which may be found in relevant legislation orordinances) a licence or permit is generally required for any advertisingstructure or sign. Any refusal by council to grant an approval can bechallenged in a court or planning appeal tribunal, provided the zoning ofthe council permits signs but this can be time consuming and expensive.

Many business owners charge ahead and spend money getting signs ontheir building without prior council approval. These are then at risk if thecouncil becomes aware of them and the signs may have to be removed.

Apart from its powers to prevent the business being conducted withouta development consent or to remove a sign erected without approval,council may also instigate proceedings for breaches of certain townplanning and local government law, which may result in a fine or penalty.

Be warned: Local councils have wide rangingpowers which can affect various aspects of yourbusiness and it’s dangerous to ignore these. Theycan impose large fines and penalties and evenclose down your business in some cases. Also notethese laws vary from one council to another.

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henever he appointed a new manager to one of his offices, DavidOgilvy, advertising guru and head of the giant advertising firm

Ogilvy and Mather, used to send them a set of Russian Matrioshka dolls.They are those brightly coloured wooden dolls that fit one inside the other,gradually getting smaller and smaller. Inside the smallest doll was a notewhich read: “If each of us hires people who are smaller than we are, wewill become a company of dwarfs. But if each of us hires people who arebigger than we are, we will be a company of giants!”

Of course, Ogilvy was not referring to the physical size of people butrather their mental and intellectual capacity. He simply wanted todemonstrate the point that you can achieve great success by hiring peoplewho are smarter than you are and managing and developing their skills.

A lot of people fail to grasp this simple but effective concept. Manypeople are afraid that if they employ people who are smarter or better thanthey are, it will be difficult to manage them. This is simply not the case.The world is full of ordinary people who have made a lot of money bysimply employing people who are a lot smarter than themselves andmanaging their talent.

The greatest resource any business has is its people and employing theright people is critical to the success of your business. Employing thewrong people can be disastrous and costly. So, how do you go about hiringthe right people and what should you be on the lookout for?

Head hunting

One of the simplest ways to get new staff is to pinch them from somebodyelse. This might sound very unethical and of course it is. After all, the othercompany may have spent years and vast amounts of money training thatperson for the job.

14. HIRING THE RIGHT STAFF

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“Only hire people you would be happy to havein your home and play poker with.”

Dick Kress


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At the big business level it’s called ‘head hunting’ and it’s a sport anybusiness can play. It usually involves engaging a third party, such as apersonnel consultant i.e. a head hunter and then getting him or her toapproach a highly skilled person from an opposition company with a betteroffer. On a small business scale, you would probably do the head huntingyourself.

While the practice may be officially frowned upon in business circles,most large companies who have people poached from them have probablydone a fair bit of poaching themselves, so it’s generally accepted as ‘parfor the course’ in the game of business.

The beauty of this method of recruitment is, you get somebody who hasthe skills and experience and perhaps the contacts you need, without youhaving to go through the time and the expense of training them yourself.If you are going to go head hunting, however, be warned: There is also adownside to this method of recruitment, as follows:

Firstly, the person who allows themselves to be head hunted in thismanner, is probably fairly mercenary and may well be head hunted againby somebody else with a better offer than yours. Also, unless you have anintimate knowledge of the company and the person, they may well appearto be be more efficient and competent to an outsider than they really are.

Another point – the person may be well trained in the methods ofanother business and could be reluctant to change their ways. You may findyou are better off getting somebody you can train to do it your way.

Employing friends and relatives

One of the most common mistakes many small business owners makerecruiting staff, is employing friends or relatives who are not really suitablefor the job. This can also make life very difficult later on, especially if youare required to sack the person, either through incompetence or because ofa downturn in business. This can result in family rifts and people who usedto be good friends becoming bitter enemies for life.

Many years ago I used to deal with a large wholesale firm in Sydney.Vic, the man who ran the business, was in my opinion an extremely goodbusinessman and ran a very tight operation – with one major exception –the man driving his delivery truck. He was inefficient, lazy and totallyincompetent. He just didn’t seem to fit in with the rest of the organisation.


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Eventually, curiosity got the better of me and I asked Vic how long thisman had been working for him.

“Ever since I married his sister,” he moaned! Be warned: friends and relatives don’t mix too well with business.

Recruiting staff

One way of recruiting staff is to use an employment agency, and this willcertainly save you a lot of time. As most agencies charge somewherebetween 10 per cent and 15 per cent of the employee’s first year’s salary,this can be a fairly expensive exercise. However, you need to weigh thiscost against the cost in time of doing your own recruitment. Plus, do youreally have the expertise to properly evaluate staff?

If you do decide to place an ad in the paper and do the selection processyourself, you can save a good deal of time by doing some preparation first.Here are a few tips:

Prepare a written job description with details of all the tasks to beperformed. List the attributes you are looking for on a piece ofpaper, number them in order of priority and then photocopyenough copies for each job interviewee.

Give a score from one to ten for each of the major items and totalthem up. While you may not necessarily employ the one with thehighest score, it will help you in your final evaluation. This isparticularly useful if you are interviewing a lot of people, as it’ssometimes difficult to recall the strong points of each individual.

Have a sheet prepared for them to fill out when they arrive, listingwhere they worked previously and details of any referees. If theyhave already sent these details in before the interview, have theseon hand and note any questions you need to ask.

Look for gaps in employment. Beware of statements like: ‘Twoyears working holiday travelling around Europe, etc.’ While theymay well be quite genuine, if you have no way of checking it out,there’s always the chance they might be hiding something.

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Always thoroughly check any references, don’t make the mistakeof saying – “Well, they look honest enough.”

Have a list of questions prepared and try to make them open-endedrather than questions that can be answered with a simple “yes” or“no”. For instance, if the job requires meeting a lot of people andgood people skills, instead of asking, “Do you like meetingpeople?” which would normally attract the obvious answer, youcould ask, “What traits do you admire most in people?” Insteadof, “Do you think you would like to work here?” you could ask,“Tell me, why do you think you would like to work here?”

Make sure you fully explain what the job entails and what isexpected of the employee and give them every opportunity to askquestions. It’s very important to make the interviewee feelcomfortable and relaxed. Offer them a cup of tea or coffee early inthe interview. Make sure you allow enough time betweeninterviews and always be on time for appointments. Ask lots ofquestions and try to do more listening than talking.

Always advise unsuccessful applicants as soon as possible after theinterview. Thank them politely for making the application andwish them well in the future. Extend to them the same courtesyyou would like extended to you if you were in their position.

Follow up

When you have completed your initial interviews and come up with a shortlist of the most suitable applicants, invite the chosen ones back for a furtherinterview. It’s surprising how much more you can learn about people in asecond interview.

For successful applicants, a letter of appointment should be sentspelling out the terms and conditions of employment and again fullyoutlining the job description. This way there can be no misunderstandings.

Finally, if you have good staff working for you, try to make sure youkeep them. A large turnover in staff is very expensive, both in terms of timelost in re-training and to find a replacement.

Always remember – Retaining is much better than Re-training!

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Staff involvement

One of the best ways to keep staff happy is to involve them in yourbusiness. Make them feel that they are a part of a team and theircontribution is important and appreciated. Share your vision for the futurewith them. Many small business owners make the mistake of keepingeverything close to their chest and not sharing their problems with the staff.Show that you are always open to new ideas and encourage staff tocontribute their ideas, no matter how silly they might seem.

A friend of mine offers a regular prize for the silliest idea of the month,just to keep the staff thinking about new ways of doing things. Involvethem in the decision-making process. Delegate responsibility and don’t betoo frightened to let go of the reins – remember, you can’t do everythingyourself. Good managers are also good delegators.

Remember the 3Rs of staff motivation:

Respect – Always treat staff as equalsReward – Pay people what they deserveRecognition – Be quick to praise people whenthey make extra effort or do a job well.

Leadership

A good leader always leads by example. Don’t be an ‘armchair general’,be prepared to roll up your sleeves, get in there and show them how to doit. Never ask the staff to do something you wouldn’t do yourself.

In my early selling career, I worked for The Olympia TypewriterCompany selling typewriters office to office. One of the most difficultparts of the job was getting past the receptionist to see the person incharge. As soon as you announced where you were from, they wouldusually tell you they didn’t want any typewriters and show you the door!

The sales manager of the company at the time was a typical armchairgeneral. When I told him about my problems, he said, “Just tell them youare from the OTC!”

The initials were right, the Olympia Typewriter Company, the OTC!Of course, people assumed I was from the Overseas TelecommunicationsCommission. It was my first job in sales and I was young enough and


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naive enough to give it a go. It certainly got me past the receptionist andinto the manager’s office but can you imagine how they reacted when theyfound out where I was really from? They felt as if they had been connedand rightly so! Not a very good way to start a relationship which you hopeis going to lead to a sale!

After a day of getting thrown out of offices all over town, I went backto the sales manager and challenged him to come out with me for a dayand show me how he could make this work. He made some feeble excuseand declined.

I promised myself from that day on that if ever I became a manager, Iwould never ask anybody to do something that I wouldn’t do myself! Ihave tried to live by that doctrine ever since.

Summary

If you lead by example, good staff will follow you almost anywhere. Thisincludes work habits. Don’t expect to be able to go down to the pub for athree-hour lunch every day and have the staff do all the work. Even thoughyou may be paying them well to do the job and you might feel this is yourright as an employer, you will be disappointed if you take this approach.Staff like to see you doing as much work or more than they do.

Take good care of your staff and be genuinely concerned for theirwelfare. Nurture and develop them. You will find this level of care will bereturned many times over, with interest.

Remember, if you help people get what they want out of life – you willget what you want out of life.

The Seven Steps To A Successful Start

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y now, you have no doubt realised there are many things that need tobe considered before you enter into a business of your own and a

great deal of preparation is required. Here is a short list of the seven basic steps you need to follow to get you

underway:

Step 1: Are you suited?

The first and most crucial step is to decide whether or not you are suitedto running your own business. While most people like the idea of workingfor themselves and the independence of being their own boss, noteverybody has the right temperament to run their own business. Somepeople are better off working for somebody else.

Make sure you have the right mental attitude to succeed. Think long andhard about what is involved. Make sure you are prepared to give it your all.Success and dedication are required and it’s never going to be an easy ride.Talk to other people in business and make certain you understand fullywhat you are letting yourself in for.

Step 2: Which type of business?

If you do decide you are suited, your next step is to determine which typeof business you are going to enter. You should give a lot of thought to this,after all, you are probably going to spend a lot of your time doing it andyou may also be risking a good deal of money, time and effort. Yourchances of succeeding are much higher if you choose a business that youlike and one that is suited to your area of expertise.

15. THE SEVEN STEPS TOA SUCCESSFUL START

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“You don’t have to be great to startbut you have to start to be great”.

Zig Ziglar


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Take into account the following points:

• Are you entering a growing industry.?• How will your competitors react to your entry into the market?• What advantages (if any) do you have over your competitors? • Can you compete on price? If you are relying on price,

what is your leverage? • Are your competitors likely to try and price you out of the

market? Can you offer better service or greater expertise?• Should you buy an established business or start up yourself

from scratch? (There are advantages both ways).• Would you be better off joining a good franchise system? Your

chances of success could be greatly increased if you buy afranchise (see Franchising chapters).

Step 3: What are your strengths?

The next step is to do an audit of your skills and capabilities. Do youpossess the necessary expertise to conduct the business yourself or willyou be relying on other people? If you are going to learn new skills, is thetraining offered adequate? Will you be able to easily learn these new skills?Does the business chosen suit your personality and lifestyle requirements?Take an honest look at your attitude and ability to work.

The various state and territory government smallbusiness agencies can be of great assistance. Someof them run short courses in starting and runninga business and they usually have large amounts ofliterature available. See – Where to Get Help at:

Step 4: Analyse your financial position

Examine your financial position closely. Establish how much money youwill require to finance your business. In calculating the amount needed,take into account working capital and wages for yourself as well as anystaff. Don’t forget things such as workers’ compensation, payroll tax,compulsory superannuation and other on-costs.



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What finance do you have available, what sort of a loan do you needand what assets do you have that can be used as security for a loan? Thereis an old adage that says once you have calculated the amount you need tostart up you should then double it! This might be a little bit excessive butmake sure you build in a buffer for those unexpected events.

You should also decide where you are going to run your business from.Can it be run from home or will you need to rent or buy premises?

Step 5: Planning

The next step is to start drawing up your business plan. After you havecompleted it, take it along to your accountant and get him or her to go overthe figures with you to determine whether your plan is viable. Youraccountant can also advise you on which accounting methods andbookkeeping systems you should employ, to ensure that your business iskept on track. If you monitor your turnover, profit margin and finances,right from the start, you will greatly increase your chances of success.

If you are going to buy an existing business or a franchise system, youwill need an assessment of the worth of the business and its ongoing abilityto make money. Your accountant should be able to tell you whether theprice quoted is fair and whether the figures presented are realistic.

Try to find an accountant with extensive experience and other clients inyour chosen industry. Your accountant will be able to tell you if yourprojections are realistic and achievable.

Step 6: Choose a business structure

Your solicitor and/or your accountant will be able to advise which businessstructure you should use (sole trader, partnership, company or trust). Theywill also be able to help you with such things as registering your businessname and any trade marks, patents or other details.

If you are buying an existing business or franchise system, have yoursolicitor look at the contract to make sure you are fully protected.

Step 7: The bank

The final step, if your business venture is going to require finance, is toconsult your bank or financial institution.


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Many people make the mistake of going to see the bank first but if youdo your homework beforehand, they won’t ask you questions you don’tknow the answers to. By the time you get to the bank, you should haveprepared a sound business plan and have a clear idea of exactly how muchmoney you will require. And by making a professional presentation, yourapplication for finance will have a much greater chance of success.

Don’t even think about trying to borrow moneyfor a business venture without first preparing athorough and detailed business plan. See theBusiness Planning section of this book and visitour website for more information.

See: Business Planning.www.successsecrets.com.au


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SECTION TWO:

SUCCESS SECRETS FOR

GOOD MANAGEMENT

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Time Management

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earning how to manage your time effectively is one of the mostimportant skills you can master in running a successful

business. Most small business people spend far too much time doingthings that don’t have to be done or can be done by somebody else. Theymajor in minor things. You must learn to prioritise the tasks at hand andthen, allocate the available time accordingly.

There have been countless courses and books written about timemanagement and many of them are excellent. The problem is – youprobably won’t have time to do them or read them – you will be too busytrying to make a dollar!

Small business owners are often criticised for not taking time out to docourses and training and while this is true to a certain extent, the criticismoften comes from people who have never operated a business of their ownand don’t really understand the problem. Most small businesses owners, particularly in their formative years, survive by crisis management. Nosooner do you put out one bushfire than another one springs up in anotherarea. And it’s the old story – when you’re up to your armpits in crocodiles,it’s difficult to remember the purpose of the exercise was to bail the swamp!

So, how do you find enough time in the day to do all the things thatneed to be done? Many overcome the problem by working longer hoursbut the secret lies in prioritising the available time.

Here are a few ‘tricks of the trade’ that will help lighten the load.

16. TIME MANAGEMENT“The examples that have been held up to us in praise of

work are a little unfortunate. ‘How doth the little busy bee improve each shining hour, and gather honey every day from every opening flower.’Well, he does not! He spends most of his day in buzzing and aimless aerobatics and gets about a fifth of the honey he would collect if he organised himself.”

Sir Henry Ogilvie

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Time Management

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A million dollar idea:

One of the grandfathers of modern time management was an Americanwith the colourful name of Ivy Lee. Lee, was engaged as a managementconsultant in the early 1900s by the head of Bethlehem Steel, CharlesSchwab. Schwab told him that he wanted to become one of the biggestsuppliers of steel in the USA and asked Lee to work out a plan for him toachieve his goal.

Eventually, Lee handed Schwab a sheet of paper. On it he wrote whatwas to become the simplest but most effective priority managementsystem known to man. Here’s what the note said:

Write down the most important things you have to do tomorrow.Then, number them in the order of their true importance. First thingtomorrow morning, start working on an item Number 1 and staywith it until it is completed.

Then take item Number two the same way. Then Number three andso on. Don’t worry if you don't complete everything on the schedule.At least you will have completed the most important tasks first.

At the end of the day, the list was to be reviewed and those items notcarried out were to be transferred to the following day’s list. The list was tohave no more than six to eight items on it and any item that stayed on thelist for more than a week was to be deleted on the grounds that you werenot serious about the task. Lee suggested that if Schwab could instill thissimple concept into all his managers, he would surely achieve his dream.

Schwab was initially a bit mystified and relatively unimpressed. “Howmuch are you going to charge me for that,” he asked?

Lee simply replied, “Try the system for three months and then send mea cheque for what you think it’s worth”.

Three months later, Schwab sent him a cheque for $25,000. Taking intoaccount inflation, by today’s standards, that would be equivalent to aroundone million dollars!

Schwab went on to achieve his dream of becoming one of the biggeststeel suppliers in America. There is no doubt that this simple taskmanagement system works. Implement it in your everyday life and you’llbe amazed at the results.

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Another way of maximising your effectiveness, is to start a log book ofhow you spend your time. Write down each task performed during a givenday and the time allocated to it. Review the results at the end of the day anddecide which category each task falls into, then prioritise them as follows:

1. Has to be done2. Needs to be done at some stage3. Nice to be done if there is enough time but not essential.

Make sure that the bulk of your time is spent performing tasks incategories one and two. Be absolutely ruthless and cull all the time wasters.

The 4D system for paperwork

Here’s another great system for effectively handling paperwork – operatestrictly under the ‘4D system’as follows:

DUMP ITIf it’s not important, throw it in the rubbish bin and forget about it. Don’t put it in your ‘IN’ tray and shuffle it around.

DELEGATE ITIf it’s at all possible, get somebody else to do it.

DO ITIf it’s a short job, can be done quickly and it has to be done, do it now and get it out of the way.

DECIDE WHEN TO DO ITSet aside a time to do it, write it in your diary and then – file it until it comes time to deal with it. Always remove any unnecessary paperwork from your desk.

Work from a clean uncluttered desk. Don’t have your desk piled highwith papers and things to do. If you do, chances are you will find yourselfsorting through these things over and over again, which is in itself verytime wasting.

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Use the 4D system and file anything that you are not working on. Putpens and pencils, phone books, diary, ‘in’ and ‘out’ trays, anything youdon’t need behind you, out of sight. Working from a cluttered desk cancause mental anguish and fatigue.

Don’t go home with a desk full of papers. Clear the desk before youleave the office and write down your list of things to do for tomorrow.Transfer the items you didn’t get done from today’s list to tomorrow’s list.Set aside a time each day for reading. Put reports or magazines or articlesyou want to read in your reading file, take it out at the allocated time andread it then.

Jack Collis, a well known management trainer, gave me the followingadvice: “Every time you handle a piece of paper, draw a dot in the topright hand corner. When it gets the measles, burn it!” Great advice!

Keeping a diary

Here’s another simple tip: Only keep one diary and write in it everythingyou have to do, both your business and social appointments. Get one that’ssmall enough to carry around easily in your briefcase but large enough torecord all your appointments and keep it handy at all times.

I used to write appointments on my desk calendar and sometimes mywall calendar plus I had a pocket diary and a great big diary on my deskin the office. The problem was, I often missed appointments because Iforgot to transfer them from one diary to the other. If you have only oneoperative document, you won’t have this problem. Now I keep onemedium sized diary in which I record everything. I still have a wallcalendar but I use it only for looking up dates and days and not forrecording appointments. All my appointments (both business andpersonal) are recorded in this one diary.

Get a diary that opens on one full week at a time. This way you can seeyour whole week, Monday to Sunday, laid out in front of you. Plan yourwhole seven days, including your after hours and weekend leisure time. Sitdown with your family regularly and set aside time for leisure and familyevents, as well as your business appointments.

Allocate a set time each day for the important jobs. Don’t start the dayby walking into your office or workplace and thinking – what will I dofirst? Plan your work and work your plan!

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Electronic diaries and other devices

By the way, I should mention here that there are a lot of people today whouse hand-held electronic devices to record their appointments and lots ofother information, such as address details, contact numbers, etc. Some ofthese devices can even be connected to the internet and online databasesand the like, with all sorts of sophistications and features.

While I am not knocking these products – I know many people who willtell you these devices are indispensable – if you are not very technicallysavvy and you don’t have a massive amount of information to keep trackof, you may well find them more trouble than they are worth.

If you check with the owners of these devices, you will often find manyof them have a horror story to relate about losing data or batteries goingflat, etc. I still have a Palm Pilot sitting in the bottom of the filing cabinetwaiting for me to one day go through the process of entering all my dataand learning how to drive it. Seemed like a good idea at the time!

I find the simple combination of a single paper diary and an A-Zcontact address book, have served me very well and I have never had aproblem with the batteries going flat in them yet! I do however, use asimple appointment reminder program, which comes free as part of myemail program, on my computer. So, I simply write my appointments inmy paper diary and set an appropriate reminder date and time on mycomputer – just in case I forget to look in my diary.

Works fine for me – and I can’t remember the last time I missed anappointment!

Summary

Make sure that every job you do maximises your best abilities and skills.If jobs like going to the post office, doing the banking or picking up thedry cleaning, etc., can possibly be done by somebody else, then make sureyou delegate those jobs. Don’t major in minor things.

Ensure that the bulk of your time is spent doing the things that are goingto provide the best possible dollar return to your business.

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hould you decide to enter a business where you have to extendpayment terms or credit, then you are more than likely to run into

problems with bad or doubtful debts. One of the most important lessons inbusiness is simply this: A sale is not a sale until you have been paid!

Unfortunately, getting paid, and getting paid on time, isn’t always easy.These days it’s often cheaper to write off a debt, even for several thousanddollars, than it is to pay the legal fees required to collect it! Worse still, it’spossible to spend thousands of dollars on legal fees chasing a debt and thenfind it’s uncollectible anyway and all you have done is poured more goodmoney after bad.

There are a number of steps you can take to minimise bad debts. Goodcredit checking and chasing your debtors early, are two of the mostimportant ones. You can also minimise your exposure by thoroughlychecking out references and not extending too much credit to one debtor,particularly if they look a bit shaky or are not well established.

Here’s a useful tip: When you ask people to give you credit references,naturally they will only give you the names of people who are going to saygood things about them. I have even known bad payers who have gone sofar as to have a couple of ‘special’accounts that they always pay on time,just so that they can give out these names for credit references.

Try to find out the names of some of their other suppliers, especiallythe ones that they didn’t offer as referees. Look at the brand name on theiroffice equipment or if they are re-sellers of goods, note the names of someof their other suppliers. Then, contact these people and ask them for acredit reference on the business..

Remember, even though you may be really keen to do business, there’snot much point in making a sale, if you are not sure of getting paid.

17. BAD AND DOUBTFUL DEBTS

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“Credit is the only enduring testimonialto man’s confidence in man.”

James Blish

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Asking for money

Many small business owners are also their own sales manager or even thewhole sales team, so they often have trouble in asking people for money.It’s not easy to be calling on a client one day, trying to sell them your goodsand then ringing them the next day, asking for money.

