Going Out On Your Own?

Going Out on Your Own? A Guide to Success in Business

Lance Spicer

Trident Press

Copyright  Lance Spicer 1998 This book is copyright. All rights reserved. Apart from any fair dealing for the purpose of private study, research, criticism or review as permitted under the Copyright Act, no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording or otherwise without prior written permission of the publisher. Published by Trident Press Pty Limited PO Box 3068, Bangor NSW 2234 Australia Email: [email protected]

Web Site: www.tridentpress.com.au ISBN 0 958606 021

Australian Produced and Manufactured Cover Design: Michael Shaw Design and Print Production (02) 9882 3444 Printed By: Hippo Books, 18 Primrose St, Rosebery NSW (02) 9313 7811 Disclaimer All references to companies, firms or organisations have been made on the evidence provided by governmental authorities, consumer protection organisations, private investigators and other reliable sources. The material in this book is of the nature of general comment only, and neither purports nor intends to give any accounting, legal, tax or investment advice. Readers should not act on the basis of any matter in this book without first considering, and if appropriate taking, professional advice with due regard to their own particular circumstances. The author and publisher expressly disclaim all and any liability to any person or organisation, whether a purchaser of this book or not, in respect of anything, and of the consequences of anything done or omitted to be done by any such person in reliance, whether whole or partial, upon the whole or any part of the contents of this book. In no way is it the intention of the author or the publisher to encourage readers to evade tax or any lawful responsibility that they may have. The author and the publisher will not accept any responsibility for any errors or omissions.

Always seek professional advice from a Licensed Investment Adviser or Solicitor prior to acting upon any information in this book.

Introduction I started my first business after 11 years of being an accountant and executive for companies involved in investment, property development, mining and marketing. With this type of background who would have thought my first business would be Catering. That was back in 1988, and my wife, Val and I built it up from nothing to being run off our feet within 6 months, and of course making lots of money. It was an interesting experience and kept us going 7 days and most nights per week. It was never going to be a business that you could continue to do for a long time and still have time to “smell the roses”. So after about a year we decided to sell the business and have a change of pace by moving from Sydney to Queensland. Once in Queensland I started consulting as an accountant to the management of a company called Qintex that was trying to salvage what they could of the “wreckage” brought about by the demise of Christopher Skase. They needed somebody to track down “missing” assets and when found liquidate or sell them for the benefit of the creditors and the long suffering shareholders. Unfortunately, it is now history that the creditors and the shareholders were the big losers and that Christopher Skase now enjoys a wonderful life at their expense. To all those Qintex investors, sorry I couldn’t find more assets but “someone” beat me to them. We enjoyed Queensland for a couple of years and then decided to return home to Sydney. That was in 1991. I then decided I would be become an employee again as we were all suffering the “recession we had to have” (thanks Paul, it was fun!)

1

Going Out on Your Own? and I decided it would be more prudent to let somebody else take all the risk for a little while we settled back in and built our new home. I was back in the property development industry working for a major listed diversified developer and builder. My job was to look after the group’s accounting, tax and finance. It was a challenging job and required many hours of work outside of nine to five. We were beginning to enter the “downsizing” revolution, which tended to mean in those days “don’t employ any staff”, even if you really do need them. I learnt fairly quickly how to cope with excessive hours and pressure without losing my sense of humour and focus. Deep down I knew being employed was never going to be a long term solution. In reality it was a short term solution to a long term plan. I have always known that you will never get rich creating profit for someone else. However, you will make them rich, and for this they will be eternally grateful…..(if you believe that, you believe in fairies). Most companies regard employees as a commodity just like raw materials in a factory or goods in a shop. You will never achieve true financial freedom working for someone else, they will achieve financial freedom by getting people like you to earn profits for them. By 1994 my job was becoming repetitive and taking even longer to do as the group expanded into other states and New Zealand (still no extra staff for my department… “they cost money”). I decided it was time to make plans to Go Out on My Own, again. In early 1994, I had had a long discussion with a friend of mine, Rod. He had been operating an automotive battery business for 16 years and asked me if I had any ideas on how he could unlock the goodwill in his business or possibly expand the business. He was tiring of being a sole trader and as

2

he was approaching 40 wanted to “take the next step”. We spoke several times about the potential of the business and how it operated and decided the best way for him to achieve his goals was to franchise the business. He asked me to join him as his business partner. He would look after the technical issues of the business and I would control the administrative and marketing side. I thought this was the excuse I needed to begin the rest of my life. Once again I would be free. Free of set office hours, unreasonable deadline, corporate regulations and could exercise the creative side of my brain. All accountants yearn for the opportunity to be creative and get involved in different aspects of business other than accounting, administration and computers. Within weeks we had incorporated a company and were preparing a procedures manual as this is the most important piece of information in any franchise operation. By 1996, we had over 30 branches in most states of Australia. During this time, I also had time to pursue my “dream” which was to write business books. Again, this was the repressed creative side of me that was trying to escape. Although the subject of my books would still be confined to what I knew best, investing, taxation and business. In 1994 I self published my first book, the Invisible World. It is now officially a “Best Seller”. My other books The Australian Share Market Guide, Invisible Banking and High Yield Investments are on their way to achieving official best seller status as well. I couldn’t be happier. In 1996, I decided I needed more time to concentrate on my writing and decided to part with

3

Going Out on Your Own? my battery franchise partner, Rod. This didn’t prove to be a disadvantage to Rod, the business is now selling franchises in New Zealand, Britain and the United States. He caught on to the franchising concept very quickly. He and I are still good friends and exchange business ideas on a regular basis. Now, you maybe saying to yourself why is this guy telling me his life story? There is a point to it other than acquainting you with the author of this book. The point is if you have the desire and determination you CAN achieve financial freedom. It is within all of us. You don’t need a degree or a special qualification to do what you want in life. For instance, I’m an accountant and I have run very successful businesses in Catering, Automotive products, Consulting, Writing and Publishing. What could be more “unaccountant like” or more diverse.

“There’s only one person in this world that can make you rich, happy and free………You!”

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Chapter 1 Down to Business There have been lots of books written about starting up your own business, what you should be doing, what you shouldn't. The one thing I've noticed about these books is they have generally been written by academics or by people that have only been successful by writing books on being successful! How many of these “know it alls” have actually started a business from the ground up and actually made a lot of money? Not many, I can assure you. I've spent hours reading a lot of these books only to find they have preached the obvious or they have left me wondering what planet the author came from. Many of the books assume the reader has a certain level of knowledge about business and how it’s run. This is a mistake in my opinion, if they all had this knowledge why would they need the book? I have taken a somewhat different approach, “I assume nothing!” This book examines starting up your own business in simple terms in a logical sequence of events and assists you to understand aspects of the business that you MUST know even though your expertise lies elsewhere. Areas such as working out a basic financial plan, where to register a business name, where to buy a shelf company at the right price, marketing, sales, administration, your attitude etc. On top of that what comes first and how much will it cost? I have tried to simplify these issues into layman’s terms so you can keep accountants, solicitors and other advisers fees to a minimum.

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Going Out on Your Own? I have found making money in small business in the 90's isn't too hard if you follow some basic principles which I'll explain later in the book. I have observed over the years some very intelligent people make very little money and some rather 'intellectually challenged' people make very good money. Which proved to me that you don't need to be incredibly smart or to have been educated at an expensive private school to be a financial success. You need to have knowledge of the basic principles of good business and most of all have the discipline to apply them. Too often people know what they should be doing - but don't do it! Summary Learn from successful people Don’t be deterred or put off Discipline and determination ingredients

are

vital

“Each and every action by a rational man is motivated by profit” -David Rofe (1959- )

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Chapter 2 How to get into business and stay in business -The Principles You're onto a great idea or have a skill or trade and want to go out on your own? Don't have the faintest idea where to start? This is a very common problem. The first thing you must do is analyse the business you want to start. You must ask yourself the following questions and be able to answer “Yes” to all of them: Is my product or service desirable or needed? Am I good at what I do? Do I have enough money to set up the business and pay all my expenses for 3 months? Am I confident of success? If you answered “No” to any these questions, think again, you're probably not ready. Save some more money and think a little more about what you intend to do. Remember, 90% of businesses don't make it past their first five years and if you aren't confident, or you're under capitalised or not sure if the concept will be popular, then chances are you're going to figure in the 90% rather than the 10% who succeed. Over the years I have devised the essential elements to business success. I call them My 6 Principles. I have noticed all successful businesses apply these principles, therefore so should you.

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Going Out on Your Own? My 6 principles of starting up a business and staying in business are very simple and easy to apply: Do your sums Check the market Be consistent Get paid Keep records Never give up Principle #1 - Do Your Sums In the early stages of setting up a business “planning” is all important. Most of all “Financial Planning!” You should analyse how much you need to set up the business. Many a business has failed because the owner did not start off with a financial plan and subsequently found himself or herself under capitalised and the business subsequently failed. So, the first thing you must do is work out if you have enough funds to get the business off the ground and you must work on the basis that you are not going to make any money for the first three months. We do this for a couple of reasons, if you have the money in reserve it takes pressure off you on the bad days (and there will be bad days) and secondly, very few businesses make money from day one so you must be a realist and understand that it takes time to build a good business. A financial plan isn't all that complicated to work out, I've provided a table for you to complete so you know exactly how much you need to do it comfortably. Where possible, I have placed an

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Don’t take shortcuts when it comes to Planning. It’s false economy.

approximate amount to assist you.

Business Establishment Expenses Estimated $ Actual $ Register a Business Name Or

$100

$

Buy a Shelf Company

$800

$

Business Cards and Letterheads

$250

$

Rent for Premises

per week x 13

$

Phone Connection

$250

$

Mobile Phone

$300

$

Fax Machine

$700

$

Printing brochures or fliers

$200$2,000

$

Advertising budget

At least $1,000

$

Yellow Pages advertisement

$0$16,000

$

Insurance

$600

$

Signs

$200$1,000

$

Invoice books and receipt books

$200

$

Start up Stock

$$$

$

Shopfittings or shelving

$$$

$

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Going Out on Your Own? Motor Vehicle

If required

$

Equipment or tools

If required

$

Wages for staff

per week x 13

$

Wages on-cost covering super, workers comp. @ 15% of wages cost

$

Telephone Bill

$300

$

Electricity

$300

$

Fuel and Oil

$100$1,000

$

Repairs and Maintenance

$300

$

Solicitors fees if buying an existing business

$1,000

$

Stamp duty on Agreement or Contract

$150

$

Most Important – Your wage for 13 weeks

Per week x 13

$

Total Amount Required

$

Now you've worked out how much you need, can you afford it and will it make enough money to justify setting it up in the first place? If you don't have enough cash to fund the business, you're going to have to go to a bank for either a personal loan, a business loan or to increase your mortgage. Generally, unless it's a small amount you require, say, less than $10,000, the bank will require security in the form of a mortgage for instance. If you borrow

10

Always remember to pay yourself you can’t live on air.

money, you should allow for the first 3 repayments in the schedule above and also any loan establishment costs. Will it be worth the investment? This is a difficult question, and one you must ask yourself. I have put together a small schedule for you to complete that should assist you in making up your mind. The first thing to do is to find out how much you're going to make each week. While there is a fair bit of guess work, you should have a rough idea or you shouldn't be going into business. Sales or Income estimate

$

A

Cost of goods or materials

$

B

Fuel

$

C

Rent

$

D

Business loan repayments per week

$

E

Advertising

$

F

Wages and on-costs (+15%)- (other than your own)

$

G

Phone per week

$

H

Electricity per week

$

I

Total Expenses

$

J Total of B to I

Total Net Income

$

K Take J from A

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Going Out on Your Own? You have now worked out what you think your profits are going to be each week. This will basically be your wages before tax. Look at the amount again, do you think it's realistic – honestly? If not, redo the figures being as conservative as you can. The next step is to examine whether investing your money in the business is worthwhile. But before we go on I should mention here that your decision to invest in this business regardless of the result of the next schedule, is entirely a matter of choice. People start businesses for a variety of reasons, they may have been retrenched and can't find another job, they may wish to be their own boss or would like to turn their hobby into their business. Whatever your reason, you should be realistic when it comes to how much money can be made. Without the reward of decent money, you don't have a business, you have a hobby and it should be looked at in that light. Now back to the investment issue. If you invested the money not into a business, but in to your mortgage, or blue chip shares on the stock market you could expect, say 7-10% p.a. return on your investment. Look at your business investment the same way. After you have earned a reasonable wage you should expect a return on your original investment of at least 7-10%. If you were employed to do the job you plan to do in your own business, how much would you be paid per week?

$

Multiply this amount by 52 (weeks in the year)

$

A

Multiply the Total Amount

$

B

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Required by 10% being your investment return (from page 11) Add the multiplied numbers together to give you the minimum amount you should expect from the business

$

C= A+B

Now go back to the schedule where you worked out how much you think you will earn from the business on a weekly basis (page 12). Multiply it by 52 weeks. Is this amount higher than “C” in the schedule above? If it is, then the chances are the business will stack up from a profitability point of view. If the amount is lower than C, you should really think again about whether or not the business is going to be worth the capital you are investing or possibly check your figures again. These little exercises will have demonstrated to you whether the business will be viable, and how much it will cost you to set it up. Most large multinational companies do similar calculations when considering acquiring another business. It’s obviously a lot more involved and complicated, but the theory is similar nevertheless.

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery" -Charles Dickens (1812-70) (David Copperfield)

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Going Out on Your Own?

Principle #2 - Check the Market Before you launch yourself, and your family, into business, have a look around. You may be surprised by the number of people who have “stolen your idea”. Unless you're an inventor, or you have just come back from overseas with an idea not introduced here or you're a genius, the chances are you'll be competing with someone providing a similar service or product. There are basically three ways to compete if it isn't unique. Cheaper, Better or Both. After you have decided on exactly what service or product you intend to offer, look in the Yellow Pages to see how many others are doing what you intend to do. Ring up and make some enquiries regarding prices, how long it takes for the service or product to be provided. Do they answer the phone in a happy and welcoming way, does it ring for a long time? Write it all down! If you intend retailing an item, go and have a look at similar shops on Mondays and Tuesdays to gain an idea of how they go on quiet days. Thursdays, Fridays and Saturdays are the busy retailing days. Make a note of their prices and selling and advertising techniques, these notes will turn out to be very valuable. I can't stress how important it is to do this research. You will find out if the market is over serviced (examples are Lawnmowing and Carpet cleaning), prices are too low to make money, or on the other hand, great opportunities exist because everybody is too expensive or they offer lousy service. As I mentioned before, write it all down because these notes will assist you in your pricing and give you a rough idea of how your “future competitors” run their businesses.

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Competition? There are three ways to win – Cheaper, Better, or Both

After you have made quite a few enquiries about your competition, check your purchasing prices to ensure sufficient margin is available for you to make a reasonable profit. Remember to include sales tax if it applies. If after checking your purchasing prices you find your margins are going to be less than you had originally thought, it may be a good idea to go back to Principle #1 - Do your sums, and run through the numbers again using the lower margins you expect it may have major bearing on your business decisions.

If you believe in yourself, You can do anything. Never falter, always believe, and it WILL happen.

Before I write any books on a particular subject I have always gone out and bought every similar book I could find. In this way I knew exactly what the opposition was doing. I also realised with three of my books nobody had even attempted to write similar books. When I discovered this I immediately asked myself if I had stumbled upon a fabulous opportunity to monopolise a subject or was it a subject nobody was interested in. I took the attitude that somebody must be interested in it…I was. Mind you, I had spent years working with the subject of offshore investment so if anybody was going to write a book about it, I would. So I wrote it and self published it, taking all the risks, and knowing that if it didn’t work I would have to take them to the tip one day for recycling, but I was confident. Result, 3 years later I had an official best seller without bookshops selling my books! I sold them all myself. My point is “you can do it” if you do your research carefully. Principle #2 should be applied continuously while you're in business to ensure your competitors don't start making inroads on your ideas, profitability or clients.

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Going Out on Your Own? "If a man writes a better book, preaches a better sermon, or makes a better mousetrap than his neighbour, tho' he build his house in the woods, the world will make a beaten path to his door " -Ralph Waldo Emerson (1803-82) Principle #3 - Be Consistent Having applied the first two principles and come through with flying colours, the next thing you must achieve is Consistency. Consistency is vitally important when it comes to keeping your clients happy. You know yourself how frustrating inconsistency can be when you're dealing with a business, they continually change their prices, their opening and closing times, the services or goods they provide, their attitude etc. You can't count on them to carry the items that you bought last week, and if they do the price keeps changing. It sends you mad. You end up just going elsewhere, they become all too hard. Inconsistency will frustrate your customers into going straight to the opposition. The things you should watch when it comes to maintaining consistency are: Pricing. Your service or prices should not fluctuate from day to day, don't give people different prices for the same service or product. One day you will slip up and give two different prices to the same person if they ring twice and they won't do business with you because they won't trust you. Attitude. Always remain friendly and helpful. If you're a moody person, nothing will cheese people

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Consistent prices, Consistent quality, Consistent attitude, Consistent reliability =

Success

off more than your mood swings every time they do business with you. If you're having a bad day or you don't feel like being friendly - Get over it quickly! Sales Promotion. Regularly call in on potential (or future) customers to make sure they are being looked after by your opposition and let them know of any new products or services you can offer. Eventually, you will strike them on a day when your competitor has let them down and you'll be there to solve the problem, or you'll always be the first person they contact if they need your services because you maintain contact. Stock and Services. If you advertise an item or service, make sure you have plenty in stock. You know the feeling, you see the ad and you want or need the product or service now, only for the company to say they don't have any in stock or they don't provide that service any more. Say goodbye to the customer forever! Opening and Closing Times. Never open late and never close early, people will become tired of checking when you open and close for business and go elsewhere. Clearly state or advertise your business hours and stick to them so people can always count on you to open and close when you say you're going to. Delivery or doing the work. Tradesmen are the worst offenders here. They say they’ll start work on a certain day or at a certain time and how often do they? It’s almost laughable if it didn’t make you angry. If you make an appointment to do work or you say you are going to have a product available at a certain time or certain day, make sure you

17

Going Out on Your Own? turn up or it's ready on time. If, for some reason, beyond your control it can't be done - make sure you have their phone number and ring them to let them know what's happened. They won't be happy, but if they come in or have made arrangements thinking everything is OK and it's not, you'll lose that customer and get yourself a bad reputation because people love to talk about how bad some businesses are. Many companies, trades people and other businesses don't provide this courtesy to their clients, if you do, their clients will be yours forever as will all their friends and it will be the cheapest advertising you never paid for.

