Small – medium enterprises

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					  Small – medium enterprises
  Starting your own business

  Series 2 – Issue 1

  As part of the Institute’s ongoing
  efforts to provide members and        Starting your own business
  their clients with guidance and
                                        Sue Prestney FCA, Partner, MGI Melbourne
  information on key issues affecting
  the current business environment,     With a protracted recession and a sharp rise in unemployment,
  the Institute has developed a
                                        one of the side effects is an increase in the number of small
  practical factsheet series written
  by members.                           business owners. However, for the first time business owner it
                                        is a daunting prospect.

                                        Therefore it is important that a few key issues are addressed by SME owners
                                        and start-ups. The guidance has been aimed at potential owners and operators
                                        considering starting up their own SME. The guidance has been aimed at reducing
                                        and minimising the impact that the current economic conditions have on a start-
                                        up company.
                                        The boss
                                        If you think you are going to be your own boss – think again. You will have an
                                        endless stream of people telling you what to do, including your customers, your
                                        bank and the Taxation Office. All levels of government will impose regulations,
   tobeyourownboss–think         ranging from where you can conduct your business to what staff you can refuse
   again.Youwillhaveanendless     to employ.
   streamofpeopletellingyou        Menial tasks
   whattodo,includingyour          You will have to perform tasks that no corporate executive has contemplated
   customers,yourbankandthe        because there is nobody else to do them – washing the coffee cups, taking out the
                                        bins, backing up the computer and changing the cartridges, renewing the domain
   TaxationOffice.’                    name and making sure the website is maintained.

                                        Success vs failure
                                        Doing the boring bits can be the difference between success and failure. Business
                                        owners who concentrate on establishing their systems before they start operating
                                        have a much better chance of success than those that embark enthusiastically on
                                        trading and leave systems issues unattended until a crisis means they can no longer
                                        be ignored. It is no surprise start-up businesses fail due to poor systems.

                                        Business plan
                                        A business plan should be costed into your initial funding requirements. It can be
                                        critical to your investment decision itself and the future success of the business
                                        – but it must be done thoroughly. The business plan is the road map for your
                                        business. Spend the money to get the business plan right as it is an investment, not
                                        an expense.

                                        Make sure you have sufficient capital – not just for the purchase price but also for
                                        working capital. Your business plan should show you just how much funding you
                                        will really need.

                                                                                                          Continued overleaf >
  Small – medium enterprises
  Starting your own business (continued)

                                                                            A business sinks or swims on its cash-flow. It is vitally important that SMEs maintain
                                                                            their control of this during these difficult times. Guarding against bad debts is a
                                                                            priority. The best way to ensure this is by keeping in regular contact with your
                                                                            customers and clients and examining and monitoring their payment patterns.
                                                                            In this instance there is no such thing as too much communication.

                                                                            Stock management
                                                                            The employee that orders the stock for your business is extremely important.
  ‘tisvitallyimportantthat                                            Businesses need to be aware of the severe cash-flow impact of having too much
                                                                            stock. Maintaining adequate stock management measures will assist a small business
   yourbankingdeadlinesare                                              ride the impact of tough economic conditions. Without stock management a small
   met.Inthecurrentclimate,                                            business is unlikely to be able to pay suppliers and worse case scenario may have
   banksdonotneedany                                                   to possibly liquidate its stock or even the entire business. Overstocking in the current
                                                                            climate is a serious issue and can lead to long-term issues.
   theircreditsupport.’                                                   Foreign exchange
                                                                            With the continued instability of the Australian dollar, foreign exchange movements
                                                                            need to be monitored by small businesses that import and export their products. It
                                                                            is paramount that importers move quickly to raise their prices following a drop in the
                                                                            Australian dollar. It is also necessary for them to have an adequate margin of forward
                                                                            cover, in which to dilute any sudden downward movement.

                                                                            Banking relationships
                                                                            It is vitally important that your banking deadlines and covenants are met. In the current
                                                                            climate banks do not need any encouragement to withdraw their credit support. To
                                                                            combat this, small businesses need to be planning and preparing their future finances
                                                                            for the next 12-18 month very carefully. Businesses must also keep their records and
                                                                            accounting up-to-date and plan cautiously in order to survive and prosper

                                                                            Seek professional advice
                                                                            When you are facing situations which are new, it’s often a good time to seek
                                                                            professional advice. It’s no secret that taxation laws are complex, as is the current
                                                                            business environment, so rather than getting it wrong and being exposed to heavy
                                                                            penalties seek expert advice from a Chartered Accountant.

                                                                            For more information, guidance and tools on the global economic downturn refer

  About the author
  Sue Prestney FCA is a partner at MGI Melbourne, Sue is focused on taxation and business
  advice particularly family business advising. Sue has written The ABC of GST and The                                                    Neither the Institute nor any of its directors,
  ABC of BAS. Sue is also the Institute’s spokesperson for SMEs and has a regular column                                                  staff and associates shall be liable on any ground
                                                                                                                                          whatsoever to any party in respect of decisions
  in the Institute’s flagship publication Charter magazine.
                                                                                                                                          or actions they may take as a result of using this
  For further enquiries please contact Sue Prestney on:                                                                                   publication nor in respect of any errors in, or
                                                                                                                                          omissions from it. The information contained in
  Phone 03 9521 3000                                                                                                                      this publication is a general commentary only and
                                                                                                                                          should not be used, relied upon or treated as a
  Email                                                                                               substitute for specific professional advice. This
  Web                                                                                                         publication presents the views and opinions of the
                                                                                                                                          author and not necessarily those of the Institute.

  ABN 50 084 642 571. The Institute of Chartered Accountants in Australia Incorporated in Australia Members’ Liability Limited. 0609-02

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