26. March 2011 13:32
So, you want to start your own business, eh? But you want to cut through all the BS that's out there and find out, in plain English, what you've got to do to get your idea off the ground here in Australia. This is not your usual guide - I promise I won't bamboozle you with stuff you don't understand or don't need to know. I've just put together some simple and hopefully useful bits of information that should get you on your way. I just wish I had this info when I was starting a business, 'cause it can take a lot of time and money to work it out for yourself.
Whether you want to set up an in-home pet grooming business or the next Facebook - get your idea ready, my friend, because you're about to start a business...
Here's an overview of the steps you need to take to set up your new business. It's just a general approach more than a strict process. Things will always vary for each business, but if you follow these guidelines, you'll be doing better than most. People may have different opinions about the best order, but I've found this works well and you'll kind of run things in parallel anyway.
The best advice I've been given is to get good advice. I'm not licensed to provide financial advice and this guide is only meant to provide an overview on some of the concepts. You should seek formal advice from your accountant and lawyer before going ahead with things.
2. The Team
5. Domain Name
7. Decision Time
8. Business Name
9. Company set up
12. Web Site
15. Trade mark
22. Corporate Structure
23. Education & Networking
Here's a bit of info and some useful links for each step in setting up your business. Not all of them will necessarily apply to you, but it's still worth reading through it all so you've got a broad understanding of things.
- There are two essential ingredients in making a successful business; the first is to have a great idea and second is to execute it well. The majority of what I'll talk about here (and most of the business advice out there) deals with helping you execute an idea well. The problem is if the idea isn't a good one, then you've most likely failed before you've begun. It's a bit like spending years training to be the best jockey you can be, but riding on a dud horse which could never win a race. The first thing to do is choose the right horse. If someone chooses the right idea, it's actually possible for them to do just an OK job with all the other aspects of setting up a business and still succeed, but if you don't have a great idea, you will have to do an unbelievably good job at every other stage to even stand a chance of pulling it off. Do yourself a favour and spend as much time as possible on research before you begin. You need to look very closely at the market and your soon-to-be competitors, because you'll find that there are a lot of people doing exactly or similar to what you are planning - you just don't know it yet. They may not market it well or they might not offer certain aspects of what you plan to do, but rest assured... they're out there - and they're most likely working very hard to keep you out of the market. Once you find them, it doesn't mean you should give up, it just means you need to rethink your strategy and become more focused on what you're trying to achieve. Instead of your grand plans of being the world's first dating web site until learning there are already quite a few out there, you might instead focus on developing an iPhone app helping singles find places to go out in Sydney to meet other singles. Once you've established what's out there, you need to research your target market - who are they, what are their needs and wants and why are these not being met already? What is the problem and is it painful enough for people to spend money to fix?
- If your idea doesn't turn out to be so good, you can go back to the drawing board, or there's a lot to be said for copying other people's ideas which have proven to work well in other countries or other industries (as long as you're not breaching their intellectual property such as a patent). This can save a lot of time and money in testing markets to come up with a winning formula - there are already a lot of winning formulas out there which you can expand on. As with many on-line businesses, the group buying concept started in the US with Groupon. An Australian entrepreneur was in Silicon Valley pitching a different business and he came across the idea and brought it to Australia and then went on to sell it for around $40M in less than a year!
- Talk to people in the industry - preferably friends initially - and find out as much as you can about the space you want to play in. If you don't have any friends in the industry, then call the relevant companies and get some info from them. It can sometimes be tricky getting the info you want, but people have been known to call companies and pretend they're doing some research for a Uni assignment, or pretend they're a potential customer enquiring about a product. It's a bit cheeky and may not be your style, but if you're going to do it, get your story straight before calling or they might get suspicious.
- You know where to look - www.google.com
- You can also try using the good old telephone
2. The Team
- Probably the single most important aspect of building a successful business is to have the right founding team. Some businesses can be set up with just one person, but it can often be a good idea to work with other people to share the load and to bring more skills to the table. Keep in mind that the most common issue I hear when talking to people about their start-up business is problems between the founding team members.
- Going Solo - If you really know your space and are really across all the key areas of the business, then you can probably start things up yourself and bring other people on when you need to (offering them a smaller equity share if required). This can avoid the issues that can come with partnering and will give you more equity. Sailing around the world with a full crew is bloody hard work (so I'm told), but doing it solo is way more challenging. You need to be extremely motivated to go it alone, so weigh this up before deciding which way to go. You also need to decide what kind of personality you are and whether you're better suited to working in a team or sailing solo.