When it comes to collecting money, using a “nasty boss” is always a good way to convince someone to pay up. They feel sorry for you

Recently, I needed the services of a tree surgeon. I rang three and left messages on their answering machines. One didn’t bother to ring me back. The other two did. I chose one and booked him to come around to remove the fallen tree. Guess what? He didn’t show up. I immediately rang the tree surgeon I had turned down initially. He then made a time and date to remove the tree. He turned up on time and efficiently did the work. The guy that didn’t show up rang a few days later making excuses, I told him the work had been finished. I have already recommended the reliable tree surgeon on three occasions. See how easy it is to get business if you are reliable.

“A happy customer tells 10 people about you. An unhappy customer tells a 100”. Principle #4 - Get Paid Getting paid, as you would imagine is vitally

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important because if you don't get paid, what are you doing in business? You would be surprised the number of business people who allow their customers to pay them when and if they feel like it. I know of one tradesman who continuously collects bad debts like trophies. Why? Probably because he can't bring himself to ask for the money and allows people to intimidate him. If you allow somebody credit, do so only if they have proved themselves to you by paying cash on delivery (COD) for some time. Also, you must gauge whether they have the means to pay you - otherwise don't do business with them. Don't kid yourself into thinking "I need the work" or “I need the sales”. It's pointless doing the work or providing the goods for nothing if you don't get paid. If you are the sort of person who can't ask for the money when the job has been done, try these ideas: Tell your client when all the work is completed, you require cash or cheque. They will more than likely have it ready at completion and you won’t have to ask for your money. When you give out a quote, make sure your payment terms are clear. Complete an invoice with the terms of payment clearly stated and give the client the invoice when the work is completed. They will look at the invoice and immediately assume they have to pay you now without you having to say a thing. Invent a “nasty boss” who will skin you alive if you don't bring back the money for the job. Arrange with your bank to provide you with Merchant facilities so you can accept credit cards such as MasterCard and Visa. Most people have credit cards and it will solve the problem of the customer not having a cheque account or not having

19

Going Out on Your Own? enough cash on hand. Alternatively, don't be frightened to hold onto your goods until you've been paid. Remember, until they're paid for, the goods are still yours. If you decide you're going to allow somebody credit, make sure you get the following information off them a week BEFORE you allow them credit. Name Address Phone number Bank name and address Account no. 3 trade references with their names, addresses and phone numbers A Credit Application has been included in a later chapter of this book for you to copy and use. Once you have all this information, ring the bank and make sure they operate an account there. Then, ring each trade reference and ask if they pay their bills on time or if they have any problems with them. Most people will be willing to tell you if the person is troublesome. If everything is OK, allow them a moderate level of debt, say no more than $500 (depending on your business). Monitor the operation of the account for a few months before allowing this amount to be exceeded. Remember, people WILL take advantage of you if you let them. Don't let them!

"Silence is the virtue of fools" -Francis Bacon (1561-1626) 20

Don’t allow people to intimidate you about payment. People will walk over you if they sense weakness on the subject

Principle #5 - Keep Records

If you are in the service industry, always keep a note of your costs and hours worked. Otherwise, you will never know whether you are making a profit or not.

The job's complete, the money's in, but did you make any money? Business people ask themselves this question more often than they would care to admit. Knowledge of your business costs will allow you to set your prices confidently. Without knowledge of these costs, you could be selling goods or providing your service at a loss or a much lower profit than you realised. There is no point being in business if you don't know whether you're making money or not. How do you solve this problem without creating mountains of paperwork? Simple know what your costs are. If you're selling goods, make sure you have a list of your product costs. If you're a tradesman or providing a service, keep a book to write down your costs and hours for each job or project (one page for each job or project) and when you finish the job go back and total the job page up and see if you made as much as you thought you would. This information will assist you to understand your cost structure and ultimately increase your profit because your quotes will be prepared on a more “scientific” basis. Writing everything down in a book is a very simple habit to get into and won't take you very long, but at least you will have a good idea what it costs to provide a product or service. The next thing to do is to get a receipt or an invoice for every expense you incur, regardless of the amount. The taxman won't accept any expenses you don't have a receipt or invoice for. Later in this book we'll look at some simple ways to keep your own books and records.

"Ignorance is the curse of God, knowledge the wing 21

Going Out on Your Own? wherewith we fly to heaven" -William Shakespeare (1564-1616) (Henry IV) Principle #6 - Never Give Up The final and possibly the most important of my business principles. Determination is the difference between the 90% of businesses that fail and the 10% that succeed. You need a degree of mental toughness, if you are the sort of person who falls apart every time a problem crops up, put this book down and try to enjoy being an employee rather than self employed. You simply won't make it - simple as that. It doesn't matter how skilled or smart you are, you won't make it unless you can handle setbacks and use what you learn from the experience to move ahead. Most people are mentally tougher than they think they are. They can handle all sorts of problems and still come through in one piece. Your ability to handle competition pressures, quiet times, increased costs and major disasters will give you as much of an edge on your competitors as a cheaper price will. In business, you may find your major competitor is a large well established company. How do you succeed against a competition like this? Apart from the fundamentals of service and value for money, you don't give up! This annoys the competition, the fact that you just won't go away you just keep going and going, and this has the effect of wearing them down. They will be so sick of you taking their clients and eroding their profit that they will either approach you to leave their clientele alone, start a price war or possibly just ignore you and hope you will go away eventually. All the time you will be getting mentally tougher as they become mentally weaker.

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Rod, my former partner in the battery business calls this “stickability”. The ability to stick at it. He is one the great “proponents of the art”. He just never gives up. He has learned over the years to you remain “focussed”. Focussed to succeed. Over the years he has seen people come and go in the battery business and he realised all he needs to do is survive the bad times and the good times eventually come around and because he has “stickability” he’ll be there making good profits when everybody else has fallen by the wayside. Another friend of mine, author of the best seller “How To Be Rich & Happy on Your Income”, Hans Jakobi also has “stickability”. It is rare to find a person with his determination for success. He is, and will continue to be successful because he never gives up. He is clearly focussed, knows where he’s been and where he’s going. He doesn’t accept that knock backs or problems will hinder his progress, they are merely “opportunities” to learn. Hans learns by these “opportunities” so he can avoid them in the future or at the very least be better prepared because try as you will, problems will always occur. Winners handle their problems in a controlled way, losers fall apart and handle their problems in a panic. Hans will no doubt be very successful, if for no other reason than he is determined to be successful – and will be. You should do the same.

“Remain determined to succeed, Never Give Up! Ever!”

23

Going Out on Your Own?

Summary Observe the Six Principles of Successful business Make sure you can afford to do the business Check the competition Always remain consistent and reliable Make sure you get paid for your efforts Keep reliable records that make sense Never, ever give up!

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The Greatest Risk in Life is to risk nothing. To laugh is to risk appearing to be a fool. To weep is to risk appearing sentimental. To reach out for another is to risk involvement. To expose feelings is to risk exposing your true self. To place your ideas, your dreams, before a crowd is to risk their loss. To love is to risk not being loved in return. To live is to risk dying. To hope is to risk disappointment. To try is to risk failure. But risks must be taken because the greatest hazard is to risk nothing. The person that risks nothing has nothing, knows nothing and is nothing. They may avoid suffering and sorrow but they cannot learn, feel, change, grow, love or live. Chained by their certitudes, they are slaves, they have forfeited their freedom. Only a person who risks is free.

25

Going Out on Your Own?

Chapter 3 Is franchising an easy way into business or do I buy an established business? I have no biases here. I have personally established successful “normal” and “franchised” format businesses. Both types of business can be profitable and successful but you must be aware of what you're buying. Different businesses offer different advantages and different problems. In an attempt to simplify things I'll spell out some of the advantages and disadvantages and then discuss some of the issues you'll confront as you work out which business format is right for you. The advantages of buying a franchise for a first time business owner are: Proven business system or product. The support and assistance of an experienced franchisor. The business is in many ways established for you. Strength in numbers. You don't necessarily need any business experience. You are generally trained in a professional manner. Over 80% of franchises in Australia are successful. Widespread product or business recognition due

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to the business having several outlets. The disadvantages of buying a franchise for a first time business owner are: Expansion is limited as you have only purchased the right to operate one outlet unless you buy a Master franchise and obtain rights to operate several outlets. They can be costly as the franchisor makes his money by selling businesses. Often you have to purchase items or goods from the franchisor at less than favourable prices. You don't have a great deal of independence to be creative or experimental. You usually pay a royalty or fee to the franchisor which can begin to irritate you if the franchisor isn't helpful. Poor performances by other outlets can tend to damage your business. The advantages of buying an independent business for a first time business owner are: You will be able to expand the business without any restrictions that franchise systems tend to place on you. It will generally be a less expensive option. You will be free to experiment with new ideas and products that a franchisor would not allow you to do. No on going fees or royalties. The disadvantages of buying an independent business for a first time business owner are: Without guidance and an experienced hand showing you the ropes, you could get yourself

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Going Out on Your Own? into trouble. You may buy a lemon. You may tend to lose sight of the core business, a franchisor would always keep you on track. Generally the business will have no procedures or operations manuals. You don't have a peer group (such as other franchisees) to bounce ideas off or to provide moral support. Little widespread recognition as would be found with a franchise system with a number of outlets. There you have it, the pros and cons, which business is right for you? That's a very difficult question. My answer would be, if you haven't been in business before and you don't feel very confident with your level of experience, a franchise may be the right decision. Buying a successful franchised operation makes good sense. The change from employee to self employed will be far less traumatic because you'll have an experienced business person or company backing you up with a vested interest in your success. In your first business, you may feel a lot more comfortable knowing you have an experienced company to back you up. Of course your growth and your profit will be restricted to a certain extent in the long term. On the other hand you may be already experienced in the business you wish to undertake, or you have a new idea you wish to pursue, in that case an independent business is probably a better option or maybe your only option. You will of course require nerves of steel and the intestinal fortitude to see it through, knowing there's nobody to help you when you strike trouble. It really comes down to you, whether you buy a

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franchise, an existing independent business or start your own business from the ground up and this book really focuses on the people that want to start from scratch.

"Quick decisions, are unsafe decisions" -Sophocles (495-406 BC) (Oedipus Tyrannus) Summary Franchises are safer and easier than starting your own business Franchises do however limit your “up-side” For “first timers”, sometimes a franchise is the safer option A franchise should only be seen as a stepping to your own independent business Even though franchise systems usually have a better success rate than independent businesses, they can still fail, so check them out thoroughly

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Going Out on Your Own?

Chapter 4 Growing the Idea You have come up with a great business idea that no one else seems to have thought of, but will it work? It's hard to say, many businesses have come and gone on the strength of what the business owner thought was the best thing since sliced bread. You must be objective and critical of your own idea. The first thing you're going to have to do, is research. Collect this information from wherever you can get it. For example, you may see a great idea for a business while travelling in another city or state or even overseas. The number of people that have travelled overseas, seen a great idea that nobody has yet thought of in Australia, and made a fortune by introducing it here is phenomenal. Maybe the product or service already exists here, but nobody is doing it with flair and imagination. Look what McDonalds have done with hamburgers and chips! KFC have done with fried chicken and chips. Fairly ordinary concepts, but done with amazing flair. Let's face it how exiting can hamburgers be? But McDonalds have made billions worldwide. Sit down and have a think about businesses that you frequent from time to time. Is there something that could be improved that would

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revolutionise the business. How many times have you gone into a shop and said to yourself "if that company could get their act together they would make a fortune"? Here's your chance to do something about it! Have you been overseas and seen a great product that would sell like hotcakes over here. Make some enquiries with the manufacturer or distributor for gaining rights to import the items into Australia, or possibly the permission to manufacture the items here. Why not think about buying a business that needs revamping and doing what's required for the business to realise it's full potential, or opening an opposing business but with the flair and changes that the other company is not applying. It doesn't have to be a multi million dollar purchase. It could be a small bookshop, cafe, specialist retail store or service business. You should be striving to make your product or service different from all the others. Oppose concepts of doing everything the way others do it. For instance try having unusual brochures or window displays, be independent, original and innovative.

Strive to make your service or product different from the competition. This will give you a distinct advantage.

As you do your research, write down your ideas and gather as much information as possible, suppliers details, prices, impressions, product descriptions etc. If you are starting a business that has local competition, check out the opposition first by visiting their premises, ringing them, getting prices or quotes, copies of their brochures, checking telephone directories, local newspapers etc. When following through an idea on a new

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Going Out on Your Own? service or product, be prepared to change direction if it doesn't appear to be working out as well as expected. You should remain flexible and ready to make adjustments to your plan as you go along. Having said that, you should be totally committed to your idea and be determined to see it through, there would be nothing worse than giving up on it only for someone else to make a fortune out of it in the future.

"There is one thing stronger than all the armies in the world, and that is an idea whose time has come" - Anonymous "Only in men's imagination does every truth find an effective and undeniable existence. Imagination, not invention, is the supreme master of art as of life" - Joseph Conrad (1857-1924) "There are two qualities in this world; efficiency and inefficiency, and only two sorts of people; the efficient and the inefficient" "He who can, does. He who can't, teaches." - George Bernard Shaw (1856-1950)

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Chapter 5 Putting the Pieces Together A Name If you have decided to start your own business from scratch, you're probably wondering, what do I do now? Good question. The first thing to do is to decide on a name for your business. When it comes to choosing a name a few things should be considered. If you are a tradesman or a professional you may wish to trade using your own name. If you do, you don't have to register this type of name with the Department of Consumer Affairs in your state. But if you are going to be dealing with the public in a retail type situation you may wish to have something a little catchier. A few principles of naming to keep in mind are: The name should convey to customers the actual nature of the business. For example the names 'Chic' or 'Vogue' tend to indicate fashion, whilst 'Yours Truly' doesn't really tell you anything. A good name will generally be short and amenable to all forms of advertising. It should be memorable and give an image of quality and good service. The name should be easy to pronounce and spell. You should choose a name that will convey the

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A good catchy name is always helpful to the business as people will remember it.

Going Out on Your Own? true essence of the business and not give a false image or be a blatant oversell. For instance a hamburger and sandwich shop in an industrial area shouldn't be called 'The Ritz'. If you overstate your position with your name you could leave yourself open for embarrassment. Don't over do it with the type style, if you make it to fancy, it may become difficult to read.

Choosing a Logo When choosing a logo, keep it simple and easily remembered. If you can incorporate the name or initials of the business name, do so. This will help “tie” the name and logo together. Don't have too many colours in your logo, more than three tends to look a little messy. Look at some of Australia's biggest companies, they have very simple logos, and they probably paid a design team a fortune to produce something that simple. Anybody can come up with a complicated and messy logo. Remember, keep it simple, keep it to a maximum 3 colours and try to make it symmetrical.

Trading Structures There are basically 4 different types of trading structure for you to consider, Sole trader, Partnership, Trust and Company. The type of structure you choose should suit your purposes and not because you thought, “that's what everybody else does”. There are a few things that you should consider before deciding which type of structure is right for you. This is also an area where you should seek the advice of an experienced accountant who

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can structure you correctly not only from a tax point of view but also from a personal or asset protection point of view.

Degree of business risk involved If you are starting a business with high borrowings or in an industry with a lot of competition, you should ensure your personal assets are protected from losing the lot if the business fails or if somebody tries to sue you.

Tax considerations Because taxation can be one of the largest single business costs, it is a liability that must always be considered. The owner/manager should have a layman's working knowledge of how the taxation system works as well as the commercial reasons which justify any particular structure. This will ensure that you will be able to minimise your tax legally. (See the chapter, How To Keep Most Of What You Earn)

Transferability of interests If there is a need to have a fair degree of portability in the ownership interests of the business (the shareholding for example), a company may be preferred because of the relative ease of transferring shares, as opposed to transferring a share of a partnership for example.

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Going Out on Your Own? Degree of separation between Ownership and Control In certain circumstances it can be important to distinguish between the people who own the business and those who will control and manage it. (eg children who are inexperienced in management may have inherited the ownership, but management control is left in the hands of more experienced operators).

Legislation Commonwealth and/or State legislation may very well determine the legal structure of the business.

Long Term Aspirations and Opportunities Business planning should always take into consideration your long term aspirations as well as your short term aspirations. For example, if a business is to continue through generations, or you are going to sell it in the future, then usually a company is your best option. As you can see, a lot of thought should be put into the trading structure that most suits your purpose. I will discuss each of the four options so you have a better understanding of their advantages and disadvantages.

Sole trader 36

The simplest form of business entity. It has the following advantages: Low commencement costs. Minimal administrative procedures associated with the commencement. The owner has direct control over the business and is entitled to all of its successes. Minimal statutory provisions need to be abided by (compared to the alternatives) Provides scope for greater privacy. There are no reporting requirements other than to the Taxation Office. While it is easy to set up, it is also relatively easy to disband, again with a minimum of cost. The disadvantages: The sole trader is directly responsible for all the debts that the business incurs. The right of the creditors to seek compensation for money owing does not stop at selling off the business assets but can extend to personal assets, (eg, house, car etc.) The downside risk of operating as a sole trader is bankruptcy. The business is very much dependent on an individual who is just as susceptible as the rest of us to illness or accident and who has the same needs to go on holidays etc. The sole trader who is making large profits is quite possibly paying more tax than he needs to because his structure ensures that all profits are taxed in his hands and at possibly the highest marginal rate. The sole trader may have difficulty in raising capital because financiers can only advance funds based on the owners tangible assets. Banks and finance companies tend to ignore the value of the business as collateral. Because the owner will eventually die or retire, the

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The downside of being a sole trader is bankruptcy or personal liability, so be careful.

Going Out on Your Own? goodwill of the business is sometimes viewed as somewhat suspect. So, if you think the business will grow and make fairly large profits in the future, the sole trader option might not be the right one for you.

Partnerships

While partnerships have their advantages, they also carry joint liability for debts.

