New Start-ups: Three key steps for successfully setting up your new business
Starting up a new business can be both exciting and challenging. Understanding the path which lies in front of you is often the biggest hurdle, as there are a lot of elements that requires consideration before trading commences.
Below, the article provides three key steps that are vital to all new ventures. These steps assist starts up in navigating the initial teething phase.
1. Understanding the Market Obviously, it's imperative to understand if there is a market for your products or services, and how that potential market segment is currently occupied, re: existing competitors.
Trying to identify how you differentiate yourself from a saturated market is a lot of trial and error, i.e) low cost / high volume or high cost / low volume strategy.
Once you work your way through your strategy, you start to identify what your 'Why' is.
Why should consumers purchase from your business and not established competitors?
Why is your product or service better value than existing offerings?
Why is your business important to the local economy?
Once you work out your Why, you can start to price your products or services accordingly to become more competitive. Understanding if the market would be prepared to purchase more volume if your prices were reduced, or whether you have the support to increase prices and maintain market share. This is when the bottom line margin starts to take shape and provides companies with options to grow and diversify.
2. Select the Correct Business Structure from the Start! The success of your business often depends on its structure, so you need to carefully decide whether to operate as a sole trader, partnership or propriety limited (PTY) company. As a small start-up, you may think that it’s easier to commence operations as a sole trader and then change to a PTY company as your business begins to grow. This approach could be a problem, as the conversion is often consuming and costly.
A PTY company protects your personal assets and limits your liability, where a sole trader in comparison has little protection. If you set up the right structure at the beginning, you protect not only yourself but also future-proof your business. Another consideration is tax, knowing the taxation requirements is important as tax legislation are different for respective structures. It’s important to understand the taxation requirements of each business structure and select wisely. Regarding remuneration, as a sole trader, you can withdraw money to pay yourself from your business’s profits. As a PTY company, you have to pay yourself a salary with PAYG tax, superannuation, and a group certificate at the end of the financial year. Your payment options will depend on your business structure and if you get this wrong, the ATO will notice!
3. Protect your Business with Insurance - Imperative! A common mistake often made by many start-ups is not having the right type of business insurance in place before trading. Regularly we see businesses choose to delay the purchase of their insurance until they generate steady cash flow. Obviously the start-up phase is the most vulnerable period for the majority of business and this is the crucial period where insurance provides the greatest value.
Unfortunately, businesses do make mistakes, and we generally see a higher frequency of mistakes made earlier in the piece. This is quite understandable when you compare a start-up to a mature business, where the matured business has evolved to host strict structures and processes for quality control, generated from a long period of operations.
Key insurances for start-up businesses include (but not limited to):
Required to operate to protect third parties, which are related to your business
To cover you for the professional advice you provide
For periods where the business cannot trade, due to reasons out of its control
Plant & Equipment
Generally required to purchase equipment on finance, protecting your assets
Imperative if you are collecting income or clients sensitive information
Legally required to protect your employee's health & safety
Knowing how to structure your new start-up is the key to setting up your new business successfully. To decide what type of insurance policies are suitable for your business, talk to Risk Guidance Insurance today.