- Partnering - If you think you're better off in a team, you've really got to treat the partnership like a marriage (a polygamistic one if you have more than one partner!). You need to get the right structure in place for the relationship because people often end up with an arrangement that doesn't work for everyone. As in any relationship, you'll find that some people contribute more than others either because of work ethic, skill set, networks etc. and it's very hard to know up front who those people will be and to set up a fair structure accordingly. Step 22 covers some of the structures available.
- To build a winning team, you need to make sure you choose the right people. People often just fall into a partnership because a friend comes to them with an idea or they happen to chat with someone about their idea and they say they can help. This is not a bad thing, but you need to share the same vision for the concept and to have similar values on how to run a business. It's good to have variety in skills and ideas for making the vision a reality, but it will save a lot of heart-ache if you assign one person to be responsible for each department (sales, marketing, technology etc.) in advance, to avoid people treading on each other's toes. If you're at a similar age and life stage it can be easier because everyone is on the same page socially and culturally which can avoid friction. There can be issues if there are any dynamics within the group (eg; an older, more experienced person can feel superior to someone younger, even though the younger person may do more of the work).
- It's not always a good idea to just split the equity equally amongst the founders up-front without thinking and talking about it first. Once you've worked out who's doing what in each of the functional areas (as above), you need to all sit down together and talk through how much work will be involved in each area and set some key milestones across each one. Then you can work out roughly how much equity should be allocated to each person. Some people don't like the idea of having equity split unequally, but if they have an issue with needing to work to earn their equity, then alarm bells should start ringing. You don't need to make the milestones too hard, and it's OK to be a bit flexible on them depending on everyone's circumstances. The main thing is you don't want anyone feeling that they have their equity locked in and they can sit back and wait for a pay cheque while everyone else does all the work. If people are unhappy about uneven equity, you can allocate the equity evenly up-front and then issue new shares to those who achieve their milestones. That way, people don't feel like they're losing anything (they'll still have the same number of shares), but the people contributing will gain a greater percentage over time as they get stuff done.
- Once you've got your idea nailed (although keep in mind it will most likely keep evolving), you need to get the right plan in place. Having said that, you don't want to spend too much time on all the detail, you just need to have a think about each aspect of the business at a high level - you can work out some of the details as you go. Sounds a bit haphazard (and it would be if you were building an airline for example), but time is of the essence and you need to move quickly! I would suggest getting a brief business plan together so you can get started and then if / when you need to get an investors on board, then you can do the full plan with some input from other people. There are some good business plan templates out there (see links below), but here's my 30 second description. First, start by clearly stating exactly what your business idea is in one sentence using only plain English (no jargon or acronyms) - if your parents don't understand it, you've missed the mark. Then you need to put an executive summary together (basically a longer explanation in less than one page) and you need to write at least one paragraph on each department within the company - marketing, sales, financials, operations, legals, HR etc. You also need to explain what's unique about you and your business that will ensure it succeeds (eg; your experience, marketing plan, competitive advantage). This will give you a start, but spend some time looking through the links below for more info. Two areas that you really have to get right are marketing (see section 13) and financials. The financials show how much money you plan to spend and make as well as how investors will get a return (if you're raising money). You usually have a 3-5 year outlook, but focus on making sure that there's money coming in as close to day one as possible, so you can fund the growth you need to achieve the big numbers you probably have forecast for years 3-5. Even if you plan to get investment early on, this will be much easier if you've proven the model as investors usually want to see money coming in before they jump on board.
- Business Plan template - I don't recommend business plan tools or sample business plans, but a good template can help you get on with it - (links TBC)
- The Art of the Executive Summary - great tips on writing an Executive Summary - http://blog.guykawasaki.com/2006/04/the_art_of_the_.html#axzz1HTYKopSd
- Getting your brand right from the outset is critically important to the success of your business. A brand isn't just a name or a logo - it's the personality of the company. There are a number of businesses, like Virgin and its vivacious leader Sir Richard Branson for example, who can say a lot of their success comes down to having a great brand. Some traditional service-based businesses (like a local butcher) may be less dependent on a good brand, but every business can benefit from having a stand-out personality. It can be quite hard to just sit down and force yourself to come up with heaps of great ideas. I find doing it over a few beers with friends can help. You can also just think about it throughout the day - while brushing your teeth, at the traffic lights, walking the dog, or however you get the creative juices flowing. Get it right from the start and stick to it.