A partnership is generally defined as "the relationship which subsists between persons carrying on a business in common with a view to profit." Whether or not a partnership exists is quite often a question of fact, as partnerships can be formed by oral agreement. It is strongly recommended however, that a written partnership agreement be entered into so that the rights and responsibilities of individual partners are clarified. A solicitor should be engaged to perform this function. However, thought should be given to the following matters as they will form the basis of the agreement: 1.Names and addresses of the partners. 2.The percentage interest that each partner will have. 3.The name of the partnership and its purpose. 4.The length of time that the partnership is to be in existence. 5.The capital and expertise that each partner will invest in the business and whether or not there is to be a designated interest rate payable on those funds. 6.Details of working partners' salaries. 7.Details of sharing in profits and how these profits can be drawn from the business by the partners. 8.The management responsibilities of each partner and how decisions are to be made in the event of a tied vote between the partners. 9.Consideration should be given to how new partners can be admitted and others can retire, leave or be dismissed.

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10.How the partnership can be dissolved and how the assets would be divided up if that happens. Each partner in a partnership is liable for all debts and obligations incurred by the partnership. This means not only your share, but possibly the lot, 100%, if your partner clears off or declares themself bankrupt. So don't get into a partnership with a person of a dubious background or someone you don't know. In a partnership, trust and honesty are two vital ingredients, so partner choice cannot be emphasised more. The advantages: Can be formed cheaply. It has greater access to tax advantages when compared to a sole trader structure. No special government regulations apply. If put together properly and managed properly, the partnership can work quite well if each partner takes on his particular set of responsibilities. The disadvantages: The partners personal assets are at risk, just like the sole trader. As I mentioned before, you are responsible for the debts of your partner if they were taken out in the name of the partnership ie. You could own 50% of the business and 100% of the debt. Transfers of ownership can be difficult and usually result in the whole partnership breaking down. Personality clashes because everybody thinks they're the boss. A few other things to keep in mind are: A partnership in existence for more than one year must be put in writing. If you set up a husband and wife partnership in an

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Going Out on Your Own? effort to reduce tax being paid at higher marginal rates by one person, ensure that no evidence of a formal partnership exists. For instance have joint names on bank accounts, stationery otherwise if something goes wrong with the marriage all hell could break loose with one partner accumulating debt the other will have to pay. Any partner can dissolve the partnership if he or she wishes to do so in writing.

Trusts A trust is briefly defined is “an equitable obligation under which a person holding an interest in property (the trustee) is required to deal for the benefit of another person (the beneficiary)”. The usefulness of trusts has been to a great extent eroded due to the changes in tax laws in relation to income splitting with minors. Also, both major political parties are committed to eroding the value of family trusts by introducing tax laws that will mean a trust will be taxed exactly the same way as a company. For this reason I would simply set up a company instead. However, a trust can still be useful under certain circumstances. There are essentially three parties to a Trust: 1.The Settlor - The person who creates the trust by making a gift of cash or property. 2.The Trustee - The person or company who makes the decisions and is charged with the duty of tending to the assets of the Trust. These assets are not those of the Trustee personally although they can be dealt with on behalf of the beneficiaries. 3.The beneficiaries - The people who are entitled to receive the revenue of the trust and to any

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distributions of capital. Trustees The office of Trustee carries with it some onerous duties and liabilities and without doubt many owner/managers acting as Trustees are oblivious of this fact. Most accountants and solicitors do not accept appointment as a Trustee, or as Director of a Trustee Company for this very reason. The duties of the trustee are: To obey the directions of the trust deed which is determined by the settlor usually. To protect and preserve the assets of the trust. To manage the trust personally. To invest trust money to derive an income for the beneficiaries. To avoid any conflict of interests and to keep his own property separate from that of the trust. In very general terms, a trustee is liable for all the debts incurred by the trust, which is the reason why companies are often used as the Trustee. A “right of reimbursement out of trust assets” clause is normally incorporated into the Trust Deed. There are various types of trusts, with the Discretionary Trust and Unit Trust being most frequently used in business operations. Discretionary Trusts tend to be the most popular for family businesses, etc. The “discretion” bit refers to the Trustee's discretion to distribute either the income or capital as he sees fit. Normally, his decision is absolute and beyond dispute by the beneficiaries. It is, of course, purely coincidental that the exercise of discretion nearly always equals the most

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Going Out on Your Own? beneficial method of distributing the income for taxation purposes. Unit Trust distributions are in accordance with the units held. Trusts still do have some advantages (even though somewhat eroded since the 1980’s). One of them being that they are a “flexible” tax planning vehicle. However, every owner/manager who has a family trust should get his accountant to conduct an analysis on whether the Trust is worthwhile maintaining these days. The Commissioner of Taxation's toughening stance on the real existence of these vehicles requires the owner/manager to ensure that his paperwork is in order, especially his minutes of distribution of profits, etc. Also, many 'trustees' who are parents have found themselves attacked from within by their own family. Normally the share of profits distributed to children are not paid out but accumulate as book debts owing by the Trust. When children turn 18 they can legally demand payment of the amount accrued to them. This can leave a nasty taste in the parents mouth.

Trusts can be expensive to maintain if you have a company acting as trustee. It is sometimes simpler to use the company only.

A final word on trusts, they can be expensive to set up, to maintain and can prove to be very complicated. I generally steer people away from them, as they attract the scrutiny of the tax office more often than other vehicles and I'm yet to be convinced by anyone of the real benefits of a trust when compared to a company these days, particularly for small business.

Companies 42

A company is a legal entity in its own right and therefore enjoys all of the commercial privileges of an individual. It can own properties, conduct business, invest funds in a variety of investments, and of course, be sued in a court of law. The most common company is the proprietary company (identified by the letters “Pty. Ltd.”) and it must be incorporated under the federal Corporations Law. Two documents are prepared for every company which basically set out the objectives and ground rules of operation. Owner/managers should have a working knowledge of these documents known as the Memorandum of Association and Articles of Association. The Corporations Law assumes that the directors will act within the stipulated rulings. Ignorance is not an acceptable excuse at law. This means if you establish a company you should find yourself an accountant that knows what he or she is doing, or obtain a copy of the Corporations Law and Regulations and start reading. Because if anything goes wrong or you forget to lodge a particular form you can be fined. Useful information can be obtained from the Australian Securities and Investment Commission (ASIC) in most capital cities. The ASIC is the government body that controls incorporation of companies and controls their activities (they replaced Understand the old Corporate Affairs Commissions in each state). when you What are the advantages of a Company? The main advantage is the so called limited liability principle, where a company has separate legal status, the debts it incurs are its responsibility and not those of the shareholders. An example would be if two people set up a business selling “widgets” to the trade and do so by incorporating a company as their trading structure. They then borrow $100,000 from an investor or financier to purchase stock. Now the

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sign a personal guarantee, the debt of the company in respect of that guarantee, becomes your personal debt effectively.

Going Out on Your Own? investor decides NOT to take any security like a personal guarantee from the directors because the directors have offered him 30% return on the $100,000 invested. Unfortunately, the business goes bust with nothing left in the business, no stock, no money, nothing of any value. The investor/financier has lost the lot. The directors have lost the business but do not have to pay back the $100,000, because the company owed the money, not them personally. This is one of the main advantages of a Proprietary Limited company, the Proprietor's liability is Limited. Now before you set up a company, borrow a million dollars and send it broke and retire in the Caribbean, there are wide ranging laws these days for corporate fraud, and director’s negligence and incompetence which could land you in jail if you try to deceive an investor or commit fraud. So, don't even think about it. For this reason, most companies you deal with will request a personal guarantee before they will sell you any goods. Once signed, you will be liable for the debts of the company if the company can't or doesn't pay the bill, regardless of Pty. Ltd. Always try to avoid signing personal guarantees because if you sign one you have just given up one of the main advantages of a company. Try to compromise with the supplier on a lower initial purchase until the supplier is a little more confident with your paying patterns. Of course when you are the one offering credit (selling things to other companies), you always insist on a directors personal guarantee when dealing with small companies, particularly when dealing with large amounts. If they don't pay you, your own company could be in trouble paying it's bills to someone else. So always be aware of how much unsecured credit you are giving and how many personal guarantees you've signed yourself (if any). You see the idea is to

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have others sign personal guarantees, but sign none yourself! Trading as a company can often assist the management process by virtue of the fact that directors can be separate from the owners (shareholders). Also, their responsibilities and duties are spelt out in the Memorandum and Articles of Association and the Corporations Law and Regulations. A company can, because of its separate legal status, trade indefinitely regardless of shareholders dying, becoming incapacitated. Companies allow a great degree of flexibility when it comes to transferring a percentage of shares if required. It is a relatively easy procedure to transfer shares or issue new shares. Under a company structure, it is very easy to have different classes of owners (shareholders). This may be desirable if you want to allow people the right to vote on company policy but not earn some of the profits or visa versa. It may be easier to obtain capital in larger amounts when a more formal trading structure such as a company is utilised. There are of course some disadvantages, for instance, every company is required to file an annual return which gives details of the shareholders and directors. In companies where an audit is not performed, an abridged summary of the financial results is required. The cost of an annual return will be around $200. Companies are costly to set up and will cost you between $700 and $1,000 depending who you use to obtain the company for you. A solicitor or an accountant can arrange this for you, but from my experience shelf company specialists are cheaper. Look up “Shelf Company Services” in the Yellow Pages. These companies specialise in setting up companies and can arrange name changes, share

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Going Out on Your Own? class structures and any other individual requirements you may have. They cost about $800 to $1,000. You probably require an accountant to administer the company records for you, such as annual returns, company registers, directors and shareholder details etc. This could be as much as $1,000 per year depending on how complicated your company is, and this doesn't include accounting services, this will be extra. The company only requires one director who must reside in Australia as well as a company secretary, but one person can do both jobs. This makes life easy for the sole trader as he or she can be director, company secretary and shareholder all by themselves. The ASIC can assist you with any questions you may have and have some excellent brochures and information they can send, so give them a call. The company secretary's role is the administration of the company such as responsibility to lodge and sign tax returns, annual returns, maintenance of registers and lodgement of government forms. Most of this work is usually done by your accountant so don’t have a heart attack.

Banks and Loans Banks and bank accounts are a necessary evil when running a business and they are not all the same. When opening your bank account check around for a bank that will pay interest on your business cheque account balance but watch for hidden fees where they take the opportunity to take back all the interest and then some. Also, another thing to keep in mind is whether the bank will assist you if you need an overdraft now or in the future. A good way to find out how supportive the bank will be

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is to make an appointment with the manager for a chat and see whether they are interested in you. This is more important than any fees you may have to pay because a reasonable and understanding bank manager can be worth their weight in gold in times of crisis, whereas a $2 fee here and there really won't make much difference in the long run. Before you open your business account you should have registered your business name or set up your company as the bank will need the registration details or incorporation certificate before they can open your account. When looking for a loan to get into business you must make sure you can service the loan comfortably and that the business' percentage return to you far outweighs any interest levied on a loan. For example, if after deducting your wage, the business makes a profit of $10,000 before tax and interest and you have borrowed say, $90,000 of a total investment of $100,000 ($10,000 of your own money), it would be rather futile if the interest rate was 18%. This would mean you were paying $16,200 a year in interest to earn $10,000. You would be going backwards $6,200 a year. The only reason you would consider doing this is if you were very confident that future year’s profits were going to exceed the interest bill by a large amount. Many small business people fall into the trap of borrowing against their home to buy themselves a business only to find they are working on lower wages than they would if they worked for an employer. If interest rates go up, they could lose everything, the business and possibly their home. Another thing to beware of is finance companies that offer you money after the bank has rejected your loan application. Their rates are almost always higher than the banks and for a reason. The bank rejected your loan application

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Going Out on Your Own? because they thought there was a chance the loan may default or you may have problems with repayments. Finance companies aren't quite as fussy as they will charge a higher interest rate and take the risk. If a bank won't risk their money on you, think again. Are you paying too much for the business or are you overly optimistic. Enthusiasm (or sometimes desperation) can sometimes cloud your thinking, so take your time and think logically.

"Nothing gives one person so much advantage over another as to remain cool and unruffled under all circumstances" -Thomas Jefferson (1743-1826)

Summary A good “catchy” name can create “image” Being a Sole Trader is the cheapest way to go, but carries the most personal risk A partnership is also cheap, but can be disastrous when it comes to debt Trusts have limited tax advantages now While the company structure is expensive it is usually the best structure for business

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Chapter 6 Marketing Marketing and promotion is critical to all businesses regardless of whether they have just started up or they have been running for many years. Without marketing, nobody will know about your service or products and therefore, you won't make any money. So marketing is vital and should be one of your priorities when establishing your own business.

Planning Planning is the first step in establishing a marketing and sales promotion campaign. Look at your service or products as objectively as you can and answer these questions (tick one or more answers and also ask some of your friends to answer the questions as they can be far more objective than yourself):

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Going Out on Your Own? 1) If you wanted to buy your service or products, where would you begin looking? Yellow Pages At the local shopping centre Daily Newspapers Local newspaper Subject specific magazines or publications Trade outlets Junk Mail Television and Radio Other_____________________________ 2) If you were going to buy your service or product, what would prompt you to buy? Price Quality The ability to purchase a wide range of services or products in one place Service Uniqueness of the product or service Convenience Other_____________________________ 3) Is your product or service essential to daily life? What I mean is if a recession hits, will your sales remain constant or increase? (A donut shop is not essential, but a tyre outlet is. People can live without donuts but they can't get to work without tyres.) Absolutely essential Moderately essential Useful, but there are alternatives A luxury that is generally an impulse buy 4) Who is most likely to use my service or products? Children Men Women

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Families The handyman Trades people Other small businesses Medium and large business Service organisations Government departments Now, if you have been honest with yourself you will have a basic marketing profile of your business. You should have a good idea who will buy your service or product, where to advertise and what to advertise (price, service, convenience etc). For instance if you were going to open a Hot Bread Shop you would have ticked: At the local shopping centre Price Quality Absolutely essential Men Women Families The Hot Bread Shop would have a fairly simple approach to marketing. You would obviously place yourself in a busy food shopping area, ensure you have bright distinctive signage, have some specials out the front to get people interested in your shop and it's a good idea to have some samples of your better (and more expensive) products for people to try when they have been lured by the low price specials. Once they have been attracted by low prices, you then have the opportunity to “value add” to the sale by selling quality. It works every time and this method is used by all successful retailers. If your business was Roof Renovations, you have a totally different situation. Your answers would more likely have been:

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Going Out on Your Own? Yellow Pages Daily Newspapers Local newspaper Subject specific magazines or publications Junk Mail Possibly Television and Radio Price Quality Service Moderately essential Men Women The handyman Trades people Other small businesses Medium and large business With all these variables you could have a marketing nightmare, but there are some simple solutions. Firstly, a decent sized ad in the Yellow Pages (possibly two, one under “Building” and one under “Roofing”) is essential. The next avenue is some local paper ads with a special for the month such as a price reduction or a free inspection. Next is a brochure or flier delivered into areas with older houses possibly requiring a renovated roof. TV and radio are far too expensive to consider at this point in time and may create demand beyond your capacity to service, put it on hold for the time being. With this type of business, people will be looking for service, price, quality and a guarantee that your experience and workmanship is of the highest standard. With high cost services such as roof renovations you must be sensitive to people's suspicions and cautiousness and this should be reflected in your advertisements. Once your marketing and promotional profile has been established you have to think about an

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initial budget. As we examined in our Principle #1 Do Your Sums, the advertising budget should be given a generous allocation of your establishment funds as should the Yellow Pages. A Yellow Pages ad isn't cheap, but then nothing that's any good is cheap. If you ticked the Yellow Pages as a source of business you should allocate as much to the ad as you feel you can afford. If worded correctly, the Yellow Pages can be an excellent source of enquiry. Look at the other ads and pick up a few ideas, some companies spend a fortune with agencies getting just the right ad, you can pick up those ideas for free. When planning your marketing, think logically, you wouldn't advertise your Hot Bread Shop in the newspaper for example, people don't buy bread because they saw your ad. They buy bread because it's a habit. Think about it, when you buy bread you either buy from the same place all the time or where ever it's convenient not because you saw an interesting ad in the paper. Also, when you need a tradesman where do you look, the Yellow Pages and the Local paper. Apply common sense to your marketing and you shouldn't go too far wrong. Once you've sorted out who your customers are, and where you should advertise the next thing to do is to put it into action. Summary Without marketing no-one will know about your product or service You should plan your marketing campaign carefully

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Going Out on Your Own? If you provide a service – The Yellow Pages is essential Understand who your customers are Apply common sense to your marketing

Chapter 7 Advertising Advertising creates public awareness of your product or service. There are many ways to get your advertised message to your potential customers, Newspapers, magazines, Yellow Pages, direct mail, junk mail, promotions, give aways, radio, television, sponsorship, coupons, packaging etc, the list goes on. There are basically three types of advertising: 1) Institutional - used to promote the company rather than the company's products. 2) Image - used to emphasise the merchandise range, atmosphere, service and overall feeling of the business 3) Product - this is the most common type used to promote individual products.

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You may or may not have heard of the 6 P's. These simple rules outline the ingredients involved in selling your products or services: Promotion - effective advertising. Product - have the right products or services. Place - your establishment should be located in a convenient location if you want people to come to you. Price - without competitive pricing all is lost. Presentation - presentation and packaging are important to induce people to buy. Personality - you should have a pleasant, helpful and courteous manner. Without ensuring that you have all 6 P's covered your advertising will be wasted money. A rule you should always remember is that you should always advertise but when things get tough you must advertise. A mistake many small businesses make is when things get tight, the first thing they cut is their advertising budget. In reality the last thing you should cut is your advertising budget because it is the lifeblood of your business. Without people knowing about you and your business things will continue to get worse. Did you realise the most common reason people stop dealing with a business is because of poor or indifferent treatment of customers by staff, 60% in fact. Only 10% leave for better prices. The rule is always look after your customers!

When times are difficult, you should advertise. When times are unbearable, you must advertise!

What product or service do I advertise? This is a common question. Every business can divide it's products or services into 4 distinct groups. “Stars” - that are big sellers and have high profit

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Advertising is the “Life Blood” of your business.

Going Out on Your Own? margins “Cash Cows” - which are big sellers but have low profits “Problem children” - poor sellers, but have high profit margins “Dogs” - poor sellers and have low profit margins The rules are: never advertise dogs. every ad should feature one star. every ad should have some cash cows. consider putting in a problem child that could develop into a star. And most important of all, a special price on a star or cash cow to get everybody's attention

How do you write a good ad? Another common question and a little harder to answer. To develop effective advertising is quite an art, but if you follow some simple fundamentals you can come up with something that will do the job. The first thing you must do is: Get their attention For instance “Carpenters!” if you were selling power tools. Next is; Build interest in your ad 'Top brands at the best prices in town!' at this point you have their attention and they will definitely read the rest of the ad. Build the desire to buy Mention the brand names and prices of your specials (stars and cash cows). Use the brand name logos as it will build familiarity and recognition.

