Question:
My partner and I would like to purchase a small cafe. It is being sold for $39k. The banks won’t lend us money as they say cafes are too risky and we don’t have enough equity in our unit. What are our options? What is vendor financing and how do we go about it?

Answer:
Vendor financing is basically where the vendor allows you to pay off the business over an agreed period of time. Not all vendors are willing to enter into a vendor finance arrangement so you will need to discuss this with the owner of the cafe first to see whether they are willing to consider this.

If this is your chosen finance path you will need to seek the advice of a legal professional to draw up an agreement clearly setting out the terms of the finance.

There are many issues to consider when looking at vendor finance including, but not limited to:

• what happens in the event of a default on payments?
• who owns the business while the finance is in place?
• will the vendor have any say in how you run the business if he is providing the finance?

Generally speaking banks look for 3 things when considering an application for finance:

1. what is the financial track record of the business?
2. what security can you offer to cover the loan?
3. what experience do you have in the industry and in running a business?

Other issues you need to consider as part of the “buying a business” process include:

• have you had an independent valuation on the business?
• why are the current owners selling the business?
• if you have not been in business before, are you sure that you are ready to take the plunge?
• have you prepared a business plan and cash flow for the business?
• what working capital will you need in addition to the purchase price of the business?

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Question:
I have just started a new business within the mlm (network marketing) industry and I would like to know at what point do I start paying tax and what forms do I need to fill in? I currently am working in a full time position so how does this affect my current tax rate?

Answer:
If you have already started your business, I presume you have already registered a business name and obtained an ABN? Have you registered for the GST? If not, I suggest visiting the Government’s Business.gov.au web site where you can register a business name and apply for an ABN.

You should also check out the ATO’s site which will help you understand your obligations and it also has a forms section. If you are working full-time for someone else as well, I presume they are deducting personal income tax from your gross pay. Depending on how much “extra” you are earning, you may want them to withhold additional tax.

You really need to sit down with your accountant and make sure that the structure of your business is tax effective for your current situation. Remember, even if you are operating as a sole trader, you still need to declare any extra income in your personal income tax statement and this extra income may put you in a new marginal tax bracket.

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Question:
I’m thinking of starting a new business but obviously I will need to raise funding. What are my best options?

Answer:
Your individual circumstances will dictate what will be your best course of action as far as funding is concerned. Obviously, your first option will be the financial institutions and obtaining a business loan.

You can also consider what is known as a “business incubator service” which are private businesses, often set up with government assistance, which foster the development and growth of small business. They typically provide low-rent premises for new businesses as well as free or low cost financial counselling. You can check the Business Entry Point for information on state incubators or your small business advisory service.

In addition, you could apply for government grants through GrantsLink or check the New Enterprise Incentive Scheme which helps job seekers starting their own businesses.

However, before you can apply for any finance, the most important thing you can do for your new business is to create a business plan. A business plan can mean the difference between a successful venture or a failure.

Filed under: Starting a Business, Banking & Finance, Government Assistance, Venture Capital | 2 Comments

Question:
I’ve just started a women’s clothing store and I want to make sure I’m properly covered insurance wise. I’ve received some quotes for a range of different policies and I’m getting conflicting statements of what I need. What should I be looking at and who should I go to for the best advice?

Answer:
Insurance should be suited for individual circumstances wherever possible. However, there are some basics you should be looking at such as:

• theft
• fire damage, and
• public liability insurance (in case a customer is injured on your premises).

You will also need worker’s compensation insurance if you have staff. As you are just starting your business, you should also consider some form of life insurance in case you have an accident and the business fails as a result.

Many insurance providers will offer packages for businesses which works out cheaper than buying policies individually. You might want to consider using an insurance broker who will be able to tailor an insurance package for your needs and get the best price.

Filed under: Starting a Business, Insurance & Business Protection | 1 Comment

Question:
I’ve just started my own business as a sole trader and I want to know whether I need to register for the GST or not.

Answer:
There are a number of criteria for deciding on whether to register for the GST. Registering is compulsory if your annual turnover is more than $50,000 annually or is projected to be.

