New Business

[drewmania]

Hey guys, I know this forum is geared towards property investment but I've got a different topic to talk about today.

I'm in the process of setting up a new business which I'm very excited about.

One of the problems I've been having is the lack of good advice from people who have been there and done that.

Just to give you a quick rundown I'm going to be producing online software.
Development time is quick, theres no staff at the moment and ongoing costs are close to nil. Support will be online to begin with so this means very little overhead.

There are so many items to consider but as its not a standard business like a cafe or a milk bar, general text book advice just wont cut it anymore.

I've been trying to generate marketing plans and do valuations of the business, inquire about business structure and investors to help kick it off the ground.

It would be really great to talk to some business guru's, sales experts, online-IT geeks who may be interested in helping out or pointing me in the right direction.

I'm not sure if there are more specific forums for this, or some online help I can turn to, or some guys out there that are interested in hearing what I've got to say.

If any of this spikes your interest I'd love to have a chat, so if you, or anyone else out there would like to know more please reply or pm me!

Thanks for you time,

drew.

 

[Ace in the Hole]

Hi Drew,

I'm no business guru thats for sure, but I started online business 18 months ago with a 12k initial stock purchase and it's working for me. Still no staff (wife helps me) and should turn over 1 mil this year, selling gym equipment imported directly.

My advice would be forget the books, don't worry too much about opinions and just do it. It may work and it may not, but you have to make a start and try. As long as you gain experience from it, that is the valuable part. I've tried a few business opportunities before and failed at all of them, but it gave me the experience and knowledge to break through this time.

Im not too sure why you are thinking about valuations of the business, inquiring about business structure and investors just yet. Didn't you say costs were low with low overheads?

Good luck with it and I hope it works for you.

 

[Macca]

Hi Drew,

Unless you have a very long CV in similar things or some rich friends, I doubt that you will be finding anyone interested in investing money in your venture.

I don't know how old you are, but many bright young people have good ideas, some work, some don't, but the ones that seem to do best are those where the people work as good as the idea.

I do think it is a good idea to think about your trading structure ie sole trader, partnership, company or trust.

If you have assets it may be best to create some protection for these, but apart from that it really is "the harder you work the luckier you get" when starting a fledgling business.

Get some runs on the board then start thinking about expanding and venture capital.

Mostly I wish you good luck, I have started about a dozen cos, some worked some didn't, got smarter with experience though

 

[drewmania]

Thanks for the response Adrian!

I should have filled you in on all the details but its a little hard to explain my vision. I should say that I'm going into business with someone else. The online software has a number of markets and many different angles we can sell from. It will require much more development time and there are a number of different ways we can start to sell it.

My advice would be forget the books, don't worry too much about opinions and just do it.

I'm actually trying to keep ontop of all that stuff, just to keep things organized. Like I mentioned I haven't really done anything like this before so I thought I'd do it right! Don't get me wrong I'm still getting out there and doing all the fun stuff, just thought I should tackle the books as well.

Im not too sure why you are thinking about valuations of the business, inquiring about business structure and investors just yet. Didn't you say costs were low with low overheads?

As above, I'd really like to get a hold on everything. To keep me and my partner afloat, we might look to investors, possibly someone with sales/business experience and $$$ to throw in. This is just an "option" for the future, my thinking is if i get all of the details worked out now, I won't have to run around like a headless chook if and when we decide to present the business idea to someone in an official sense.

I showed my partner the post and he cracked up laughing! He's quite happy to travel along working on the product. I'm trying to make sure we're heading in the right direction, and we don't do something silly along the way that will cost us downtime, money, legal issues or whatever.

Just to fill you in a little here is my master plan as it were.

Step 1 - Build up online sales, which require little-no support and bring in regular $$$ with little-no overhead.

Step 2 - Slowly take on more custom projects that will bring in more $$$ and require some overhead initially, but still very small on the support end.

Step 3 - Asses the situation, try and generate enough money to work on biz fulltime ... expand in above areas and launch some more "advanced stuff" as well.

If Step1+2 can make the money we need, I hope we never have to borrow money from someone else

Hopefully that clears things up a little.

 

[The Y-man]

In case mods are a bit sus about drew's post - I directed him here, so he's not a spammer.