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Build conviction of value You could compare your prices to your competitors prices by saying you are 20% lower or by saying you Always have will beat any advertised price or by stating you only a special or limited offer stock the very best quality tools.

that will Ask for Action induce By saying that you only have limited stock at these people to prices or by putting a time limit on the specials you act. will put the buyer under pressure to do it now. Another good ploy is to include a free item for the first 100 buyers, this always works.

If you look at the next lot of junk mail that is deposited in your letter box, go through it and look at the ads. You will find the brochures from the larger companies always employ the fundamentals as I have described. Have you ever noticed every time you get a brochure from a hardware store that lawn food and paint is always featured - cash cows! They are regularly bought items that get people in the store. How many times have you seen a special in a brochure and gone out to get it and come back with a whole lot of other stuff? Probably more often than you care to admit! Their advertising worked - they enticed you to the shop with a good special, and then sold you a whole lot of other items (Value adding). You should apply the same strategies. Sort your products or services into the four categories and work out which ones you can do a special on. You don't have to make much money on specials, they are simply a lure for you to get an opportunity to sell them a “star” or a “problem child” and possibly get rid of a few “dogs”.

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Going Out on Your Own? You don't need to produce full colour brochures like the big companies do, but you do need to apply the rules they use if you hope to be successful. When Low Price, it comes to advertising in the Yellow Pages, why not Popular try putting a good price in your ad. This will always items, get improve your response from the Yellow Pages as people will generally call you last when shopping people in around because they have an idea what your price is the shop. and will be comparing everybody else's price to You can yours, before you've even been contacted! There are then sell them higher a few things to remember though, it has to be a priced items. GOOD price otherwise it will work against you and you should hold the price for a year or as long the Yellow Pages is in circulation. I've done this myself and been inundated with calls - it works!

Which Media? As you are certainly aware there are many different places to advertise and they will all tell you the same thing, “we're the best place to advertise!” Nonsense, the best place to advertise is the place that works for your business, products and services, but which one? Earlier in planning we did a little exercise to narrow down the logical field so we have a rough idea what is probably right for your business. There is another pecking order I tend to apply when in doubt, cheapest first. It's the safe way and you don't waste a fortune only to find a cheaper way would have worked better. If you think radio, magazines, Yellow Pages and local newspapers are probably the way to go, I would try them in this order, Yellow Pages (because you only get one chance at the ad), local papers, magazines and radio, the most expensive last. While you may say that the Yellow Pages is pretty expensive, you only place one

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When it comes to spending your advertising dollars, don’t take a “shotgun” approach, use a rifle and hit the target with one shot.

ad per year in the Yellow Pages while you have to advertise every week or month in papers and magazines and hourly on radio. Now think about the cost. I've put together a listing of all the advantages and disadvantages of the different types of media for you to consider. Yellow Pages Advantages: relatively inexpensive when you consider it lasts for a year recognised as one of the first places people look when buying a service every household gets one Disadvantages: can be inconvenient if you move or if you just miss out on the closing date Local Newspapers Advantages: Local emphasis Quick response flexible inexpensive broad market coverage ability to show pictures possibility of getting some editorial, local papers sometimes are willing to do stories on new local businesses and this is definitely worth looking into. Disadvantages: short life - 1 or 2 days

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Going Out on Your Own? limited by area of distribution

Consider some local papers are mostly ads and this may publishing deter people from reading them. your own newsletter, it Daily Newspapers will keep you Advantages: Large distribution in contact more widely read than a local newspaper due to with your quality customers as flexible well as ability to show pictures providing a great Disadvantages: advertising getting expensive medium. no chance of editorial short life - 1 or 2 days (longer with Sunday papers)

Magazines Advantages: distribution directed towards potential buyers long shelf life and even longer reading life flexible ability to show pictures Disadvantages: quite expensive little chance of editorial, although possible Radio Advantages: mass coverage creates awareness and image flexible sound can create any situation Disadvantages: quite expensive

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extremely short life 15 to 30 seconds cannot show products no permanent record Television Advantages: mass coverage creates awareness and image flexible sound and pictures can create any situation more attentive audience than radio Disadvantages: very expensive in production and airtime extremely short life 15 to 30 seconds no permanent record Junk Mail Advantages: local distribution or wide distribution inexpensive short lead times quick impact Disadvantages: short life many people don't read junk mail anymore Direct Mail Advantages: targets possible customers ability to personalise letters always read measurable in terms of response Disadvantages: can be expensive if mailing list is out of date longer lead time

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A database of clients can be a valuable source of repeat business

Going Out on Your Own?

Printed Media – Place an ad at the top right hand corner of the page – Always provides better results.

When placing ads in the printed media there are a few considerations to take into account. The first is positioning. The ideal placement is the top section of the right hand page - no question. Most publishers charge a premium for this placement but it's worth it. Next is what size ad and how many. There have been many debates over this subject, whether one large ad is better than two small ones or visa versa. My opinion based on my experience is a single large ad works better than two smaller ads and if you look in most papers or magazines the advertising gurus would agree with me. Of course somebody can always show you a survey that proves the reverse is true. What can I say, try it, if it works, keep doing it, if it doesn't, change - simple! Use of colour in an ad can be helpful as long as you are the only one on the page using it. If everybody else is using colour the advantage is lost.

Direct Mail If you have a computer with CD ROM, there is a great alternative to spending a fortune on mailing lists. Make up your own! Any computer software retailer will have cd’s that contain every business and household in Australia. You can produce lists, labels in just about any format, access lists based on postcode, area, business type, occupation etc. It is an excellent marketing tool and I would recommend it to anyone. Direct mail can be an excellent way to launch your business if it is primarily a wholesale rather the retail style business. Wholesale businesses tend to have fewer customers than retail businesses and therefore it is easier and cheaper to target potential

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customers with direct mail. When putting together a direct mail campaign you should include a brochure and a letter pointing out the benefits of dealing with your business such as service, quality, guarantees, trade experience etc. In addition, if you want to increase your response by 100% include a free offer or some products or services at special prices.

Market Gap Analysis A market gap analysis is where you examine the market to see if there are opportunities to carry other products or services that will provide a necessary service or product in a market that requires it, although it may not fit with your core business. For example, a milk bar selling newspapers because all the newsagents are closed or a butcher that sells bread because nobody else in the area does. It is always worth looking around to see if there is a need for something to be provided because nobody has bothered servicing the need. Quite often people call this 'value adding' to a sale.

A Few More Tips on Effective Advertising

People do take more interest in ads directed at their own sex Colour increases readership by up to 100% Using a local event works well Use of logos should always be a priority Keep the layout simple, don't use too many different type styles and certainly never use hard to read type styles like 'Gothic' White space always increases interest believe it or not The following words have an impact on readers, use them when you can Free, New, Now, Don't,

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Going Out on Your Own? Here, Earn, Easy, Pain, Money, You. Always state prices clearly Specify branded goods Keep it simple and neat Urge your readers to buy now with limited time specials Don't try to be funny, few people are! Don't use jargon or terms that may alienate people, people don't like dealing with 'smarties'. Don't generalise, be specific with facts, that's what people want before they buy. Don't make excessive claims otherwise you may have a run in with the Trade Practices Act. Listen to your sales people Don't run a “nice safe ad”, it will achieve nothing Always run a “special” in every ad If you find a successful formula - stick with it until it stops working then change it. Write your ads with enthusiasm, if you're not in the mood leave it until you are otherwise your ad will be as flat as you feel.

Free Advertising Obtain a discount or even free advertising by running a competition in your local newspaper in cooperation with the editor or owner to give readers free products or services (you could possibly ask your suppliers to participate), and at the same time offer the editor/owner some free products or services as an inducement to run the competition. Run the competition for say 3 or 4 weeks. Try the same sort of things in local newsletters, fetes, participate in fund raising drives, sponsor a local junior sporting team, this sort of advertising works very well letting the local community know you're there, it identifies you as a good local citizen

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and it's all incredibly cheap. It may not bring you direct sales but it may produce sales in an indirect way in the future. Ensure your vehicle is always clean and tidy this is also a good form of advertising that's very effective for lifting your local image and presence. To promote his books, author Hans Jakobi approached schools in his local area to sell his books as part of their fund raising drives. He provides them with his books at a reasonable wholesale discount and the school keeps the retail margin. The advantage to Hans? Not only does he feel good about helping local schools out, but in each of his books he has placed ads for his other products in the back of the books so he can “value add” to each sale. It also gets people reading his books and in this way he picks up “word of mouth” sales – the best sales you can have. Personal recommendations are by far and away the best way to sell without having to sell.

"Promise, large promise, is the soul of an advertisement" -Samuel Johnson (1709-84) Summary Spend your advertising dollars wisely – Use a “rifle” instead of a “shotgun” Use the cheapest forms of advertising first – they may produce the desired result without spending a fortune All advertising should have a “special”, “bonus” or “limited offer”

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Going Out on Your Own? Personal recommendations are the easiest and cheapest sales Always seek out ways to obtain Free advertising or promotion

Chapter 8 Selling “I can't sell”, I hear you say. Nonsense, everybody can sell. If you ever got a job, sold your car or sold yourself to another person (ie. married or in a relationship is what I meant!) you have demonstrated an ability to sell. The role of a sales person is to find out what the customer wants rather than whether the customer wants something. Once this is done, a sales person should then help the customer fill that need to the customers’ satisfaction. The principle

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skills a successful sales person needs are: Putting your customers in a receptive state of mind, making them feel at ease and unpressured. Showing interest in their requests or problems. Using opinions as selling points (both yours and theirs). Supplying facts and helpful information. Meeting objections in a positive way and never becoming defensive or aggressive. Agreeing with customers. Suggesting additional merchandise.(Value adding) Follow up Building repeat business. sales with

a thank

It's important that you learn to apply these you letter. skills, although if you apply courtesy, friendliness, It produces honesty and you know what you're talking about, you're 90% there. Not very hard when you think goodwill. about it? I know of quite a few small business people that would never consider themselves sales people but have remarkable success at selling their wares by just being themselves. Is this being a good sales person? Probably. An old friend of mine, Steve owns a pet shop in one of Sydney’s trendier suburbs. He spent many years of his life working for Australia Post. It never ceases to amaze me, and his business partner, how this “untrained” person can sell products by just being himself. He is a natural salesman. On the days he looks after the shop instead of his partner the sales are always up compared to when he’s not there. If you were to ask Steve if he thought he was a good salesman he would probably say no, but the sales figures speak for themselves. Steve does it by being a friendly, likeable guy that loves a joke and a chat with his customers. Most of his customers would never go elsewhere because they like him. I’m sure even if he put his prices up, he would still

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Going Out on Your Own? attract the same customers because they have a rapport with him. They feel good about shopping at his pet shop, he makes sure they do. Everybody can sell, simply use your own personality and be friendly and courteous. Top sales people make a point of remembering Remember regular customers' names, ensuring each time they come to the store they receive a small discount or regular offering other little extras like helping them to the customers’ car with their parcels. As I mentioned before with my names. It friend Steve, he fosters friendships with his regular makes them customers. This fosters loyalty to the business by the feel good customer, quite often regardless of price, because about they get preferential treatment. You've probably had dealing with the feeling yourself when you constantly use a particular business and each time you walk in they you. remember you as though you were a personal friend. You always go there because the people are nice and they look after you. And you probably continue to go there even if their prices were a little higher because you leave there feeling good. This is what I mean about looking after your customers, it's so easy and it costs nothing, but it brings huge rewards. Quite often people will be more interested in the image an item may project rather than any specific facts about quality or performance. For example, have you been into a clothes shop where the sales people use words like “popular”, “smart”, “good looking”, “right for you”, which can be more persuasive than reeling off a lot of facts and figures. Keep this in mind if you get the feeling the customer “tunes out” to facts and figures. Try to avoid criticising your competitors goods and services as this quite often offends people and places you in a bad light. Nobody likes dealing with a

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malicious person. Handling a customer's objections takes tact and understanding. Most objections to a product are often “buying signals” which require you to give them further information. If you handle the objections correctly and happily, the chances are you will make the sale. If the objection is valid, point out a compensating benefit. Never argue with the customer, even if the customer is wrong. You should never correct or contradict the customer unless you are asked for your honest opinion. If you agree with the customer you will find the customer far more at ease and they will be far more receptive to what you The customer is have to say.

always It is common knowledge that very few sales right.

people don't ask for the order. Generally, sales people feel awkward about asking the customer for the order. These sales people will never be really successful in sales. A lot of sales are lost simply because the sales person doesn't put the onus back on the customer to make a decision, they simply leave the whole matter up in the air which allows the potential customer to quietly drift out the door without having to commit themselves to a decision. How many times do you do this? I do it all the time and think to myself, “I’m glad nobody put me under pressure, I probably would have spent money”.

Tips on Selling Techniques Here are a few tips on selling that you should try to apply when speaking to your customers. Greeting the customer

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Going Out on Your Own? Always use their name if you know it. Always ask 'How may I help you?' not 'May I help you?' it's too easy to answer with a simple No to the latter question. Always greet people in a cheerful manner. Once you have their credit card, address them by their name. Product Knowledge Make sure you know what you're talking about, some customers may know more about your products than you expect and this could prove embarrassing if you Always ask get caught out not knowing what you're talking for the order about.

or sale. Don’t die wondering.

Benefit Selling Apply the SPACED formula Security Performance Appearance or image Convenience Economy Dependability Understand these features of your products or service and emphasise them when discussing the product or service. Demonstration Demonstrate the product or have a folder of testimonials from happy clients if you are in the service industry. Handling Objections The reason many people raise objections to a product are because they are seeking further reasons why they should buy the product. The most common objection is price. If your competitor has exactly the

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same product for sale at a cheaper price, match the price or point out the benefits of using your business such as service, backup etc. If the products aren't exactly the same, apply the SPACED method to highlight the features of your product. Overcoming Objections Always listen to the customer's point of view Repeat the objection so as to clarify it, which shows you appreciate their point of view and that you understand what they are saying. Find a point you both agree on and restate the benefits you are offering which will overcome the objection. Closing the sale As I mentioned earlier, you must ask for the order as hard as it may be for some people. There are a few simple techniques, which should solve most of your dilemmas if you have trouble asking people for money. And you don't have to use any pressure. The Question Method: “Which colour would you like?”, “Is this for yourself or would you like it gift wrapped?”, “Would you prefer the larger size as you will save money?”, “Would you like to pay by cash or card?” The Inducement Method: “If you purchase today we have a bonus....”, “We have a special today on those items...”, “That is the last one we have I'm afraid, would you like it?” Related Selling Once the initial sale is made suggest accessories or related items that the person may buy on impulse while they have their guard down. Once a person has made the decision to purchase they tend to relax and become a little friendlier, this is the perfect time to

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Listen to your customer, they will tell you what they want.

Going Out on Your Own? suggest other items. (McDonalds do it all the time, have you noticed?)

Maintain a PMA A Positive Mental Attitude to Selling .

Handling Complaints Handled properly, a complaint can turn from an unpleasant situation into an opportunity of making a loyal customer. It all depends on your attitude. Always express regret and be sympathetic and listen attentively. Never argue with them, remember the old adage 'the customer is always right'. Exchange, refund, or replace the item promptly and happily, never leaving them in any doubt you intend to do just that. If the customer leaves in a good mood they'll be back to purchase again. If you maintain enthusiasm and a positive mental attitude you will not only enjoy selling, you will be very good at selling without really trying.

Canvassing for Customers When you start off in business, you may think the only way to get up and running (particularly in a wholesale trade type business) is to do some canvassing, either personally or over the phone. This isn't easy, but nothing ever is. Canvassing is also a cheaper alternative to advertising as it will only cost you petrol or telephone call costs. When canvassing there are a few things to remember: Approach people in a cheerful way Ensure you're speaking to the right person Know exactly what you're going to say as they will make up their mind in the first 30 seconds whether they are going to do business with you,

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so you must get your message across concisely. Dress appropriately Have a business card and your brochure at the ready Accept that 90% will knock you back or will show When I get little interest, but don't let this put you off, for a knock every one that knocks you back you get a little back, I closer to the one that will say yes. When trying to obtain a new customer by canvassing, there are basically four reasons why they may reject your products or services. They are: You're talking to the wrong person. Find out who is, and come back or phone back when they're in. Ignorance, they don't understand the benefits of your products or services. Ensure that you explain all the benefits clearly. If you still can't convince them to buy your product, then offer to put the products in on consignment for a week. This will normally convince them. Remember to get them to sign for the goods or you could have problems later on. Price, this is easily fixed, match or better the price if you can. Loyalty to an Existing Supplier, see Price!

Effective Alternatives to gaining wholesale or trade customers are: Cold calling, some people find this hard to do, but it is very effective. You will get better at it the longer you're in business. When cold calling, always make sure you have stock with you as these sales are generally instantaneous. Faxing a flier, this is something that can be done

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know I’m getting closer to a “Yes”. Keep trying, it’s just a numbers game.

Going Out on Your Own?

If all else fails, try giving them a free sample or a “money back” trial.

from home at night. Draft up a simple flier pointing out the benefits to the retailer and his clientele. To get their interest, go in with an exceptional price. This will get results. Direct mail, this is a variation on the Faxing theme, the difference is, you mail out your flier instead of using a fax. Expect about a 5% to 10% response. It will depend how good your 'special' price is. Don't make the flier too wordy otherwise it won't get read. Ringing up and talking to them on the phone. This normally gets results if you say you can drop off stock immediately. If all else fails, offer to give them a sample product for free. Tell them you will come back next week to see what they thought. If they like the product, they will buy it, and they can keep the sample. If not, move onto the next prospect.

"Every one lives by selling something" - Robert Louis Stevenson (1850-94) Summary Everyone is a Sales Person Take a friendly and courteous approach and the sales will follow Know your subject Never lie to a customer The customer is always right Always ask for the order Provide a money back guarantee – it reduces the “risk” for the customer Newsletters and catalogues can provide easy sales – Try it!