If this is your situation and you find it difficult to ask for the money, getsomebody else to do it for you. You can hire somebody, perhaps on a part-time basis to get on the telephone and ask for payment. Note: you mayhave a family member who is prepared to do this but get someone who ispersistent, thick skinned and won’t take ‘no’ for an answer.

When it comes to getting paid you sometimes have to be a bit ruthless.Know who the slow payers are and if you must extend them credit, at leastlimit the amount you extend to them and watch them like a hawk!

If people don’t pay or are slow – hassle them! After all, it could be acase of you or them! When it comes to getting paid, it’s nearly always acase of the squeaky wheel getting the grease. I know of one small businessowner who had a large amount of money outstanding and was having a lotof trouble collecting. He arranged for different staff members to ring theslow payers every morning and afternoon until they got paid.

It was a painful process but it got results in the end.

Trading terms

Important note: It’s worth mentioning at this stage that the so called‘normal’trading terms in Australia tend to be 30 days from statement. Thismeans that you issue an invoice when the goods are delivered and then youissue a statement at the end of the month. The client then has 30 days fromthe end of the month you billed them in to pay you.

Australia is one of the only countries in the world that operates on thissystem. Not only does it create extra paper work in having to send outstatements, it gives the client up to 60 days from invoice to pay.

Try issuing a combined invoice/statement. Have a message printed onthe bottom of your invoices that says:

This is a combined invoice statement and no statement will be issued. Please pay on receipt. Thank you.


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It may not work with everybody but it’s worth a try! This also allowsyou to ask for payment at any time after you have delivered the goods.

Settlement discounts

Some businesses have a policy of offering what is generally known as a‘settlement discount’to people who pay on time or pay early. For example,this could be 2.5 per cent if the debtor pays in 14 days (instead of thenormal 30 days).

My experience with settlement discounts has generally been fairlynegative. The people who are most likely to take advantage of the discount,are those businesses who would have paid you on time anyway. They arethe big companies and institutions who have plenty of money. Chances arethe slower payers won’t pay any quicker because they can’t afford to takeadvantage of the discount – and some of these will deduct it and still payyou late – or at least try to.

Another point to consider is, it’s pretty expensive money when youanalyse it. For instance, let’s say that you offer 2.5 per cent for 14 dayspayment. If that client was going to pay you in 30 days anyway, that meansyou are offering almost a five per cent per month reduction. That’s awhopping 60 per cent per annum! Even if they pay you 14 days instead of45 days, that’s still equivalent to nearly 30 per cent per annum! You wouldbe better to invest this money in a better system of collection, e.g. employa part-time or full-time collection person.

Collection agencies

When you start out in business, from time to time you will probably beapproached by various collection agencies, offering to collect youroutstanding money for you. Some of these agencies work on a straightpercentage of the money they collect and therefore in theory, they don’tcost you anything. Remember, I did say in theory!

You will find that some collection agencies work on the simple systemthat some money is easy to collect and some is hard to collect. So, you mayfind that you end up paying them a large percentage to collect the easyfifty per cent, who were eventually going to pay you anyway and you arestill left with the hard to collect fifty per cent!

Collection agencies do offer a service and in some instances they canproduce good results. There are good and bad collection agencies and


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mediocre ones. Some people are more likely to pay up on a demand froma collection agency than a demand from you. You can also get a solicitorto write a threatening letter, however it’s far cheaper to collect the moneyyourself and better still, to avoid the money becoming too ‘old’ to collectin the first place.

When people are stalling for payment, they will dream up every trick inthe book. This ranges from the good old – “cheque’s in the mail” to themore imaginative – “the dog ate my cheque book!”

You have to be a bit aggressive if you are going to collect your money.If someone says, “I’m putting a cheque in the mail to you right now,” youshould reply, “Don’t do that, we’ll send someone around right now to pickit up and save you the cost of a stamp!”

Got the idea? Be a bit pushy!

Collecting your own debts

One of the alternatives to getting solicitors and collection agencies to chaseyour slow payers, is to collect them yourself through the courts. Thisinvolves going to the local court and applying for a Statement of Claim.You will be asked to provide certain information pertaining to the debt,such as invoices, etc. You will be required to pay a fee (less than $100 attime of writing) for the preparation of the Statement of Claim and theservice of same by a Sheriff’s Officer. The summons will then be servedon the debtor and they are required to respond with a defence or pay theiraccount within 28 days.

If after 28 days the debt has not been paid or a defence lodged thedebtor has defaulted and you then return to the Local Court were a defaultjudgement is obtained at the Local Court Registry.

Once judgment has been awarded in your favour, you then have a fewoptions, as follows:

• Garnishee order against the debtors wages• Writ of Execution (court order) to seize and sell the debtors goods, or• Examination Summons requiring the debtor to attend the CourtHouse and be examined in relation to their financial circumstances(income, expenditure, assets and liabilities). This is a good way offinding out what the debtor owns and where they work and will assistwith steps one and two above.


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A word of warning: I have been through this process and often it stillgets back to the same old problem – if the debtor doesn’t have any assetsit won’t help you. This especially applies to corporate debtors. You willoften find that items of any real value, like a photocopier, car or computer,etc., are on lease and as such are not owned by the debtor, they are still theproperty of the lessor.

A further word of warning: All of this takes time. Both time to gothrough the process and time to attend court. Once again you have to askyourself the question: Is it worth it?

There may be times when you think that it is, just simply on principle.This might well be the case but don’t lose sight of the fact that you can’teat principle! Once again, you can get a collection agency or solicitor to doall this for you but this too can cost you a lot of money, whether you get aresult or not.

Note: The Sheriff's Office is a State Governmentdepartment and as such, the system will varyslightly from state to state. Check with each stateto see how they do business. Visit our website fora list of the various contacts in each state – seeResources – Bad and Doubtful Debts.


‘Professional’ bad debtors

Unfortunately, there are people out there who know the way the systemworks and they play the game to their full advantage. There are peoplewho will tell you straight out, “Look, I haven’t got the money and you cansue me all you like but you won’t get a cracker!”

The sad truth is, with these sort of people, it’s often the case. They arewhat I call the ‘professional bad debtors’. They are sometimes protectedby a company structure or trust or they go into personal bankruptcy orsimply disappear off the face of the earth without trace. Whatever themethod, you end up whistling ‘Dixie’ for your money!

Sometimes the person owing you the money can be quite genuine.They really have gone broke, as a result of poor management or maybeeven through no fault of their own. Perhaps one of their major creditors


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didn’t pay them and they really don’t have the money. Same resultunfortunately – nothing but heartache for you.

Sometimes the company that owes you money is a large, long-established business. This type of bad debt is very difficult to avoid. Youcould try insuring your debtors through an indemnity policy but you willprobably find the cost very steep and the insurer will usually require afairly large minimum turnover before they are prepared to deal with you.

Summary

Without doubt, the best form of protection against bad debts is prevention.Get references from intending clients and check them out thoroughly.

Consider enlisting the services of a credit reference organisation, likeBaycorp Advantage, (formerly the Credit Reference Association ofAustralia). They have over two million records of Australian companiesand their directors. You may even become a subscriber and have onlineaccess to data on the financial behaviours of more than 14 millionindividuals and two and a half million commercial entities, 24 hours a day,seven days a week.

If you do have a client that suddenly starts to go slow on payments,don’t delay. Call some of their other suppliers and try to ascertain if theyare experiencing similar problems. If the debtor owes money all over theplace, get out early. Don’t try to be a hero and help out by extending termsor further credit. Unfortunately, when it comes to bad debtors, myexperience has always been, ‘nice guys’ finish last!

And finally remember, if somebody in business owes you money forgoods or services you have provided – it’s your money! You have everyright to expect to get paid and to take whatever steps are necessary torecover any outstandings.

If you are going to extend a lot of credit, considersubscribing to a credit reference organisation.These people provide information relevant to thebackground, status and credit history of mostcompanies and a lot of individuals, too.

See: Resources – Credit Referenceswww.successsecrets.com.au

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ome years ago, I sold my retail electrical business to a good friend ofmine. It was his first venture into business and he and his wife were

extremely nervous about it and wanted to have every possible situationcovered. In the end, the sale became so bogged down in legal red tapebetween his solicitor and mine, it was going to cost more in legal fees thanthe business was worth!

Eventually, my solicitor, who was also a good friend and knew us bothquite well, said, “Hell, why don’t you both just write each other a letter ofintent and leave the solicitors out of it?” We did just that and fortunatelyfor both of us, it all turned out okay in the end.

Not many solicitors would give you that sort of advice and I wouldcertainly not recommend anyone else take this course of action. If one ofus had not played the game, we could well have lived to regret it. Moreoften than not, such a tale would end in disaster.

However, there are sometimes alternatives to using solicitors and thecourts, especially in cases of what are known as ‘commercial disputes’.Translated into simple language, that simply means a disagreementbetween two or more people in business. Sometimes disputes such as thesecan be resolved by both parties simply talking to each other sensibly andtrying to see the problem through the eyes of the other person.

Alternative Dispute Resolution

If this fails, there are still alternatives other than to going through thecourts, such as Alternative Dispute Resolution (ADR), which is a systemthat aims at bringing the parties in a dispute before an unbiased person,who acts as a mediator or arbitrator. This person is usually not a solicitoralthough he or she could be, more and more solicitors are getting involvedin ADR. It should be remembered however, that just because somebody isa good solicitor this doesn’t necessarily make them a good mediator.

18. MATTERS LEGAL

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“A jury consists of twelve persons chosen to decide who has the better lawyer.”

Robert Frost

Matters Legal

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ADR is usually a lot cheaper and quicker than going to court. It doesn’talways work but the Australian Commercial Disputes Centre claims a veryhigh clear-up rate – at ten per cent of the cost and within five per cent ofthe time of litigation. Plus, it is also often possible to resolve a dispute andstill maintain the goodwill of the parties, something that is almostimpossible with litigation.

It’s a system that is gaining in popularity and little wonder when youlook at the high cost of lawyers and the extraordinary length of time it takesto get a matter heard before the district courts (often years).

As a matter of interest, the Japanese are great believers in resolvingdisputes by mediation and they generally avoid going to court, if it is at allpossible. As a result, solicitors in this country, on a per capita basis,outnumber solicitors in Japan by something like sixteen to one!

ACDC promotes the use of ADR procedures to business, governmentand community organisations across the country through training, adviceand consultancy. These procedures are now being adopted as part of theoverall approach of business and government to dispute resolution.

The Australian Commercial Disputes CentreLimited (ACDC) is an independent, not-for-profitorganisation developed to enhance non-adversarial dispute resolution processes inAustralia. Visit their website at:

www.acdcltd.com.au

ACDC offers a range of integrated ADR services that include:

• ADR Case Management• ADR Consultancy Services• ADR Dispute Scheme Management• ADR Training Services

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If you would like to know more about ADR, you will find the followingbooks useful:

Commercial Alternative Dispute Resolution by Maxwell J. Fulton, and

Beyond Dispute by Gordon Pears.

As a rule of thumb, avoid using the courts to settle disputes of any kindif it’s at all possible. From my own bitter experience and that of many ofmy friends, usually the only people who win in a long and disputedcommercial legal battle, are the solicitors.

This is not to say that there aren’t going to be times when you may needa good solicitor and sometimes you don’t have a great deal of choice. And,let me stress that if you do find yourself in a situation where you have toengage a lawyer – make sure you get a good one.

That doesn’t mean you have to hire a Senior Counsel to defend you onan illegal parking charge! Simply make sure that the counsel you hire isadequate for the job at hand. Under no circumstances should you everdefend yourself. The old legal adage, ‘a man who defends himself has afool for his counsel’, is generally very true. The system of law in thiscountry seems to take into account the way in which cases are presented,as well as the question of guilt or innocence. Judges are usually very busyindividuals and they can become very intolerant of people who are would-be ‘closet lawyers’ and are ill-prepared!

If you do become involved in litigation and you need to engage alawyer, make sure you are dealing with someone who is very experiencedin the area of the law that you are involved with. These days the law isbecoming more and more specialised. There are lawyers who specialise inlitigation (lawsuits and disputations) and others who specialise inconveyancing (transferring property), industrial law or divorce, etc. Thereare many areas of the law and it’s definitely a case of ‘horses for courses’.

Note: The Law Society in your state or territory probably offers a list oflawyers who are experts in particular fields. Consult them if you arelooking for someone with expert knowledge in a particular field for a shortlist of likely contenders.

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Summary

There will probably be a number of times during your business life whenyou will require the services of a lawyer. It’s important to remember thatin some ways, lawyers are a bit like dentists and doctors – the preventativemethod is usually the best. Just as the best time to visit the dentist is beforeall your teeth start to fall out, the best time to visit your lawyer is beforeyou get into a mess.

If you are going to sign an important agreement or document, get legaladvice before you commit yourself. And just as you would with a doctor,if you are unhappy with the advice rendered, don’t be afraid to seek asecond opinion.

While this may be expensive, it can pay off. A friend of mineapproached a solicitor recently about a case of compensation and was toldin no uncertain terms he had no chance of winning the case. Unhappy withthis opinion, he sought alternative advice. The second solicitor had acompletely different opinion and went on to fight the case and win himcompensation in the tens of thousands of dollars!

It must be stressed however, that this example is probably the exceptionrather than the rule and you should bear in mind at all times – good legaladvice certainly doesn’t come cheap.

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aking sure you have adequate insurance cover in case somethinggoes wrong, is another very important aspect of running a business.

Unfortunately, all too often, small business owners don’t consider all theirinsurance needs until it’s too late.

There are a number of different types of insurance cover you will needto take out and while this will vary from business to business, dependingon individual needs, some types are common to all businesses.

The easiest way to ensure you are adequately covered for every possiblecontingency, is to appoint an insurance broker to take care of all yourinsurance needs. The only problem with this approach is, if the broker istied to one major insurer you may find that you are not always getting thebest possible deal on every type of cover. Some companies specialise incertain types of insurance and can therefore usually offer better rates ormore comprehensive cover. This applies particularly to items such asmotor cars, for example.

To give you some idea of the variation between insurers, I once had anoffice in the CBD and I wanted to take out insurance cover for fire andburglary on my office equipment (computers, photocopier, etc.). I rang onecompany and they said they would need to send down an assessor toinspect the building. They also wanted to know what type of alarm systemwe had (we didn’t have one) and who had access to the building.

To be insured with this company, I would have had to install anelaborate alarm system and better locks on the doors. In addition to all thatthey couldn’t send the assessor for several days, which meant that in theinterim period, I wasn’t covered.

I rang another very large company (one of the biggest) and they werequite happy to extend cover to me over the telephone! No inspection of the

19. INSURANCE“There are worse things in life than death.

Have you ever spent an evening with an insurance salesman?”

Woody Allen

M

Insurance

Insurance

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premises was required and no alarms or new locks and what is more, theirrate was quite a good deal cheaper than the other company.

The lesson from this story is clear – as with most purchases, it pays toshop around. Of course, you should also make sure that the company youare going to deal with is a reputable, well established firm. It’s not muchuse getting cheap insurance if they are not going to be around if you needto collect!

While insurance requirements vary from one business to another, thefollowing is a guide to the most common types:

Material damage

Covers the assets of your business such as buildings, stock, plant andequipment against physical loss, destruction or damage. When arranginginsurance, you should cover buildings and plant for their full replacementcost and allow for seasonal increases in stock values.

WARNING: When you insure your goods and stock for fire andburglary, make sure you insure for the full value. Many insurancecompanies will only pay out on a pro rata basis. For instance, let’ssay if you had $1 million worth of stock and you insured it for only$500,000. If you had a fire and lost half of your stock, the insurancecompany may pay you for only half of that loss, i.e. $250,000,because you only had half of it insured!

Make sure you read the fine print. Check carefully to ensure youare fully insured in any event for the full amount of your loss.

Business interruption

Insures against loss of profit following material damage to the assets ofyour business. The increased cost of operating your business after such amishap may also be covered.

Burglary

Covers loss of or damage to stock, plant, equipment and other contentscaused by burglars. Allow for seasonal increases in stock value. Checkwhether the policy also provides cover for damage to premises sustainedin a burglary, costs of temporary security following a break in andreplacement of locks, should keys be stolen.

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Glass breakage

Breakage of fixed external and internal glass and other nominatedbreakable objects such as signs. Check whether the policy also coversdamage to sign frames, replacing signwriting and ornamentation, damageto stock and costs of temporary shuttering.

Money

Protection for money while in transit or on your business premises duringand outside normal business hours, while in a locked safe and while in theprivate residences of authorised persons. Damage to safes and strongrooms may also be covered and seasonal increases in money held may alsobe allowed for. Be warned: Insurance cover for money is expensive.

Shop around for your insurance. Some companiesspecialise in certain types of insurance and cantherefore usually offer better rates or morecomprehensive cover. This applies particularly toitems such as motor vehicles, for instance.

Public liability and product liability

Insures you against claims, for which you are legally liable, made on yourbusiness by members of the public as a result of death, injury or damageto property. You can also be protected against claims relating to thefollowing:

• The nature, condition or quality of products you sell or supply• Your liability as a tenant• Your liability for the goods of others left in your custody• Employee dishonesty (enables you to insure against the risk of

employees fraudulently taking money or goods belonging to your business).

General property

Covers specified property anywhere in Australia against accidentalphysical loss, destruction or damage. Valuable plant and equipment takenaway from your business location should be insured under this section.

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Electrical mechanical breakdown

Allows you to insure nominated items of electrical and mechanical plantagainst sudden and unforeseen physical damage. In addition, refrigeratedstock may be covered against deterioration following damage to insuredrefrigeration equipment.

Motor vehicle

Covers specified motor vehicles against accidental damage and theft plusyour legal liability for damage insured vehicles may cause to the propertyof others.

Computer and electronic equipment damage

Insures nominated computers and electronic equipment against suddenand unforeseen damage. Cover may also be arranged to meet data mediarestoration costs, following loss of information from your computer’smemory bank and the increased costs of maintaining a substitute dataprocessing system after an insured equipment breakdown.

Goods in transit

Gives you the choice of insuring nominated property while in transit inAustralia against either loss, accidental damage or fire, flood, collision oroverturning of the conveying vehicle.

Personal accident and illness

Allows you to insure any number of specified persons. The cover may befor weekly benefits in the event of accident or illness or lump sumpayments in the event of death or major disabling injuries caused byaccident.

Business insurance life plan

A life insurance plan can provide the cash required to repay a business loanon the death or disablement of a principal. Often such loans are secured bya charge over the business assets and the guarantees of the principals. Cashprovided by the life insurance can discharge the business’s liability,protecting the business assets and the estates of the guarantors.

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Key person insurance

Most business people are aware of the need to insure against loss ofproperty or assets through fire or theft but they often overlook their mostimportant asset – people! Key people are the most valuable asset of abusiness and you should consider insuring them.

What would happen to your business if a key person becamepermanently disabled or died? When taking out key person insurancepolicies, consideration should be given to any or all of the followingscenarios:

• Profitability decline due to the loss of key sales or production staff• Outlay of money needed to find a suitable replacement• Pressure placed on remaining staff and/or family members• Possible effect on credit if the bank becomes aware of any negative

impact on the business• The insecurity felt by remaining employees.

Life insurance arranged on the life of your key employees and ownedby the business could provide a cash infusion in the event of the death ordisablement of that employee.

Summary

The above list covers most of the common types of insurance risk but theremay be additional risks, depending upon your specific business type.

For instance, if you are importing or exporting goods, you could insureagainst foreign exchange losses, although often the cost of this type ofcover is prohibitive or if you are in the publishing business, you couldinsure against defamation. There are as many types of insurance cover asthere are risks. I’m sure it would be possible to insure against being struckby lightning while riding an elephant over a bridge!

The greater the risk, the more exposure the insurance company issubjected to and the higher the premiums will be. Similarly, the more youclaim, the more your premiums will rise.

It is probably fair to say most small businesses can’t afford to insure forevery possible risk situation under the sun but it can also be argued thatthey can’t afford not to either. In the end you will probably need to make a

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calculated assessment of the type of insurance you need and how muchyou can afford. Many small business owners are probably forced to leavesome remote risks to chance but be warned – a few dollars saved oninsurance can be fatal for your business.

A friend of mine had an electronic goods importing business and hadnever insured against burglary. He claimed his warehouse was animpenetrable fortress and he spent a small fortune on sophisticated alarmsystems, etc. He often used to brag to me about how money he saved eachyear on insurance each year.

Then, a group of professional thieves struck at his warehouse oneweekend. They actually removed a large section of bricks from the walland with the use of a huge semi-trailer, virtually cleaned out his entirestock. The result was devastating. A business that had taken him aroundtwenty years to build up, was virtually wiped out overnight. Even thoughthe police later caught the thieves, very little of the stock was everrecovered. The bottom line was devastation for my friend.

Why take the chance? Better to spend the extra dollars on insurance andavoid the sleepless nights!

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Your Business and Taxation

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he above statement by Benjamin Franklin, is certainly true for the lifeof your business. And nothing is more certain to get you into trouble

than failing to meet your taxation obligations! Unfortunately, in spite of promises by governments of both persuasions

to introduce a simpler and easier tax system for small business operators,over the last few years the system has become more and more complex.Of course, the advent of the Goods and Services Tax (GST) to Australiain July 2000, further added to the complexities of the tax system andvirtually turned every small business operator into an unpaid tax collectorfor the government.

I must add however, apart from the massive increase in paperwork, theGST has had some positive effects for small businesses too, especiallywhen it comes to record keeping. And, anybody who is old enough toremember running a business which was affected by the old Sales Taxregime, would consider the GST a pussy cat by comparison.

There are so many areas to consider when it comes to taxation, I couldeasily fill this book and a whole lot more with the myriad Tax rules andregulations that affect the operation of your business. Of course, there areplenty of people who have already done this and the Australian Tax Office(ATO) itself publishes a number of well written so called ‘easy guides’foryou to follow. One of the best of these (highly recommended reading) isTax Basics for Small Business. You can access this publication direct fromthe ATO website (www.ato.gov.au) or visit our site for the link to the page.

20. YOUR BUSINESS AND TAXATION

“Nothing in life is certain – except death and taxes”.Benjamin Franklin

T


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Most of the information in this chapter is contained in much greater detailwithin that guide and given that the Tax Act is constantly changing, it isrecommended you download a copy of this publication to ensure you arelooking at the very latest information.

Anyway, there’s not much we can do about changing the tax system,we’re too busy trying to run a business so – breathe in hard and braceyourself. I’m going to attempt to give you a brief overview of your taxationobligations as a business operator, under the current tax system.

Features of different business structures

The first thing I should point out is the tax system will deal with you indifferent ways, depending upon the type of structure you choose to operateyour business under.

• sole trader• partnership• company, or• trust

The main features of these structures and how each type is affectedunder the tax system, are described in the table on the next page.