- Igor Naming Guide - a great free guide to coming up with a killer brand name. The short guide is normally more than enough, but check out the full version if you need a more comprehensive approach - www.igorinternational.com/process/naming-guide-product-company-names.php
5. Domain Name
- There are three things that need to be done to get a web site up and running. First is the domain name which is the registration of the actual name for your web site, then is the web hosting which is where you store your web pages out on the internet and third is the actual web site itself including the content, images, buttons etc. Some web developers will do all of this for you, but you should be registering the domain name yourself to secure it now and then you can talk to a web developer later when you're ready to build the site, so I recommend at least doing the registration now.
- Registering a domain name (your new web address) at step 5 might seem like we're jumping into the technology side of things a bit early in the piece, but these days it's got to be done as early as possible. Having a meaningful domain name is absolutely vital to most businesses, so make sure you check it's free while you're selecting a name (either through the Igor process or just throwing ideas around) so you can weed out names which are already taken. You'll be surprised how many names are already registered either by other businesses or by cyber-squatters wanting to sell you the domain at an inflated price. It can be really frustrating to be forced to let go of a great name because the domain isn't available, but I try to think of it as a good thing because it forces you to come up with a truly innovative brand name. As soon as you find a good name with the available domain... register it immediately! You really want to try and get a .com.au or .com (if you plan to have global reach). .net can be OK, but people might miss your web site, thinking you're a .com.au or .com address.
- Most domain registration companies are also hosting companies who can host your web site. This is something you'll need to do, but you might not need to do straight away, depending on how quickly you'll have money to build a web site. As mentioned above, when you talk to your web designers, they can often sort out the hosting for you or if you go with a hosting plan now, they can put the web site up for you.
- Ventra IP - good ISP I've used for domain registrations ($19.95 .com.au for 2 years, plus a hosting plan if you need it) - www.ventraip.com.au
- Whirlpool - a great forum where people talk about technical stuff including hosting companies - www.whirlpool.net.au
- Some of the hosting company review sites are supported by the hosting companies themselves (they host the review sites, pay for advertising and/or put the sites together themselves), so you have to be careful about what to believe. Here are some which don't seem to be as heavily influenced by advertisers. (but I can't confirm their validity)
- Product Review - Australian review site (good to have an Australian hosting company if you're focused here) - http://www.productreview.com.au/c/website-hosting-providers.html
- Geek Certified - US review site (good if you want to go global) - http://www.geekcertified.com/
- Web Hosting Stuff - US review site (good if you want to go global) - http://www.webhostingstuff.com/
- You can get set up with a webmail account like gmail or hotmail pretty easily, but it doesn't look very professional to have a generic address like firstname.lastname@example.org, and now that you've registered a domain name, you can have your own professional-looking email address - email@example.com
- You want to set up your new email address/es (with your cool new domain name) so you can get on with other registrations and start general business stuff. The hosting company who you registered the domain name with should be able to set them up for you. You'll usually be given a webmail account (where you access your email through a browser) but you're also better off setting it up in a mail program on your computer like Outlook or Entourage. If you're not sure, ask your IT mate to help you with this. If you don't know any computer geeks, you probably should befriend one, otherwise you'll need to pay an IT guy or read the help info or forums on the hosting company's website.
7. Decision time
- You need to make a decision on whether to register a business name or incorporate a company. It's worth mentioning that the words "business" and "company" are often used to mean the same thing, but they're very different in a legal sense. Someone might say "I have a global import/export business", when they actually have a proper company set up. A company does business in a general sense, but this doesn't mean it's only a registered business (confusing yes, but hold on, it should make sense in a minute). The difference is a company is separate from the Director/s (you) and can provide some legal protection for you, whereas a business is just a registration of a name where the Proprietor/s (also you) are fully responsible for any legal issues. If your business is going to be anything more than a part-time job or a hobby, then you'll most likely get a company set up eventually, but a business can help you get started with the name for less cost. You'll either need to complete step 8 (business name) now and then do a bit more work when you complete step 9 (company set up) down the track, or you can just jump straight to step 9 now and save a bit of extra work in the long run. You should talk to your accountant about the best approach for your situation, but if you've got the money now, setting up a company now can be simpler. ASIC (the government guys who look after company stuff) has recently reduced their rates, so it doesn't cost much more to incorporate a company. Another quick thing about names is that (as crazy as it sounds) even if you register a business name, incorporate the company and register the domain name - you still don't own the actual name. The only way to truly own a name is to register a trade mark (see below), but many businesses don't bother and they're pretty OK unless someone else has the trademark. For that reason, it's worth doing a search of the trademarks now on the IP Australia site and then you can decide whether to apply for your own trademark later on.