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Chapter 9 Assessing the Competition Life is all about competition, it's what the free market system is all about. If, when you start your own business you don't have any competition, you're very fortunate but it won't last for long. If there is money in what you're doing, there will be competition fairly soon. Assessing your competition is very important. If you ignore them and hope they go away, they will eventually get the better of you. Now, I'm not saying you should be paranoid and

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Going Out on Your Own? obsessed by your competition, far from it, but you should remain alert to what they are up to. Firstly, you should learn all about your competitors prices and products so you know how you stand up in the market. Who is the competition? Well, they are the other businesses competing for the same customers although their goods and services may not be exactly the same as yours. An example of this would be if you were a baker your competitors would obviously be other bakers but you would also include supermarkets, convenience stores, milk bars and anyone that sells baked products to the public. If the baker down the road sells a dozen dinner rolls for $4.00 and you sell them for $4.20, but the supermarket sells them for $2.50, who is your biggest competitor. The supermarket of course. My point is the competition isn't as easy to identify as you may think. Always keep on the lookout for competition. A good source of market research are your customers, ask them if they are happy, they'll let you know if they can do better somewhere else. From time to time visit the competition, they'll visit you, even though you didn't notice. This is a good way of picking up good ideas and gauging how their business is going. Note the number of people going in, how many people actually doing business, the attitude to customers, the sales approach. If your competitor is a small business it may be difficult to be inconspicuous so a good idea is to sit in a car across the street and just watch what's going on. It will give you some sort of benchmark to work with. You should also make a point of periodically buying the competitions products, possibly pulling them to pieces to gauge their quality and design. In the case of service based businesses, pay for a friend

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Get to know your competitions products, services and prices. Fore armed is fore warned.

or relative to use the service to see how they do business and pick up on any faults or advantages. Any faults in the service can be used to your advantage by actually focussing some of your marketing towards your competitors weaknesses. Not very nice but that's business.

Avoid “Price Wars” you will always lose and the customers win.

A word of warning, don't get dragged into a price war. The only losers will be you and your competitors, the public and your customers will win as they chase prices and forget about the good service you've been giving them up to now. The best way around this problem is don't let the customers be in a position of making an easy comparison between you and your competitors price. How to do this? If the competition has a “widget” from X manufacturer for $200, you make sure you have a “widget” from Y for $250, but emphasise the features on yours that the other one doesn't have and use that as the way to 'sell up'. Sure, the competitors product may have features yours doesn't, but if it isn't mentioned then they will only focus on the added 'benefits' of your product. Another way is to make product or service packages different in some way so it becomes difficult to compare prices. An example of this would be if the competition is selling the “widget” for $200, you simply sell yours for $250 but with an extra inexpensive product or an accessory which makes your deal appear better value but actually yields more profit at the same time taking the wind out of your competitors sails. Sometimes, your supplier will be happy to assist you with some subsidised or possibly free products in your promotion, it's worth asking.

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Going Out on Your Own? Never get into a price war with large companies, you will lose, nothing is more certain. I've worked for several large companies that have been prepared to take losses on certain products to drive the smaller competition out of business. They have deep pockets and they will use them if you annoy them enough. The best way to compete with them is personalised service, ability to act quickly and reliably. Few large companies can provide these features. I know from experience you should always keep an alternative supplier up your sleeve. Try to position yourself as an alternate supplier to some prospective clients that you are yet to win over. Alternate suppliers can get you out of trouble when a big company lets you down and they all let you down sometimes. To start off with, if you can't draw large customers away from the possibly “cheaper and larger” competition, you should always keep in contact with them and let them know you're there to help if and when they need you if and when the “the big company” lets them down. You will get an order, but it may take a while. Once this occurs you can demonstrate your service, ability to perform and professionalism. It will make an impression. Finally, this may sound bizarre, but why not try fostering a cordial relationship with some of your competitors. This will disarm them and reduce your stress and at the same time it could be beneficial to both parties if you wish to tender for a large job that you couldn't handle on your own. Think about it.

"Thou shalt not covet, but tradition approves all form of competition" -Arthur Hugh Clough (1819-61) 78

Big companies have deep pockets. Beat them with service, reliability and quality. They will generally be able to beat you on price.

Summary Understand the competition, their Price, service and quality Avoid price wars – they only reduce your price and consequently your profit Big companies can be beaten on personalised service, quality and flexibility – but rarely on price, so don’t fight them on price

Chapter 10 Merchandising This chapter generally relates to “shop front” style businesses, but some of the points are applicable to all businesses. So even if you're not planning a retail business please read on. Merchandising is the final step in an effective marketing strategy. By making a few alterations to

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Going Out on Your Own? your shop or showrooms you can increase sales dramatically. For instance if you suffer from any of the following problems you really do need to take a good hard look at your merchandising and shop layout: The shop doesn't seem big enough Stockroom is bulging Merchandise is still packed in boxes or out of sight Customers are always asking where things are If you have limited space in your shop you should apply the five rules of merchandising: Rule 1 - Accessibility Impulse items should be placed in high traffic areas such as near the cash register or near the door. Consider “gondola” displays as they can be accessed from all sides. A little secret to merchandising is people normally turn right when they enter a store and exit from the left so arrange displays accordingly. Rule 2 - Be Selective Don't carry every item known to man, it's not necessary. Don't carry more than two or three brands of the same product and consider only stocking the best one or the market leader. This way you don't end up with a whole lot of stock that you will never sell (remember our “dogs”). Rule 3 - Vertical Positioning The area roughly in line of sight is the most effective positioning level to place high profit and high volume items. Sales are by far the highest in this area. The worst area for sales is at the top of shelves or the bottom. Have you noticed supermarkets place their high profit name brands at eye level, but the

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generic (low profit margin) no name brands are always at the bottom! When negotiating with your suppliers, use positioning as a way to get a better price as the supplier may offer a better price if they are offered better positioning. Rule 4 - Horizontal Positioning The centre of any display is always the best selling area. The further away from centre, the lower your sales will be. Couple horizontal and vertical positioning and you know exactly where to put your high profit items Rule 5 - Product Association Fast selling items sell even better when placed with other fast selling items. Place associated items together (like cheese and crackers, croutons and soup, shirts and ties, shoes and handbags etc), this will generate impulse buying. If you display several sizes of a product, always put the large size to the right, you will sell more this way. Ensure aisles are wide enough that shoppers don't get cramped and annoyed. Who really liked shopping at the old Franklins stores? People only shopped there because they thought it was cheaper and they would put up with it to save money. Shopping at Woolworths and Coles is always more pleasant. Ensure the store is well lit, clean and neat. Keep the stock free of dust and kept forward on the shelves (you want to display the stock, not the shelves). Most important of all make sure that all prices are clearly marked, nothing gets a shopper annoyed quicker than no marked price on an item. A good idea is some signage inside the store to

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Going Out on Your Own? let people know where certain categories of items are located, this increases convenience and therefore sales and repeat business. Make sure the outside of the store creates a good image with easy to read signage and a clean uncluttered entrance. Remember what we said about “Cash Cows”, the low margin but very popular items. These should be at the front to entice passers by as well as any specials you may have. They won’t buy unless they come in through the front door. Another little tip on stock presentation, if you put 4 identical pieces of stock on a shelf, 2 or 3 will sell, the last one will likely sit there until you put more stock near it. But if you put 20 identical items on a shelf they will sell far more quickly. There is a strange type of suspicion people have about buying products that don't appear to be popular or new on the market. Try this little exercise and see what results.

“A wise man creates more opportunities than he finds" - Francis Bacon (1561-1620) Summary Maintain clean and well lit premises Make sure everything is easy to find Ensure all goods are clearly marked with a price and all the prices are consistent The Specials should always attract the passers by. Always have a special High profit margin and popular items at line of sight

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Never leave a product alone on a shelf. It will never sell.

Chapter 11 Time Management and Goal Setting This is an area of business management often overlooked or ignored. We all know someone in small business who races around like a madman all day, never enough hours in a day, all they do is rush and get worked up - maybe this person is you! At the end of the day, when the dust settles, what have you achieved? Do you review the day and wonder "what happened to the day, I didn't get as much done as I thought I would". If this sounds familiar, then you

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Going Out on Your Own? may have an organisational and time management problem. Successful people never seem to rush, they remain composed and unflustered. The difference between them and everybody else is they have mastered time management. What is time management? It is simply allocating time in your day in an organised and efficient way. Before we can really understand how to time manage our day, we must ask ourselves what are we trying to achieve today, this week, this year and possibly ten years from now. This is “Goal setting”. The best way in my opinion to achieve goals is to write them down. You should review these goals from time to time to ensure that they are relevant and achievable but not so achievable that you don't have to try hard to achieve them otherwise what is the purpose of the goals in the first place?

At the start of each working year you should sit down and think about what you want to achieve this year, it could be that you want to increase your profits by 20%, you may want to move into larger premises, you may want to reduce your debt substantially. At the start of each working week you should write down on a note pad or in your diary the major jobs that need to be done this week, and review them each day to ensure you're making progress and hopefully mark some of the tasks off the list. You should keep the list on your desk or in a place where you will be constantly reminded what needs to be done this week. This list should be in order of priority so that the most important tasks at the top of the list get done first. Anything not

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Want to achieve your goals. Write them down.

achieved this week will be carried forward next week on a higher priority, this will ensure it gets done.

If you write down what you have to do, you won’t forget to do it, will you?

The next thing you should be doing is having a daily list of jobs to do. This will help keep you on track each day. Again, this list should be displayed where you can constantly refer to it and mark off the jobs completed. Marking off the jobs will give you a sense of achievement and let you know how you are progressing through the day. Always stick to the list where possible and keep working from high priority to low priority. I know things can come up through the day that can throw the whole day out, but you must either deal with the crisis and return to your list or if the new task isn't as important as some of the jobs on the list put it at the bottom of the list and continue doing what you were doing. Every task you have to do should be written down for a couple of reasons. Firstly, so you don't forget to do it and secondly, so you keep your day organised and you achieve your daily goals. Beware starting jobs and not finishing them. This will turn tomorrow into a mess of half finished jobs and will cause “list blowout”. You will end up with a list a mile long and you will give up in despair and revert back to old habits of being in confusion all day and achieving nothing. Remember each day you achieve your goals and tick off everything on your list, you get a little closer to achieving your weekly and ultimately your yearly and long term goals.

A few tips on Time Management:

Do it once and do it well, it's pointless coming back to the job and having to redo it. Learn to politely tell people when you're busy and

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Going Out on Your Own? that you will get back to them later. Learn to delegate tasks that really don't require your involvement. Don't go on wild goose chases. Don't waste time on phone calls that aren't going to achieve something. Don't procrastinate. Refer to your list of things to do often through the day. “Map out your day” in the shower and make out your daily list the minute you get to work. Finish what you start. Prioritise habitually, always do things in their order of importance to you and the business. Avoid time wasters, people that just like to chat all day, if they work for you, set them straight, or get rid of them.

"Gather ye rosebuds while ye may, Old time is still aflying, And this flower that smiles today, Tomorrow will be dying" - Robert Herrick (1591-1674) "Dost thou love life? Then do not squander time, for that is the stuff that life is made of" - Benjamin Franklin (1706-90) Summary Keep a daily, weekly and monthly list of tasks so you can monitor what you have to do

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If you write down all that needs to be done, you are less likely to forget Prioritise all your jobs – from most important first to least important last Remain focussed on what needs to be done today

Chapter 12 Employees - Be careful, be very careful! It is a well known business truism that one bad employee can undo the work of two good employees without even trying! They can be your worst nightmare or they can be almost as valuable to your business as you are and sometimes more so. Controlling them and directing their energies is a demanding and challenging task and one that has baffled and concerned me on more occasions than I wish to remember.

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Going Out on Your Own? The problems with employees are varied, overstaffing, understaffing, disputes, low morale, misdirected enthusiasm, delegation, job suitability, hiring, firing etc. Right about now you're thinking “I don't need employees they're too much trouble!”. Wrong, if you are going to expand and grow you will eventually need help, employees provide that help. As I have found over the years, some of my employees have saved “my bacon” on more than one occasion and I literally can't do without them. Many successful companies regard their employees as their most valuable commodity and even some countries will claim their most precious resource is their people, Japan for example. This is a philosophy that you should adopt, because if your customers are treated well by your staff the profits will look after themselves, because remember, it doesn't matter how cheap you are, if you treat customers badly, you will never see them again. And disgruntled customers have big mouths - remember that. Again with anything, it requires planning and employees are no different. A staffing plan should consider the following: The present and future requirements of the business. The business functions required to meet your objectives. The number of employees required to perform these functions. The type of people needed (skills, qualifications, personality type). Where are you going to find these employees (competitors, friends, family, advertise)

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Always employ smarter people than yourself. You want your business to grow don’t you?

Do the jobs allocated have a practical and worthwhile purpose. Can the jobs allocated, be done in a more efficient way. Holiday staffing requirements, which employees can go on holiday at the same time without throwing the business into total chaos. When considering these issues remember you should always find the person to fit the job not the job to fit the person. The trickiest part of employment issues is hiring. One of the main contributors to staff turnover is poor staff selection by employers. The lesson here is to be careful, be very careful when it comes to selecting the right people and at the same time make yourself aware of the anti-discrimination legislation otherwise you may find yourself on the losing end of a dispute. I’ve heard that 80% of employers lose these disputes and must pay damages or offer the person the job great isn't it? - your idea, your business, your risk, your personal choice, your money and “they” dictate who you can and can’t employ! Here are a few tips to help you through the “staff selection minefield”: Before placing an advertisement, ensure that it is clear and straight to the point as regards experience and job description. Leave personal preferences out, don't mention age, sex, marital status, race or anything like that - it's not allowed. Define the job role on paper stating very clearly the functions to be performed including any menial tasks as these are the ones that seem to cause the most problems. Also, state things like hours and any unusual conditions and experience and/or qualifications required so there can be no dispute on what was agreed to at the interview.

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Going Out on Your Own? Give a copy to each interviewee. Pre-plan the interviews by listing relevant questions to ask each interviewee so you get an “apples v's apples” comparison. Always reference check, ask questions about personality, attitude to work etc. One thing I always thought worked well was asking a few technical or test questions. If they were offended by your asking these questions then they should be avoided at all costs as they are probably people who are too tightly wrapped or can't handle a little pressure and you don't need employees like that. If they answer the questions and get them wrong they were obviously either nervous or they didn't know the answer. If you think they were nervous give them a little longer and reassure them that being nervous won't harm their chances at getting the job and this generally produces positive results. Once you have completed the interviews and made your decision, advise the successful applicant by phone and then send a letter of confirmation with details like salary, starting date, position etc. Also, send each unsuccessful applicant a letter thanking them for applying and for their effort. Courtesy goes a long way to building goodwill within a business. It's Monday and the new employee is showing up for work, what should I do when they get here? Good question. These are the basic guidelines that should be observed when a new staff member starts work with the business: Welcome the person to the business. Explain the history of the business, its goals and objectives. Tour the premises, introduce them to other staff members taking time to show them where they

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A person with “people skills” and enthusiasm, is more valuable than a person with more degrees than a hot day if that person can’t handle people.

will be working and with whom. Show them where the staff amenities are (toilets etc). Explain your business policies, procedures and business structure. Give them a list of people’s names, their phone extensions, their titles and a brief description of what they do. Also, it's not a bad idea to include on the list the address and phone number of the business, any other trading names you may use from time to time. Explain lunch hours, wages, dress standards, sick pay, holidays and any other rules and regulations. Explain what will be required of them in their position and exactly how their role fits into the bigger picture. This is very important for people to know “their place in the world”. You should then introduce them to the person who will be supervising them and that person should start them off relatively slowly until you assess their learning speed. Maintaining effective communications and motivation is vitally important to your business and should not be ignored. Always encourage your staff to make suggestions, and treat all suggestions with tact and understanding regardless of how inappropriate they may be. Make sure you acknowledge good work and effort. Employees have the same human needs as you have, so put yourself in their shoes once in a while to try to get some perspective from their point of view, you may be surprised by what you learn.

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Going Out on Your Own? Staff motivation can't be achieved by giving people “pep” talks! You cannot motivate anybody who doesn't want to be motivated unless you motivate them by intimidation (and it only works once or twice before it blows up in your face). Asking them to perform better or work faster does not work. You must create a good team spirit which will create a positive and productive environment. It's the working environment that people react most to, not your style of management. Here's a checklist to assist you to create a good team spirit and productive work environment: Try to get to know your employees, take an interest in them. Always introduce new staff members to existing staff. Communicate with your staff, let them know what is expected of them and recognise their achievements. Keep your staff informed of business achievements and developments, this will make them feel part of the team. Maintain an “open door policy”. Try to be accessible to your staff. Don't play favourites. Praise in public - admonish in private. Lead by enthusiastic example. Be consistent. Foster a sense of trust and responsibility.

How do you motivate employees? There are six well proven techniques for motivating staff. Recognition-Recognise the effort of your staff. Never ignore it. If a new employee has attempted

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Treat your staff with respect, and they will return this to you ten fold in the form of enthusiasm.

To understand your employees, put yourself in their shoes. Think about it.

to create a display in your shop, find something praiseworthy about it, even if only for initiative. Point out how it could be improved, but recognise it. Be sincere and genuine, but don’t overdo it. Opportunity - Provide opportunities for your staff in terms of increased responsibility, promotion or personal development. Discuss their future, and how it ties in with your business future. Give them a chance to attain their individual goals. Security - Job tenure is highly important. Tell them what is happening. Kill rumours quickly. Help staff develop personally so they can become secure in their jobs and more productive. Challenge - Give staff a challenge. Delegate whenever you can. Ask their opinions, try out their ideas. Encourage them to develop new systems, ideas, products, etc. Accomplishment - Let people know how you feel about their performance. Let them know what you expect of them. Join with them in setting targets, and help them achieve those targets. Expectation - If you expect a lot, you will get a lot. If you expect little, that's exactly what you will get. Motivation is a must to inspire and encourage your employees to work efficiently. Motivation is the energiser for all management activities. On the job, your staff will largely be motivated because of what you do to establish and maintain a feeling that they are recognised and important. Let your employees take part in the decisions they are expected to carry out. Help them understand the significance of the work they do. You can improve motivation by knowing your people, developing a feeling of pride, encouraging teamwork and stimulating friendly competition.