(See chapter 5 – Which Business Structure Should I Use? – for moreinformation about business structures)

If you’ve just started a business or are thinking ofstarting one, the ATO runs a series of seminars inall states called TAX BASICS. The seminars runthroughout the year and cover a range of taxtopics. To find out more or to make a bookingphone 1300 661 104 or visit the ATO website:

www.ato.gov.au


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Sole trader

Description: For tax purposes, a partnership is an

association of persons or entities that carry on

business as partners or receive income jointly

(except a limited partnership, which is treated as a

company).

ABN: Partners apply for an ABN for the

partnership and use this number for all the

partnership’s business dealings.

TFN: A partnership needs its own Tax File Number.

Who pays income tax:

A partnership doesn’t pay income tax – each partner

includes their share of the profit or loss in their

individual tax return. However, the partnership

lodges a separate income tax return to report its

income.

Description: A sole trader is an individual who is

trading on their own. That person controls and

manages the business.

ABN: A sole trader applies for an Australian

Business Number for their business and uses this

number for all their business dealings.

TFN: A sole trader uses their individual Tax File

Number when they lodge their income tax return.


The income of the business is treated as the person’s

individual income and he or she is solely

responsible for any tax payable by the business.

Business income is included along with any other

income in the sole trader’s individual tax return.

FeaturesStructure

Partnership

FeaturesStructure

Trust Description: A trust is an obligation on a person to

hold property for the benefit of others (who are

known as the ‘beneficiaries’).

ABN: A trust has its own Australian Business

Number (ABN). The trustee needs to register for

the ABN in its capacity as trustee of the trust. The

trustee is taken to be an entity in that capacity.

TFN: The trust must have its own Tax File Number

which is used when its annual income tax return is

lodged. The trustee needs to register for the TFN in

its capacity as trustee of the trust.


Any income distributed to a beneficiary by the

trust, maybe taxable in the hands of the beneficiary

and should be included in their personal tax return.

The trustee is liable to pay tax on income

distributed to a minor, non-resident beneficiaries or

on any income it accumulates.

Company Description: A company is a legal entity separate

from its shareholders. Companies are regulated by

the Australian Securities and Investments

Commission. For tax purposes, a company means

a body or association, incorporated or un-

incorporated, but does not include a partnership or

a non-entity venture.

ABN: A company needs to register for an ABN.

TFN: A company needs to register for its own Tax

File Number.


A company pays income tax on its profits at the

company tax rate.

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Registering for an ABN and GST

Every business needs to have an Australian Business Number (ABN) andall businesses qualify for an ABN regardless of turnover. You get this fromthe ATO. You may also need to register for GST – see details later in thischapter.

Note: You can get an ABN even if you don’t register for GST.

Australian Business Number (ABN)

The ABN is the identifying number that businesses use when dealing withother businesses. For example, you need to quote an ABN on your invoicesor other documents on sales that you make to other businesses, to avoidhaving tax withheld from payments to you. You also use your ABN indealings with the ATO and other government departments. If you’reregistered for GST, you also need to put an ABN on your tax invoices andany credit or adjustment notes.

The Australian Company Number (ACN) and the ABN

Companies incorporated in Australia are regulated by the AustralianSecurities and Investments Commission (ASIC). On forming a company,you are issued with an Australian Company Number (ACN).

When a company registers for an ABN, the number issued by theAustralian Business Registrar is its ACN with two digits in front of it. TheABN does not replace your tax file number but it will eventually replaceyour ACN. Companies are not obliged to quote both the ABN and ACNon documents.

You must put your ABN on your business stationery, especially yourinvoices. If you don’t put it on your invoices, other businesses maywithhold 48.5 per cent from any payment to you.

Registering for GST

You must register for GST if your turnover is over $50,000 per annumhowever, you may still register for GST, even if your turnover is below$50,000 a year.

Tax File Number (TFN)

Partnerships, companies and trusts need their own Tax File Number.


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Fringe Benefits Tax (FBT)

If you are an employer and you provide fringe benefits to your employees,for instance, a motor car for private use or entertainment expenses, etc., theATO recommends that you register for Fringe Benefits Tax (FBT). If youdo not provide these benefits you do not need to register for FBT.

Pay As You Go (PAYG) Withholding tax

PAYG tax is the tax you withhold from wages to employees – includingyourself if you are an employee of the business.You also need to withholdtax on payments to businesses that do not quote an ABN.

Note: You must register with the ATO before you can withhold tax,for example, from wages or from businesses that don’t quote an ABN.

PAYG instalments is a system for taxpayers to pay instalments of theirexpected tax liability for the current income year. The ATO will notify youby letter if you are required to pay PAYG instalments and tell you howoften you need to pay them.

PAYG instalments are generally paid quarterly. Most taxpayers have theoption of paying instalments worked out by the ATO or instalments theywork out themselves, based on their installment rate and installmentincome. When your instalments are due, the ATO will send you an activitystatement or notice, which you complete and return.

You are still required to lodge an annual income tax return at the end ofthe income year. Any PAYG instalments you’ve paid for the income yearwill be credited to your income tax assessment. You then pay anyadditional income tax owing or receive a refund.

PAYG instalments for new business starters

New businesses usually don’t pay PAYG instalments until after they havelodged their first income tax return. They pay their entire tax liability forthe first year when their income tax return is assessed. Therefore, in thefirst year of business, it’s vitally important to put aside money to providefor your end-of-year tax liability.


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Reporting and paying withheld amounts

For small businesses, you report and pay the withheld amounts to the ATOmonthly or quarterly when you lodge your activity statements.

You are also required to provide each employee with an annual paymentsummary of the amount withheld from them during the year, and toprovide an annual report to the ATO on withheld amounts. Every year theATO sends a stationery package to employers who are registered for PAYGwithholding – except those who report electronically. The packageincludes copies of payment summaries, guidelines for completingpayment summaries and other information.

Don’t confuse your Business Activity Statements(BAS) with your income tax returns. Even if youreport your Pay As You Go (PAYG) instalmentsand other obligations on your Activity Statements,you must still lodge an income tax return.

How do I pay myself?

If your business is operated through a company or trust, it’s likely that youwill be an employee and/or director, of the company or trust. The companyor trust has the same responsibilities to you as it does to any otheremployee – it must withhold amounts from your salary and meetrequirements of superannuation and FBT. Directors are treated similarlyto employees for PAYG withholding purposes.

If you’re a sole trader or partner, you don’t pay yourself a wage as such,and none of the withholding, superannuation or fringe benefits rules apply– although these rules do apply to any other employees of the business.Instead, you draw money from the business to live on. The amounts drawnfrom the business have no relevance to income tax – you will pay tax onthe business’ profits – regardless of how much or little you draw from it.

Superannuation guarantee

As an employer you must provide a minimum level of superannuationsupport for your eligible employees or lodge a Superannuation GuaranteeStatement and pay the Superannuation Guarantee Charge (SGC).


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Most employees, whether full-time, part-time or casual, are covered bythe Superannuation Guarantee Legislation. Check with the ATO or youraccountant for further details.

Employees superannuation contributions

Any existing superannuation obligations under an industrial award counttowards the minimum level of support, as do payments made under asalary sacrifice arrangement. However, employee contributions do notcount towards the employer’s obligations.

Employer contributions must be paid at least quarterly to a complyingsuperannuation fund or retirement savings account.

Reporting to employees

You must report to your employees about the amount of superannuationpaid on their behalf and the name of the superannuation provider to whichthe payments were made.

These reports must be provided to employees within 30 days of thefinal superannuation contribution for the quarter. There is no prescribedmethod of reporting – it can be done on a payslip, by email or by letter.

If you employ contractors in your business, it isvery important to establish their exact status, asyou have different obligations depending onwhether a worker is an employee or a contractworker. Get a copy of PAYG Withholding Guideno. 2 – how to determine if workers are employeesor independent contractors from the ATO.

Self assessment

Income tax works on a ‘self-assessment’ principle. This means theinformation you provide to the ATO is initially accepted as true andaccurate and your tax liability is calculated on this basis. Later, you maybe asked to show records to support your information. It is important thatyou keep your records for five years to verify your claims.

Note: You must lodge an income tax return for any year in which youcarry on a business, even if you expect to have no income tax liability.


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Individuals and sole traders

A sole trader is an individual taxpayer and is subject to the same incometax rates that would apply to a wage or salary earner. Sole traders don’tneed to complete a separate return for their business – they simply use theirpersonal income tax return to report their business income and deductions.

Partnerships

All assessable income earned by a partnership and deductions claimed forexpenses incurred in carrying on that business, must be shown in apartnership tax return.

A partnership (except a limited partnership, which is treated like acompany for tax purposes) does not pay tax on its income. Instead, eachpartner pays tax on their share of the partnership’s income. Each partnermust include their individual share of the net partnership profit or loss intheir personal tax return.

Partnerships are not liable to pay PAYG instalments. Instead, theindividual partners may be liable to pay PAYG instalments on theirproportion of income.

Companies

Companies must lodge a company tax return, which shows the income anddeductions of the company. Companies must also pay an annual review feeto the Australian Securities and Investments Commission.and advise themof any changes to the names and addresses of its directors and secretary,registered office, principal place of business, ultimate holding company (ifany), shareholders and share details.

Employees of the company, which usually includes the owner/director,must include their wages or salaries in their personal tax return.

Trusts

If a trust is carrying on a business, all income earned by the trust anddeductions claimed for expenses incurred in carrying on that business,must be shown in a Trust Tax Return.

Except in special circumstances, it is the beneficiary, rather than thetrustee, that is taxed. Trusts are not liable to pay PAYG instalments. Instead,the beneficiaries may be liable to pay instalments.


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The Simplified Tax System

The Simplified Tax System (STS) is an alternative method of determiningtaxable income for eligible small businesses with straightforward financialaffairs. The STS has three main elements:

• The STS recognises most business income and expenses only when received and paid.

• Simplified trading stock rules; and

• Simplified depreciation rules

In addition, STS taxpayers can claim a full deduction for certainprepaid expenses. Participation in the STS is optional. Check with the ATOor your accountant to see if you qualify for the STS.

Making deductions for business expenses

Under income tax law, a business can generally claim an immediatededuction for outgoings that are incurred in carrying on their business toproduce assessable income, provided these expenses are not of a private,domestic or capital nature.

‘Capital nature’ means the expenses of establishing, replacing,enlarging or improving the business structure, as distinct from working oroperating expenses. For instance, the purchase of plant and machinery orshop fittings are capital expenses and as such, would need to bedepreciated over a period of time.

i.e. If you buy a new computer for your business, you can’t deduct theentire cost of it in the year you make the purchase. It has to be depreciatedover a period of time, as set down by the ATO. Check with your accountantfor details.

The following are examples of common expenses that can generally bededucted from your businesses’ gross income:

• Rent or lease of business premises• Hire or lease of plant and equipment• Trading stock (cost of goods sold only)


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• Decline in value of depreciating assets (depreciation)• Tools• Employee expenses• Registered tax agent fees• Interest on borrowed money• Motor vehicle expenses• Repairs• Telephone expenses• Bank fees and charges• Transport and freight, and• Light and power.

Minor expenses

For certain work, car and business travel expenses, it is not always possibleto get a receipt – parking on meters and road tolls, for example. In suchcases, you can claim the expense as long as you record it in a diary andeach expense is no more than $10 and they add up to no more than $200.

Motor vehicle expenses

All expenses for business purpose vehicles are generally deductible. Theseare vehicles such as trucks or vans that have a dedicated business use andsome smaller vehicles (such as utilities or panel vans) where private use isrestricted to home-to-work travel.

Special substantiation rules apply to claims for car expenses – consultthe ATO website (www.ato.gov.au) or your accountant for further details.

GST– Goods and Services Tax

Goods and Services Tax (GST) is a broad-based tax on the sale of mostgoods and services within Australia. GST is charged at each step in thesupply chain, with registered businesses including GST in the price of thegoods and services they sell.

Do you have to register for GST?

You must register for GST if:

• You are conducting a business; and your annual turnover is at or above $50,000


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How GST works

GST is included in the price of most of the goods and services you sell inthe course of your business. These are called ‘taxable sales’.

GST will be included in the price of most of the purchases you makefor your business. If you are registered for GST, you can generally claim acredit for the GST included in the price of the things you buy for yourbusiness. This is called a ‘GST credit’.

GST is collected by GST-registered businesses at each step in thesupply chain. Because you claim a credit for the GST included in yourpurchases, GST is generally tax-neutral for business. The cost of GST isborne by the final consumer.

There are other types of sales where GST is not included in the price:

• Input taxed sales – these include financial supplies, such as loansand residential rent.

• GST-free sales – these include basic foods, such as fruit, milk and bread, exports and some health and education courses.

You can’t claim a GST credit for the cost of things you purchase tomake an input-taxed sale. For example, if you own a residential propertythat you rent out, you don’t include GST in the rent you charge and nor canyou claim GST credits for things you’ve purchased for the property.

Accounting for GST

You account for your GST in your Business Activity Statement (BAS) atthe end of each tax period, usually quarterly.

Warning: Your selling prices for goods andservices must always include GST. You must alsoinclude GST in any advertised prices in bothdisplays and advertisements. It is illegal toadvertise prices as ‘plus GST’.


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Business Activity Statements (BAS)

Generally, businesses use a Business Activity Statement to report and paytheir GST and PAYG withholding. You may register to lodge this online oruse a paper form. PAYG instalments and FBT instalments, where theyapply, are also reported and paid using your Business Activity Statement.You will need to keep sufficient records to complete all the fields thatapply to your business.

The ATO will send your activity statement about two weeks before theend of your reporting period. It is important that you complete and returnthe original by the due date, as well as paying any amounts due.

Making Taxable sales

If you make taxable sales with a value of more than $55 including GSTand your customer asks you to provide a tax invoice, you must do so within28 days after the request. For this reason, you might as well issue all yourinvoices in a form that satisfies the requirements for a GST tax invoice.

Note: Businesses that are not registered for GST cannot issue tax invoices or claim GST credits.

Claiming GST credits

To claim a GST credit you must be registered for GST and have a taxinvoice for purchases that cost more than $55 including GST. To claim aGST credit for purchases that cost $50 or less, you should have cashregister dockets, receipts or invoices. See below for more informationabout what to include on tax invoices.

In most cases, suppliers issue tax invoices. If you don’t have a taxinvoice, wait until you receive one from your supplier before you claim theGST credit – even if this is in a later reporting period.

Tax Invoices

A tax invoice is a document that records the sale of goods or services andcomplies with the GST law. The information that has to be included in atax invoice is explained in the Guide to GST for Small Business – which isavailable from the ATO. There are also some industry specific bookletsavailable from the ATO. e.g. Hospitality, manufacturing, retailing, etc.


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Here are some examples of tax invoices:

Example 1: Tax Invoice for sales of less than $1,000

Acme Widget Manufacturing sells a quantity of widgets with a total priceof $550 (including GST).

Tax invoices for taxable sales that total less then $1,000 must include:

1. The words ‘tax invoice’ stated prominently2. The name of the seller3. The Australian business number (ABN) of the seller4. The date of issue of the tax invoice5. A brief description of the things sold6. The GST-inclusive price of the taxable sale, and7. The GST amount. This can be shown separately or, where the

GST to be paid is exactly 1/11 of the total price, as a statement along the lines of – ‘Total price includes GST’.

Description of goods Total

5 only widgets @ $110 each $550

Total price including GST $550

TAX INVOICE

Acme Widget CompanyABN: 12 003 123 987

Date: day/month/year

21 Smith StAdelaide SA 5000

7

65

1

32

4


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Example 2: Tax invoice for sales of $1,000 or more

Acme Widget Manufacturing sells 50 widgets and issues a tax invoice forthe sale, this time with a total price (including GST) of $5,500

Tax invoices for taxable sales that total $1,000 or more must include:

1. The words ‘Tax Invoice’ stated prominently2. The name of the seller3. The ABN of the seller4. The date of issue of the tax invoice5. The name of the buyer6. The address or ABN of the buyer7. The quantity of the goods or the extent of services sold8. A brief description of the things sold9. The GST-inclusive price of the taxable sale, and10. A statement along the lines of ‘The total price includes GST’ or

the GST amount.

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4

TAX INVOICE

Acme Widget CompanyABN: 12 003 123 987

Date: (day/month/year)

21 Smith StAdelaide SA 5000

5

1

Qty Description of goods Total50 widgets $5,500

Total amount payable $5,500

Total price includes GST of: $500

GST$10

each

$100

J J Jones & Co Pty. Ltd.345 Main HighwayPort Lincoln SA 5606

To:

7

9

10

6

8


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Taxable and non-taxable sales

If the tax invoice is for a taxable sale and either a GST-free or input taxedsale, the tax invoice must also show:

• Each taxable sale• The amount of GST to be paid (for the taxable sales); and• The amount to be paid for the total sale.

Summary

Whew! Well, there you have it. As you can see, there’s a lot involved andplenty to learn. Get a copy of Tax Basics for Small Business from the ATOand give some serious thought to attending one of their Tax Basics smallbusiness seminars.

If you are not sure of any points, check with your accountant or call theATO, you will find them generally very helpful. Their website is also anexcellent resource and reasonably easy to navigate (www.ato.gov.au).

The tax system is complex and you will find it consumes a good dealof your time. This is annoying and can be quite frustrating at times butlearn to live with it. Set aside time to complete your taxation reportingrequirements and lodge your reports on time, to avoid fines. Ignorance isno defence and the penalties for non-compliance are quite severe.

The author wishes to thank Geoff White of Geoffrey A White & Co.,a Sydney based chartered accountant and small business taxspecialists, for his help in preparing this chapter.

www.gwhite.com.au


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ne of the areas that gets many small business owners into trouble isrecord keeping. Failure to keep precise and up-to-date records of all

your financial transactions, doesn’t only mean you are likely to run foul ofthe Tax Office, it also prevents you from having an accurate picture of howyour business is progressing. Constantly monitoring your business allowsyou to take action before it is too late. Good record keeping will also help,if you decide to sell your business at some stage in the future.

A survey undertaken by the South Australian Government some timeago, discovered that as many as 30 per cent of all small business owners inthat state kept no financial records at all in their first year of operation!This is a recipe for disaster.

Keeping accurate records is even more important under the regime ofself-assessment, where you are basically responsible for determining yourown tax liability – subject to your records.

Legal requirements

Under tax law, if you are carrying on a business, you must keep recordsthat record and explain all transactions. These records include anydocuments that are relevant for the purpose of working out your incomeand expenditure. You must keep your records in writing, in the Englishlanguage or if not in a written form, in a form that is readily accessible andconvertible into writing in English. For example, in an electronic formsuch as a computer system.

21. RECORD KEEPING

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“When there is an income tax, the just man will pay more and the unjust less on the same amount of income.”

Plato – 427BC - 347BC

Record Keeping

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Any books of accounts, records or documents relating to the preparation ofyour income tax return, must be retained for at least five years.

FBT legislation also requires records to be kept for five years. Otherstatutory provisions, such as corporate law, require a company to retainrecords for seven years after completion of the transaction to which theyrelate.

The following list shows the records you should keep for your business.Note: This list is not exhaustive and other documentation may be required.

Records you must keep

You must keep the following records for five years after they are prepared,obtained or the transaction completed (whichever is the later):

• Receipts, including records of sales, cash register tapes, deposit books and bank statements

• Purchases, including expense payment records, receipts from small cash purchases, cheque butts and a log book for motor vehicle expenses

• GST records: Tax invoices, adjustment notes and any other document that records an election, choice, estimate, determination or calculation made for the purposes of GST law (in some circumstances the record is to be kept for a period of five years after the election etc., ceases to have effect)

• Wages records, including worker payment records, current employment declarations, tax file number declarations, withholding declarations and superannuation records, records of amounts withheld from payments where no ABN was quoted

• Year-end records, such as stocktake sheets, creditors lists, debtors lists and depreciating asset worksheets and records of Capital Gains Tax (CGT ) assets. Note: these need to be kept for five years after the sale of the assets.

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You must keep the following records for at least one month if reconciledwith the actual sales or five years if not reconciled:

• Receipts for sales you make, including credit card dockets (merchant’s copy) and cash register tapes.

Manual vs. electronic systems

You can keep your records manually (on paper) or electronically (oncomputer). Note: Manual books are generally quicker to begin with and toenter information into but they can be slower at tax time, when everythinghas to be totalled.

The ATO offers a free program to help youunderstand what records you need to keep and toevaluate whether your record keeping practicesare adequate. The ‘Record Keeping EvaluationTool’can be downloaded from the ATO website:

www.ato.gov..au

Invoices you receive

When you purchase something for use in your business, you must:

• Receive and keep a record of your supplier’s ABN or• Be satisfied that the sale is excluded from the ABN rule otherwise• Withhold from the payment.

Anyone carrying on a business should quote their ABN in relation togoods or services they supply to another business. If they don’t, thegeneral rule is that the payer must withhold 48.5 per cent from thepayment to the supplier and send the withheld amount to the Tax Office.Note: Some payments are excluded from this rule – check with youraccountant or the ATO.

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Receive and keep a record of your supplier’s ABN

The supplier must quote their ABN before payment is made. Normally anABN will be quoted on the supplier’s invoice and you keep this invoice inyour business records. A supplier may also quote their ABN to you onanother document as long as it relates to the sale they are making.

Stocktakes

If you operate a business, the value of all trading stock you have on handat the beginning of the income year (usually 1 July) and the end of theincome year (usually 30 June) is taken into account in working out yourtaxable income for the year.

If the value of stock at the end of the income year is more than at thebeginning of the year, you must include the difference as part of yourassessable income, when you lodge your tax return. If the value of stockat the end of the year is less than at the beginning of the year, yourassessable income will be reduced by the difference.

In most cases, you will need to do a physical stocktake as close aspossible to the end of the income year. An annual stocktake will usuallybe sufficient to meet your tax obligations however, check with youraccountant or the ATO to be sure.

Summary

Under the regime of self-assessment, you basically tell the Tax Officewhat your taxable income was and how much tax you owe. However, inthe case of an audit, the Tax Office will ask you to totally substantiate allof your business expenses and details of your transactions. If you fail toprovide accurate records, you will not only be liable for the tax owing, youcould face heavy penalties.

Don’t take the risk. Make sure you keep accurate and up to date recordsand fulfil your taxation obligations.

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Computers – How to Use Them in Your Business

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omputers can be of tremendous assistance to you in your businessbut they can also be a curse. It’s very easy to waste countless hours

fixing problems like viruses and system crashes – not to mention thecountless hours we all spend these days just checking our email or lookingfor information on the Internet. This is all precious time that could be spenton much more productive things.

The good news is, computers have become much more user friendlyand the learning curve is not as steep. Also, the prices have tumbleddramatically and these days, it’s difficult to imagine running any sort of abusiness without one. Even my local dry cleaner, now records my detailson a computer when I drop my clothes in.

Here are a few ideas and recommendations of ways you can best usecomputers in your business :

Controlling your finances

One of the most useful pieces of software I have ever bought, is a programcalled ‘MYOB’. MYOB is an acronym for Mind Your Own Business – andthat’s pretty well what this program does.