- ASIC National Names Index - This will help you find all business and company names that have been taken - http://www.search.asic.gov.au/gns001.html
- IP Australia trademark search (click "Enter as Guest") - To check out whether someone has registered a trade mark with the same or a similar name - http://pericles.ipaustralia.gov.au/atmoss/falcon.application_start
8. Business Name
- If you're not ready to incorporate a company, you'll need to register a business name before you start doing business stuff under your new name, like advertising, quoting and invoicing. If there's more than one person involved in setting up the business, it's preferable to have the same person with the same contact details doing all the registrations, because it can be a bit complicated if different people are involved. For example, if you register a business name and then set up a company later, you need to get the person who registered the business to transfer ownership of the business name to the company (if this sounds complex, try actually doing it with different people involved!). I'd suggest that the nominated person should be you, in case things go wrong with the other people down the track (which is quite possible). Registration is done in your own state and the following site can take you to the relevant link. Once you register a business name, you'll get a BRN (Business Registration Number), now all you need is an ABN to start trading (see step 10).
- Business Name Registration ($156) - http://www.business.gov.au/BusinessTopics/Registrationandlicences/Registeryourbusinessorcompany/pages/Registeryourbusinessnameinyourstateorterritory.aspx
9. Company set up
- Incorporating a company is one of the biggest steps you'll take in the process because it's actually setting up a separate legal entity and involves certain responsibilities as a director. If registering a business name is a bit like babysitting, then incorporating a company is like having your own baby. Don't let this put you off - it's a necessary step, but it's good to be aware that you're taking on certain responsibilities. Once set up, you can get your accountant (see the Finance step below) to handle all the official stuff and just make sure you don't do anything dodgy like lying to people or spending money you don't have. At the end of the day when you're running a company you have to do the right thing.
- Setting up a company used to be a lot more of a commitment (in terms of time and money) than registering a business name, but these days there are some great web sites which can get your company fully registered with ASIC along with all the required company documents on the spot.
- Patricia Holdings ($555) - www.patricia.com.au
- Register a company ($542) - www.registeracompany.com.au
- Incorporator.com ($610) - www.incorporator.com.au
- You'll also need to pay an annual ASIC fee of $218 - www.asic.gov.au
- Very boring, but very necessary. You need an ABN (Australian Business Number) to make money because it has to go on all your invoices so the Tax Office (ATO) knows how much to tax you. Yes, it would be great to just leave it out and not get taxed, but it doesn't work like that. Remember, there are only two certainties in life... death and taxes.
- Getting a cool logo together is one of the fun parts of setting up a new business because it's where you get to express your ideas about your brand to the world. And, of course you will love your logo like your first pair of sneakers. Although this is a natural progression from deciding on a brand in stage 4, you're often better off getting all the boring registration stuff done first before spending the money on getting a logo put together. If the company name gets knocked back, you don't want to have to pay someone again to redo the logo.
- 99designs - probably the best crowd sourcing site for getting logos and web site design work done - www.99designs.com
- Elance - great tool for getting logos done, but also offers heaps of other stuff as well. People from all over the world will quote on your job - www.elance.com
- Freelancer - similar tool to Elance. As a general rule, Freelancer has more individuals (as opposed to companies on Elance) and the price is usually cheaper. Elance & Freelencer are generally better for more detailed work like software development - www.freelancer.com.au
12. Web Site
- Having a web site which reflects your brand is really important - and not just for on-line businesses. Web sites are your virtual shop-front to the world and no matter how simple or complex, it's got to communicate the right message. A lot of people spend more time on making a site look good. It is important to look good, but more importantly it has to have all the right info and make it easy for people to find what they want. If you're building a pure on-line business (where the web site is the business idea), then there is obviously a whole lot more to this step than for other businesses. If you are a pure on-line business, it's important to understand that you will need software developers, not web designers to build your site and this requires a whole world of technical knowledge which I strongly suggest you should either already know yourself or have someone in the team who knows, because if you don't have a clue about technology, things can go horribly wrong very easily.