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Going Out on Your Own? Summary Qualifications and education count for Zero if the person can’t get along with others Enthusiasm, manners, ability to listen and learn rate higher than dux of any school Only employ a person you like otherwise you will be parting company sooner than planned. “Chemistry” is all important Take time in making you staff selection decision Always employ people who are smarter than you are Treat all your employees with courtesy, respect and thoughtfulness

Chapter 13 Failure and How to avoid it When you start up your own business some people may remind you of the fact that 90% of small businesses fail in the first five years of operation. Don't let this rather ominous fact put you off your dreams. Just make sure you are in the 10% that make it through. How do you achieve this? It's relatively simple. You must know and understand 3 pieces of information:

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1. What are my fixed costs each month? Fixed costs are things like rent, interest on a loan, telephone, electricity, wages, insurance, motor vehicle costs and all other costs that are incurred even if you don't sell one thing. Cost of stock is excluded. Knowing what your fixed costs are is vital to your survival. You can use the table of costs you used earlier in this book to work this out, but remember, don't include cost of goods or goods related items. 2. What is my average profit margin? You should know how much markup you have on your major selling items as a percentage. For example, if you buy a product for $10 and sell it for $15 your gross profit is $5, which is 50% of your cost - therefore your markup is 50%. You should have a good idea of your average markup on all your goods. 3. What turnover do I need each month to make a profit? The final link in the chain. If you know what your fixed costs are and you know what your average markup is, you can calculate this figure easily. For example: If your fixed costs are $7,500 per month, and your average percentage markup is 45%, you simply do this calculation, 45% markup divided by 145% (the 145% being 100% cost + 45% markup) = 31.034483%, this being the percentage of profit in each dollar. $7,500 fixed costs divided by .31034483% = $24,166.66. Therefore, $24,166.66 is the total turnover required for the month for you to break even. If you want to test the calculation to make sure you have the correct answer, do this simple calculation $24,166 turnover required by 145%

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Going Out on Your Own? (being 100% of cost + 45% of markup) multiplied by 45% markup = $7,500 fixed costs.

Learn and understand the ARD. The Amount Required Daily

Once you have worked out the total amount, you need to make as sales each month, you can then breakdown that figure to a daily turnover requirement (working days only). For example, $24,166 divided by 22 working days in the month would mean you need to take $1,098 a day in sales. This is your Amount Required Daily (ARD). The “ARD” should be indelibly printed on your brain so you know every day how your business is going without the need for an accountants report or cumbersome daily reports. If every business person used this amount as their performance bench mark, fewer businesses would fail. More than half fail due to the owner not knowing whether he or she is making money or not. This is without a doubt one of the most important little business secrets you can ever learn. Failure doesn't occur overnight, it's been coming for months, it's just that the business owner didn't notice or preferred not to notice. If you were standing on a train line and you saw a train in the distance coming towards you would you move off the tracks as soon as you could or would you wait until the train was nearly upon you? If you had any sense you would move away quickly the minute you sensed impending danger wouldn't you? Then why do business owners wait until they have nearly gone broke before they do something about ailing sales (these are the 90% failure people). The reasons for failure are numerous, wrong product, wrong location, poor service, combination of all these things maybe. The most common of all is

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The ARD is your business barometer. The ARD should be indelibly printed on your brain.

mismanagement, not knowing or understanding profit, not understanding what people want and expect and letting overheads get out of control. In my experience as an accountant, more than half the business people that have approached me for help have no idea how much money they were making or if they we're making money at all. Just imagine if the chairman of Westpac announced at the next Annual General Meeting that the management of Westpac wasn’t sure if they were making money or not. I for one, would sell my shares pretty quickly. Management control and information are one of the most important factors in business success and you will never hear a successful person state the contrary. If you wish to remain in business you must watch that you are at least reaching your “ARD”. If not, why not? Find the problem and solve it NOW! Each day you don't make your “ARD” you lose money. Sure you're going to have days where you will exceed your “ARD” and days where you won't but you should keep a running tally in your mind so you have a pretty good idea where you are up to this week or this month. A word of warning - your “ARD” can change if you drop prices, increase prices, put on more staff, give yourself a pay rise, so do recalculations regularly. The difference between you and the 90% that fail, is that you have a daily sales target and a financial management plan (although very simple) that will work if you use it.

Determination and Hard Work The last factor in avoiding failure is determination and hard work. Don't fall into a heap

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Going Out on Your Own? every time you have a set back, learn from it so you become wiser from the experience and analyse why it happened and learn how to avoid the problem next time. Most problems can be avoided with experience, so the longer you survive the better you will become. The secret is to survive until you have the experience and know how not to be making fundamental errors of judgement. Determination and hard work will get you there.

Failure occurs when you most expect it. Why didn’t you do something?

"Knowledge is, indeed, that which, next to virtue, truly and essentially raises one man above another" - Joseph Addison (1672-1719) "Not many men have good fortune and good sense" - Livy (59 BC - 17 AD) Summary Failure can be seen coming for miles. Change course otherwise failure will hit you when you most expect it Failure is avoided by understanding your ARD Failure is avoided by enthusiasm and determination Failure is avoided by keeping your clients happy Failure is avoided by watching your expenses Failure is avoided by survival Failure is avoided by understanding your profit margins

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Chapter 14 How to keep most of what you earn Just before we start examining administration and accounting proper, I thought I’d pass on a few tips on how to preserve as much of your hard earned dollars as possible. While the tax office may disagree, most small businesses pay more tax than they have to. Why? They cut costs by trying to do their tax themselves or they place their affairs with a less than dynamic and interested accountant. Many deductions go unclaimed, and the owner is the main problem, not because of incompetence, but because of a lack of knowledge.

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Going Out on Your Own? Here are a few tips on how to legally maximise your deductions when it comes to tax time:

Maximisation of Deductions

Tax planning techniques which may be utilised and points to consider Bad debts - write-off before the financial year end (ensure they are still in existence at time of the write off by not releasing the debt before writeoff) Repairs - review and complete necessary repairs before the year end. Prepay deductible expenses where services will be provided within 13 months, for example Interest. Depreciation - take advantage of immediate expensing threshold of assets up to$300 Pay any bonuses or commissions prior to year end Pay tax agent and accountants fees prior to the year end Pay any accrued leave loading prior to year end regardless of whether leave has been taken or not Ensure when you take holidays you include some business along the way. That way you can partially claim the trip as tax deductible. Leasing or Corporate Hire Purchase of motor vehicles

Minimise Assessable Income

Tax planning techniques which may be utilised and points to consider: Negative gearing - use for income producing investments, rent-producing properties etc Choose investment alternatives which have the most tax-effective income payment dates (ie July rather than June) Business Income - do not render invoices or accounts earlier than necessary. Leave June

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accounts go until July Mortgage interest offset accounts - use where possible Where possible, instead of taking income, consider repayment of “capital” injected into the business. ie. money you injected into the business in the first place is paid back to you tax free Take some of your income as “non-taxable” loans to directors. This should be done on a commercial basis ie. you should pay the company a reasonable rate of interest, which of course is repaid to you as company dividends in the end

Increase Rebates and Credits

Tax planning techniques which may be utilised and points to consider Medical expenses - have one spouse incur all concessional expenditure to maximise possibility of obtaining rebate (anything over $1,250 is tax rebateable) Do not derive dividends through a loss making company to avoid paying tax on a personal level but incurring a loss on company level. If you do this you will lose the benefit of your Imputation Credits Do not derive franked dividends through a trust structure unless it is certain the trust will have a positive net income

Reduction of Average Tax Rate

Tax planning techniques which may be utilised and points to consider Salary sacrifice -consider boosting superannuation contributions Structure holding of investments between family members so that negatively geared investment properties are held by members with higher

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Going Out on Your Own? incomes, shares paying fully franked dividends are held by members with modest incomes and interest bearing investments are held by low income earners Consider offshore investment structures in tax havens such as Luxembourg, Isle of Man, the Channel Islands, Cayman Islands etc. If you are interested in finding out more about tax havens and investing offshore, Swiss bank accounts, bearer share companies and international cash and credit cards, I have written a book on the subject. The book, The Invisible World is a comprehensive offshore investment manual. There is an order form at the back of this book if you are interested in learning about the immense opportunities available in the offshore world.

"the tax cuts are L.A.W., law" - Paul Keating on the 1995 tax cuts that never came "And it came to pass in those days, that there went out a decree from Caesar Augustus that the whole world should be taxed" - The Bible St Luke ch.2, v.1 Summary Ensure you maximise your business deductions by keeping all your receipts Get yourself a good accountant to ensure you don’t pay any more tax than you legally have to

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Chapter 15 Administration & Accounting The business is just about ready to kick off and something seems to be missing, .........paperwork! You have three options here, fully computerised, manual or a combination of both. The option you choose must be right for you and the business. It's no use going out and buying an expensive computer if you know you're not going to use it. But I would encourage you to learn how to use one if you are so inclined because whatever you think of them, computers will eventually take over all aspects of administration and accounting. As all computer operated accounting systems are different, I have not

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Going Out on Your Own? covered them in this book, I have concentrated on a manual system that should fulfil your needs until you are big enough to justify a computerised system.

Manual Accounting System Firstly, we will begin with the basics, the manual cash accounting system. Why Cash Accounting? The cash accounting system is relatively easy to understand and apply, and if you are applying the same rules month after month, it will give you a pretty good understanding of how your business is going. I have deliberately kept it basic, simple and above all workable, this is not meant to be a book on accounting. Some of you with accounting knowledge may ask why have I skipped Creditors ledgers, Debtors ledgers, Sales journals, folios, petty cash books etc. Simple, if I were to introduce all these “correct” procedures, nobody would read this chapter of the book and the objective would be lost. Those of you with accounting knowledge please feel free to indulge yourself, but for the purposes of this book a very basic system will do the job. To the “purists” I humbly apologise. It all begins with cheque books, bank deposit books, invoice books and receipt books and eventually becomes a profit and loss and balance sheet. I hear you saying “I'll just get the accountant to do all this stuff”, not always practical if you're trying to keep costs under control. I have taught many people basic bookkeeping who knew absolutely nothing of profit and loss reports and debits and credits. If you are smart enough to start your own business, you're smart enough to learn a little bookkeeping.

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The things you will need are: A multi column ledger book An Invoice book A receipt book...... all available from a newsagent.

The Invoice book The first piece of necessary paperwork (other than possibly a “quote book” if you are in a trade), starts with the issuing of an invoice to your customer. A carbon copy should always be kept in the invoice book and it's a good idea to have a book at home or the office listing every invoice just in case you lose your invoice book. You should update your 'backup' book each day, because it will probably be tomorrow that you lose your invoice book. An invoice should contain the following information: Date Invoice Number Name of the person or company you are doing the work for The customer's address Your name, address and phone number If you're operating using a company, the Australian Company Number (A.C.N.) Description of the work or products supplied Your terms and conditions, for example “7 days Nett” or cash on delivery or completion. Any warranty on goods and services provided. Each time you receive payment for an invoice, write the cheque details on the carbon copy and also in your 'backup' book.

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Going Out on Your Own? The Receipt Book The receipt book serves several purposes and can be valuable if you are selling products rather than services. The receipt book can also be a very handy tool when it comes to inventory (stock) control. When you sell an item you can simply write down the product description and/or product number on the receipt that you give the customer. This will give you a list of all products sold over a specific period and can be used in conjunction with a 'stocktake' explained later in this chapter.

The Ledger or Cash Book The ledger book or cash book records all your cash transactions. Each time you receive payment or draw a cheque you should record it in the ledger to ensure you have control over money in and money out. By using your invoice book you will be able to see who still owes you money at the end of the week or month depending on your billing period. By using the 'Bank' column and your bank statements you will be able to reconcile your bank account to find exactly what funds you have in the bank after all your creditors have banked the cheques you have sent them. As you can see the Ledger is central to all your bookkeeping functions and should be kept up to date - at least weekly. I have included an example of a simple ledger that you can use as a guide for your own purposes. Of course your ledger will have more columns for things like expenses and possibly breaking down sales between labour and products if you supply a labour component in your business. I have also

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0003

7/2/96

1250.00

Deposit

12/2/96

(750.00)

(750.00)

Stock

Inv 001

107

1250.00

(1250.00)

TRJ Pty Ltd

A Brown

325.33

(325.33)

325.33

7/2/96

0002

Wages

J Smith

500.00

(500.00)

500.00

1/2/96

0001

ABC Real Estate

(1115.50)

1250.00

1000.00

500.00

650.66

(2355.16)

2355.16

Totals

explained step by step each transaction, so you can understand what I'm doing.

(365.50)

1115.50

1000.00

(1000.00) (55.00)

ABC Real Estate: Paying the rent on the premises. As you are drawing a cheque to pay the rent it will take money out of your bank account and increase the expenses called “rent”. One goes down (the bank balance), and one goes up (the rent expenses). This is the basic principle behind “double entry bookkeeping”. As you can see I've put the amount in the bank column in brackets this signifies a “credit” entry (money out) and the one in the rent column, without brackets, a debit entry (expenses in). To make sure you're on the right track, all the debits and credits should equal each other or net each other off. J Smith : Payment of wages. Again the theory is the

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Sales

Stock

Fixed assets

Rent

325.33

Wages

(15.00)

15.00 325.33

Amount

(325.33)

13/2/96 14/2/96

Date

Bank

(365.50) 1000.00

0006 0007

Cheque

55.00

12/2/96 13/2/96

cash chq Wages Reference

13/2/96

Deposit

Coffee and sugar Descripti on

J Smith

0005

Acme paper co.

0004

Johns Office Furniture

Inv002

P Martin

Going Out on Your Own?

same, debit to the expense and credit to the bank account. You may ask 'why credit to the bank account when the bank statement from the bank says debit? Simple, the bank statement reflects the bank’s point of view. Regardless of what you think about debits and credits, neither is good or bad. It's just we're accustomed to see “credit” in our bank accounts when we have money in the bank, but as I say, this is the banks point of view. Credit means they owe you money, you are their creditor that’s why your balance is in credit. TRJ Pty Ltd.: Now this is a little different, you will have noticed that the 'stock' column is coloured grey. This is to distinguish it from the expenses. Why aren't stock purchases an expense? Because the stock purchase doesn't become an expense until it is sold. Until an item is sold it remains an asset of the company rather than an expense. Yes, assets are debits as well. The purpose of this is to match expenses and income so the profit and loss statement will give a true and balanced view of the company's performance. Each month you do a profit and loss statement, you will also do a stocktake, and this will transfer an amount to your profit and loss statement from the stock account, but this will be explained a little later. A simple rule to keep in mind is that money spent is always a debit (increase) to expenses or assets and a credit to the bank. Money received is always a credit (increase) to income or liabilities and a debit to the bank. A Brown: A sales receipt, as you can see everything is the exact opposite to an expense. The sales column is credit (income) and the bank is debit. The two sales shown here (Brown and Martin) have been added together, the reason? Because they were banked together and showing them this way in the

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Going Out on Your Own? ledger will make it easier to find them in the bank statement when you are doing the bank reconciliation (which is explained a little later). Johns Office Furniture: This one is different again, the business is buying some office furniture, which is an asset and will remain in the books as an asset at it's purchased price. Only depreciation will reduce the value of the asset in the books. Depreciation is a non-cash accounting transaction that has little effect on the day to day running of your business. The whole issue of depreciation is best dealt with by an accountant as the issue can become complicated from an accounting and tax point of view. All items purchased that will not be sold or don't go into something that will be sold as a normal part of your business are normally regarded as “fixed assets”. They can be office furniture (as in this case) or tools, manufacturing equipment, improvements to your premises (other than normal maintenance), motor vehicles or computers. All these items should be shown in a separate column named “Fixed Assets”. The rest of the entries are pretty self explanatory. At the conclusion of your accounting period, usually the end of the month, you should total up the pages and make sure it all balances. ie. everything from the bank column to the sales column should add up to zero, all the debits and the credits should be exactly the same. If not check your brackets and make sure everything is classified either debit or credit correctly. Once this is done, the next thing to do is your bank reconciliation.

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The Bank Reconciliation Often called a “bank rec”, it is necessary to make sure how much money you really have in the business bank account, not what the bank statement says you have as this can be misleading. Just say you closed off your books at the end of the month and just before you did you drew some cheques totalling $1,000. Then you look at your bank statement that closed off at the end of the month as well, and it reads that you have $1,100 in the bank. A windfall? Extra profits perhaps? But then you notice those cheques you drew a few days ago aren't on the statement. This means if they are presented you really have only $100 left. This is the purpose of a bank reconciliation, to find out how much money really is left after all the outstanding cheques are presented. Another reason for doing all this is because banks sometimes make mistakes, sometimes you do, either way you must know what's going on, after all it is your money. What's the best way to do a bank reconciliation? I have included an example you can photocopy and enlarge and use each month if you wish. Bank Reconciliation Opening balance (last month's closing balance)

$

Add this months cheques drawn (as per the ledger)

$(

Add this months income received (as per the ledger)

$

Debit

Subtotal (Taking debits away from credits)

$

debit/ (credit)

Go to your monthly bank statement and pickup any fees, interest direct payments from your account

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debit/ (credit) )

(credit)

Going Out on Your Own? Fees, Interest, duties, direct payments

$(

)

(credit)

Are there any payments into your account that customers may have made or possibly interest paid to you Income on bank statement not in ledger

$

Debit

Total (this should represent the true balance of your bank account, the total of all the debits less the credits)

$

debit/ (credit)

Closing balance shown on your bank statement for the month (exactly as it shown on your bank statement. You will also notice the brackets have reversed, because you are now looking from the banks point of view)

$

(debit)/ credit

Unpresented cheques (all the cheques that are shown as drawn on your ledger but don't appear on the bank statement yet, don't forget any that may be still unpresented from last month) Cheque Number:

$(

)

(debit)

Cheque Number:

$(

)

(debit)

Cheque Number:

$(

)

(debit)

Cheque Number:

$(

)

(debit)

Cheque Number:

$(

)

(debit)

Total (this amount should be the exact same number as the first section but exactly the opposite, if the top section is credit this should be debit and vice versa. If not check all you numbers again by ticking each one off until it balances, it will work out if you persevere)

$

(debit)/ credit

Now that you have worked out your true bank balance by using the bank reconciliation, you should return to your ledger and just under where you totalled off for the month you should list down all the fees, interest, charges and payments made by direct authority from your bank account. The same goes for any income that may have appeared on your bank statement that didn’t go through your ledger or cash book. List them just like they were normal transactions that happened through the month. Put the fees etc in their respective columns and sales or

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other income in their columns. The reason for this is, when you come to do your Profit and Loss, if you haven't listed ALL your income and expenses in the ledger you may not pick them up when putting together your Profit and Loss Statement. Before going onto the Profit and Loss Statement you must do your “Inventory Stocktake”.