It allows you to take control of all the financial aspects of your business.Such things as your banking and invoicing and stock control. It also helpsyou with your Business Activity Statement (BAS) and GST reporting andenables you to print accurate and up to date reports on various aspects ofyour business. If you did nothing else on your computer, this one piece ofsoftware would warrant the cost.

22. COMPUTERS – HOW TO USETHEM IN YOUR BUSINESS

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“To err is human but to really stuff things up requires a computer.”

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Here are just some of the things you can do using even the most basic ofMYOB programs:

• Create quotes that convert to invoices• Track job costings and profitability• Track your GST and automate your BAS• Automatically reconcile your bank account• Create and customise over 70 reports and graphs• Email quotes, invoices and reports

MYOB allows you to take total control of most of your incoming andoutgoing financial transactions. It’s easy to use and allows you to print outreports and graphs on your income, expenses and stock purchases. Itcomes in both PC and Macintosh platforms and the basic level programcosts under $200, at time of publishing. This has got to be one of the mostuseful pieces of software you will ever buy.

This is the basic version and there are various other more expensiveversions which include things like payroll and superannuation. Personally,I have found the basic version does everything I have ever wanted to do,such as invoicing, debtors, banking and stock control and I prefer to leavethe ‘fancy stuff’ to my accountant.

Which brings me to another important point: These days mostaccountants also use MYOB software, so you can simply hand them a diskor email a copy of your complete accounts to your accountant and they canget an immediate picture of what is happening in your business.

I should also mention here that MYOB is not the only game in town andthere are other programs around that perform similar tasks. MYOBhowever is by far the most popular program of its type and your accountantis more likely to support it than other programs.

Word Processing and other general uses

A combination software package like Microsoft Office® is a goodinvestment. Office is not cheap but the full suite includes the very powerfulword processor Microsoft Word for writing letters, etc. and Excel a spreadsheet program, Publisher for desk top publishing and PowerPoint, aprogram for doing on screen or data projected presentations.


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Database Management

There are literally thousands of programs available for just about everytask imaginable and there are probably some specifically created for yourindustry. One of the ‘must have’ programs, apart from email and Internetuses, is some sort of database management system.

One of the most valuable but often overlooked uses for computers insmall business, is building a database of clients and staying in regularcontact with them. In the popular jargon, this is known as CustomerRelationship Management.

It is generally accepted that it costs five times more to get a new clientthan it does to retain an existing one so, it makes sense to maintain regularcontact with your existing clients. Put your clients into a database on yourcomputer and mail them or email them regularly. Send out a regularnewsletter and list details of your special offers and any new products orservices.

Explore the possibility of buying a mailing list from a list broker, youwill find these listed in the Yellow Pages or on the Internet and mail outpromotional material or you could just build your own list by contactingpeople and recording the results of each call.

Warning: Do not randomly email people orbusinesses unless you have first asked theirpermission to do so. Sending unsolicited emailsor SPAM as it is known, is now illegal and thereare very heavy penalties and fines in place forbreaches of the Anti-Spam Laws.

Record your customer’s birthdays and special events and send themcards. You can even send them a regular note simply saying: “Thanks forcontinuing to do business with us!” These personal touches help you tobuild long-term relationships with your customers and done properly, theycan instill tremendous loyalty and lead to referral business.

There are several very good off the shelf database management programs available for around the two or three hundred dollar mark. ACTis a relatively easy to use and popular program for contact management(PC only) or check out FileMaker Pro if you want to take it a step further.


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Desk Top Publishing

Desk Top Publishing (DTP) programs are what is typically used to designpage layouts for things like brochures and stationery, etc. There are anumber of excellent DTP programs available like Quark Express andAdobe’s In Design but be warned, they are not cheap.

There are also a lot of cheaper DTP programs around and you can alsouse Microsoft Word to a limited extent for these sorts of tasks. However, Iwould like to sound a note of caution here:

Since the advent of desktop publishing on computers, some peoplethink they can become overnight graphic artists. And, some of the worst examples of their work look positively awful. Even though you may betechnically proficient, design, typography and page layout are skills thatare best left to the experts. There are any amount of freelance (often home-based) graphic artists, who will produce a professional looking result fora very modest charge. I believe this is generally a good investment andusually a better alternative to doing it yourself.

Unless you are particularly good at it or you have had some sort offormal training, my advice would be to invest in an expert. It’s usually wellworth the cost. The look of your stationery and brochures, etc., generallyreflects your level of professionalism and remember, you only ever get onechance at a first impression!

Which computer should you buy?

With hundreds of makes and models to choose from, deciding whichcomputer is best for your business is no easy task. Should you buy a laptopor a desktop machine or both? The answer to that question will depend onyour individual needs. If you don’t need portability, you will find a desktopcomputer much more comfortable to use and easier on your posture andthe larger screen size easier on your eyes.

Generally speaking, with computers you get what you pay for. e.g. Themore money you spend, the more memory and hard disk space you willget and the faster it will go. One thing you can be sure of is, no matter howmuch memory you start out with, it never seems to be enough.

Bill Gates of Microsoft, is famous for a quote he made back in the1985, “No one will ever need more than 640k of memory”.

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If you are going to be using your computer a lot,consider investing in an LCD screen. CRTmonitors (normal cathode ray tube monitors) canbe very hard on the eyes and you will find theextra cost, well and truly worthwhile.

has a gigabyte of memory. That’s a thousand megabytes and at times, it’sbarely enough. The reason for this sudden need for additional memory hasbeen caused by three major factors:

• The ever increasing need of more and more complex operating systems and more sophisticated software programs

• The need to operate more than one program at a time, and• The increasing use of graphics, videos and sound

You may also want to ask the age old question of whether to buy a PCor a Macintosh. I use both and I must admit I tend to lean towards the Mac.

In the early days, this was because Macs were much easier to use butwith the latest Windows operating systems, much of this advantage hasnow been lost. However, if you use the Internet and email a lot, you mayfind the Macintosh platform better, simply because they are much lessprone to picking up viruses. Viruses, especially the ones that spread byemail via the internet, are becoming an ever increasing and annoyingoccurrence and it’s not going to get any better in the short term.

The problem is much worse for PC users. This is because many of thecommon viruses around rely on exploiting faults in the popular Windowsoperating system and programs like Outlook Express and InternetExplorer and people are less inclined to write viruses for an operatingsystem that has less than five per cent of the world market.

In recent years, the price of Macintosh machines has come down to bealmost on a par with PCs, plus most common software applications arenow available for both platforms. This makes the Mac well and trulyworthy of consideration – especially for first time buyers and people whohave not grown up with using PCs. I’m not saying you should buy a Macover a PC, I’m simply saying don’t rule out looking at the Macs too, beforeyou reach a decision.

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Summary

Before you buy a computer or computers for your business, firstthoroughly analyse your needs. Decide what you are going to mainly usethe computer for and then choose the best software for the job. Then, buya computer that is more than comfortable running that software.

Tend towards going over your immediate requirements when it comesto things like memory and hard disk space. You will be surprised howquickly you grow into and exceed your machine’s capacity.

Shop around, talk to other people in your industry and ask them whattype of computer and software they use and if they are happy with it.



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SECTION 3:

SUCCESS SECRETSFOR

SALES, ADVERTISINGAND PROMOTION

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The Sales Challenge

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ne of the most asked questions, in my role as a business adviser overmany years, is: “How can I make lots of sales without actually

having to sell anything?” Of course, they don’t always frame the questionas straight forwardly as that. They usually want to know how they canmarket and promote their wares with little or no money. Or why theiradvertising isn’t working as well as it should. I can sometimes see themvisibly cringe when I suggest they get out and call on people or pick up thetelephone and talk to some potential clients.

It’s called “selling” and it’s the lifeblood of your business and it’s stillthe single most effective, low cost form of promotion you will find.

Whether you are taking over an existing business or starting a new onefrom scratch, the success of your venture will most probably rely heavilyon your ability to make sales. Many small firms go to the wall, simplybecause they don’t sell enough of their goods and services.

If you’ve never been involved in sales, you may find the prospect ofhaving to get out there and sell your wares quite daunting. This phobia isusually caused primarily by people’s fear of rejection. This is quiteunderstandable however, with a little more understanding of the sellingprocess and some basic training, anyone can become a successfulsalesperson and – believe it or not – even learn to enjoy it!

What does it take to become a successful salesperson?

People generally have pre-conceived notions about ‘typical salespeople’.They see them as young, slick, fast-talking people – somebody who could

23. THE SALES CHALLENGE“Nothing happens until somebody sells something.”

Old business saying

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probably sell ice blocks to the Eskimos! And while there are plenty ofsalespeople around who fit this image quite well, they are not typical – andnor are they always successful. Most of the successful salespeople I know,all look and talk like ordinary people. That’s because they are ordinarypeople – and this ‘ordinary-ness’actually contributes to their success.

People will only buy from you when they trust you and they are morelikely to trust you if they feel that you are just like them. Don’t try andassume a personality that’s not you. If you do this, chances are you willfeel uncomfortable and your discomfort will show through as insincerity.

You are far more likely to be successful at selling if you remember thegolden rule: be yourself. To get people to trust you, you need to be sincere,and the best way to achieve this is to tell the truth and be yourself.

The most commonly held misconception about selling is thatsalespeople sell things to people, whether they want to buy them or not.This is just not true. In fact, nobody ever sells anything - people buy!

Customers only need to be convinced of the benefits of ownership.Once customers are convinced that the offer is genuine and the benefits ofbuying are worth parting with their hard-earned cash, they will buy fromyou, not a moment before.

Your job as a salesperson is to assist them in their buying decision bypresenting sufficient evidence to support your case. You simply have todemonstrate the benefits of ownership. This is called selling the sizzle, notthe steak. For instance, people don’t buy a new car – they buy a betterform of transportation.They don’t buy an electric razor – they buy a closershave and a better appearance.

Take a look at television ads. They don’t sell beer – they sell having agreat time with your mates. In other words, they sell the benefits of usingthe product, not the features of the product itself. Your job is to tell peopleabout the benefits and encourage them to make the right decision.

Don’t think of yourself as a ‘salesperson’ you are, in effect, an‘assistant buyer’. You help people to get what they want and through thisprocess, you get what you want – a sale! Therefore, it’s a win/win situation.

What motivates people to buy?

People buy when they are going to gain something tangible. This could beprofit or personal gain. It could be prestige or status or sheer pleasure.

The Sales Challenge

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If they are buying for someone else, then it is simply one or more of thosebenefits applied to the person they are buying for.

There is also another strong reason people buy – fear!This could be fear of what could happen if they didn’t buy the product,

for instance, life insurance or health care services. It could be fear ofmissing out on a bargain or advantageous position i.e. property or shares.

Develop an ‘elevator statement’. Imagine you arein an elevator and you have just a few shortseconds to tell somebody what your business cando for them before their floor. Refine and rehearsethis statement until you can say it in your sleep.Keep it brief and make sure people understand it.You will be surprised at how powerful this can be.

THE FIVE STEPS

Let's analyse the five basic steps that make a sale:

Step 1. Define your prospects

These are the people who have a need for your product or service.Remember, selling is a numbers game. The more people you talk to, themore sales you will make. Assuming, of course, that you have a saleableproduct and reasonable presentation skills, and that the person you aretalking to has a genuine need for your product.

Step 2. Qualify the prospect

Make sure you are talking to the decision-maker. So many salespeoplewaste their time talking to the wrong person. Make sure you are talking tothe right M.A.N. – that’s not a sexist term – it’s an acronym for:

• the Money to buy• the Authority to purchase; and• the Need for your product.

Unless they fit that criteria, you are wasting your time talking to them.

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Step 3. Do the presentation.

Know your product inside out, not only its good points but its limitationstoo. This will enable you to anticipate objections and overcome them. i.e. “Yes, it is only a small engine but it’s very economical to run.”

Which brings us to the next step…

Step 4. Overcome objections

Convince them of the benefits. Remember, objections may really bebuying signals. For instance, if a customer says, “It’s too expensive”, whathe or she might be really saying is, “I like the product but I am not yetconvinced that I should pay that much money for it. Tell me more….”

Step 5. Close the sale.

Any sales manager will tell you that many potential sales are lost simplybecause the salesperson failed to ask for the order. Most sales trainersadvise closing early, closing late and closing often! Zig Ziglar, the famousAmerican motivational speaker and sales trainer, claims that most sales aremade the fifth time you ask for the order.

This is not as daunting as it may sound. You can try asking for the orderwith a ‘trial close’ at any time during your sales presentation. For instance:“Would you like it in red or green?” If they indicate a colour preference –“Does it come in blue?” they are virtually saying, “Let’s do business!”

Here is an important point. If they are not yet convinced, you mustintroduce more benefits before you try to close again. It is no use simplyasking for the order over and over again like a mindless robot. You mustpresent new evidence and give more reasons to buy on every rejectionbefore trying to close the sale again.

This brings up another important point – successful sales people do alot more listening than talking. Remember, the Lord gave us two ears andone mouth so we could listen twice as much as we talk!

There’s an old adage in selling that says, nobody ever listenedthemselves out of a sale!

Develop the right attitude

Zig Ziglar once said – “It’s your attitude, not your aptitude, that willdetermine your altitude.” How true!

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Develop a positive and cheerful attitude. Mix with positive people andhigh achievers and you will find it rubs off on you. Equally, negativepeople have the same effect in reverse.

Summary

Selling is not difficult if you follow a few basic principles. Practice anddevelop your techniques and you will be surprised at how good you willbecome at it. Listen to what your prospect is saying and look for buyingsignals and hidden objections.

Most people love to hear the sound of their own voice. By allowingyour prospects to talk and listening to what they are saying, you not onlylearn more about their needs and wants, you give yourself time to think andconsider your next course of action.

Encourage the prospect to talk by nodding every now and then andsaying words like, “Yes” or “I understand”. It’s not enough to listen, youneed to show you are listening. This is what is known as ‘active listening’.

As with any other skill, practice makes perfect, so don’t get discouragedif you don’t make lots of sales on your first few calls. Don’t get bitter, getbetter! And remember, every time somebody says “No” you are one stepcloser to getting a “Yes!”

Listen to tapes and read books on selling. Get a copy of Tom Hopkins’book, “How to Master the Art of Selling”. It is one of the best books onselling ever written. If your business relies heavily on making lots of sales,get some professional sales training. Attend seminars and workshops onselling. And don't forget – nothing happens in business until somebodysells something!

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24. ADVERTISING & PROMOTION“Doing business without advertising is like winking at

a girl in the dark – you know what you’re doing but nobody else does!”

Stewart H. Britt

ow to advertise and promote your wares, is probably one of the mostcomplex problems you will ever have to face in running your own

business. American retailing guru, John Wanamaker, probably summed upthe frustration of business people the world over when he made thestatement, “Half of all the money I spend on advertising is wasted – theonly trouble is – I don’t know which half!”

If Wanamaker didn't know, what hope does the average small businessowner have? What’s more, small business operators are at a considerabledisadvantage over their big business counterparts, who usually enlist thehelp of professionals in the form of advertising agencies.

Unfortunately, most advertising agencies don’t want to know youunless you’re spending hundreds of thousands of dollars a year onadvertising. Even a business spending $100,000 a year, would most likelybe considered more of a nuisance than a benefit to even a small agency.

You may be able to find a small agency that is prepared to take you onand grow with you but the main problem with small agencies is they aregenerally limited in their areas of skills and resources. A good alternativecould be to find somebody in the industry who wants to do a little bit of‘moonlighting’.

In his book, ‘Advertising Without Agencies’, Ian Oshlack, suggests agood way to find moonlighters is to pick up a copy of Ad News or B & Tmagazine. These are the advertising industry ‘bibles’. In them, you willfind articles about great advertisements. They always list the names of the

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people who worked on the ads and their agencies. He suggests you couldapproach them direct and see if they are interested in doing a bit of workfor you after hours.

It's a bit cheeky but he claims you might be surprised at the response.

Because of the high cost and the degree of difficulty in getting good,unbiased advice, many small business people choose to do their ownadvertising or at least choose the method of advertising themselves andthen get help with things like art work and production.

Prime Prospect Profiles

Before you even think about advertising, you must first determine whoyour target audience is. This is what is termed as your Prime ProspectProfile (PPP). In other words, the people most likely to have a need foryour product or service. Who are the people who actually buy the product?

Important note: This may not necessarily be the same people who useit – for instance, men’s underwear is predominantly bought by women.

In order to define your PPP, you will need to ascertain the followinginformation about your potential customers:

• Age range• Sex (males, females or both)• Geographical location (where they live or work)• Ethnic background (if applicable)• Any other information that makes them unique.

The Australian Bureau of Statistics (ABS) offers a tremendous amountof information that can help you with this exercise. A lot of it is availableonline at their website (www.abs.gov.au) for free or at a modest fee or callthem toll free on 1 300 135 070. Using their massive bank of data, they canprovide you with a detailed snapshot of most suburbs, showing the exactlocation of almost any type or group of people.

This can include such information as ethnic origin, language spoken athome, marital status, number of children, average income per home, etc.Almost anything you need to know about the population of Australia. Thisvast source of information can be of tremendous assistance.

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For instance, let’s say that you wanted to start an accountancy practiceand you spoke fluent Italian and Spanish. The ABS could tell you whichsuburbs have the highest proportion of people who speak Italian orSpanish in the home and you could then locate your business accordingly.

How much should you spend?

Your major advertising problems will probably centre on two questions:

• How much should you spend• Where should you spend it?

Once you have established your target audience, you can then start to thinkabout which type of media will be the most cost effective in reaching them,and how much you will have to spend to achieve the desired result.

How much you need to allocate to advertising will vary dramaticallyfrom industry to industry. Most industries have an accepted ‘industrynorm’ for the ratio of advertising spent in relation to turnover and this isusually measured as a percentage of gross sales – check with your industryassociation for details. If you don’t have an industry association, ask otherpeople in the business what percentage they spend or ask your localChamber of Commerce or Small Business Agency for advice.

Your accountant should also be able to give you a good idea of howmuch is reasonable and how much you can afford to spend.

The amount of money spent on advertising can vary, from as low as oneor two per cent in some businesses to as high as 10 per cent or even morein certain cases. For most industries however, somewhere between two andfive per cent of gross sales would not be considered excessive, particularlyfor a new business trying to establish itself.

How much you spend should be directly tied to your sales resultshowever, it should be stressed with advertising, it’s very easy to spendmoney in the wrong way and virtually waste the lot. It’s not simply a caseof saying, ‘you get back what you pay for’. Eventually you will discoverhow much you need to spend and where to get the best result but trial anderror is an expensive way to learn. In the first instance, it is usually saferto go with the more conventional approaches and see what sort of resultsyou get before attempting anything too adventurous.



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Allow time for an advertisement to work. This doesn’t mean you shouldstick with an ad indefinitely if it is not producing a result but you can’talways expect a huge immediate response. If you are getting a fair responseand it is improving every time you repeat the ad, then stay with it. Often ittakes a long time for people to get the message so, if you’ve got anadvertising campaign that’s working, don’t change it just because you oryour staff are sick of it – make sure the customers are sick of it first. Andremember, when they are sick of it, chances are it will work even better!

Layout and design

If you are doing your own advertising in the press, try to come up with agood headline that will attract people’s attention. Research has shown thatpeople only ever read around eight per cent of a newspaper (the parts thatare of direct interest to them). They select what they are going to read byscanning the headlines and graphics (pictures) of both the ads and theeditorial. It has been estimated that 80 per cent of people will read nofurther than your headline. Try to come up with something interesting anddifferent but don’t get too clever.

Make sure your proposition is clearly understood and specific. Forexample, Save $200 will work a lot better than 20% Off or Save Big $$$.

Use the AIDA formula

There is a tried and tested formula for a good advertisement which workson an acronym the same as the opera – AIDA. It stands for:

ATTENTION

INTEREST

DESIRE

ACTION

You should apply the AIDA test to all your advertisements before youplace them. For instance, in a press ad you would use the headline orgraphic to grab their attention. Then the subheading or first paragraphcould be used to create their interest and the body copy of the ad shouldcreate the desire for ownership. And finally, there should be a call to action.

Introduce a note of urgency: Offer ends this Friday or Limit of 100 units

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only until sold out. And don’t forget to tell them where they can get it. A

statement such as: Pick up that phone and call us right now on 123 45678

or Call in to our showroom at 14 High Street today.

And don't be afraid of using too many words in the body copy. If the

copy is interesting and your proposition is good, people will read it.

Circulation and distribution

Advertising is never a cheap exercise, so try to make sure you get your

money’s worth. Newspaper advertising rates are usually measured on a

cost per thousand basis (called CPM – the M is the Roman numeral for

1,000). This means the amount it costs to reach each one thousand people.

To arrive at this figure, simply divide the circulation of the newspaper

into the cost of the ad and multiply it by 1,000. For instance, let’s say you

placed a $500 ad in your local paper and it had a circulation of 40,000.

Divide 500 by 40,000 and you get 0.0125, then multiply this figure by

1,000 and you get the answer 12.5. This means the cost of running that ad

in that paper is $12.50 per thousand readers.

Bear in mind, you must establish the quality of the readers as well as the

quantity. There’s not much use having thousands of readers if they don’t

have a need for your product or service. And remember, circulation doesn’t

necessarily mean readership. Just because somebody tosses a paper over

your fence every week, doesn’t mean to say you are going to read it,

especially if it is a rainy day and it got wet or the dog chewed it up!

Similarly, be very wary of trade magazines and newsletters that deliver

free copies to members of associations and organisations. I don’t know

about you but I get a number of publications delivered to me in the mail

that I don’t even bother to take out of the plastic wrapper! If people have

to pay for a publication, they are generally far more likely to read it.

Of course, the best measure of an advertisement’s effectiveness is your

bottom line. Monitor your results carefully and when you find something

that works, keep doing it until it stops working. To use the words of an old

fly spray commercial - when you’re on a good thing, stick to it!

Advertising and location

The best time to consider how much you will have to spend on advertising

is before you decide on the location of your business. The amount of



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money you pay in rent per square metre is usually directly proportional tothe amount of money you will have to spend on advertising, particularly ina retail business. There is an old adage in retailing that says the three mostimportant ingredients for success are – Position, Position and Position!

If you are going to be in a retail business and you are located in a poorposition for passing trade, a situation I would strongly advise against, youmay need to spend a veritable fortune on advertising, just to get peoplethrough your front door.

So, in calculating the amount you will need to spend on advertising,you must take into account your location and the degree of difficulty youwill experience in telling potential customers where you are and what youare doing. Some retail shops in the heart of large shopping centres, forinstance, may undertake not to spend any money on advertising at alldirectly and simply rely on the high volume of passing trade created by theshopping centre. In other words, a big proportion of their rent in effectbecomes their advertising budget! However, these people are usually alsorequired to pay into a ‘merchants fund’. This is where all the shopkeepersin a centre pay into a slush fund which is used to jointly promote the centre.