- SEO / SEM are geeky acronyms which basically refer to getting your web site out there. Search Engine Optimisation (SEO) is all about getting your web site as high as possible on the Google (and other) search results pages and doesn't cost you anything (except you possibly need to pay someone to do the work). Search Engine Marketing (SEM) is all about advertising your site one places like Google and it costs you money usually each time someone clicks on your ad. It's worth getting someone who really knows this space to help you out as it can make a huge difference to your business. If you're an on-line business, this should be your main focus in getting new customers.
- Remember that a graphic designer is different from a web designer. A graphic designer will do a great logo for you and can also do the visual design of your site (so you know what it will look like), but you need a web designer to put it all together. Some graphic designers may also be web designers, but make sure you have a web designer to do the job.
- There are some god web site guidelines out there, but this is really for your web designer to know. You need to work closely with them to make sure they understand what your brand stands for, what your objectives are for the site and who your audience is. It can be good to tell them which sites you like or certain elements from various sites which you'd like to have. If you don't know, you should ask the designers to show you some sites which they think would be appropriate because this can save time if they build something off the mark. It's also very helpful to ask for a single basic page layout to be done either before you commit to them, or before they build the whole site.
- Elance - great tool for getting web designers from all over the world to quote on your job - www.elance.com
- Freelancer - similar tool. Try both and see what you like - www.freelancer.com.au
- Some people may think that marketing is a bit of a wank, but if you get it right, it will go a long way to helping your business succeed. Marketing is often referred to as the matching process between what your customer needs or wants and what your product or service offers. This may sound a bit abstract, but it highlights one of the key elements of success - focus on your customer and work out how you can give them what they really need or want. Make sure your target market is very clearly defined and make sure the need / want is compelling. You'll need to have a crystal clear way to reach them as well. Having a product which is for "everyone" makes it extremely difficult to get in front of them - having a focused target market makes it much easier to convince them to buy.
- Scoial media can be a great way to create interest and get the word on the street about your new business. Facebook and Twitter are the usual suspects, with heaps more popping up.
- Guerilla Marketing - not so much about marketing in general, but some good tactics to use in the marketing battle - www.gmarketing.com (check out the articles and other links)
- Once you've launched your product or service to the market, you'll pretty quickly realise that without sales, your company is dead. Some on-line businesses can drive sales without salespeople, but most businesses usually require someone to bring the deals in. The founder/s (you), will most likely be doing the selling in the early days but as you grow, you'll most likely find the need to hire a salesperson. They can be expensive, but if they bring in significantly more than their total salary, then it's obviously a worthwhile investment. You really need to make sure that you're first salesperson is the right one, because if you choose the wrong person, it really can cost you dearly. Depending on your industry and the kind of product / service you're offering, it can sometimes take 3-6 months for the salesperson to start bringing deals in, so if you chose the wrong person, it can take 6-9 months before you work this out. Hire slow and fire fast is a good approach here.
- The Sales learning curve - a very worthwhile read about how to ramp up a sales team - http://www.signallake.com/innovation/SalesLearningCurve.pdf
15. Trade mark
- As I touched on in the business name / company name decision above, you don't actually own a name unless you register a trade mark. The Coke trade mark has been valued at $65 billion, so it's worth checking whether you need one. This is a bit more involved than the other steps and may require a lawyer to help you with it, depending on the complexity. You need to make a call as to whether your actual brand name will be worth something one day (as opposed to the company being worth something). If the answer is yes, then you should register a trade mark for it. Keep in mind that if you've incorporated the company in step 9, then it will be harder for other people to get the trade mark down the track, but you won't have the full protection on the name and you won't fully own it to be able to sell it one day. Nike found themselves in trouble during the 1992 Spain Olympic Games when they discovered someone else had registered the "NIKE" trade mark in Spain and their athletes weren't allowed to wear Nike clothes.