Inventory Stocktake The inventory stock take is one way to calculate your cost of goods sold. By looking at the stock you had last month and adding on what you bought this month and taking away what's left at the end of this month you should be able to calculate what your cost of goods were. There are several other ways to calculate and definitely more accurate ways but this is the easiest and simplest. Firstly, you list down last months closing balance of stock (it could be zero if your are just starting out) on this month's Inventory sheet and then list in the next column what you have in stock this month, one column from the other is the change in stock for the month. This change column will give you the “net effect” of purchases and sales for the month. If you work out how much your stock on hand is worth (the right hand column 'price') and take away this amount from last month’s amount you will have a 'rough cost of goods' figure. But it doesn't end there. There are a few slight adjustments to be made before it's correct. Complete this simple table to assist you in your calculation. Total value of stock on hand at the end of the this month (from the inventory stocktake sheet)

$

Total value of stock on hand at the end of the Last month (from last

$(

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)

Going Out on Your Own? month's inventory stocktake sheet) – deduct Stock received but as at the end of the month not paid for –deduct

$(

The stock value on invoices for which cheques had not been received at the end of the month – add on

$

Cost of goods Sold for this month

$

)

Once you have completed this table, you will have the correct cost of goods sold to apply to your sales as shown in your ledger book. Just under the sales total in your ledger book write down the amount of Cost of Goods Sold for a permanent record. If the C.O.G.S. amount seems a little high, then maybe you have missed counting some of your stock or you have made a miscalculation on either this month's stocktake or last month's. Also, check for stolen or spoiled goods that may have been thrown out, these will also have an effect in increasing your costs.

Inventory

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Price

Unit Price

Item

Change Qty.

This month

Last month

Category

Date

Total The Profit and Loss Statement Putting together a basic profit and loss statement is a fairly simple process. It is simply a matter of picking up the monthly balance of each expense account and sales account from the ledger and putting the amount next to the corresponding account on the P&L Statement. That simple! If you have put everything in the right columns in your ledger, the P&L will work out very easily. Go to your Ledger book and enter each total onto the Profit and Loss Statement provided. Place each month's p&l type total (not stock, or bank etc.) into each box at the same time adding the monthly amount to Last month's Year to Date amount, this will give you a running total on how you are going for the financial year so far. Don't forget to post the

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Going Out on Your Own? bank fees and charges and your cost of goods sold expenses.

Profit and Loss Statement Month of : Sales

Month

Products Products Products Labour Income Other Sales Total Sales or Income Expenses Wages Rent

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Year to date

Electricity Cost of Goods sold Telephone Bank Interest and fees Insurance Motor Vehicle Printing and Stationery Office expenses Total Expenses Profit or (loss) sales minus expenses

This simple report should provide you with a good idea on how your business is fairing, while an accountant may give you a more accurate assessment (using accrual accounting) at the end of the year or periodically, this will do the job effectively.

Motor Vehicle Logbook This is a necessary evil, but if you want to gain the maximum tax deduction for motor vehicle use at tax time it should be completed. Under current tax rules it must be completed for the first three months of each tax year to establish a deductible use pattern. If you feel your use pattern is not well represented by a three month sample, continue with it for the whole year. It is only necessary to record business trips. At the end of the year your

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Going Out on Your Own? accountant will work out which deduction method suits you best and will gain you the highest deduction, but before the accountant can do anything they will need this logbook completed. The methods currently in use to calculate deductibility are: Percentage of total costs incurred - by dividing the total kilometres travelled in a year by the business kilometres travelled multiplied by your actual costs incurred. (Of course you will have kept all your receipts!) Rate per kilometre based on the type of car you have (business km's only) Flat percentage of the purchase price of the car (not exceeding the depreciable tax limit)

Motor Vehicle Logbook Name Address Car registration and type Date: Date

Odometer Start

Odometer Stop

Total Kilometre s

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Petrol/Oil ($)

Parking/Toll ($)

The Credit Application Here is a copy of a typical credit application for you to use or use as a guide for the type of information you should be asking for prior to allowing someone credit.

Credit Application Company: Address: Telephone: Type of Business (Sole Owner, Propriety Limited, Incorporated): Years in Business: Partners or Corporate Officers 1 - Name, Title, Phone: 2 - Name, Title, Phone: Bank Reference Bank Name and Address: Trade References

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Going Out on Your Own? 1: 2: 3: I certify that the above information is true. The information is to be used only for the opening of an account. Sign, Title, and Date

The Cash Flow Forecast The cash flow forecast is a vital piece of information, without it you could run out of cash. Unlike a profit and loss, it doesn't examine the immediate past, it looks at the future. In many ways it's like the Financial Plan you did at the start of the book, but the cash flow is a report that you will need on an ongoing basis to monitor that you have enough cash in the bank to pay your bills and stay in business. To put together a cash flow isn't that difficult. The first thing you must do is work out how much cash you have been earning from your business from normal trading. Look at your profit and loss reports from the last few months or from the calculations on your financial plan. You may wish to divide the amount you will earn from trading into several different amounts such as goods and services or different types of services. If you have calculated the profit you think you will be earning each month multiply it by three to give you a quarterly amount and insert these figures under the Net Income section of your Cash Flow. Remember, do not include any charges of a non-cash nature such as depreciation but do include your stock purchases but exclude your cost of goods because you are calculating cash in and cash out, not your profit and loss. The rule is if it doesn’t go into the bank

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account, or come out of it – it shouldn’t be in your cash flow statement. Next is Investing activities, this is where you write down how much you think you will spend on equipment, tools, office furniture, motor vehicle purchases etc. Items that don't effect your profit and loss other than for depreciation. Last is Financing activities, this is where you will write down the proceeds of any bank loans and where you will list the repayments you will be making. Obviously, if you receive a bank loan for $10,000 and your repayments will be $2,000 over the year, the amount of proceeds from financing activities will be $8,000. To calculate the Net Increase in Cash (shown near the bottom of the cash flow), it is simply a matter of adding up all the sections. To make this task easier and to avoid simple mistakes, make sure all your expenditure or 'cash out' items are in brackets. This way you won't have to try and work out 'do I add this one on, or take it away?' Once you have all the numbers in place you must put in the opening balance of cash in the bank or on hand in the Cash and Equivalents at Beginning of Year section. This means the amount of cash you had at the starting point of this cash flow. The last line is the most important of all, the estimated cash you will have at the end of the period. To calculate this, add the Net increase in cash to the Cash at the beginning of the year. If one of the figures is in brackets, take them away of course. When you have finished the cash flow statement, examine it for anything you may have

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Going Out on Your Own? forgotten and have a good look at the “bottom line” to see if it makes sense. If it looks like you need money or to cut expenditure from your 'budget' (because the figures at the bottom are in brackets) consider your options. You can borrow extra money to fund your capital expenditure. Consider ways to increase sales or profit margins, is there equipment you don't need right now that can be deferred until your cash position improves? If you have a loan - can it be renegotiated over a longer period with lower repayments. These are just a few of the things you can do to improve your cash flow. The cash flow when finalised, should form the basis of your working budget. It should represent your targets in relation to sales and profits and also form a timetable for the purchase of equipment, repayment of loans and the obtaining of finance if required. The cash flow can be a valuable aid to the small business person if you take the time to complete it and update it on a regular basis. Quarterly Cash Flow

1ST

2ND

3RD

4TH

OPERATING ACTIVITIES

$

$

$

$

NET INCOME

NET CASH PROVIDED BY OPERATING EXPENSES INVESTING ACTIVITIES

$

NET CASH USED BY INVESTING ACTIVITIES

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$

$

$

FINANCING ACTIVITIES

$

$

$

$

NET CASH PROVIDED/USED BY FINANCING ACTIVIES NET INCREASE IN CASH CASH AND EQUIVALENTS AT BEGINNING OF YEAR CASH AND EQUIVALENTS AT END OF YEAR

"It is the nature of every man to err, but only the fool perseveres in error" - Cicero (106-43BC) "The marvel of history is the patience with which men and women submit to burdens unnecessarily laid upon them by their governments" - William H.Borah (1865-1940) "A man's ordinary expenses ought to be but half of his receipts, and if he think to wax rich, but to the third part" - Francis Bacon (1561-1620) Summary Getting the Administration and Accounting done is more important to business success than people realise – If you don’t keep records how will you know what happened? One of the reasons many businesses fail is due to cash flow problems – The Bank

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Going Out on Your Own? Reconciliation and the Cash Flow Forecast will eliminate this being an uncontrolled problem. Having good records that you maintain yourself will eliminate communication problems, some accountant’s fees and Tax Return problems.

Chapter 16 Your attitude and Your Future With all the pieces of your new business just about in place, there is a crucial issue to discuss, You. The most important ingredient in small business is the owner, and the most important ingredient in the owner is attitude.

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Your attitude will to a great degree govern your success in business. I have noticed some people when they leave their jobs to start up their own business, unravel and get lazy. This is probably due to the fact they are no longer intimidated by the boss into doing the right thing. Self discipline can be a real problem with some people, they just can't motivate themselves without some degree of external pressure. This, I believe is the biggest problem you will face. You should watch for the warning signs, opening late, closing early, having long lunches, never getting jobs finished on time or at all, taking days off because you couldn't be bothered working etc. It is so easy to slip into bad You must habits, so be aware. Try and remain accustomed to at least working the same hours as you were in your employed job and set yourself targets as discussed in the chapter on Time Management. Targets and goals will impose pressure on you to perform. The next attitude problem comes from lack of determination. Some small business owners fall to pieces every time there is problem or a crisis. This style of attitude will also assist you to go out of business very quickly. You must never give up, for your own sake you must push on because you will strike plenty of problems and go through several serious crisis’s before things settle down, this is common to all new businesses. The best thing to do is work through the problem in a calm and systematic way. Whilst you may feel at the time “this is the end” and “I've had enough”, this is a normal reaction that will pass. You then must solve the problem and keep going. I'm sure attitude and determination has a lot to do with the 90% of businesses that fail. It's ridiculous to think that a

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apply yourself to success. Don’t fall into bad habits.

Going Out on Your Own? business goes down the drain because the owner had a poor attitude or “had a wobbly”, but it does happen. Make sure you're not one of them.

All customers contribute to your profits. Treat them all with respect and they will continue to contribute.

The last issue to discuss is your attitude to customers. Keep this in mind, regardless of whether you like the particular person, all customers contribute to your profitability and success so treat them with respect and courtesy. It's amazing how quickly customers will desert you if they feel you are rude to them. No customers - no money - no business! Always remain courteous, helpful and above all friendly, never allow personal or business problems to raise their heads in front of customers. The future of your business is in your hands. What happens now and in the future will depend on your effort, attitude and planning. If you keep your head and think about things in a logical way and think about everything you do, you will probably be in the 10% of businesses that make it through the first five years.

"Four things come not back: The spoken word; The sped arrow; Time past; the neglected opportunity" - Omar Ibn (581-644) "I knock unbidden once at every gate! If sleeping, wake; if feasting, rise before I turn away. It is the hour of fate." - John James Ingalls (1833-1900) Summary

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Your attitude will determine your success, nothing can be more certain. If you apply a positive and happy approach to all aspects of your business you will succeed Work consistently – don’t take time off because you don’t feel like working. You could begin to fall into bad habits and this will begin the rot that will eventually undermine your business Treat your customers well – No Customers – No business – Result, no money

Chapter 17 Work from Home Working from home is becoming increasingly popular. I work from home and I love it. I don’t think I could ever work at an office again, but I must face the possibility that I may have to transfer my business into commercial premises if it keeps growing like it has in the last few years. Even if parts

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Going Out on Your Own? of my business move out of home, I’ll try to stay there myself as much as I can. Times are changing and working from home, particularly for the self-employed is becoming more common. It is pointless paying rent for commercial premises if it isn’t necessary. Working from home has many advantages. You can work back late without getting into strife with your family. You can “drop into the office” anytime you like. But as an accountant, there is one feature I really like, all the tax deductions! You can claim some of your household expenses on your tax return. Based on the floor area used for business purposes, you can claim mortgage interest, insurance, rates, water, electricity, maintenance and the bulk of your telephone bill as well as depreciation on the carpets, curtains, business furniture etc. At the end of the financial year you will be surprised by the list of deductions. You will also save on travel costs, wear and tear on your car and more importantly wear and tear on you, having not to deal with peak hour or public transport. Not to mention picking up approximately an extra two hours per day of work when you don’t have to travel. There is a downside to working from home. The first problem is family distractions. Kids home from school at three o’clock, a friend at the front door, phone calls for other members of the family etc. You also may not have the perfect workspace, or space may be limited. Work space is vitally important, you must have an area set aside purely for business, nothing else, just business. I have found that it’s best also if you can close the door on the weekends so you can “leave work”.

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I think many of the perceptions of people that working from home is “unprofessional” have lapsed into history. The number of major companies that allow their workers to work from home via computers has increased enormously in recent times. “Outsourcing” has become a commonly used term and this has brought about a spate of self-employed former employees, most of them working from home. The other problem that many people working from home suffer is motivation and discipline. You must start work everyday just as you would if you were employed by someone else. Summary When working from home, remain disciplined to work and don’t get distracted Make sure you take advantage of all the tax breaks available

Chapter 18 Final Thoughts I thought it would be a good idea to finish the book with revisiting several points. Firstly, starting a business is a very risky thing to do. You don’t have to be a genius to work that out. 90% of all small

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Going Out on Your Own? businesses fail in their first 5 years of life. Not a very good statistic, but life is like that. If setting up a business was easy and everyone was successful there would be no employees and everyone would be rich. The point is, do everything within your power to be in the successful 10%. This can only be done by following examples of success and using your common sense. Now, this may seem a funny place to bring up the subject of “will it definitely work?” but it is crucial to be realistic about your business plans. Take a very hard look at your plans and as I mentioned earlier in the book, check with others as to whether they feel it is a good idea. It is pointless doing all the right things in business if the idea doesn’t have economic merit. But take heart, this is the way I look at things, I feel if any business already exists, and it exists profitably, you can make a go of it. When I made this statement a friend of mine said “you’re wrong”. I said, “why?”. He responded “take lawn mowing for example, there is no way anybody will make money going into that business, there are too many people doing it!”. He’s right, there are a lot of people offering lawn mowing services, there’s Jims Mowing, VIP and literally thousands of other companies and individuals in this business. But the question is, is there room for one or two more? Because I know some of you will be thinking about lawn mowing as an option. The answer is Yes, course there’s room for one or two more, but the problem is, it won’t be one or two, it will be thousands. But this shouldn’t deter you and this is the reason why. A majority of them aren’t doing all the right things, simple as that. They will be well represented in the 90% of failures. If you were to enter the lawn mowing business, and you did all the things I have suggested in this book, I have no doubt you would succeed and be

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responsible for putting a few lawn mowing businesses out of business. My point is if you do everything better than your competitors you will succeed. My friend asked me “OK, smarty, could you start a lawn mowing business and be successful? My answer was “Yes” of course. He asked me how I would start. I said the first thing I would do is place a flier into local mailboxes. The flier would offer a free front or rear mow to people, and I would offer a $5 discount on any written quote they receive for mowing their lawns in the future and I would hold my price for 6 months. Do you think I would get a few calls? I would be inundated! I know you’re thinking “yeah, I’d be inundated alright, with people wanting freebies”. You’re absolutely right, for two or three weeks I’d be working for free, and after that? Well after that I’d be getting paid. You know why? For a few reasons. The first would be that I’ve been given a chance to show “soon to be clients” how good I am at doing their lawns, how caring I am, how prompt and reliable I am, how I’m cheerful and friendly and I’m doing it for free (but not for long). These people will think I’m really very good at what I do, and at the end of the day I will still be cheaper than the people they were using previously because of my $5 off offer. Even the people that don’t have their lawns mowed who just thought they’d get something for nothing, will think again. Some of these people who weren’t even part of the lawn mowing market will consider having me do their lawns because they enjoyed the fact that they didn’t have to do it and because I’m offering a very inexpensive arrangement they may feel it’s worth it. I won’t get all of them. I may not get half of them but I will get some of them! Will this start a price war? Probably not, because

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Going Out on Your Own? once I’ve done the job for free and done a better job with a better attitude than my competitor, I will have shifted the coming war into a quality and service war. A war that I will win. You see I started off being helpful, cheerful and reliable, I didn’t change simply because the client threatened to take the business elsewhere, I was like this at the start, the other person probably wasn’t. Therefore, I’ll win, the client is mine for as long as I maintain a good attitude. This is one of my key points right through the book, look after your clients and you will keep them forever. If you had local clients lining up for your lawnmowing services you would have no problem making money in this business. Of course, you would look to providing extra services while you are there (remember value adding?). This is where you would really start making good money. After all this, my friend was convinced, in fact I think he’s considering going into the lawn mowing business! Now this situation can be applied to retail outlets, food outlets, wholesale businesses and naturally all service businesses. Think about how my theory could get your business up and running almost immediately. Don’t take the attitude as some people would, “I’m not working for free!” It’s a stupid attitude and I’ll show you why. Now if I didn’t make the offer I did, how would I have started the business? Local advertising? Probably, but this doesn’t prove how good I am, I don’t get “a shoe in the door” do I? The fact is, if I take the advertising option I would be spending money with still no guarantee of success. The way I have proposed will cost me time and a little fuel. Think this through, divide the amount of money you will spend on advertising by the hours of free work you would do

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(say three weeks) and I think you would probably be happy to work for the hourly rate you come up with. Do you see the point, you would be better off keeping your money and spending your time for promotion. The only difference is, at the end of the “free” three week period I will have plenty of paying customers lining up, the advertising option couldn’t make that guarantee, and the chances are more money will still need to be spent to get interested clients. My point in all this is, think laterally, don’t do what everybody else does, be a little different with your approach and you will be noticed. Well known author of “Rich Dad, Poor Dad”, Robert Kiyosaki said “If you expect a different result when doing the same thing over and over, you are insane”. Quite right, if you do what the majority of small business people do, you will suffer their fate – 90% failure rate. It always amazes me the number of people that just seem to get the basics wrong time after time. When I was writing this book, I made enquiries with a number of cartoonists. One in particular had been recommended to me so I contacted him. I had been told that he was doing it tough, he didn’t seem to have a lot of work on. I spoke to him and he seemed OK, but we disagreed on price as I told him I could obtain cartoons for a certain price elsewhere at a less expensive price and both cartoonists were both quite good. I gave him the opportunity to match the price and he decided he wouldn’t. He didn’t have any work on, but decided he wouldn’t reduce the price. I told him I would be able to provide him with regular work as I had other books in the pipeline and I also have friends that write books and he may get further recommendations. He said he would think about the offer and get back to me. I knew then this cartoonist

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Going Out on Your Own? had placed me in the “too hard basket”. I knew he wouldn’t ring back. He would rather have zero income than an income equivalent to market price for his work. This is a silly attitude in my opinion. If I had been in his shoes, I would have done the work so I had the chance of showing the author (me) just how good I am and possibly place myself in a position of asking a higher price later. Unfortunately for him, I simply went to the other cartoonist and I couldn’t be happier. The chances of the first guy getting work from me now seem very slim. What has he achieved? Nothing. Like I mentioned earlier in the book “No customers, no business – result? No money”. Always look at the bigger picture. Look for leverage and a positive outcome in every situation. Turn difficult situations around so they produce something positive for you. In our cartoonists case, he would have had some money coming in, but he stuck to his guns. I appreciate his “price integrity”, but I don’t understand his logic or common sense (or lack of it). As the old saying goes, “don’t look a gift horse in the mouth”. My philosophy to business is pretty simple. I look after my customers the way I’d like to treated. Always look at the long term result of my actions. I’m always looking for new ways to do things. Never lose sight of the fact that I’m in business to make money. You’re not on this earth for a long time, so make sure you have a good time, and enjoy what you do and do it the best you can. Enjoy what you do and it will show in your business in the form of profits. Take pride in what

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you do and this will reward you just as handsomely. I hope this book has provided some ideas and solutions as well as provided first timers with a place to start. You will be successful in business, but only if you really want to be successful. It’s all up to you. Good Luck.