From my own experience as a retailer, it is usually better to pay a higherrental and be in a good position where you can rely on a large passingtrade, than it is to go for a cheaper location and rely on spending money onadvertising to draw people in. This is simply because in the first instancewe have a known factor – the number of people who will pass by – andhopefully enter – your front door. In the second instance, we are relyingon our ability to produce advertising that gets results.

Note: The only downside to this argument is with the high rentscenario, you can’t reduce the rent in quiet times but you can cutback on the advertising budget.

If you have a product that appeals to a broad spread of the population,then your best choice will probably be to go to a very busy location andsimply play the numbers game i.e. the more people that go past the door,the more people that buy. Of course, this doesn’t always work in practice,but at least you are loading the odds in your favour and you won’t need tospend a lot of time, effort and money on advertising campaigns.

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Be careful with passing trade

Passing trade does not necessarily include motorists driving past your door,especially if there is difficulty in stopping and parking. Plenty of retailershave gone broke on major highways with thousands of cars passing themby every day. It’s not much use unless they can pull over and park withrelative ease and safety.

My first venture into my own retail business was a TV and electronicsshop in the city of Sydney. I had the choice of either renting a shop in thecentral business district for around $2,000 a week or setting up on the cityfringe for around $500 a week. I chose to go for the lower rental, thinkingI would spend the money I saved in rent on advertising.

While the shop did reasonably well, I later realised that had I opted forthe CBD I would have sold three or four times as much product withoutany advertising at all. I also hadn’t taken into account the high cost ofadvertising in the city. Because my target market was primarily city officeworkers, there was no ‘local’ paper as such and I was forced to use themetropolitan daily newspapers and radio stations to reach my audience(which was mainly city workers). This meant very high advertising costsand a great deal of wastage, because a big percentage of the audience weretoo far away from my business to bother responding to my ads, no matterhow good the proposition was.

Advertising is not a science and it can be a very ‘hit and miss’ affair.There are countless cases in the advertising history books of companiesthat have spent millions of dollars on advertising and still failed to createthe desired result, even with the assistance of the so-called ‘experts’.

It’s not uncommon to place an ad in a newspaper at a very high cost andreceive little or no response at all. Most people in business have done thisat some stage. It’s a very easy way to waste money on advertising.

Niche markets

If you have a product which is very specialised and has limited appeal toa small number of people, you will probably be better off going to acheaper location and relying on advertising and word of mouth to build upyour trade.

For instance, a shop specialising in school uniforms for specificschools, could choose a location strategically close to the schools



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concerned, rather than a high rent area in the local shopping complex. Thiswould depend on forming a close association with the schools – ideallythey would recommend purchasing from you and perhaps allow you todistribute leaflets to the parents or advertise in the school magazine, etc. Inreturn, you might even be able to offer a commission or donation to theschool’s Parents & Friends Association.

In such a case, you would be able to reach your potential audiencecheaply and very effectively. The cheaper rent could allow you to sell yourgoods at a lower price than your competitors and if you passed some of thissaving on to your customers, you could build a strong business in a smallbut captive market. This is what is known as ‘niche’marketing, where youare catering to a smaller, specialised segment of a market.

Choice of media

If your business is going to appeal to a broad audience, then your selectionof media becomes much more difficult. There seems to be a thousand andone ways to advertise and they are thinking up new ones every day.

For instance, there’s TV, print, radio, the Internet, outdoor signs, directmail, pamphlets, cinemas, public relations, bonus coupons, directories,premiums, exhibitions and transport ads, to name a few. You can even haveyour message written in the sky by a plane or towed by a helicopter ordisplayed on the back of a toilet door! A thousand and two?

When starting out, it usually pays not to be too adventurous in yourchoice of media. This doesn’t mean that you can’t be creative. It means thatunusual or unproven media are probably too risky and should generally beavoided. The most obvious choices will be the Yellow Pages® telephonedirectories, pamphlet drops or the local paper. If you can identify yourmarket clearly and have access to a good list of prospects, direct mail canbe highly effective, especially if it is followed up with a telephone call.

Generally speaking, radio and the metropolitan daily newspapersproduce far too much wastage for the average small suburban business.Unless your offer is totally unique or very price competitive, most peoplewon’t travel more than a few miles from their local area for their generalday to day needs.

One very effective form of promoting business that is often overlookedis face to face calling. Often small business owners spend a fortune on

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advertising their services to the world but wouldn’t even think of askingthe surrounding business houses if they could be of assistance. This simpleact sometimes produces amazingly good results. This is due to the fact thatconvenience is one of the most important factors in the purchasingdecision. You will also find that other business people will have a certaindegree of empathy with you when you are new in business. They were newthemselves once, and they will often tend to ‘give you a go’.

In many cases, the simplest ideas work the best. This may be as basicas painting a big sign on the wall of your building or handing out leafletswith a special offer. Good signage and identification can play a major rolein boosting business and it need not cost a fortune.

Keep detailed records of all the advertising youdo and monitor the results. Get a big scrap bookand stick copies of the ads and the direct salesresults in it so you know what worked last season,etc. You will be surprised how helpful this can be.

I recently went to drop some artwork off to a friend of mine who runsa small printing business. Although he has a shop front on a very busymain road, I had a great deal of trouble finding him. This was because oneside of his front awning was painted out with a sign for a newsagency andthe other side had a sign for a video shop, both obviously from previoustenants. The only sign for his business was a small poster in the window,about half a square meter in size, which was difficult to see from the street.

I pointed out to him that it wouldn’t cost much at all to repaint theawning in a bright colour and if he stuck a sandwich board or one of thosesigns that spin in the wind, out the front saying PRINTER, he wouldprobably be surprised at the results. Better still, what about a sandwichboard out front or a big sign on the window (or both) with a red hot specialoffer on business cards? Every business needs calling cards and once theycame to him for the cards, they would need other items of printing too!

All simple common sense stuff and it works. Did he listen to myadvice? Did he do anything about it?

No – and not long after that he went out of business!



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Should your business have its own website?

Whether you should have a website or not will depend on such things asyour target market and whether your products or services are suitable forpromotion online. These days, most businesses would get some sort ofbenefit from a website – even if it was just used as an electronic brochurefor your business.

A website can be a powerful marketing tool and it can be an importantpart of your marketing and communications strategy. It can also be a veryeffective and low cost promotional vehicle.

The Do It Yourself option

If you do decide to create a website for your business, you may be temptedto do it yourself. There are plenty of low-cost or even no-cost softwarepackages around that will allow you to do this.

However, be warned: Building your own website is not as easy andstraight forward as it may appear. Unless you have had some sort of formaltraining, the learning curve is quite steep. You will also be amazed at theamount of time it can take up and you may find it a much better option toget an expert to do it for you. Plus, of course, you want your website tolook professional. Your website is like the ‘front window’of your businessand it is worth investing a few dollars to make sure it looks good.

Whether you do it yourself or get a professional to do it for you, hereare a few tips for creating a successful website:

• The pages should be quick to download – ideally no more than 10 seconds per page maximum

• It should be easy to access by as many people as possible. e.g. It should be able to be viewed by a PC or a Macintosh computer and it should not require special plug-ins (like Flash) to view it

• Your site should contain useful current information and be updated regularly. Ideally, it should also include some element that gets visitors to return to the site over and over again. You might also want to think about providing people with a regular e-newsletter or updates about your business and services

• It should be search engine friendly. i.e. It needs to be optimised to get the best possible position on the search engines

• It must look professional and fit your business’ image and profile.

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You should get a return on your investment (R.O.I.)

Your website should generate more business for you. Either directly orindirectly by improving your service and the awareness of your productsor brand name or by generating sales enquiries. It could also save youmoney on printing and perhaps even distribution costs.

In other words, it should be an asset to your business — not a liability!

Summary

The main thing with advertising and promotion is to keep at it. Remember,business is like a wheelbarrow – it stands still unless you keep pushing it!It can also be a big part of your business overhead expenses, so make sureyou monitor it closely – don’t just assume it is working.

Every dollar you spend on advertising in a small business should bedesigned to give you the maximum return in sales for your investment.Your sole purpose for advertising should be to bring in more business asquickly as possible. This means that corporate or institutional advertising– just keeping your name in front of the public or telling them what nicepeople you are – is generally a no-no. Leave that to the BHPs and ShellOils of the world – it’s a luxury you can’t afford!

Your advertising message should contain some sort of an offer or aunique selling proposition. It should state why you do it better, cheaper orquicker than the others. Statements like ‘Free’ - ‘Special Offer’ - ‘HalfPrice Sale’, etc., while seemingly done to death, still produce results –especially if they are genuine offers. People love to think they are gettinga bargain.

It has been estimated that something like forty per cent of all themerchandise sold in large department stores these days is generateddirectly from their SALE catalogues. Why do you think they keep doingthem? Because they work!

Make your advertising dynamic and hard-hitting and aim to get ameasurable result from every cent you spend.


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he above quotation from Shakespeare may be true of roses but whenit comes to starting and building a business, the choice of an

appropriate name can be more critical than you might think. The right orwrong choice of name can have a major effect on the success of yourbusiness venture. Note: You may also need to consider registering anappropriate domain name, too. We’ll deal with that later in this chapter butfirst, let’s talk about your business name.

In choosing a name, a number of considerations must be made. Firstly,the name should be easy to remember, easy to find in the telephone book– try finding 3M or 2UE – and ideally, it should be synonymous with whatyou do. Having said that, you might like to challenge this observation withvarious examples of companies with names that do not fill any of theabove criteria and yet have still been enormously successful.

For example, what about the photocopying people, Xerox? The nameXerox, is a difficult name to remember, extremely difficult to find in thetelephone book, unless you know exactly how to spell it. Plus the nameXerox is not synonymous with photocopiers in the generic sense, althoughthe name did eventually become a generic word for photocopying, as in,‘Xerox this’ meaning to photocopy something.

Why then has Xerox been so successful in selling their name, imageand product to the public?

The answer is simple and can be summed up in one word – money!A well known advertising guru once said if he had a big enough

advertising budget he could sell tuberculosis! If you have enough moneyand you persist long enough, you can probably be successful with virtuallyany choice of name at all, providing of course there is a need for theproduct or service and it’s of reasonable quality.

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“What's in a name? That which we call a rose by any other name would still smell as sweet.”

William Shakespeare

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Xerox was one of the first companies in the world to use peak hourtelevision for a commercial product, rather than a domestic consumerproduct. Up until that point, most companies in this field had generallyonly ever advertised in daily newspapers and trade magazines.

Would Xerox have been more successful in the photocopying businessif they had adopted a name that was synonymous with the business theyare in? For example, what would have happened if they had adopted aname like Copymaker or some other name that told people what they did?

The answer to that question will never be known but one thing we doknow is this, a name alone doesn’t automatically sell a product, no matterhow well known. For instance, when Xerox decided they wanted to expandtheir business by entering the fiercely competitive computer market, theyvirtually fell flat on their face. It has been estimated that Xerox spent overone billion dollars trying to break into the computer market before finallyretiring to lick their wounds and rethink.

Xerox apparently did such a good job of selling themselves in thephotocopying market, people were just not prepared to accept them as aviable manufacturer of any other product. They were ‘the photocopyingmachine people’– not the ‘computer people’.

The importance of names

If you are just starting out in business, chances are you won’t have millionsof dollars to spend promoting your name, so your choice of an effectivename becomes even more important. A clever and imaginative name canget people talking about you and generate a lot of word of mouthadvertising. And the beauty of word of mouth advertising is – it’s free!

A good example of a clever name like this, is a Manchester shop called,Holy Sheet. I’m sure I don’t need to explain to you the play on wordsinvolved, suffice to say, it’s a very clever and memorable name. I have lostcount of the number of people I have personally told about this place,simply because I liked their name. Their choice of a clever, fun name gotpeople talking about them. I certainly wouldn’t have mentioned it tofriends if their name had been Maud’s Manchester Shop or somethingequally as boring.

Incidentally, last time I looked they have grown from that one smallsuburban store to having 12 locations. I’m not sure how much of this

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growth is directly related to their name but I’m sure it was a big help.It is usually a good idea to make sure that the name you have chosen

conveys an image of what you do. If you can also include some additionalinformation that briefly tells people why they should buy from you andwhy your business is a better alternative, then so much the better.

For instance, if you are going to enter a market with a lot of pricecompetition, you can convey the image that you are cheaper than yourcompetitors by including that message in your name. Budget CarpetCleaning or Cut Price Carpet Cleaning sound as though they might becheaper than F & J Applegate’s Carpet Cleaning Service. The wordsBudget or Cut Price certainly give the impression that you are prepared totalk about price and are not at the top end of the market. Other words likeCheaper or Cheapa or Discount can be used to create the same effect.

Of course, these words can also convey poor quality or rough-and-ready workmanship. If you are aiming more at the high quality end of themarket, you could try incorporating words that portray an image of highquality and service. You could be ‘Distinctive’ Carpet Cleaning or‘Quality’ Carpet Cleaning. On the other hand, you may decide to tellpeople that you are a ‘Reliable’ carpet cleaning company or a‘Dependable’one.

Maybe you would rather promote the idea that you offer quick service.In this case you could be ‘Speedy’ Carpet Cleaning or ‘Quick’ CarpetCleaning or maybe even ‘Kwik Karpet Kleaning’.

Think about your telephone directory listing

A word of caution here – if you are going to use modified spelling, suchas Kwik instead of Quick, this will make you hard to find in the telephonebook. If somebody recommended your name, “Call the Kwik KarpetKleaning Kompany, they’re good” – it won’t help you if they forget to tellpeople that it is spelt with a ‘K’rather than a ‘Q’– because they will neverbe able to find your name in the telephone book! The same applies to mostnames that are not spelt phonetically, i.e. the way they sound.

Another thing to consider with telephone directories, is your position inthe book. This doesn’t mean to say you have to be the AArdvark CarpetCleaning Co., but if directory positioning is going to be important and yourname is Zac, it may not be a good idea to use it for your business name.

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The examples given are very obvious ones and are designed to get youthinking. In choosing your actual name you may decide to be a lot moresubtle in implying the type of quality and service you are going to provide.For instance, International sounds like you are big or words likeProfessional or Supreme conjure up images of better service.

If you do choose a name based on the type ofservice you plan to offer, it’s important to makesure that you live up to your claims. There’s notmuch point in being the ‘Quicker PlumbingService’ if you are going to arrive two days afterthe call, to find the house under water!

Marketing consultant, Ken Smithson, tells a great story about businessnames that I particularly like. It’s about Harry Tubshaw’s FurnitureRemoval Company. Harry was in the domestic furniture removal businessand was going broke fast. Most of Harry’s work was done on weekendsand a large percentage of his workforce was made up of casual studentsfrom the local university, trying to earn an extra dollar.

One day, Harry hit on a bright idea. He changed the name of hisbusiness to The Hungry Students’Furniture Removal Company and neverlooked back! The public just loved the idea of having a team of young,clean-cut students working their way through an education, moving theirfurniture. This simple name change resulted in a total image change in themind of the public. In fact, your business name can actually be apositioning statement for your business.

The KISS principle

While it can be great fun to be creative and try to come up with a namethat really gets people talking about you, often the simplest things workthe best. In trying to dream up imaginative names, it is important not totry to be too clever. You could end up losing the plot entirely and finish upwith a name that is difficult to remember and has absolutely nothing to dowith the type of business you are in.

In trying to think of a suitable name, try bearing in mind three basicthoughts and see if you can’t incorporate them into your business name.

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They are:

• Who you are• Where you are, and• What you do

The simple combination of where you are and what you do, can bringin a powerful amount of extra business, particularly if you are a localisedbusiness. For instance, if you had a friend in the Bankstown DistrictHospital and you wanted to send them some flowers in a hurry, chancesare you would look in the telephone directory or the internet, for the nameBankstown Florist. The people in this industry are quick to recognise theimpact of geographical identification and such names are highly soughtafter and often worth quite a bit of money in their own right.

A classic example of how this type of business name can be effectivewas brought home to me recently when I had some overseas visitorsstaying with me. We were looking for somewhere to go for dinner and Iwanted to show them a little bit of the culture of Sydney but time was at apremium. I remembered there was an excellent seafood take-away cafe,right opposite Bronte beach, not far from my place, where you could buya superb fish and chip dinner and then take your meal down to the beachand watch the sun setting over the surf.

But was it open and could I order ahead to save a long wait? I couldn’t remember the name of the place but a quick look in the

Sydney White Page telephone directory revealed the name BronteSeafoods. A quick telephone call confirmed that they were open forbusiness and I could order ahead.

The point here is, had they been called Fred’s Fabulous Fish Cafe, theywouldn’t have got my business. Some time later I tried to contact this sameestablishment again but could no longer find them in the telephone book.I later discovered they had changed their name to something they thoughtwas much more original. I still can’t remember what it is!

A word of warning: There is a definite downside to names thatincorporate their location, particularly where the name of the suburb isused. What happens if the business wants to expand to other areas? Youneed to assess the value of having the location in the name and the

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likelihood of your expansion before you start in business. We are all awareof businesses that carry a suburban name that is totally different to thesuburb they are in.

If Bronte Seafoods opened a branch in Bondi for instance, maybe theycould call their new outlet Bondi Seafoods. However, chances are the namewould already be taken and they would also lose the advantages to begained by promoting the two outlets under the same name, i.e. Fred’sFabulous Fish Cafe - now at two great locations – Bronte and Bondi!

Beware, although it may seem like a remote possibility at the time ofstarting out, you could surprise yourself (and your in-laws!) by expandingyour business well beyond your wildest dreams.

A classic example (on a much larger scale) of a business that outgrewits name is Westpac.Those of us old enough to remember will recall it usedto be called The Bank of New South Wales. It must have been a toughdecision for Australia’s oldest free enterprise bank to change its name butthe name was totally inappropriate for a business that now trades not onlyall around Australia but in many other countries around the globe.

Checklist for business names

Here are some tips for selecting a business name from a good friend ofmine, Leo Fuller-Quinn, who has spent virtually a lifetime in advertising:

Be aware of the ‘look’ of the name. i.e., How will it look on a sign,will it look good on your letterhead and business card – will it fit –is it too long? Use the KISS principle and keep it simple. Andremember, KISS can also stand for – Keep It Short and Sweet!

Is it spelt phonetically? In other words, do you write it down exactlyas you say it? Some large companies spend a fortune teachingpeople how to say their name, for example Hyundai (pronouncedhe-un-day), Sony (pronounced sew - nee not sunny), and there areall sorts of names that are difficult to pronounce, let alone spell andconsequently are even more difficult to remember.

What does the name ‘sound’like? Will it work on radio and by wordof mouth? Is it a name that is easy to remember and therefore easyto pass on to friends?

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Or will people spend much of their time saying, “They’re a greatcompany to deal with, wish I could remember their name!” Will youspend the next half of your life repeating and spelling your name onthe telephone?

Be sure you understand the full meaning of your chosen name. Lookit up in the Oxford Dictionary – you may find it has a totally differentmeaning and connotation to what you thought.

And finally, leave your personal and business ego behind whencreating a name. For instance, you could spend years building up abusiness under your own personal name and then find this makes itvery difficult to sell the business to somebody else in the future. Baseyour business name on what your customers are looking for andtheir needs, not subjective claims and boasts about your product orservice.

One of my personal pet hates is business names that have capital lettersin the middle of a word, like TectroData. These types of names seem to beincreasingly popular lately with computer companies, for some strangereason. They might be in vogue but personally, I think they only serve toconfuse the heck out of people.

Be warned: most companies are very protective oftheir business name and or trademark and willsue vigorously if they perceive any threat.

Don’t set out to gain some sort of advantage bytrying to pass yourself off as somebody else. Itsimply isn’t worth the risk.

Once you have established the name you wish to use, next you shouldascertain whether the name is available for use. i.e. Whether somebodyelse is already using the name or a very similar one that will prevent youfrom registering it.

Business names registration laws now allow you to use names that aresimilar to existing ones, unlike the old Act, however, this does not mean

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that you can try to pass yourself off as some other business with a wellestablished name – even if you are allowed to register it. The owner of abusiness name is entitled to take legal action to prevent you from usingyour name, if it can be proved that you are deliberately trying to passyourself off as them for commercial advantage by deceit.

Registering your business name

To register a business name, you will need to visit the business namesagency of your state or territory government. See our website for details.

You can also check the availability of a name by checking online atASIC’s Identical Names Check. They keep a record of all company andbusiness names registered in Australia. You can search the Names Check,free of charge, to see if your proposed business name already exists.

You should also ensure that your proposed business name does notinfringe any trade mark by checking with IP Australia. Also, be warned:certain types of names are forbidden from use, such as names that couldbe passed off as a government department or charitable institution, etc.

Internet domain names

With the ever increasing importance of the Internet in business today, it isalso important when selecting a business name to give some thought to asuitable and matching domain name. In fact, if you are planning to have awebsite and perhaps even do business online and the internet is going toplay a major role in your business strategy planning, then I would suggestyou get your domain name sorted out before you even register a businessname or company name.

Let me give you an example. Let’s say you have chosen the businessname, Widget Mart. If you wanted to register a domain name, the logicaldomain name for that business might be, www.widgetmart.com.au. So,let’s say you check and the business name or company name is available.You go ahead and register the company name Widget Mart Pty. Ltd. andthen you discover someone else has the domain namewww.widgetmart.com.au already.

It is better to check first for an available domain name and businessname then, register both the domain name and the business name orcompany name at virtually the same time.

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Which domain should you choose?

If you are running a business in Australia aimed at the local market, thenyou are best to have a .com.au domain name. If your chosen domain nameis not available in .com.au then you may be able to register that same nameunder one of the other .au domains like .net.au. There are also alternativesoutside of the au (Australian) domain regime. Like .net or some of thenewer ones .info .biz or .tv.

My strong recommendation however is – don’t do it! All you will bedoing is publicising someone else’s website and sending lots of visitors tothe person who owns the .com.au version of the domain name.

Imagine, for instance, you meet someone at a business meeting andyour last words are, “If you would like more information about ourcompany, go to our website, www.widgetmart.net.au.” Chances are theywill remember the widgetmart part of it but go to the widgetmart.com.auwebsite, especially if it is some time after the event. So, if you register aname outside of the .com.au domain and spend time and money promotingit, you are probably just creating a lot of free publicity for the organisationthat owns the .com.au version of the name.

Generally speaking, stick with the .com.au alternative for businessesthat are going to be mainly operating in Australia. This will generally alsohelp you with the local search engines too, as they will usually givepreference to .au (Australian) domains. The .com.au domain is still theking and probably will remain that way in Australia for the foreseeablefuture. So, if your chosen name is not available in .com.au, my best adviceis to choose an alternative .com.au name that is available.

For more information about registering domainnames, visit our website and get the specialreport – Things You Should Know AboutRegistering a Domain Name in Australia.


What if I am going to operate Internationally?

Tomorrow the world? Maybe your business venture will one day gointernational or maybe you are going to be trading and dealing overseasright from day one.