Cheers,

The Y-man

 

[Peter 14.7]

Thanks for the response Adrian!

I should have filled you in on all the details but its a little hard to explain my vision. I should say that I'm going into business with someone else. The online software has a number of markets and many different angles we can sell from. It will require much more development time and there are a number of different ways we can start to sell it.

.

Well Done for Having Go

I have run my own business twice. My present one is 6 years old . My advice is:

Partners!!!! Warning this is very hard to get right. I tried twice to get a partner to expand and both trials failed. Maybe it is me but I found some guy want to plan and not work, others want cash now and don’t want to leave any for the future.

My accountant warned me it would be hard and we even got a bus. expert in to workshop the new deal and he was right. So:

Someone has to be in charge so if you must share make it 51% one and 49% other. Clearly define in writing the bus goals, income, costs, wages, fringe benefits. What happens if your wife does all the books say 10 hours a week and the partner wife’s does 0 hours? Does she get a wage or is there an adjustment in wages for you?

Get a very good business account to advise on set up for now and the future, consider Pty Ltd being owned by a family trust to income spilt and defer.

Keep Costs LowClients in your game want value for money service over flash office, cars, seminars, marketing brochures, etc. Don’t buy anything you will not use a least weekly. A taxi is cheaper and more efficient than Company Car

Brand and Business Idea protect both. The world is full of partners or staff who left and copied a great idea.

Protect Your Assets If you are in business as a sole trader and you get sued yopu can lose the house. Pty Ltd helps but again better to have it all in the wifes name.

Have deep pockets Cashflow is what kills most businesses.

Books in Order Get MYOB or Quicken ( ask your accountant but we swear by MYOB) and learn it and use it or pay someone to use it. With GST being very strict you must know your position every quarter.

Regards, Peter 14.7

 

[drewmania]

Thanks for the reply Peter!

There's so much advice to take into consideration.

I've got a good accountant that will be helping out with the finner details.

Last time I spoke to him he mentioned either Company or Trust depending on our needs. I still have to meet with my partner and my accountant.

After all this i've come to the conclusion that two things are important.

1. All that paper work to make sure we are clear on who's doing what etc.
2. Generate cashflow to keep the business running and build customer base.

 

[Peter 14.7]

Correct! Cashflow as the cliche goes, is king!

A business is to make money. If you not making at least what you could in the Job why bother. It is not status, power, being in charge, etc...

The bonuses are in the structure and moving income.

For instance: one year I sold an IP and made $200k CG. So that year I paid myself $5k in wages, put $35k in super (the max limit) and left profit in Company for next year when no CG was due. All legal. Lowered my tax bill by $40k or so.

Peter 14.7

 

[drewmania]

Peter that is the coolest thing i've heard all day, I never thought i'd ever be happy about getting 5k p/y

 

[twobobsworth]

Is there any way you can just do a couple of sales to test the water. Like on ebay or similar. It sounds like your pretty keen which is great and I'm sure you've got a great idea, however that does not guarrantee success.

I would be doing this before spending any money on accountants, lawyers organising structures etc.

 

[Peter 14.7]

Peter that is the coolest thing i've heard all day, I never thought i'd ever be happy about getting 5k p/y

Except when you try explaining it to my bank

In fact , one BIG disadvantage of running a business it getting loans.

So I suggest if you need loan funds or have equity and might need cash get a LOC now before you leave work. You can loan that to the bus instead of an overdraft which costs $$$$ just to have set up.

It always amazes me that Banks will loan whatever on a payslip from any employer including me but want two year docs and then still don't believe you when you are a owner of that company!

Regards, Peter 14.7

 

[The Y-man]

.... Pty Ltd helps but again better to have it all in the wifes name.....

Sound like you need to get married before you can start up a business...

Cheers,

The Y-man

 

[drewmania]

quick update

just an update for anyone who has been following the post.

we've quit our jobs, got some funding and will be working on the business fulltime!

yay

 

[Peter 14.7]

Congratulations Drew

The first few years are hard but once you get set it is very rewarding.

BTW ignore that 95% of small bus. fail in the first year. It is an urban myth.

Offer honest, fair, value for money and you will not go wrong.