- IP Australia trademark search (click "Enter as Guest") - To check out whether someone has registered a trade mark with the same or a similar name - http://pericles.ipaustralia.gov.au/atmoss/falcon.application_start
- IP Australia (Patents, Trade Marks & Designs) - you can learn more about them here - www.ipaustralia.gov.au
- Trade mark Lawyers - if you're serious, you can find a lawyer through the institute of patent & trademark attorneys - www.ipta.com.au
- Patents can be a good way to make a lot of money if you come up with a great invention. The problem is that these days, most people have thought about and often patented many of the truly novel ideas. That's not to say that there are no new ideas out there (because there always will be), it's just that most people have applied for broad patents that could cover an area that hasn't been properly explored yet. The reality is with most on-line businesses, even if you have a great idea, it's not patentable because someone has already been granted a broad patent which covers this area and although they can't necessarily chase you for breaching their patent, it does prevent you from applying for your own patent. The other issue is that patents have to be for a specific method of doing something and in today's world, your idea will often evolve and other people will develop different ways of solving the same problem (and hence tip-toe around your patent). Patents can also be quite time consuming and expensive, so unless you really have come up with a better mouse trap, it's not always worth applying for a patent. If you're unsure, you can have a chat with a patent lawyer and see if it's worthwhile. They will probably tell you to get a patent because its good practice and they want the fees and they also don't want to be liable for telling you no in case it doesn't work out down the track. If they say definitely do it, then it's probably worthwhile, if they say it would be good idea to do it, then you need to think if it's really necessary. If you think you're really onto something which hasn't been done before, then you can do your own initial searches on the IP Australia and USPTO links below to see what's out there. This can be very time consuming, but can also be worthwhile.
- IP Australia (Patents, Trade Marks & Designs) - you can search for Australian patents here - www.ipaustralia.gov.au
- USPTO (US Patents & Trade Marks) - you can search for US patents here as well - www.uspto.gov
- Patent Lawyers - you can find a lawyer through the institute of patent & trademark attorneys - www.ipta.com.au
- Here's a good overview article on patents - http://anthillonline.com/patently-obvious-7-things-every-business-owner-should-know-about-patents-but-usually-doesnt/
- With all this activity going on, who's going to pay the bills? Most businesses are self-fund to get things off the ground, then if more money is needed before the business is profitable, you need to go out and look for money. These are the common types of investment you can get.
- Self-funded - easy to convince yourself to invest, but does involve your own money. I would recommend saving as much as you can in your full-time job before jumping ship - it's a long swim back to shore! Some people have used their credit cards, but I wouldn't recommend it.
- Family & Friends - depending on circumstances, can be easier to get, but can also make xmas a bit tricky if it doesn't work out.
- Angel investors - cashed up guys who can put in usually $50k to $1M because they think it's a good idea. They really can be your guardian angel if you get the right one.
- Venture Capital - companies with lots of cash whose job it is to find the next big thing, but they'll screw you to the wall to make sure they get their pound of flesh.
- The Bank - OK for a small loan when starting, but they don't like lending much until you're making money. They may also want personal guarantees (ie. backing it with your house) if the amount is more than what the business can reasonably repay.
- This is one area you can really benefit from having a corporate advisor. Your accountant can often help with this or at least point you in the right direction.
- Raising Angel & Venture Capital Finance by Tom McKaskill (Dr Exit) - great free ebook to give you the low down how capital raising works http://www.drexit.net/finance_assets/McKaskill%20Raising%20Finance.pdf
- Sydney Angels - good group of angel investors looking for start-up / early stage companies to invest $100k - $500k (free) - www.sydneyangels.net.au
- Melbourne Angels - the Melbourne equivalent (free) - www.melbourneangels.net
- SA Angels - www.saangels.com.au
- Innovation Bay (Sydney) - angel investor group looking for early stage high growth businesses (free) - www.innovationbay.com
- Business Angels - angel investor group ($495) - www.businessangels.com.au
- ASSOB - a capital raising platform for companies already making money looking for $250K - $5M - www.assob.com.au
- Wholesale Investor - A well established platform which offers profitable growth stage companies the ability to be featured to a large group of investors through their web site, newsletter and magazine - www.wholesaleinvestor.com.au
- Your business will live and die by the numbers. If there's no money at the end of the month, things get ugly, so you want to make sure you get a good bookkeeper to keep track of things. It's good to get someone on board from the start to do things like getting your ATO stuff done. This is possibly one of the biggest headaches when you start a business because if you haven't done it before, it's pretty new and can be confusing. A bookkeeper can do it with their eyes closed, so let them do it and it won't cost an arm and a leg. A bookkeeper will do your month-to-month stuff and your accountant will do your end of year stuff as well as financial advice. It is a good idea for your bookkeeper and your accountant to talk to each other, so set up a joint meeting or con call to get them talking and make sure they stay in touch when there are any changes or accounting decisions to be made. Bookkeepers are cheaper than accountants, but if you get a good beekeeper, they can do a lot of the work that an accountant will often charge you more for. Use your accountant as an advisor as well whenever you're considering anything to do with finances like borrowing money, getting investment etc. A bookkeeper ill cost between $30 and $100 per hour, so look around for a good well-priced one. Accountants can cost anywhere from $100 upwards per hour.