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If this is the case, yes, it might be better to try to get a .com name.However, be warned, just about every name you can ever think of (and afew more you wouldn’t even think of) in the .com domain has already beentaken. Good, memorable domain names are getting harder and harder tofind as people snap up the available ones.

Luckily, unlike the USA where all the good .com names were takenages ago, there are still plenty of good .com.au names available and youshould be able to come up with a suitable alternative without too muchhassle. However, don’t leave it too long. Hundreds of domain names arebeing registered every day so, the longer you wait to register your name,the less chance it will be available when you want it later on.

Should you have your own website?

You can register a domain name and build your website later. Whether youshould have a website or not will depend on several factors, such aswhether or not your products or services are suitable for online promotion(see Advertising and Promotion chapter). Either way, it is a good idea toregister your domain name as soon as possible because it doesn’t costmuch and it may not be available later on, if you do decide to get a website.

Summary

You should give a good deal of thought to the domain name and thebusiness name or company name you are going to use, because once youhave chosen your names, chances are you will be stuck with them for along time to come. Do your homework thoroughly, seek the help andadvice of your associates and mentors. Do some market research and testthe name on as many people as you can.

So, go to it! Put on your thinking cap and start working on a snappy,memorable name for your business. Take your time. The right choice ofname can make a massive amount of difference to your ongoing success.

The Name Game

Customer Service

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ne of the big advantages small businesses have over their largercounterparts is their ability to provide personalised customer service.

How many times have you been into a shop, which is part of a large chainand been treated with indifference or even quite rudely? Most of us have astory to tell about such experiences.

The good news for the small business operator is, because you aremuch closer to the coal face, you are generally in a position to offer a betterall-round service. Also, when you own the business, you are more likely tocare. This is often overlooked or simply taken for granted however, used toits full advantage, it can be a powerful weapon in your battle to wincustomers for your business.

The truth is, people generally care a lot more about the standard ofservice you give them than they let on. For instance, a research companyrecently surveyed over 1,000 customers of a large restaurant chain to findout why they didn’t come back. Their findings would probably surpriseyou. Only 18 per cent of those surveyed said they didn’t return because ofdissatisfaction with the food. Less than 20 per cent said they didn’t returnbecause of poor decor or atmosphere. However, a massive 68 per cent saidthey didn’t return because of poor quality service!

Service is the thing that keeps customers coming back to your business,time after time. It has been estimated that it costs five times more to get anew customer than it does to retain an existing one. Therefore, it makes

26. CUSTOMER SERVICE

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“Your customers don't care how much you know, until they know how much you care.”

Gerhard Gschwandtner

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good sense to ensure that once you establish a customer, they will continueto buy from you. If they become happy customers, they will not only giveyou their repeat business, they will also tell all their friends about you. Andthe way to get them talking about you is to offer more than is expected.

After all, if you went into a shop to make a purchase and you receivedpleasant and courteous service, you would be satisfied. You would have gotwhat you expected, right? Nothing more and nothing less. The servicewould be considered good but ordinary.

When was the last time a friend said to you, “You must go down to XYZ& Company, I can really recommend them – their service is so ordinary!”

See what I mean?

Little things mean a lot

The difference between ordinary service and extra-ordinary service is thatlittle bit extra. You need to find a way to make your customers rememberyou. Make no mistake about it, despite all the emphasis being placed oncustomer service these days, good service is still something of a rarity andoutstanding service is exceedingly rare so, to stand out from the pack, allyou have to do is try that little bit harder.

This could be as simple as addressing somebody by their name. Howmany shops or businesses do you go into where they actually know you byname? I bet you can remember the ones that do.

My good friend Max Hitchins, who calls himself, The HospitalityDoctor, once owned a hotel in Bondi Junction. He would walk around andtake photos of the patrons and put them in an album with their name on it.Before the staff went on duty, he would make them flip through the photoalbum trying to memorise the names of the regular patrons. Imagine thedifference it made when you went into Max’s hotel and were greeted byname. “Good evening, John. What will it be, the usual?”

Powerful stuff. Customers, like most people, just love to hear the soundof their own name. Another example of the power of this at work, is thestory of Rick, the doorman, at a large Adelaide hotel. Rick is no ordinarydoorman – Rick is a legend in his industry. He has an uncanny ability toremember people and their names. How would you feel if when checkinginto your hotel, you were greeted at the door by a smiling Rick, who notonly remembers your name but when you were last at the hotel.

Customer Service

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“Good morning Mr. Thorpe, welcome back to the hotel. We haven’t seenyou for a while, must be at least eighteen months?”

More often than not, he’s dead right. Extraordinary! Does this little personal touch pay off? Barry Urquart, author of the book Serves You Right and a customer

service expert says, when asked where they wanted to stay in Adelaide, theentire Queensland contingent of a group he was working with simply said,“We don’t care which hotel you book us into, as long as it’s the one whereRick is the doorman!”

Amazing the difference such an apparently ‘small’ thing can make.

Lifetime Customer Value

In trying to develop a great customer service attitude and culture in yourbusiness, start trying to think of your customers in terms of their LifetimeCustomer Value (LCV). Don’t think of your clients or customers on ashort-term basis, such as how much they will spend with you this week orthis month. Try to think of them in terms of their potential spending powerif they continued to use your business over and over again – for the rest oftheir life.

For instance, imagine you own a restaurant and a couple come in fordinner and spend $50. If they never comes back, you have gained $50 inturnover and that’s that. But imagine if that couple enjoyed your food andservice and came back once a week for a whole year. You have now gaineda $2,600 customer. Imagine if they did the same thing for the next twentyyears. That’s a staggering $52,000 in potential additional turnover!

Conversely, if those customers are unhappy with your service and youlose them, you are not losing $50, you are losing potentially more than1,000 times that amount!

In his book Customers for Life, car dealer Carl Sewell, estimates thatduring their lifetime, a typical customer is worth around $332,000 to hisbusiness. If you start thinking about each one of your customers in termsof their LCV, it puts a whole new perspective on customer service.

Do some market research

Find out what your customers really want. The best way to do this, is tosimply ask them. Sounds so obvious it’s ridiculous but very few businesses

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Customer Service

bother to do it. Get your customers to fill in a questionnaire or ask themindividually or in groups. Most customers are only too happy to cooperateand are usually delighted you cared enough about them to ask.

Ask them what they like about dealing with you and what they don’tlike. What improvements could you make to your business to make theirexperience more pleasant? Are there any other additional services orproducts they might like you to provide?

Survey your customers regularly to find out whatthey really want. Try getting a small group of themtogether for an hour, say after work. Ask themopen-ended questions about your business andask them for ideas as to how you could improve it.

These are called ‘focus groups’.

Once you have found out what they want, make sure you implement aplan to deliver it and make sure the customers know about the changes inyour service and keep coming back to test you out. Remember, goodcustomer service is your secret weapon for competing against biggerbusinesses than yours.

You might not be able to out price them or market as well as them butif you provide a superb service, you will be surprised at how quickly youwill build up a following and how your business will grow.

The power of delivering excellent customer service cannot be stressedtoo highly. If you can come up with the goods in this area, you are well onyour way on the road to success.

Networking

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ne of the most effective and low-cost ways of spreading the newsabout your business is by networking. The word ‘networking’ has

become something of a buzz word but it simply means making contactswith other people who can help you in your business – and there isdefinitely nothing new about that! ‘Word of mouth’ is the best form ofadvertising. And the best way to get that happening, is to tell as manypeople as you can about your business – through networking.

Some people feel uncomfortable about this prospect and think usingpeople to get what you want is a bit tacky – and it is. That’s not whatnetworking is all about and if you approach it on this basis, you will begenerally disappointed with your results.

If you offer to help other people without expecting anything in return,you will be pleasantly surprised at the results. Networking is all aboutmixing with like minded people and that wise old saying: “Help enoughpeople to get what they want and you will get what you want.”

It’s about getting out and meeting people and making contacts. Thereare many ways you can extend your circle of contacts. It could be as simpleas joining a community based group such as Rotary, Lions, Apex orToastmasters. There are also groups like the Australia-Japan Society andthe American Chamber of Commerce and several large women’snetworking groups.

Joining your local Chamber of Commerce or attending seminars andcourses is another good way of meeting people with similar interests. Youcould also join your local church group. Even if you are not a terriblyreligious person, it’s a good way of meeting people and who knows – youmight even get converted?

27. NETWORKING

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“He who whispers down the well,about the products he has to sell,doesn’t gather the amount of dollars,as he who climbs the tree and hollers.”

Unknown

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How to network

The secret of good networking lies in being prepared to give out a lot morethan you get back. If you adopt this attitude, you will probably be surprisedat how soon the scales tip in your favour and how much you actually getback. If you join a network to simply take all you can get, never offeringanything in return, you will soon be recognised as a ‘taker’ not a ‘giver’and you will not last too long in the group.

A strong network can be very supportive, just like a family. They canalso provide a great sounding board for ideas and opportunities. One of thegreatest networkers I have ever known is my good friend and mentor, JohnNevin, former managing director of World Book Encyclopaedia.

In all the years I have known John, he has never forgotten to call me orsend me a card on my birthday – even though I am ashamed to say I haveoften forgotten his. John has sent me notes from all over the world. Theyare always interesting and usually contain a newspaper clipping or somesmall item of particular interest to me.

The amazing thing about this man is, I know dozens of people who alsoreceive letters or notes from him, which invariably also contain some itemof particular interest to them. They are not just newsy type letters that havebeen copied and sent to a number of different people. They are alwayshand-written and personalised in some way. And, herein lies the secret ofbeing a good networker. To build a good network, you need to build strong,personal relationships with other people.

Networking is one of the most effective and low-cost ways of promoting your business. Join in asmany industry or community based groups astime will permit. For further information and afree ebook – see Resources – Networking at:


Good networkers are constantly on the lookout for groups and‘clusters’ of people, where one contact leads to another. Ethnic groups,for instance, usually build strong support networks and if you can getinvolved in some of these, you can rest assured it will be a big help to yourbusiness.

Networking

Networking

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One of the the most effective ways of doing this is to find out what aperson’s special interests are and then use that as your common bond. A lotof people still think that networking is simply a matter of exchangingbusiness cards. Like most people in business, I have been to numerousseminars and events and handed out hundreds of business cards andcollected the same amount. Usually nothing much happens unless you arelucky enough to strike somebody who just happens to have an immediateneed for your product or service. This is not networking and it is not veryeffective in terms of helping to promote your business.

Let me give you an example of how you could turn a chance meetinginto a networking opportunity and start building a personal relationship.

Let’s suppose you met somebody at a business meeting and you wantedto establish an ongoing contact with that person. Let’s say that during yourdiscussions with that person you discovered one of their hobbies wascollecting bonsai plants. You duly exchange cards and at the firstopportunity you write, “Interested in Bonzai” on the back of their card.

Later on, you read in your local newspaper that an expert on bonsai isgoing to be visiting Australia soon and is holding a public seminar.Imagine the impact if you dropped this person a brief note, sayingsomething like this:

Hello again Jane,

It was great meeting with you the other day. By the way, I was fascinated to hear that you collect

bonsai plants. I saw this item in the local paper andthought that it might be of interest to you.

I enjoyed talking with you and I hope we meetagain soon.

Regards, Peter

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You will be amazed at how powerful this type of contact can be. Peopleare impressed that you have not only remembered them but their interesttoo and actually went out of your way to help them. Of course, this takes alot of time and effort and it’s also a great help if you are a sincere personwho genuinely likes meeting people and helping others.

If you don’t have the time or the inclination to adopt this highlypersonalised approach, you could try a more direct method. I recentlyattended an Amcham (American Chamber of Commerce) luncheon anddid the traditional card swapping ceremony with somebody I met duringthe pre-dinner cocktails. It was a very short meeting, as I moved aroundthe room trying to meet as many people as I could.

A few days later this letter arrived out of the blue:

Dear Peter,

It was a fleeting hello at Friday’s Amcham luncheon buthaving secured your business card, I am doingthe proverbial “networking” and enclosed are my current rates for temporary and permanent staff.

Please do not hesitate to call me if I can be of assistance in any of your staffing needs. I am alsoenclosing a blurb on Crew Find just for interest.

Regards,Linda WilliamsCareer Blazers

Networking

Networking

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“Not bad,” I thought. Then, a few days later I received a follow uptelephone call from her, enquiring as to whether or not I had the need ofher businesses’ services. It may not have been true ‘networking’but it wasan open and refreshingly honest approach. It was certainly a good followup and a vast improvement on just exchanging a business card, whichwould probably have ended up being filed in my ‘round filing cabinet’!

No doubt you will be able to come up with a few ideas and variationsof your own. The main thing is to get out there and meet as many peopleas you can and tell them about your business.

Here’s what my good friend Robyn Henderson, Australia’s networkingguru, has to say about networking:

“Networking is a life skill, not just something you do when you wantsomething. There are three universal laws that form the foundations toethical networking.

1. Give without expectation

The basic principle of helping others without an expectation of receivingsomething in return. It’s being able to give someone a key piece ofinformation or assistance that will enable them to achieve their goal,complete their task or assist them in some way.

In the American best seller Masters of Networking, Ivan Misner says,“Master Networkers give without remembering and receive withoutforgetting.” The key to giving without expectation lies in understanding thelaw of reciprocity:

2. The Law of Reciprocity

What you give out comes back ten fold – but not always from the sameperson! If you give out referrals, you will receive referrals, give out love,get back love, give out help and advice, receive help and advice. Goodnetworkers are strong believers in ‘karma’ – what goes around, comesaround. So this single belief ensures that you always treat people the wayyou would like to be treated.

3. Develop an abundance mentality

In our time poor, competitive society, abundant thinkers are often in shortsupply and some people are still challenged by the concept of networking

189

as a legitimate way to build their business. Ethical networkers have anunderlying belief system that there is plenty for everyone – plenty ofopportunities for their product or service on a local, national orinternational basis, even though there does not appear to be sufficient to goaround. They know future markets may be a single person contact away –a friend of a friend, a chance conversation, a serendipitous meeting withanother. Abundant thinkers are open to ideas, networking opportunitiesand making the pie bigger for everyone.

Everyone networks. It just depends whether they do it well or poorly asto how they are perceived by their peers, customers and prospects. If youare a master networker, chances are when your product, service or industryis discussed, your name is mentioned, not your competitors.

This market awareness can be created by employees in large and smallorganisations as well as home based and small business operators. Thegreat news is that networking covers the planet with a virtually borderlesscommunity and is open to all ages, nationalities and professions.”

For more information about how you can growyour business through networking plus a wholeheap of useful resources and a list of networkinggroups – visit Robyn Henderson’s website:

www.networkingtowin.com.au

Summary

So, now that you’ve got the general idea, go forth and network and watchyour business grow. After all, if you had need of a product or service, youwould rather buy it from a friend or a friendly contact, wouldn’t you?

And by the way, one final note of warning – don’t expect to getovernight results. Good relationships are built over a long period of timeand networking is a lifetime occupation, not a short-term project.

Networking


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SECTION 4:

SUCCESS SECRETSFOR

BUSINESS PLANNING

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Pricing for Profit

192

ne of the biggest mistakes many small business owners make isunderpricing their goods or services. Too many business owners

place far too much emphasis on price, often quite unnecessarily. Sadly,many of them don’t get their price for one simple reason – they are afraidto ask for it!

Many think just because they are smaller, they have to be drasticallycheaper than the big guys. In actual fact, small businesses, because of theirflexibility and ability to adapt to market conditions and requirements morequickly, can often justify charging as much or even more than their bigbusiness counterparts. Most people are quite happy to pay more for better,quicker or more personalised service. Too few small business operatorsrealise this and too many have gone broke through cutting prices to anunrealistic and unsustainable level.

And, it’s not just small businesses that get into trouble with pricecutting. Take the well known case of the now defunct Compass Airlines,Australia’s first major cut-price airline. The receiver manager of CompassAirlines in the clean up estimated that the difference between going brokeand making a profit was as little as $9 per seat, per journey. When youconsider that at the height of the airline fare wars, some journeys wereslashed by hundreds of dollars, this seems ridiculous.

After Compass went into receivership, thousands of people rallied totheir support and said they wished they had used their services more often.What a pity they had to go broke to prove to their potential market howimportant they were!

Of course, there are various other reasons why Compass Airways gotinto financial difficulty but certainly the prime one was cutting their pricesand margins to a point where the company could operate profitably.

28. PRICING FOR PROFIT“Service and quality will be remembered

long after price is forgotten.”Anon.

O

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A word of warning here – be very careful about starting a businessbased purely on being able to supply a product or service at a cheaper pricethan your competitors. While it may be relatively easy to grab a slice of themarket by offering the cheapest prices, the secret lies in being able to dothis effectively and still manage to stay in business in the long term. Mostbusinesses have common overheads and fixed costs, so sooner or later,businesses that sell on price alone generally come unstuck.

Another common mistake with pricing is failing to understand the realcost of operating the business, usually caused through poor recordkeeping. Of course, there are exceptions to every rule. Some businessoperators have been able to build themselves huge markets by undercuttingthe opposition and offering a ‘no frills’ alternative.

Unfortunately however, all too often, cutting the price is seen as theanswer to the problem of flagging sales but it can actually serve to inflamethe problem. In the example below, you can see the drastic effect (on thebottom line) of a 10 per cent drop in the selling price by a typical business:

Sales: 2,000 units at $1,000 each

2,000 units at $900 each

less cost of goods:2,000 units at $800 each

gross profit

less sales expenses and overheads

Net profit (or loss) before tax

Beforediscount

$2,000,000

1,600,000=======

400,000

300,000=======

100,000

Afterdiscount

$

1,800,000

1,600,000=======

200,000

300,000=======-100,000

The above example shows what happens when prices are dropped byeven a relatively modest ten per cent to maintain a market share. Thisassumes that the volume of sales, in dollar terms, remains the same as

(loss)

Pricing for Profit

Pricing for Profit

194

Sales: (20% less than previous example)

1,600 units at $1,000 each

less cost of goods:

1,600 units at $800 each

gross profit

less expenses and overheads

net profit before tax

($)

1,600,000

1,280,000=======

320,000

300,000=======

20,000

before the price cutting exercise. It also assumes that the cost of the salesexpenses remain the same, even though they may in fact be higher.

Now, let’s see what happens if we don’t drop the price and salesturnover drops by 20 per cent:

You can see from the above exercise, we can sustain a massive 20per cent drop in sales and still make a modest profit (as opposed to a$100,000 loss if we drop our selling price by 10 per cent). Imagine theeffect on our bottom line in the first scenario if we cut our selling priceby 10 per cent and still suffer a 20 per cent drop in sales! This is quitefeasible, especially if the reason we are losing market share is notsimply because of price but other factors.

* Note: In the example above, we would probably reduce someof the variable content of the sales expenses and overheads,thereby increasing the profit situation even further. For instance,we could have fewer telephone calls, less delivery costs, and wemight even be able to get by with fewer staff members and/orsmaller premises, etc. Some of the overheads such as the rent,etc. may be fixed, regardless of the sales volume but the variableoverheads will generally reduce as sales reduce. Reduced salesvolumes will generally generate less expenses.

*

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Before deciding on your selling prices, check that your margins are inline with normal industry standards. These figures are usually availablefrom industry associations and trade organisations or the AustralianBureau of Statistics. You may also be able to get a guide to typical marginsin your chosen industry from the Financial Management Research Centrebusiness profiles. These will show you typical operating costs and profitmargins from a survey of many similar businesses.

If your prices are un-competitive and you are finding it difficult tocompete, go back and double check your overheads and buying prices.Maybe you are over-staffed, paying too much for premises or not buyingwell enough or it may be a combination of all these things.

How to overcome price cutting

If you are in a very price competitive industry, (and who isn’t these days)how do you overcome the problem of price cutting?

Very often the answer lies in providing better customer service or bybeing quicker, more efficient, having more product knowledge, etc. Youmay also add something to your product or service, (ideally somethingthat is not offered by your competitors). This is known as ‘adding value’.

Let me give you an example: I recently wanted to buy a second handcar for my wife. What I know about the workings of motor cars, could bewritten on the back of a postage stamp! I know there’s an engine under thebonnet somewhere and that’s about it. I wanted to buy the car privately tosave money but I had no idea of what to look out for. The logical step forme to take was to get some professional help.

I rang a large motorists’ association and inquired about the cost of avehicle check. The price seemed quite reasonable but when I went to make

The Financial Management Research Centreoffers profiles of over 100 industries. Thesereports allow you to benchmarking your businessagainst similar business in your industry. Formore details see the Resources section of ourwebsite under – Benchmarking:


Pricing for Profit

Pricing for Profit

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a booking, they couldn’t come for two days. Nor could they give me anapproximate time of arrival on the day they could come, which meant thatI would need to wait in, perhaps all day. Of course, this was not suitable. Ifyou are buying a secondhand car you need to be quick off the mark. Mostsellers won’t wait two days for you to get a second opinion!

I noticed in the ‘Cars For Sale’ columns of the newspapers, a numberof other smaller companies advertising what appeared to be a similarservice. I decided to call some of them and check them out. Their price wasaround the same as the larger organisation and one company was evenquite a bit dearer. The big difference was in the service they provided. If Iwanted to go ahead, they could have their man there within the hour!

I decided to give them a go and they were true to their word. Their manwas there within an hour of my telephone call and he provided what turnedout to be a very satisfactory service.

Whether it was as good or better than the service provided by the bigorganisation, I will never know. The point is, they were providing a servicesuitable for the job at hand, at a time and place to suit me, the customer, notthem. In other words they were catering to the customer’s needs, not theirneeds! Price to a large extent was secondary – service was the key issue.

Service is your secret weapon

Naturally, when all things are equal, most people will tend to buy from thelarger, well known organisation with the backing of a big name. Your taskis to find ways of giving your business the leading edge. Quite often large companies can be totally inflexible. I had a similarexperience when I was getting my swimming pool installed. I had to getsome soil removed and needed several large waste bins. I rang a big, wellknown company with a large ad in theYellow Pages.They could deliver thebins, they said but they couldn’t give me a time for the replacement bin,when the first one was full. This meant the workmen would be standingaround waiting, perhaps for hours. Once again, a small local firm came tomy rescue. All I had to do was phone them when each bin was nearly fulland they would send somebody around straight away with a fresh one.

There are many examples of just how inflexible some large companiescan be. In fact, it makes you wonder at times how some big firms ever getto be big in the first place!

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What do your customers really want?

It probably sounds ridiculous but very often customers don’t really knowwhat it is they want to buy! For this reason, price is often less important inmaking a sale than you might think. Let me give you an example:

A friend of mine, Martin Grunstein, who is a sales trainer, was doingsome work with a large travel group. As you can imagine, the travelbusiness is fiercely competitive and price cutting is a major issue. And asmost travel agents work on razor-thin margins, there’s not that much theycan usually give away. They were continually losing sales to people whorang up or called in and asked questions such as, “What’s your best priceon a return airfare to London?”

In the majority of such cases, the travel consultant normally quoted aprice and that was usually the last they saw or heard of the inquirer.However, in actual fact, further investigation proved very few people wantto simply fly to London and back. More often than not, this is simply astarting out point for people wishing to travel overseas but not wanting toshow their lack of knowledge.