Peter

 

[handyandy]

Except when you try explaining it to my bank

In fact , one BIG disadvantage of running a business it getting loans.

So I suggest if you need loan funds or have equity and might need cash get a LOC now before you leave work. You can loan that to the bus instead of an overdraft which costs $$$$ just to have set up.

It always amazes me that Banks will loan whatever on a payslip from any employer including me but want two year docs and then still don't believe you when you are a owner of that company!

Regards, Peter 14.7

Isn't that the truth.

To get loans through the various entities has taken up to 1 year to organise. It simply comes down to the bankees not understanding anything but the standard.

Cheers

 

[willair]

I've been trying to generate marketing plans and do valuations of the business, inquire about business structure and investors to help kick it off the ground.

Well Done,you seem to have a clear picture of what you want
to be,as i know nothing about i/t software how do you intend to
be different and standout from every other small businesses like yourself
that will be setup in the same way..
I would not worry about the value of your Business just yet value finds it's own level in it's own time..
If you have the time read this book The E Myth Micheal E Gerber i only have an old copy but it covers all Management,Marketing,and everything else
and it still works in any timeframe..
.good luck willair..

 

[beech]

Good luck with it all.

Just thought id mention Dan Kennedy,an American who knows Business and Marketing very well.
Has a number of books available,so find which one might suit your needs now.

Do you have a site we could have a look at?

 

[JFisher]

Hi Drewmania

Peter's advice is excellent along with everyones elses. If I was to add anything it would be to draw up a business plan. This is especially important if you have a partner as you both then have on paper a clear direction for the short-term and long-term. These goals can be reassessed every 12 months or so and adjusted or ticked off. If you don't plan to succeed you are planning to fail. If you can present to your bank a business plan with projected cash flows based on reasonable assumptions of the market of your business then the bank will certainly be swayed more in your favour.

Also in regards to partnerships, I would suggest that even if you only draw up a basic partnership agreement, I would insert very clear procedures for determining what will happen in the event one partner wants to leave or you decide that it isn't working and want to dissolve the partnership. I have recently been advising young relatives who are going through a messy partnership split and all could have been avoided if they had initially worked out -
1. How the business would be valued in the event of a split.
2. What would happen in the event both partners wanted to buy out the other.
etc etc.

As Peter mentioned, cashflow is king; what sends most business sour in the first ten years isn't just that sometimes the work runs out. More often than not it is that their financial management couldn't keep up with rapid growth, or their management of debtors/creditors procedures was sloppy. You have to have prompt invoicing and payment terms, debtors have to understand that you are not a bank. Ensure that you also pay your creditors within their terms. As you progress in your business you will see trends emerging and will be able to get your bank or financial advisor to structure any necessary overdrafts, LOC etc to smooth out the highs and lows. Always remember that these funds can never be used for personal use (another trigger for inexperience small operators to get into financial trouble).

I also use MYOB and it is by far superior to anything else. It is also a bit harder to learn initially but will be able to provide you with every report that you need (and even more that you probably will never need). You used to be able to download a trial version from the MYOB website so you could check to see if it is still available. You should learn how to look at a profit and loss & a balance sheet and understand what the figures are indicating. Westpac have an excellent course Beyond Survival which gives participants practical financial tools to measure and improve business performance. I have sat through one day of this 3 day course and it was fantastic. As a disclaimer I do not bank with Westpac and was a guest of someone attenting the seminar.

Another valuable tool to use in business is benchmarking. If you head to the Australian Bureau of Statistics or the ATO website you can purchase information relevant to your field of business. You are then able to compare your fiscal management, size, turnover, staff, Gross Profit Margins (GPM's) etc with other similar business. You should do this once a year when you recieve your partnership or company accounts. It can certainly help tighten up any areas that you may be slipping in when you can see that other similar companies are more proficient at it.

It is very hard to value intellectual property or goodwill, so until you have something physical to show and some history you will probably have to wait on this.

Good luck on your new venture.

 

[aef]

Link

http://discuss.joelonsoftware.com/?joel

http://discuss.joelonsoftware.com/?biz

I would recommend having a read of the above two sites. They are a mainly American community but their main focus is on-line software sales.

Good luck with your new venture.

Regards
A