- Bookkeeper - www.serviceseeking.com.au (then search for "bookkeeping" and your location on the right)
- Accountant - www.serviceseeking.com.au/accounting
- Your lawyer and your accountant are a bit like the mafia. They'll protect you when you're in trouble - but you gotta pay up. Massive legal and accounting bills can kill a start-up business if not managed correctly. I suggest getting to know them a bit and explaining that you're just starting up a business and that you can't afford their hefty fees. Tell them about your big plans and how you'll become a good client for them in the future, then negotiate reduced fees and extended payment terms in the first year while you're getting set up. You'll find most people are pretty open to developing a long term relationship and helping people starting out. If they're not, find someone else who is. You're definitely better off finding the right lawyer and accountant from the start than trying to change things down the track. These guys are your support crew when going into battle, so choose wisely and preferably on a recommendation.
- The main things your Lawyer will do for you is give advice on potential deals and put contracts together to make those deals happen. It's always good to have a quick chat to your lawyer before having any serious discussions with people about things like partnerships, investment, major supply deals, employee issues etc. When you're negotiating with people, it's much easier if you're already armed with some good legal advice instead of sounding a bit unsure in a meeting and then having to go back and change things because you agreed to something you shouldn't have. In terms of contracts, you'll either receive a contract from the other party which your lawyer has to review, or you'll get your lawyer to put a contract together. Generally, the bigger party provides the contract because they either already have one or they can afford to pay lawyers to put one together. It's not so bad if they send you a contract, but make sure you're lawyer is fully across it and adds in all the things you need to protect yourself. You always have to ask yourself and your lawyer "what's the worst thing that can happen on this deal?" and then get your lawyer to put in clauses which cover off that situation in your favour. Then ask "what's the next worst thing..."
- Lawyers can be worth every penny and more if you work closely with them and make sure they're well briefed on what you're business is about and what you're trying to achieve with each case they're looking at. Assume they know nothing about the situation and be as clear as you possibly can. They're smart people, but they don't know what you don't tell them. Little things you overlook and assume they know can cost you dearly down the track.
- When putting contracts together with clients, partners or suppliers, always push for the longest term possible as this will increase the value of your company down the track.
- Depending on the type of business you're in, you will most likely need some kind of business insurance in place in case something goes wrong. Like car insurance - it's something you've got to have.
- Talk to an insurance broker about what type of insurance policies you'll need including Professional Indemnity and Public Liability insurance.
- Business insurance brokers - http://www.insurancecompared.com.au/directory/businessinsurance.cfm
- Technology is an essential part of any business. We've already covered registering a domain name and setting up an email address, which you can potentially do yourself, but as with anything in business, if you don't know something, get someone in who does. It's always helpful to have the one person or team to look after your IT because then they don't have to learn what's already in place before fixing something. Using a friend in the beginning is OK, but you'll need to either start paying them or getting someone who does it for a living pretty soon. Calling your mate while he's at work to ask him why your email is down is not good work practice and won't help your friendship. I suggest finding a small but knowledgeable IT business that's somewhere nearby and who's happy to spend the time explaining how things work (if required) or can get on with fixing things. Some things you'll need as you grow include setting up your laptop/s with all the right software, building a network in your office / bedroom / garage so everyone can get on-line and do stuff, building a file server so you can share stuff with others and perhaps most importantly setting up a backup system so all your emails and files and safely stored in case something goes wrong. A new trend in IT is cloud computing which let's you do all your IT stuff on the Internet instead of installing software on your computers to do the same thing. Talk to your IT guys about what you can do, but there are great tools which can get you up and running straight away on-line.