What’s more, often the price issue was being placed in their minds bythe travel consultants themselves! Typically, they would respond to aquestion on prices with something like, “What’s the best price you havebeen quoted so far?” Of course, this immediately suggests to the potentialbuyer that there may be a better price out there and they should shoparound until they find it.

By training the consultants in a simple questioning technique, Martinwas able to show them how to find out exactly what the customer reallywanted. Here is a typical example:

Customer: “How much is your cheapest return airfare to London?”Consultant: “When did you wish to travel?”Customer: “Probably in the summer holidays.”Consultant: “Have you been to the UK before?”Customer: “No.”Consultant: “And how many people will be travelling?”Customer: “My wife, myself and two children.”Consultant: “How long did you plan on being away?”Customer: “Oh, probably about four weeks.”

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Don’t build your business on simply offering thebest possible price – you will surely come unstuckif you do. Instead, try to find ways to add value toyour products or service. A good place to start isby asking your customers what they really want.

Consultant: “How many stopovers did you wish to make?”Customer: “Well, we hadn’t really thought about that yet.”Consultant: “Well, have you ever thought about going via Hawaii andthe United States. I’ll bet the kids would love to see Disneyland and itmay not cost that much more. In fact, at the moment we have a specialpackage, etc. etc...”

You can see how a simple questioning technique can break down thebarriers and reveal a customer’s true wants and needs.

It is important when using this type of technique that the questions areasked in a friendly and non-threatening way. You must show a genuineinterest and a desire to help. The process should be seen as assisting theclient to get what he or she wants, not just to evade the price question orgive them the run-around.

People who are simply interested in the best price, soon get irritated bythe questioning process and cut the conversation short and move on to thenext travel agent and the next, until they find the rock bottom price.

Of course, there are people out there who only buy on price but researchby another travel company I once worked with, found that this onlyrepresented about 27 per cent of the market. In other words, 73 per centof people don’t buy just at the best price.

If you build your business around the sort of people who care onlyabout price and nothing else, you won’t have much of a business.Concentrate on building a client base of people who are prepared to payfor good service and leave the price merchants to the other businesses.

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Summary

Service and flexibility are your two major weapons in the battle to competewith the big firms. Be constantly aware of them. Big armies usually beatsmall armies, so you have to resort to guerrilla warfare.You must seek outyour enemy’s weak points and utilise your strong points to their bestadvantage. Big companies have it all over you when it comes to resourcesand buying power but often it’s the little things that make the difference.Find out what your market really wants. Is there some additional service orbenefit you can offer that will give you the leading edge and make peoplewant to deal with you?

Talk to your clients and potential clients. More importantly, listen towhat they are saying. Ask questions. Find out what they really want.Chances are you can come up with something that will give your businessthe winning edge.

Pricing for Profit

Projecting Your Cash Flow

200

he financial part of your business plan will need to include a cash

flow projection. This simply means a forecast of the amount of

money that will be flowing in and out of your business. Many small

businesses get into trouble through poor control of cash flow or under-

estimation of their capital requirements.

To maintain a healthy cash flow, you need to have tight control over

your operating expenses and overheads, both fixed and variable plus your

level of stock, the collection of your debtors and your profitability. The best

way to control these factors, is to budget for them and constantly monitor

and review the results.

Capital requirements

Whether you buy an existing business or startup from scratch, you will

require a certain amount of startup capital. You will also need money to run

the business and pay wages, this is called ‘working capital’.

Precisely how much working capital you will need, is a bit like asking,

“How long is a piece of string?” It depends on many different factors but

if you can manage it, I would recommend enough to carry you through

from three to six months with no money coming in at all.

Small business capital usually comes in two major forms:

• Your own funds that you invest in the business, which is called

‘equity capital’, and;

• Money you borrow from others, which is called ‘debt capital’.

It is highly desirable to keep the amount of debt capital to a minimum,

otherwise you may find the cost of servicing the debt drains all the profit

from the business and eventually sends you broke. Businesses with

29. PROJECTING YOUR

CASH FLOW

“Happiness is a positive cash flow.”Fred Adler

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borrowings far higher than their equity capital, are said to be highly gearedor in the case of very high borrowings, over geared. This is a dangerouspractice and should be avoided. Once again, it is difficult to say what anacceptable ratio of debt vs. equity capital is but a good rule of thumb wouldbe not to borrow more than the amount you put in.

To work out whether your business venture is financially viable and toforecast your capital requirements, you will need to develop a cash flowprojection. So, let’s have look at what is needed to start drawing up a cashflow projection and a capital requirement plan.

Forecasting

To formulate your plan, you will need to estimate or at least ‘guess-timate’(take an estimated guess) a number of figures. Predicting such things assales and expenses is an extremely difficult task, because unless you arerunning or buying a well-established business with a long history of stabletrading, most of your estimates will be based purely on supposition. Thetrick is to try to keep the guesswork to a minimum and do your homeworkthoroughly, to avoid being caught short.

When drawing up a cash flow projection, it is wise to prepare a numberof ‘what if’ scenarios. For example, what if you have the worst possiblesales and the highest possible expenses? This will give you a picture ofwhat could happen if your sales or expense projections don’t live up toyour expectations.

Your sales and profit projections should always err on the side ofcaution. It is better to be conservative when forecasting sales and generouswhen it comes to forecasting expenses. Bear in mind there is always anelement of uncertainty in any business venture and Murphy’s Law usuallyapplies, i.e. if anything can possibly go wrong – it usually will!

This is especially true when it comes to projecting cash flows.Although you won’t be able to predict accurately down to the last cent,

the main objective is to have a budget plan and be constantly aware of howyou are going against it. You will probably need to revise your projections(up or down) as you go along.

Don’t make the mistake of preparing a cash flow projection purely toarrange finance for your business and then forgetting all about it. Your cashflow projections should be realistic and continually monitored.



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You will need to know or guess-timate the following items in order todraw up your financial plan:

• Cash receipts – income from sales or other sources – projectedmonthly for the first year or longer

• Overheads (fixed and variable expenses including salaries, etc.)• Loan repayments• Purchases – cost of goods or raw materials• Stock level requirements• Capital available• Setting up costs, such as shop fit out and/or purchase of plant

and office equipment, etc.

Your monthly sales projections should be drawn up in conjunction withyour marketing plan and should take into account such things as seasonalfactors, special promotions, advertising and any other known contingencythat might affect your sales.

Expenses

Next, you must allocate an amount for every type of expense you are likelyto encounter in setting up and running the business. Your business will besubject to three main types of general expenses, falling broadly into thefollowing categories:

• Setting up expenses (one-off costs, such as legal fees or in the case of buying an existing business, the purchase price)

• Fixed expenses, such as rent on premises and wages, etc.• Variable expenses – such things as freight and advertising.

The first two items, setting up and fixed expenses, are usually fairlyeasy to establish. Variable expenses however, may be tied to the turnoverof your business and are therefore much more difficult to predict.

For instance, let’s say that your product contains a large amount offreight for delivery and this is included in your selling price. This wouldmean the more you sell, the higher this expense would be. On the otherhand, your rent will probably remain constant no matter how much you

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sell, unless you are in a shopping centre where you are required to pay amerchant’s levy, as a percentage of your turnover.

Note: In the case of variable expenses, you may be able to estimatethem as a percentage of your sales. Let’s say you were selling an item for$100 and this included an average delivery charge of $5. This would meanyour freight charge is five per cent of your projected sales figure.

Using the cash flow charts

On page 206 you will find an example of what a typical cash flow chartlooks like. On pages 207 to 209, you will find some blank charts for yourown use.

On pages 207 to 209 there are blank cash flowforms you can photocopy. However, if you go toour website, you will find blank cash flowprojection forms you can print out for free.

Just click on the button – Cash Flow at:


How to use the charts (see pages 206 to 209)In the top row (1) write down the months from left to right, starting withyour first month of operation in business.

The first figure you must establish is your monthly sales. This will beyour total gross sales, including GST, month by month for the first 12months of operation. Allow for any seasonal factors, such as Christmastrading or winter vs. summer, etc. Write your projections for gross salesfor each month across row (2).

Next, in row (3) write the cost of any stock you purchase (ormanufacture) for resale – assuming you are going to be selling goods.Note: If you are running a service only business where you don’t resell ormanufacture goods, you will not need to fill in this column.

Row (4) is your gross profit. This is the difference between rows (2)and (3). Next, list your expenses and overheads in rows (7) to (29).

Note: Row (29) allows a provision for company tax instalments orPAYG tax instalments. If you are going to trade as a company, you willneed to make provisions for this in your second financial year of trading.



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If you are a sole trader, you will most likely have to pay PAYG taxinstalments in your second year of trading.

Total your expenses, rows (7) to (29) and write them in row (30) – totalexpenses. Then, subtract your total expenses (30) from your gross profit orloss, row (4). This will give you your total trading profit or loss for thatmonth, row (31).

Next, in row (32) write your quarterly GST payable on gross sales. Thisis calculated at 10 per cent of the gross sales, (rate at time of publishing)for the preceding three months. In row (33) add any GST credits due to you,e.g. from goods purchased. Add any capital introduced in row (35) andsubtract any repayments of loans, in row (36).

This will give you your cash flow position for the month, row (37).Repeat the above process in the next column for the following month, onlythis time, carry forward the final cash flow position from the previousmonth’s column in cell (B37) and put it in the carried forward row (34) forthe next month. Add this figure to your monthly total to ascertain your cashflow position for the following month.

Extend this exercise across the page for the full twelve months. Finally, add the columns across for a total in the extreme right hand

column headed TOTAL. This will give you your projected cash flow forthe first year of trading.

Note: For the purpose of this exercise, I have included the PAYG tax inthe monthly gross wages, row (27). In actual fact, this would probably bepaid quarterly, when you file your Business Activity Statement, rather thanmonthly. Superannuation contributions, row (28) would also probably bepaid quarterly however, it is a good practice to write the cheques monthlyfor these items, even though you may not be required to pay them monthly.This way you don’t get a false impression of how much money you havein the bank available for other things.

Projecting for more than one year

In a typical business plan, you would project your cash flow for two oreven three years. If you are going to project your cash flow for more thanone year, you simply add the final annual cash flow position at the end ofthe first year (cell M37) into your carried forward row (cell B34) for thefollowing year.

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Profit and loss

It is important to note, this document is only a cash flow projection – nota profit and loss statement. The gross profit figure in your cash flowprojection, will probably vary from the figures in your profit and lossstatement, which is usually prepared by your accountant at the end of thefinancial year, after taking into account such things as depreciation.

Also bear in mind, if you are going to extend credit terms on your sales,you should put that income in the month that you think you will get paid,not the month in which you make the sale. i.e. If you are allowing 30 dayscredit from statement, allow 45 to 60 days minimum from the date of thesale and take into account possible slow payers.

Summary

Repeat the cash flow projection exercise over and over with all the possiblevariables you can think of. If the bottom line is continually negative, thenyou obviously need to review your projections. You either need more salesor lower expenses.

And don’t forget, if you do revise your sales upwards or your expensesdownwards, make sure the revised figures are realistic – otherwiseabandon the project and look at something else.

Be honest with your projections. It’s no use kidding yourself.Remember, at this stage it’s only on paper. If you are going to go broke –it is far better you do it on paper than in real life!

Good luck, and remember – happiness is a positive cash flow!

Obviously it is a lot easier to do this type ofexcercise on a computer, using a spread sheet.On our website we offer a Business Planning Kitwhich includes Excel® spread sheets.

Click on the Business Planning button formore information.



The Business Plan

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lanning is your greatest weapon against failure. In this chapter we aregoing to deal with the process of preparing a plan for your business.

And while the main reason most people prepare a business plan is to raisefinance, your business plan should not just be a tool for raising capital buta blueprint for your business’ future. It is also a great way of checking theoverall viability of a new business venture.

The steps presented here are intended to form the groundwork for theplanning process. If you are going to use this plan to raise finance, it isadvisable to get an accountant or business adviser to go over it with you.You will find however, that going through these worksheets first will saveyou both time and money in preparing your final submission.

The Purpose of Planning

Imagine if you engaged a builder to build a house for you and he turnedup at your block of land one day and started unloading bricks and buildingmaterial and then turned around to you and said, “Okay, where do youwant the house?”

You wouldn’t be very impressed, would you? Naturally, before hestarted building anything, you would expect to see a plan. Your business,just like your house, needs a detailed and well-constructed business planin order to succeed.

30. THE BUSINESS PLAN

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“No business plans to fail – they simply fail to plan!”

Wise old business saying

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Preparing a business plan to raise capital

If your business venture requires finance or additional capital, for instancea bank loan or overdraft facility, you should prepare a detailed businessplan. Generally, banks and financial institutions will not even considerlending money without one. The more detail and accuracy you can projectin your plan, the more chance you will have of securing your loan.

Raising finance for your business should not be a harrowingexperience. If you do your homework properly you should be able toapproach your financier with a sound business proposition that will beconsidered worthwhile for both parties. Remember, financial institutionsmake healthy profits from lending money on sound business propositions.

In the case of a business loan, the financier will be looking at yourability to service the loan and your net asset backing. These days they willalso want to see some form of repayment plan for the loan as well.

Your security normally takes the form of bricks and mortar (or othereasily realisable assets) and financiers will usually require a mortgage orsome form of charge over your assets to cover themselves in the event ofyour failure to meet your obligations.

It must be remembered that small business failures are not uncommonand banks and other financial institutions are usually very cautious in theirapproach to lending in this area. Banks do not like the idea of selling youup, so even if you have the asset backing, if the business plan and thepeople behind it don’t look sound, this alone is no guarantee yourapplication will be successful. They will more than likely reject you in yourown self-interest.

It should again be stressed that if you do fail in business and youcannot make arrangements to clear the debt, the bank or financecompany will move on your assets and you should be fully preparedto take that risk – otherwise, rethink the whole project.

Also make sure your spouse or other people involved are fully aware ofall aspects of the risks involved and the consequences of what can happenin the case of failure.

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THE BUSINESS PLAN

If you are starting a new business from scratch, your business plan willneed to consist of at least the following components:

A Contents page

Details of what is contained in your plan.

An executive summary

This is the first document in your business plan after the contents page butit is the last one you prepare. It should be not much longer than a page andshould simply summarise what your plan entails. It is intended to give theperson reading it a broad overview of what you are setting out to achieve.

The business objectives

A detailed description of your business strategy and objectives (preciselywhat you are going to do). In other words – what is the business of yourbusiness?

Product or service profile

A detailed description of the product or service you will be offering. If anymachinery or equipment is involved, supply details of its state andcondition.

A marketing plan

Include your marketing strategies and sales forecasts, including marketanalysis. Supply as much information as possible about the state of themarket you are going to be entering, details of the competition, historicalinformation detailing growth of the overall market, what area of the marketyou are aiming for and any advantages or disadvantages you are likely tohave over your competitors.

(See chapter 31 – Your Marketing Plan).

A financial plan

A detailed financial plan for the business, both short-term (one year) andlong-term projections (say three years). Note: projecting beyond this ispointless, especially in a new business.

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Make sure that your forward projections are conservative. For instance,don’t just predict a 50 per cent increase each year unless you can solidlysubstantiate it. You are far more likely to be taken seriously if you projecta realistic annual increase based on proper research.

List details of the capital required to both start up and run the businessand a projected cash flow (see chapter 29 - Projecting Your Cash Flow).Your plan should also show precisely what the capital you want to borrowwill be used for. For instance, will it be used for working capital or for thepurpose of acquiring plant or machinery? Give details.

Indicate what assumptions have been made in arriving at any budgetfigures, e.g. assumes interest rates of ten per cent and an annual inflationrate of four per cent, etc. It is also desirable to have a projected Profit andLoss Statement and Balance Sheet, especially if you are going to seek asubstantial amount of money. These are fairly complex documents and youshould seek the advice of an accountant in preparing them.

Repayment details of loan

Remember, repayment is the key word for lending in the eyes of financiers.They are not simply concerned with whether you can service the loan, theywant to see evidence that you are going to eventually repay the loan. Yourbusiness plan should include details of how and when you will repay yourloan. In other words, what is the exit strategy for the financier?

Your repayment strategy should also tie in with your cash flowprojections. It could for instance detail regular monthly repayments ofcapital, reducing the loan over a period of time or it may be reduced bylump sum payments as the business grows and becomes more profitable.

It is unlikely that lenders will be very interested in proposals that simplywant to borrow money with no indication of how you plan to repay it.

Security of loans and personal guarantees

Outline details of any assets that are going to be used as security and anyencumbrances on them. If you are going to use your home for example,supply details of any mortgages outstanding. It should be remembered thatthe project must demonstrate that it is viable and that the interest andcapital repayments can be discharged during the normal course of thebusiness. Once this has been established, then the financier will turn to

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security. Financiers generally will not lend without adequate security andthis is always assessed in a very conservative manner. Banks will normallynominate their own valuer to value your assets i.e. your home and theirvaluations will always be conservative and often as much as twenty percent or more below what you consider to be the ‘real’market value.

Personal financial status

Supply a personal financial statement of all the principals involved in thebusiness, listing assets and liabilities and any ongoing income streams.

(see figure 1, page 216)

Personal background

Supply personal details of the principals of the business venture, includingemployment history and experience and qualifications.

(see figure 2, page 217)

An organisational plan

This should outline the management structure, responsibility andaccountability of office holders – the people behind the business, whattheir function will be and to whom they will be accountable.

Detail the type of structure the business will operate under, e.g.company or partnership, etc. List names of the directors or principals andcompany secretary and location of the registered office. Also, if possible,supply details of any staff you may be hiring and their particular expertise.

Financial reporting details

Supply details of the accounting procedure to be used for financialreporting. Note, these days financiers usually require periodic reporting,e.g. quarterly, rather than annual reports, prepared by a professional.

Appendices

Any information or further details needed to back up or enlarge upon anyof the above, such as brochures, market research, press clippings,competitors’ advertisements, statistics, evidence of any trade orprofessional qualifications, etc.

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Existing businesses and/or franchised businesses

If you are seeking to raise finance to purchase or extend an establishedbusiness, you will need to include the following:

• Copies of the business’s balance sheets and financial statements

• Copies of the taxation returns and (if incorporated) companyreturns for the last five years

• A debtors and creditors analysis • A copy of the business name registration or in the case of a

company, a copy of the articles of association• A complete listing of any stock inventory you are taking over• A detailed report of any plant and equipment you will be

acquiring• Any feasibility studies, market surveys or consultant’s

reports • If you are buying a franchised business, include a copy of the

franchise agreement and/or disclosure document.

Summary

After drafting your final plan, get your accountant or business advisor togo over it with a fine tooth comb. In the final analysis, your plan will bejudged on the following criteria:

• Completeness – make sure you cover all aspects• Objectivity – have a clear idea of what you want to achieve• Logic – make sure it all makes sense• Presentation – it should look professional• Your ability to effectively communicate your proposal.

Note: It is highly recommended that you seekprofessional help from an accountant or businessadviser to go over your final business plan.

They are not cheap but a few dollars spent at thisstage may save you a fortune later on.

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figure 1

PERSONAL FINANCIAL STATEMENT OF PRINCIPAL(one for each director or partner in the business or jointly for husband and wife )

Name:........................................................................................

ASSETS VALUE $

home other real estate cash available vehicles life insurance superannuation shares/investments other assets

(A) total assets = $........................

LIABILITIES VALUE $

mortgagehire purchase or leasecredit accountscharge accountstaxation liabilitiesbank overdraft or loansany other liabilities

(B) total liabilities = $.........................

total net worth (A - B) = $.........................

The above is a true statement of my assets and liabilities as at / / (date)

signed............................................................................

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figure 2.

PERSONAL BACKGROUND OF PRINCIPAL

Name:

Address:

Telephone numbers: home bus.

marital status:

Spouse’s occupation:

Children and ages:

State of health:

Sports and hobbies:

Membership of associationsor other community groups:

Educational standard achieved:

Details of any trade or professional qualifications held:

EMPLOYMENT HISTORY:Details of current employment:

Previous employment history:

Outline details of employment history, list any qualifications orcourses attended, especially any relating to the proposed businessventure. Also detail experience in any aspect of your personal life thatmay be relevant to demonstrate leadership or management skills, e.g. Secretary, local Lions Club, etc.

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Summary

And finally, all of the above probably sounds quite daunting; howeverworking through your business plan is often a good way of establishing theviability of a new business venture or the ongoing good health of anestablished one. Keep detailed records of your plan and continuallymonitor your progress and compare it with your actual performance.

If you are borrowing money for your business, some of the informationrequired may seem of a highly personal nature but remember, the peoplelending you the money will want to know as much about you and yourbusiness as they can. The more details you supply, the more chance yourapplication for finance will have of succeeding.

Good luck and remember – don’t fail to plan – plan to succeed!

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eople often confuse marketing with sales, as the quotation abovewould suggest however, while the two are closely related and one

leads to the other, there are very distinct differences. Marketing is probablyone of the least understood and most often neglected elements of thebusiness plan. It is also one of the most difficult to prepare and one of themajor keys to your business's success.

So if marketing is not selling, just what is marketing?

Marketing

Basically, marketing consists of identifying the need for your product orservice and then presenting the goods or services at the right time, placeand price to satisfy the need.

This is usually done by identifying your potential customers andselecting the right advertising and promotional methods to make themarket aware of your goods or services. In a nutshell, that’s about it.Sounds simple enough but getting it right can be extremely difficult.

Selling

Selling is a part of your marketing procedure. You won’t have a business ifyou don’t sell anything and chances are you won’t sell anything, if youdon’t market it properly. And the way to proper marketing lies in thepreparation of a detailed marketing plan.

The SWOT analysis

The first step in preparing your marketing plan should be to undertakewhat is known as a SWOT analysis. This is an acronym for:

Strengths, Weaknesses, Opportunities and Threats.

“Marketing is simply sales with a college education.” John Freund

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31. YOUR MARKETING PLAN

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Take a sheet of blank paper and draw a line down the middle. On oneside of the line list your strengths. Are you personally well known andrespected in the marketplace? What is it about your product or service thatmakes it stand out from the crowd? List any unique selling features orbenefits that you will have over your competitors, e.g. Only hardware shopin the area where Chinese is spoken, that type of thing.

On the other side of the line, list your weaknesses. For example, limitedcapital, not known in the marketplace, limited buying capacity, etc.

Repeat this exercise for your opportunities and threats. Opportunitiesare gaps in the market or weaknesses your competitors have that you canexploit and take advantage of. Threats could be things like the dropping oftariff protection to allow cheap imports onto the market or changes togovernment legislation that could affect your trading and so on.

In compiling your SWOT analysis, list every strength, weakness,opportunity and threat you can think of, no matter how obscure and thenundertake finer analysis later on. You will find this exercise very useful inhelping to produce your final marketing plan.