It is also compulsory if you operate a taxi or hire car. If your annual turnover will be less than $50,000, then the choice to register or not is up to you. Most businesses, however, choose to register so that they can claim input tax credits. In the long term, you may be better off registering for the GST.

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Question:
I’m thinking of starting a business from my home but I don’t want to spend a large amount of money on the business until I know whether there is a market for it or not. What are the basics I should do when starting a business?

Answer:
Regardless of whether you intend to operate from home or not, or the amount of money you want to spend, there are number of factors which have to be considered when starting a business.

For instance, have you contacted your local council to see whether they have any rules or regulations which may prohibit certain businesses from operating in your area? You may also need a permit to operate your business.

You will also need to register for an ABN otherwise whatever income you receive, 48.5% will be withheld for the tax office. The simplest way to register for an ABN would be initially as a sole trader. You will also have to decide whether to register for the GST or not, depending on the type of business you intend to run as there could be tax implications.

Registering doesn’t cost anything but time, but I would suggest that before you spend any funds on your “potential” business, you research your idea thoroughly and create a business plan. A good accountant should be able to help you with this.

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Question:
What are some of the common mistakes I should try to avoid when starting a new business? It is my first time and I’d like to try and make sure my business is successful.

Answer:
When starting a business there is so much to learn is so little time. With so many things to do, and so many important decisions to make, it’s easy to lose sight of the big picture. It is a good idea have at least one external mentor who you can turn to from time to time to get second opinions on your strategies and directions.

This is particularly useful as they don’t work in your business and so are not emotionally attached to what you are doing. They will be able to look at your business from an outsider’s perspective, and often with a clearer view of the big picture.

Below are some common mistakes made time and time again by start-ups. Think about these points as they might apply to your specific business.

• Forgetting the importance of cash flow - Many companies with great products, great people and great prospects go out of business each year because they don’t pay close enough attention to their cash flow. Even profitable businesses can hit a cash crunch and lose everything. Nothing is more important than watching your cash every minute of every day. Spend time early on developing good cash-flow management and forecasting habits. Once you can see cash-flow problems coming six to eight weeks out, you’ll have time to do something about them.
• Lack of clear direction & focus - It’s imperative to know what you do (and what you don’t do) and always communicate that message to customers. It’s easy to lose your focus, particularly when sales are down and you see an opportunity to make a few bucks on a different product or service. It’s easy to think that if you get some revenues from this and some revenues from that, you’ll wind up with big profits. Usually, though, the opposite it true. Consider this; if you needed a heart bypass, would you go to a heart surgeon or to your family doctor? People believe that a company that specializes in a particular area is better at it than a company that says it’s good at many things.
• Too many overheads - This is a real killer, and it’s hard to guard against because it sneaks up on you. When things are going well, you’re likely to forget last year’s hard times and assume business will always be like it is now. You’ll be tempted to buy that new building, hire extra employees, buy new furniture and purchase nice custom paintings for your lobby. Then the business hits a down cycle, and you can’t make your payments. While you were out spending money, the more experienced entrepreneurs were making do with their old desks, worn carpeting and rented office spaces. They have enough cash to weather the downturn, and when the smoke clears, customers who once bought from you will now buy from them. So watch overheads like a hawk; question every dime you spend. Don’t be afraid to invest money to make your company better, but don’t spend it on things that look and feel good but don’t make the company stronger.
• No commitment to self-education - One of the best things you can do to increase your chances of success is to firmly plant this idea in your mind; you have so much yet to learn, and everyone you meet can probably teach you something. It’s crucial that you become a learning machine. Commit yourself to reading books and magazines and listening to audio tapes. Long-term educational commitment is hard for most people because the feedback loop is so long. It often takes a year or more of hard work before you start to see the benefits. Once you get there, though, you’ll start to think more clearly, understand more of what you see and read, and your entrepreneurial vision will become clearer. A major difference between success and failure (or, more often, success and mediocrity) is the attitude that makes someone listen to a business tape on the drive home from work instead of the radio.

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