- Elance - find an IT guy - www.elance.com
- Freelancer - find an IT guy - www.freelancer.com.au
- Box.net - can give you storage space and the ability to share docs on-line (free) - www.box.net
- Dropbox - similar to box.net (free) - www.dropbox.com
- Google Docs - no more Microsoft Office (free) - docs.google.com
- Salesforce - a great CRM (customer relationship management) tool which helps you track contacts, opportunities and heaps more ($285 per user per quarter) - www.salesforce.com
22. Corporate Structure
- This is getting more into the meaty part - how it's all structured. We learnt before how a business is different from a company, well now we're going to look a bit more into what are the different structures you can have with a company. When starting out, it can often be a good idea to work with other people to share the load and to bring more skills to the table. It's really important to get right structure in place for the relationship because it very often ends up with an arrangement that doesn't work for everyone. In any working relationship, you'll find that some people do more work than others either because of work ethic, skill set, networks etc. and it's very hard to know up front who those people will be and to set up a fair structure accordingly. Let's look at some of the structures available. If you're at this stage, you need to set up a company because you can't do this stuff with just a business name.
- Equity is the ownership of the company and should be treated like gold - don't give it away easily as this is what you'll hopefully sell down the track for big coin. It's usually thought of as a percentage (eg; you can offer someone 10% of the company), but it's actually in the form of a number of shares, which is a percentage of the total number of shares that everyone has (what's called the issued shares). This sounds like just a technicality, but it means that your percentage can change based on more or less shares being issued (known as being diluted when your percentage goes down). It's important to know that whatever percentage you own at the start will unlikely be the same in the end, but this isn't necessarily a bad thing if you're getting investors on board because they increase the value of the business at the same time. You may have heard people say "it's better to have a smaller piece of a larger pie". As a general rule, you should only offer someone equity if they are putting cash in or going to be a valuable and long term member of the management team. Most other people you can try to offer something else.
- If there's value in working with someone else, but you don't want to give away equity in the company, then you can look at setting up a distribution or reseller arrangement. Bigger companies may have a distributor as well as a reseller, but when you're starting out, they're pretty much the same thing and you can just call it a distribution arrangement.
- A Distribution arrangement lets you separate the ownership of your business idea from the actual sales and marketing of your product or service. If someone wants to sell for you in a certain state or country, then it could be a good idea to give them the distribution rights in that region, so there's no equity or partnership - they set up their own company and just become your distributor in that area. A distributor will usually be responsible for marketing, sales and handling stock (if you have a physical product) and they will often pay for their own costs in doing this (although with larger companies, the vendor (you) would often pay for some or all of this). A distributor would take a margin on all of their sales, and this can vary widely between 10%-50% of sales they make in their region, depending on how much work they do, what industry you're in and what stage you're at. It all comes down to negotiation, but get good advice on what's going to work for you.
- Revenue share is another way to split the spoils without giving away equity. It's similar to a distribution arrangement, but the other party might do something like help with software development, production or operations, as opposed to marketing or selling. Again, you and the other company will remain completely separate, you will just have an agreement in place that defines how the money will be shared.
- You definitely need a good lawyer to give you advice on the right structure and to get the right agreement together to make it all happen.
- There are some sample agreements available on-line (links TBC) which can be a good starting point, but get your lawyer to review them closely before sending them out.
23. Education & Networking
- When successful people (not me) are asked "what's the single thing that ensures success?", they will often tell you that it's your ability to learn and grow. This applies to everything we've covered in this article - you've got to keep reading, going to events and talking to people. I've provided only the very top layer of ice on the tip of the iceberg here - you'll need to learn a lot more to make your business a success. Thankfully, there are some great, often free resources to help you learn more as you travel along your start-up journey.
- Australian Anthill - great blog devoted to innovation and entrepreneurship in Australia. Subscribe immediately - www.anthillonline.com.au
- The Entourage - young entrepreneur group for under 35's - www.the-entourage.com.au
- Slattery IT - put on some excellent events focusing on innovation, technology and business. They also have an IT industry blog called Slattery's Watch - www.slatteryit.com.au
- iPitch - an online community which educates and connects Australian entrepreneurs - www.ipitch.com.au
- Silicon Beach - a good community web site for Entrepreneurs - http://siliconbeachaustralia.org
Hopefully you've found at least one or two useful bits of info to help you get started with your business. Now all you have to do is go out there and do it. Good Luck (you're going to need it!).
- I'm not a financial advisor, so please disregard everything I've said in this article. You should get advice from people who know what they're talking about (lawyers, accountants, advisors etc.)
- All prices are in Australian Dollars (AUD$)
- The indicative prices were current at the time of writing and may have changed since then. You'll find out the actual prices when you follow the links.
- If you have any other great tips or resources to suggest, please drop me a line.