A properly presented formal marketing plan will not only assist yougreatly in raising finance, it will provide a blueprint for your growth andongoing success. It should encompass all the aspects of your overallmarketing strategy and can be best summarised by looking at what isknown as:

The four Ps of marketing

Product, Price, Place and Promotion

• Product – what you are going to sell• Price – what price you are going to sell it at• Place – where you are going to sell it• Promotion – how you are going to promote it

I like to add a couple more Ps of my own:Packaging and Prospects.

• Packaging – how you are going to present it to the market• Prospects - who you are going to sell it to.

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Your marketing plan should also include the following aspects:

• Market research • Details of the market • Current state of the market• Competition and pricing policies • Advertising and promotional strategies.

Let’s take a closer look at each of these items.:

Market research

This should consist of a comprehensive analysis of the market you aregoing to enter into. It should include a brief history of the market as wellas elements like the overall growth of demand in recent years and increasesor decreases in the number of competitors. This type of information isavailable from a number of sources, including trade and professionalassociations, the Australian Bureau of Statistics (ABS) and other people inyour chosen industry.

You should also attempt to talk to as many potential clients as possibleand indicate reasons why they would be likely to use your services orproducts in preference to their present suppliers. Try to get yourinformation from as many different reliable sources as possible. It is verydangerous to rely too heavily on information gathered from a small sectionof the marketplace.

There are many cases of businesses that have got themselves intotrouble through poor market research – let me give you an example:

Many years ago I worked for a large trading company that held anumber of agencies for a wide range of products. They were a verydiversified organisation and were always on the lookout for newopportunities. At one stage, one of the company’s suppliers in Americaoffered us a new line: a range of brightly coloured corn cob pipes.

According to the US company, these were a really hot item and theywere selling very well in America. A sample range was called for and thesales manager for that division took the range into one of the largewholesalers, a company called, Hoffnungs. The buyer there was mostenthusiastic and ordered several thousand pipes. The sales manager was

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highly elated and reported back to the office that we had indeed discovereda great new line. The same day the company sent off an order to the USAfor tens of thousands of pipes.

Some time later, they approached some of the other wholesalers butcouldn’t get another order. After doing the rounds of virtually every otherwholesaler in Australia without success, the sales manager was totallymystified and eventually asked one of the buyers, “Look, this is a fantasticrange, why won’t you give me an order?”

The buyer replied, “All the wholesalers I know of buy their corn cobpipes direct from America. The only one I know that doesn’t is Hoffnungs,why don’t you try them?”

You can see what had happened. The company had based its entiremarket research on just one buyer’s reaction! It might seem like aparticularly stupid thing to do but this is a true story. Perhaps notsurprisingly, the company concerned eventually got into deep trouble andwent broke. Included in the receiver’s inventory was a very large quantityof brightly coloured corn cob pipes!

That story is not an isolated case and the corporate history books arefull of similar disasters. Make sure you do your market researchthoroughly. You should consider enlisting professional help from a marketresearch firm. If you can’t afford professional help, you can try doing themarket research yourself. Talk to your potential customers and ask lots ofquestions. Try to find out exactly what the market wants. Is theresomething they are not getting from your competitors that you can supply?

Remember to list details of any sources of information used for yourresearch, in the appendices of your business plan.

Details of the market

Finding and identifying your market niche is extremely important. Youmust identify which area of the market you can best serve. In preparingyour marketing plan it is important to remember not to try to be all thingsto all people; this is a certain recipe for failure. Identify the precise area ofthe market you are going to concentrate on and utilise your resources totheir greatest effect. Very few businesses can tackle every area of a marketand survive.

For instance, let's say you were planning to start a carpet retailing

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business in a major city or town. You could start by looking at the overallmarket for carpet in Australia. This type of information is available fromthe Australian Bureau of Statistics. These figures may include commercialpremises, clubs, government departments, etc. It would also include alltypes of quality and price ranges, from the cheapest to the luxury end ofthe market. You then need to try to break this down to the specific sectionof the market you are going to cater to.

For example, you might choose to target the commercial market in thecentral business district or the upper end of the domestic market in theeastern suburbs, etc. Once you have identified the market segment you areaiming at, you then need to incorporate this into the rest of your businessstrategy. Your plan should aim towards you becoming recognised as thespecialist for the particular segment you have chosen.

The area of the market you choose to service will determine such thingsas your location. Correctly identifying your potential customers’ socio-economic grouping will also determine your promotional strategy andyour choice of media. Your target audience is known as your PrimeProspect Profile (PPP) in advertising jargon.

For instance, is your target market commercially based or are theymainly domestic consumers? If so, are they housewives over 35 years oldor are they working mothers or teenagers or is it a combination of anumber of different groups? The ABS can also help in identifyinggeographically where your PPPs can be found. They can even supply youwith maps, showing the geographical location and main concentration ofyour potential market.

State of the market

Once you have identified your market niche, you should give a briefoverview of the current state of the market you are going to enter.

For instance, is the market going to grow or is currently under-cateredto? Wherever possible present evidence to support your claims. Make sureyour target sales figures are realistic, based on your analysis of the marketand future prospects and trends.

You should also ensure the market you are entering is not just a passingfad and that there are real prospects for long term growth. Include anyinformation you have on reasons for this growth and its sustainability.

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For instance, in the case of the carpet retailer, you could includeindustry projections on the number of new dwellings or renovations beingundertaken in your chosen geographical area. The ABS or your localcouncil should be able to assist with this information or you could try theMaster Builders Association or The Real Estate Institute.

The secret of good market research lies in being able to track downreliable sources of information that can assist with your future projections.

Competition and pricing policies

Supply as much information as you can gather on your competitors andinclude clippings of their press ads, etc., in your appendices. What will betheir reaction to your entering the marketplace? Are they likely to undercutyou or try to force you out of business? What are your major strengths?How will you overcome your weaknesses? Will you be cheaper, better,more convenient, more reliable or a combination of these things?

If you are planning to be cheaper, how will you achieve this? What isyour leverage? Can you buy as well or better than the competition?

Note: If you have any obvious weaknesses you should point these out,including your plans of how you intend to overcome them.

For instance: we will not be the cheapest on the market, however, wewill be the only company within a 20-kilometre radius offering thisproducts or we intend to give free in-home service, etc.

Advertising and promotional strategy

How will you advertise and which media will you use? Are you going tobe involved in trade shows, will you need printed literature, how much willit cost? What percentage of your overall sales budget will be spent onadvertising? What is your competitors’ advertising policy and how do youplan to match it or better it?

(See chapter 24 - Advertising & Promotion)

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Develop a USP

Look for your Unique Selling Proposition (USP). What is it about yourproduct or service that makes it a better proposition than yourcompetitor’s? Is it price, convenience, service, quality, time saving?

If you don't have a USP, then set about creating one! You have to comeup with a reason why people should buy from you rather than yourcompetitors. Start by listing the major benefits of dealing with yourbusiness. Is there anything you could add to your product or service thatyour competitors can’t easily match?

Note: If you can’t develop a USP you may be ableto develop an ESP – an ‘Emotional SellingProposition’. For instance, The Body Shop hadenormous success with the proposition that noneof their cosmetics were tested on animals.

Summary

Once you have prepared your marketing plan make sure you monitor andreview it constantly. Also, if you are employing staff, make sure that theyunderstand exactly what your marketing objectives are.

If they are going to help you to realise your goals, it is important thatthey also know exactly what you are trying to achieve.

Your Marketing Plan

SECTION FIVE:

SUCCESS SECRETS

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GOAL SETTING

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Goal Setting

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YOUR GOALS

STEP 5

STEP 4

STEP 3

STEP 2

STEP 1

Goal Setting

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o be successful in business, you need to set goals. You need to have aclear vision of what you want to achieve, when you want to achieve

it and how you are going to achieve it.Most people at some stage of their lives would have been exposed to

some of the ideas and principles of goal setting. This could have been inbusiness, at school, involvement in sport, at a course or by simply readinga book or watching a video tape. Chances are most of it was good advice,based on sound principles and ideas.

The major problem with goal setting is, it works in different ways fordifferent people. Often the way it is presented gives the impression it issome form of alternative religion or a panacea for everybody’s ills andwoes. This can be especially true if the person presenting the concept isone of those high powered, motivational speakers who sometimes comeacross as ‘born again’ evangelists. The result of this is, people have troubleknowing where the hype ends and the reality starts.

Over the years, I have attended a good many courses and seminars ongoal setting and I have read numerous books on the subject. Personally Iam very much in favour of the principles of goal setting – i.e. knowingexactly what you want and setting a plan to achieve it. There can be nodoubt people who set clear goals are far more likely to succeed than peoplewho just drift along.

Based on my own experiences, I have condensed the main principles ofsuccessful goal setting down into five simple steps. I firmly believe if youfollow these steps, there isn’t much in business or in life, that you can’tachieve.

32. GOAL SETTING

T

“What the mind can conceive and believe, it can achieve!”

Napoleon Hill

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Step 1: Know what you want

This may sound stupid but one of the main reasons most people don’t getwhat they want out of life, is they don’t really know what it is they want.

Think about that for a moment. Do you know exactly what you hope to achieve in your life time – both

in the short and long term? I have asked this question of many individuals and groups over the

years and found that when you really get down to it, very few people knowexactly what they want out of life. Few have a clear picture of where theyare going or even where they would like to go. Most people drift thoughlife fairly aimlessly, with no clear plan, taking things largely as they come.They tend to react to what happens to them – rather than trying to changethe circumstances around them and take control.

Try asking a few people yourself. Ask them exactly what it is they wantto achieve in life. Most will answer in vague terms with statements like,“Well, I would like lots of money!”

This is not a clear goal. Precisely how much do you want and what areyou going to use it for when you get it?

They will often add as an explanation, something like, “Well, I’vealways wanted to travel.”

Not good enough! Where do you want to travel to? When do you wantto go? How long do you want to stay there and what are you going to dowhen you get there?

Can you see the difference? You have a much better chance of achievingyour goals if you have a clear picture in your mind of exactly what it is youwant to achieve.

You will probably find it helpful if you write your goals down. Somepeople like to carry these around with them in their wallet or purse. Theymay even go so far as to carry a picture of their holiday destination ordream home or car around with them at all times. Some like to stick thisup on the wall in a prominent position, so that they can see it every day.Then, when they feel discouraged, they look at it and it spurs them on.

I recommend any of these steps as helpful but only if you feelcomfortable with them. If you don’t, then don’t bother.

The main thing is to have a clear picture in your mind of exactly whatyou want to achieve, both in your business and your personal life.

Goal Setting

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Step 2: Know when you want it

People often confuse goal setting with dreaming. And let me say right hereand now – there’s absolutely nothing wrong with dreaming! In the wordsof that famous song from South Pacific – “You’ve got to have a dream, ifyou don’t have a dream, how are you ‘gonna have a dream come true?”

The major difference between a dream and a goal is simple – A goal isa dream with a date on it.

Once you have decided what it is you want, your next step is to decidewhen you are going to get it. Your goals should also be realistic andachievable. That doesn’t mean to say that you have to aim low but it maymean that you have to break your major goal down into a series of smallerones. The best way to climb a ladder is, one rung at a time!

For instance, if you are just starting out in business, there is not muchpoint in saying you would like to be the industry leader within six months.However, you could say that you would like to open a second branchwithin two years and then say, have a branch in every state within fiveyears and an international operation within seven years.

Then, become the industry leader within ten years. The beauty of breaking your major goal down into lots of minor goals

is this – each time you achieve a minor goal along the way, you get thefeeling of winning and being one step closer to your major goal. Theseminor wins along the way give you momentum and keep you going.

Be prepared to review your goals, especially your long-term ones. Youmight set yourself a goal for five years from now with reviews every sixmonths. You could then assess your progress at each stage and adjust yourgoal time upwards or downwards, depending upon progress.

Step 3: Develop a plan

Once you have decided exactly what it is that you want and set yourself atime frame for achieving it, your next step is to devise a solid plan of action.

I remember once attending a seminar conducted by a very fast talkingguy from the UK. He said, if you wanted to own a Rolls Royce, your bestbet was to go down to the Rolls Royce showroom every day and get intothe car and sniff the leather seats and imagine yourself driving around init. According to his philosophy, if you did this long enough you woulddefinitely end up owning a Roller!

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Well, I might be a cynic but I think if you went around sniffing car seats,about the only thing that would happen to you is you would get arrested!Visualisation can be a big help but if you want to become rich, you willneed to do a lot more than just think about it. Success rarely happens bychance – you need to plan for it – every step of the way.

Another popular method is ‘positive affirmation’. This usually involveshaving a goal written down and saying it to yourself over and over againevery morning as you look at yourself in the mirror to shave or put on yourmakeup, like some sort of Buddhist mantra. Again, this may work quitewell for some people and I am not knocking it. Some people may need todo this to get their goals firmly planted in their minds. If it helps, go for itbut don’t lose sight of the fact that the most likely way you are going toachieve your goals, is to develop a practical, achievable plan and then workas hard as you can towards achieving it.

Thorough planning is the secret of success in goal setting. Your plan issimply your ‘road map’ of how you are going to get to where you want togo. Sit down with a piece of paper and a pen and work it out.

If it’s appropriate, involve your partner or family and friends. Tell themwhat you want to achieve and ask them to give you suggestions as to howyou can go about it. You will also be encouraged when these people askyou how you are going with your plan and it will help to drive you along.

Step 4: Don't be afraid to go for it

Sadly, many people go through life not realising their full potential simplybecause they feel they wouldn’t be able to achieve the things they want.

How often have you heard someone say something like, “I would haveliked to have been a teacher but I didn’t have the education” or “I wantedto be a lawyer but my family were against it.”

This is invariably an excuse for their own lack of effort or dedication.The truth is, it’s far easier to blame our parents or someone else for ourshort comings than it is to admit to our own lack of commitment. There arealso people who have very low self-esteem and simply feel they areunworthy of a better position in life. Don't let yourself or anybody else talkyou out of being anything less than what you want to be.

The only person holding you back in this life, is you! You can beanything you want to be. Remember – if it is to be – it’s up to me.

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Step 5: Believe in yourself

Finally, develop a ‘can-do’attitude. Visualise yourself doing what it is youwant to do. Imagine yourself visiting the places you want to go to ordriving the car you would like to drive or living in the home you would liketo own. If you have a workable, believable plan, you will find this easy todo. Develop a strong belief in yourself and your ability. Accept your faultsand weaknesses (nobody is perfect) and learn to like yourself.

Mix with positive people and high achievers. If you mix with peoplewho have a losing attitude and low self esteem, sooner or later you willfind yourself falling into step with them.

There’s an old fishing story I like that says, “If you put a crab in abucket, it will climb out. But if you put two crabs in a bucket, neither ofthem can climb out, because one keeps pulling the other one back down.”

Mix with high achievers and you will find them encouraging you andreassuring you along the way.

Summary

Whatever it is you set out to achieve, keep at it until you get there. It isoften said, “You can lead a horse to water but you can’t make it drink”.

That is simply not true! If you stand there long enough, the horse willeventually get thirsty and drink. It’s simply a matter of time andpersistence.

I particularly like what Calvin Coolidge, the former US President, hadto say about persistence:

“Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination are omnipotent. The slogan ‘press on’has solved and always will solve, the problems of the human race.”

If you believe in yourself and you keep at it, there isn’t much in businessor in life that you can’t achieve. Enjoy the journey – and good luck withyour business!


233

AAbundance mentality 188ABN 128ABS 25, 160, 221Accountants, choosing one 60ACDC 112-114ACN 41ADR 113-116 Advertising and promotion 159-169Advertising scrap book 167Advertising signs 89AIDA, formula for ads 162Alternative Dispute Resolution

(ADR) 113-116 Alternative sources finance 69-75Angels, business 75Are you suited? 18-23 ASIC 41, 128, 177Attitude, developing 158Australian Bureau of Statistics 25,

160, 221Australian Business Number 128Australian Commercial Disputes

Centre 112-114Australian Company Number 41Australian Securities & Investment

Commission 41, 128, 177Australian Tax Office (ATO) 124-144

BBad and doubtful debts 107-112Bad debt prevention 107-112Bank guarantees 83Bank managers, 67-68BAS 136Benchmarking 195Benefits, established business 29-30Black money 33-34Bookkeeping 62-63Bumble bee 18Burglary insurance 118, 122Business Activity Statement 136 Business Angels 75Business checklist 96-99Business expenses 133, 134Business interruption insurance 118Business names 39, 40, 170-179Business planning 210-225Business Planning Kit 203Business planning, purpose of 210Business structures 36-42, 98,

125-127, Buying an established business 29-34

CCalculating goodwill 29-34Capital, sources of 69-75Cash flow projection 200-209Causes, small business failure 13-17Check list, for websites 168-169Checklist for business names 175-176

INDEX

Index

234

Choosing a business name 170-179Choosing a domain name 177-179Choosing the right media 163, 166Circulation vs distribution 163Claiming tax credits 136Closing the sale 157Collateral 54, 69, 72-73Collection agencies 109-110Companion website 3Company structures 38-41Computers, hardware 149-150Computers, software 146-151Consumer Price Index (CPI) 82Contents 6-9Contractors vs employees 131Corporate advertising 169Councils, local 86-89Credit checking 107-112Cross partnership agreements 49Customer service 180-183

DDatabase management software 148Debt capital 200Debt collection, do-it-yourself 110-111Debts, bad and doubtful 107-112Defining prospects 156Definition of small business 24Demolition clauses 84Desk Top Publishing (DTP) 149Diaries, electronic 106Diaries, choosing 105Disadvantages,

of established businesses 30Do-it-yourself debt collection 110-111Domain names,

registering and choosing 177-179

EElectrical breakdown insurance 120Elevator statement 155Emotional Selling Proposition 225 Employing,

friends and relatives 91-92Equity capital 200ESP 225Evaluating goodwill 31-33Executive summary 212

FFailure rates for small business 12-13FBT 129Family, support 19, 28Financial plan 212-213Financial reporting 72, 214Financiers, what they want 72-75Focus groups 183Four D system 104Four Ps of marketing 220Franchise consultants 56Franchising 51-59Franchising Code of Conduct 57Franchising Council of Australia 57Franchising, benefits 52-53Franchising, disadvantages 53-54Franchising, evaluating systems 55-59Franchising, financing 54Franchising, definition 51Fringe Benefits Tax 129

235

GGlass breakage insurance 119Glass Ceiling Syndrome 25Goal setting 228-232Goods & Services Tax 134-135Goods in transit insurance 120Goodwill and banks 31Goodwill, assessing 31-34Goodwill, definition 31GST – how it works 135GST – tax credits, claiming 136Guarantees, loan 213Guarantees, personal 213

HHardware, computers 149-150Head hunting, head hunters 90-91Hiring the right staff 90-95Home based businesses 76-80

IIncome tax 129-130Institutional advertising 169Insurance 117-122Insurance, types of 118-122

KKey person insurance 121

LLaw of reciprocity 188Law society 115

Lawyers/solicitors, choosing 65-66Leadership 94-95Leasing premises, guide to 81-85Lee, Ivy 103Legal matters 113-116Lifetime customer value 182Limited partnerships 49Local council 86-89

MMacintosh or PC 150Manual vs electronic,

record keeping 143Market research 221-224Marketing, definition 219Marketing plan 219-225Marketing vs sales 219Material damage insurance 118Matters legal 113-116Media, choice of 163-166Minding Your Own Business 146-147Minor expenses 134Motor vehicle expenses 134Money, insurance 120MYOB 146-147

NNames, business, choosing 170-179Names, business, registering 39,40Names, domain 177-179Networking 184-189Networking groups 189Niche markets 165-166Non-taxable sales 139

Index

Index

OOrganisational plan 214Outdoor advertising 89Overcoming sales objections 157

PPaperwork system 104Partnerships 43-50Partnership Agreements 47Partnerships, limited 49Partnerships, structure 38Partnerships, Claytons 49Partnerships, dissolution clauses 49Passing trade 165PAYG, Pay As You Go 129-130Pc vs Macintosh 150Personal guarantees 213PPP 223Price cutting, consequences 193-194Price cutting, overcoming 195-196Price, how to price your

goods/services 192-199Prime Prospect Profile 223Private investors 69Product liability 119Profit and loss 204Projecting your cash flow 200-205Promotion and advertising 159-169Public liability 119

QQualifying prospects 156-157

RRecord keeping 141-144Record Keeping Evaluation Tool 143Recruiting staff 92-93Registering business names 39-40Registering domain names 177-179Registering for GST 128Renovation clauses 84

SSales vs marketing 219Sales, how to make more 154-158Schwab, Charles 103Security of loans 213Self assessment, taxation 144Serviced offices 79Settlement discounts 109Shelf companies 40-41Sheriff’s Office 110Signage, advertising 89Simplified Tax System 133Small business failure 12-17Small business, industry types 24Small business, definition 24Software, computers 146-151Sole trader 39-40Solicitors/lawyers choosing 65Spouse, life partner 28Staff involvement 94Staff, hiring the right people 90-95Stocktakes, stocktaking 144Structures, types of 36-42STS 133Super profit 32, 33Superannuation 130, 131Superannuation Guarantee 130SWOT analysis 219-220

236

237

TTax Basics for Small Business 124Tax credits, claiming 136Tax File Number 128Tax invoices 136-138Taxation and your business 124-139TFN 128Three Rs of staff motivation 94Time management 102-106Trademarks 98Trading terms 108-109Trust structures 42

UUnique Selling Proposition 224USP 224

VValue of goodwill 31-34Venture capitalists 69Verbal agreements 47

WWebsite – about the

companion website 3Websites, creating 168-169‘What if’ scenarios 201Wheel of Business Success 18-23Which business is for you? 24-28Which franchise? 55-59Why go into business? 26Withholding tax 129-130Women in business 25Word processing 147Working capital 200

Index

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In the last book I wrote on small business, I included a fairly extensivechapter on where to get further help. The main problem with this was, theinformation went out of date very quickly.

Fortunately, with the advent of the Internet, we can now go one better.Most of the information you require is readily available on the Net. Onlyproblem is – knowing how and where to find it! And, with literally billionsof webpages out there in cyberspace, where do you start looking?

So, to save you a massive amount of time searching for it – this bookcomes with a FREE companion website. It features useful links to furtherinformation and articles and valuable resources, plus some handy tools tohelp you with your business planning and preparation.

The website will be updated regularly and you may visit there as oftenas you like to get ongoing help with your business venture. And, whileevery effort has been made to ensure the information in this book is currentat the time of publishing, updates will be posted to the website so, checkthe website regularly.

I’m sure you will find this resource extremely helpful, both initially asan adjunct to the book for further help and information and as an ongoingresource to help you with your continued business success.

I look forward to continuing our association online, at:

www.successsecrets.com.auPeter ThorpeAuthor

WHERE TO GET ONGOING HELP

“Success is a journey not a destination”. Arthur Ashe

Documents

SUCCESS SECRETS - Wollermann · Success Secrets for your Small Business 2 Published by: The Advertising Department Pty. Ltd. A.C.N. 003 519 631 12 Pine street, Randwick NSW 2031Australia