Mark Bouris: The pitfalls to avoid

Let’s face facts: now is not an easy time to start a business. The Australian Bureau of Statistics has reported that 31,528 small businesses closed between the 2007 and 2010 federal elections. It’s no wonder, considering the many difficulties small businesses face from the beginning.

People blame the government for swathing start-ups in red tape, or not offering enough guidance and support for SMEs. They say it’s too tough to access capital and that getting a line of credit is nearly impossible. I know because I see it every day. My company, Yellow Brick Road, has a small business advisory, so we’re constantly speaking to businesses and assisting them with their financial needs and questions.

The federal government has taken initial steps to support small businesses by offering $5000 write-offs for work vehicles, a $700 million reduction in tax instalments paid under PAYG, and an early reduction in company tax rates. We have to start somewhere and I applaud the government for offering this support. But truth be told, it’s not the government that should be responsible for fixing the plight of small businesses. SME owners have to be responsible for their businesses themselves.

A lot of people start businesses for the wrong reasons. They are fed up with the boss and think they can do better on their own. They want the flexibility of running their own show and don’t want to be chained to a desk. They see the people who make millions on one big idea and think, “Hey, I can do that!” Regardless of reasons, if you’re starting up a business you must be prepared to be accountable for any outcome.

A business owner expecting a handout, waiting for a contribution or hoping for the next big deal is going to have a tough time getting ahead. But a business owner who operates on passion, smarts and a can-do attitude is one who will ultimately win.

In the beginning, pitfalls are common and there are four that are likely to plague any business that’s starting. If you can avoid or overcome these, you’ll be setting yourself up for success.

1. Underestimating the time and money required to get your business going. Do your homework, talk to an adviser and constantly factor in the worst-case scenario. If you build a business plan based on everything going exactly the way it should, you’re more than likely setting yourself up for failure. It might not be the most optimistic mentality but it’s the most realistic.

2. Risking everything without having adequate protection if things turn bad. Starting a business is exciting and it’s easy to lose sight of what might happen if things don’t work out exactly as planned. Make sure you have the proper insurance and consider putting some money aside that will support you if the business folds.

3. Jumping the gun and getting locked into expensive assets. The greatest expense for a business is usually the lease on premises. But jumping into a multi-year commitment on an office or retail space before the business has taken off can be a real risk. Don’t get lured into leasing a fancy office or buying bulk stock at a discount until you’re sure your business is both stable and profitable. The last thing you want is to be stuck with assets you can’t use.

4. Thinking too small and effectively “buying a job”. It’s all too common for people to invest their hard-earned dollars into starting a business and then getting stuck paying bills, chasing invoices and doing admin. As a business owner, you have to stick to the plan and make sure you have someone there to challenge you and ask the tough questions.

This advice might seem harsh but it’s merely a snapshot of the perils that nearly every small business owner faces. Having a business means you have to be thick-skinned, have realistic expectations, and be ready to take some hits. If there is one thing I have learnt as a business builder it’s that there is no such thing as a free ride, or an easy one. So there is nothing more valuable than having an adviser who has been through it before and can offer advice when big decisions are on the line. Being a business owner isn’t rocket science, so if you’re practical, dedicated and willing to put in the hard yards, you’re already well on your way.

Have a question for Mark? Email him at MarkBRW@ybr.com.au, or follow Yellow Brick Road on Twitter at www.twitter.com/ybrwealth.

Next week: Kogan and Milan Direct founder Ruslan Kogan

BRW

Comments (0)