Chapter 19 Where to Get Help Apart from reading a stack of books by successful business people, which isn’t a bad idea by

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Going Out on Your Own? the way, there are a variety of organisations that can assist you. Most of them are run by the federal and state governments. Here is a list of the better ones you should contact for some free information that may help. Australian Bureau of Statistics Check the Government section of the white pages. They can provide a variety of reports on the industry that you are looking at getting involved in. They do cost, but there could be some value to you. Sydney Business Enterprise Centre Level 11, 418a Elizabeth St Surry Hills 2010 Phone : 02 9282 6977 Outside of Sydney phone: 13 11 45 Small Business Victoria Level 5, 55 Collins St Melbourne 3000 Phone: 03 9651 9888 Outside Melbourne phone: 1800 136 034 Business Service Centre Ground Floor, North Building London Circuit Canberra 2601 Phone: 06 202 0770 Queensland Department of Tourism, Business and Industry Level 21, 1111 George St Brisbane 4000 Phone: 07 3224 8568 Outside Brisbane phone: 13 26 50

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Small

Small Business Services Tasmanian Development and Resources 5th Floor, ANZ Centre 22 Elizabeth St Hobart 7000 Phone: 03 6233 5712 Small Business Services The Business Centre 145 South Terrace Adelaide 5000 Phone: 08 8233 4600 WA Small Business Development Corporation 533 Hay St Perth 6000 Phone: 08 9322 2854 Outside Perth phone: 1800 199 125 Territory Business Centre Department of Asian Relations, Trade and Industry Ground Floor, Development House 76 The Esplanade Darwin NT 0800 Phone: 08 8999 7916 Outside Darwin phone: 1800 193 111 Regional and Local Chambers of Commerce and Industry can provide assistance and information as well as regular small business meetings The Financial Management Research Centre At the University of New England, this organisation published a range of profiles on different businesses for around $50 each. Check with them on what businesses are available. Phone

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Going Out on Your Own? 02 6772 5199. The Entrepreneur Business Centre Offer Business Start up Packages on 125 different businesses. They are $125 each. Po Box 424 Nedlands, WA 6009 Phone Orders and Information: 1300 300 586 Fax: 1300 300 983

Chapter 20 Glossary of Business terms Ab Initio: From the beginning. Abatement: A reduction, allowance or rebate.

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Abnormal Items: Means items of revenue and expense and other gains and losses, brought into account in the period, which although attributable to the ordinary operations of the business entity are considered abnormal by reason of their size and effect on the results for the period. Account: A detailed record of all debit and credit transactions, relating to any person or thing. For example, sales purchases, bank, capital. Accounting: The process of systematically recording, classifying, measuring, analysing and interpreting, in money terms. the transactions of a business. Accounting Standards: Statements of Accounting principles which have been given formal recognition by the Australian Society of Certified Practising Accountants and the Institute of Chartered Accountants. The standards cover such matters as profit and loss reporting, stock valuation, tax effect accounting and other accounting issues. Accounts Payable: Money owed to suppliers and other business creditors as a result of purchases of stock and other expenses. Accounts Receivable: A total of money owed to the business by its customers for goods or services supplied, but not yet paid for. Accounts receivable ageing: The placing of individual Accounts Receivable into categories according to how long they have been unpaid. Normally categories of Current, Over 30 Days, Over 60 Days and Over 90 Days will be sufficient to assess the collectability and hence the value of the receivables. Accrual Basis: The method of accounting in which revenues and expenses are identified with specific periods of time. The revenue and expense transactions are matched in the determination of net income for the period in which they are earned or incurred, without regard to the date of receipt or payment of cash (See cash basis).

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Going Out on Your Own? Accrued expenses payable: Liabilities resulting from transactions that occur during one accounting period, but are payable during the next. They are included in the expenses of the current period. Examples are wages earned in one period but not payable until the next. Accumulated Depreciation: The cumulative total depreciation charged on assets over the years the business has operated with those assets. Acquisition: Any transaction whereby one entity obtains control over another entity. Act of God: A happening beyond human control, resulting from some abnormal or unforeseen movement of the natural order such as an earthquake, flood or storm. This is a legal term commonly used in insurance policies. Active partner: A partner who takes an active part in the management and control of a business. Actuary: A mathematician whose work is mainly concerned with life assurance and finance. Administrative Expenses: Those operating costs, incurred in the normal course of running a business, which are concerned with administrative matters such as telephone, management and office salaries, professional fees, property taxes etc. May also be referred to as fixed or overhead expenses. Advice note: A document telling the receiver that goods ordered have been despatched or services requested have been initiated. Affidavit: A declaration in writing on oath, made before a person legally qualified for the purpose. Agent: A person who acts for another with the latter's authority. Amalgamation: The fusion of two or more companies by transfer of the assets and liabilities to a new company. Amortise: The gradual process of paying off a liability by means of a sinking fund. or the writing off

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the cost of an asset, such as goodwill, over a period of time. Similar to depreciation except for the time period. Annual Report: The information provided annually by the directors or management of an organisation, to the shareholders, owners, or other interested parties concerning operations and financial position. Usually, it includes the annual financial statements, the auditor's report and the reports of directors. Annuity: A sum of money payable yearly for a term of years, or during the life of a person, or in perpetuity. Annul: Cancel, to render void in law, to put an end to. Appeal: Any proceeding taken to remove an action to a higher court. Appreciation: Increase in the value of an asset, such as land or buildings. Articles of Association: The basic document of a registered company defining its internal organisation. It is one of the two fundamental documents on which registration of a company is based. See memorandum of Association Asset: What the business (or individual) owns. Attest: To witness an act. Audit: The detailed checking of the financial records of a business by an independent qualified person (auditor) in order to verify their correctness or to detect errors or fraud. Authorised capital: The total amount of capital which a company, by its Memorandum of Association. is authorised to offer for subscription. Average daily credit sales: Based on past history the amount of sales each day made on credit. Calculated by dividing the annual credit sales by 365 or, over a shorter run, monthly credit sales divided by 30. Average Yield: The average return from a number of investments.

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Going Out on Your Own? Award: An agreement, having the force of law, which sets out working conditions and wages for certain types of employment. Bad debts: Debts that are to be written off because they are unlikely ever to be paid. Bad debt ratio: Shows the percentage of your credit sales that result in bad debts. Calculated by dividing your total Bad Debts by the Total Credit Sales and multiplying by 100. Balance: The amount of money remaining in an account The condition when both credit and debit figures in an account are equal, that is, in balance. Balance sheet: A statement of what a business owns (assets) and owes (liabilities) at a particular point in time. Bank draft: A written instruction to a bank's agent to pay a sum of money to the person specified on the draft. This is a safe and convenient way of remitting money, especially overseas. Bank reconciliation: Comparison between the bank's record of transactions and the record in the company's ledger or cash book. After taking into account such items as unpresented cheques etc, the two records should show an identical balance. Bankrupt: A debtor, who has volunteered or been forced to appear before a Bankruptcy Court and has been judged insolvent, because he or she has insufficient assets to meet the demands of all creditors. The debtor's assets, including business assets, are then administered by a third party under the Court's order, for the benefit of the creditors. A person who is a bankrupt is referred to as being bankrupt. Bankruptcy: The state of being bankrupt. Banned goods: Products that under State or Federal law may not be legally sold. Bearer cheque: A cheque made out to a third party or bearer. For example, 'Pay H. Martin or Bearer'. It is

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called an open cheque and may be accepted and used like currency by anyone who has possession of it. Beneficiary: A person who is left something in a will, a person for whose benefit property is held by trustees or executors. Bequeath: To dispose of personal property in a will. Bill of exchange: An unconditional order in writing, addressed by one party to another, signed by the person giving the bill and requiring the person to whom the bill is addressed to pay, either on demand, or at a fixed or determined time, a certain sum of Bill of lading: A receipt for goods shipped, signed by the ship owner or agent, stating the name of the shipper, port of shipper and destination, description and marks of the goods, conditions under which they are carried and the terms for the delivery of the goods. Bill of sale: A document under seal, which formally transfers ownership of property specified in the document from a borrower to a lender, until such time as the debt has been paid in full. Transfer of ownership can sometimes occur without transfer of possession. Bill payable: A bill drawn on a person/s or company and duly accepted for payment. Bill receivable: A bill of exchange sent to a trader in payment for value received or drawn by a trader upon his customer for value received . Bonafide: In good faith, honestly, without fraud, collusion or participation in wrong doing. Bond: Written obligation under seal. Payment by a tenant to a landlord before the tenant takes over the premises and from which the landlord may be able to deduct arrears of rent or the cost of rectifying damage. Common term used for warehouses or premises licensed by Customs authority for the storage of goods on which duty has not yet been

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Going Out on Your Own? paid. Bonus issue: Issue of additional shares to members of a company without further capital subscription. Book-keeping: The collection and recording in chronological order, in a set of books or files, all transactions which involve the exchange of money or monies' worth. Bounty: A grant of money made by a government to assist industry, usually as a means of meeting competition from imports. Brand: The means of identifying a good or service so that it is recognised as distinct from all other goods or services. See 'Brand mark' and 'Brand name'. Brand mark: The part of a brand which cannot be uttered. For example, a symbol, design or colour. Brand name: The part of a brand which can be uttered. Thus, a letter or combination of letters. Break even: The point at which volume of sales is just enough to cover costs with no profit or loss. Bridging loan: A loan to provide short-term finance, usually to buy a property or land, where the loan is to be cleared by longer term borrowing, or the sale of assets. Broker: An agent who buys or sells goods or services on behalf of a person or company, without holding title to the goods and services. Usually paid on a commission basis. Budget: A plan for the future, estimating income and expenditure. Business plan: An outline of business goals, the purposes of any loan required and the benefit to the business resulting from any loan. It can also include summaries of historical, market and other data. Business name: The name of a business officially listed in the State or Territory Register of Business Names. Names can be registered by contacting the Department of Business or Consumer Affairs in your state.

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Business profile: Information about a business such as ownership, type of products or services, work force, size and location of premises and a brief outline of growth and major events during the past few years. Buyers market: The situation where competitive conditions favour the purchaser more than the seller. Buyers option: The right to purchase something within a given period of time, under conditions agreed in advance of the actual sale. Capital: The total owned and borrowed funds in a business. Capital gain: A financial gain made from selling fixed assets such as land, buildings or a business at a profit over historic value. Capitalised Value: The present value of a stream of future income, calculated by using an assumed rate of return. Carriage forward: The cost of delivery is paid by the buyer of goods sold on a 'carriage forward' basis. Cash: Includes all money in the bank, in the cash register and in petty cash. If the total is negative ('in the red') the figure will be shown in the liabilities section as a bank overdraft. Cash basis: A method of accounting whereby revenue and expenses are recorded in the books of account when received and paid without regard to the period to which they are earned or incurred. Cash against documents: Amount invoiced to be paid on presentation of bill of lading. Cash book: A record of cash payments and receipts, showing these under various categories. Cashflow: The flow of internal funds generated within a business as a result of receipts from debtors, payments to creditors. Cash on delivery (C.O.D.): The cost of goods must be paid at the moment of delivery to the purchaser. Cash profit: Cash gain for the period, after adding

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Going Out on Your Own? back to after tax net profit, internally generated expenditures such as depreciation, amortisation of goodwill etc. Caveat: A notice given to an appropriate officer ordering him not to take a certain step until the person giving the notice has been given an opportunity to object. Caveat emptor: Let the buyer beware. The condition of sale is that the purchase is at the buyer's risk. Caveat venditor: Let the seller beware. Certificate: An instrument giving formal assurance of the existence of some fact or set of facts. Certificate of origin: States the place of origin, growth or manufacture of goods for export. Certificate of Title: A document prepared by the Titles Office which shows details of land registered under the Torrens system, particulars of the location, encumbrances and owners. Charge: A form of security for the payment of a debt or the performance of an obligation. Chattel: Any property that is not freehold land. The property maybe a leasehold (then called a chattel real) or a movable article of property (chattel personal). Cheque: A bill of exchange which is always drawn on a bank. Cheque account: An account with a trading bank on which cheques may be drawn. Classification: A decision by the Australian Customs Service on the classification of imported goods. This will determine the rate of duty imposed on these goods. Closed shop: A place of work where the employer has agreed that only union members be employed. C/N: See 'Credit note'. C.O.D.: See 'Cash on delivery'. Codicil: A document signed by a will maker which alters or adds to his or her will.

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Collateral: Security provided by a borrower to cover the possibility that the loan will not be repaid. Collateral Contract: A separate contract, which precedes or exists alongside the main one. Commercial bill financing: Loans provided by banks for up to 180 days as a means of short-term borrowing. Commercial credit: Credit extended by a business to another business. Commission: Payment to an agent or broker for conducting some business for another: person. Committal Proceedings: Where a magistrates' Court hears evidence on an indictable charge and decides whether the accused should be sent for trial. Common carrier: A transport business which, under the terms of its licence, is obliged to carry goods for anyone who agrees to pay the appropriate fee. Common Law: The part of English law traditionally based on common custom and being unwritten. Common seal: Used for stamping legal documents relating to a company to indicate that the company will be bound by the contents of the document. Company: A business owned by a group of people called shareholders, which has its own legal identity separate from its owners. Complainant: A person who begins a prosecution against another in the Magistrates' Court, a plaintiff. Compound interest: lnterest calculated on a principal sum and also on all accumulated interest earned by that sum as of a given date. Condition: An important term m a contract, the remedy for breach of which is rescission of the contract. Confirming house: Offers a range of financial and associated support services to businesses for importing, exporting and local trade . Consequential loss insurance: Insurance which covers the policy holder against loss of profits from a

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Going Out on Your Own? business due to some interruption such as fire. Consignee: A person who receives goods sent by a consignor. Consignment note (C/N): (Sometimes called 'Delivery note'). The document sent with goods delivered. The customer is sometimes required to sign the note upon receipt of the goods and retains the original. The delivery person keeps the duplicate and returns it to the consignor Consignor: A person who sends (consigns) goods to another person. Consolidated Financial Statements: The financial statements of a parent company and one or more of its subsidiaries combined so as to ignore the separate identities of the companies and show the financial position and operating results of the group as one economic unit. Consumer contract mortgage: The term for 'hire purchase' in South Australia. Consumer credit: Credit extended by a business to the final consumer of a product or service in order to complete a sale. Consumer Price Index (C.P.I.): A measure of the aggregate rise or fall in prices of commonly used goods and services, published by the Commonwealth Government. Contempt of Court: The failure to obey a court order or an act which shows a disregard for the authority of the court or judge. A person in contempt may face imprisonment. Contingent liability: A liability which will only arise upon the happening of a certain event. For example the guarantor of a loan being asked to honour his guarantee if a borrower defaults. Contract: A legally binding agreement between two or more persons. Contract for the Sale of a Business: A contract between vendor and purchaser which sets out,

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amongst other matters, the price of the fixtures and fittings, goodwill, stock and any specific conditions. Contractor: A person who is a party to a contract. A person who agrees to provide goods or services. Copyright: A type of property right which protects the expression of ideas such as literary or dramatic works, television etc. Corpus: The capital of a deceased estate in contrast to its income. Corroboration: Independent evidence which supports the main evidence. Co-signers: People who together share responsibility on behalf of a business by jointly signing documents or cheques. Cost Accounting: The branch of accounting concerned with the classification, recording, analysis, reporting and interpretation of expenditures identifiable with the production and distribution of goods and services in particular to determine the cost of producing such goods and services. Cost of goods sold: The total cost to the business of the goods sold during an accounting period. In its simplest form this is the sum of the opening inventory plus all purchases less the closing inventory. Counterclaim: Where the defendant has a claim against the plaintiff which might have been brought by bringing a separate action, he may raise it in the existing action. Cover note: A temporary certificate of insurance issued by an insurance company to give immediate insurance cover until a formal policy document is prepared and issued. Creative accounting: Illicit accounting techniques which inflate trading results. Credit: An entry made on the right hand side of an account and indicating a gain to a liability, owner's equity, or revenue account.

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Going Out on Your Own? Credit insurance policy: covers customers' accounts receivable to an agreed value in the event of customers becoming insolvent. Credit limit: The upper limit of credit that a business will allow a customer to have. Credit control: Any policy designed to increase or decrease credit. Credit note: Informs a customer that more than the required amount has been paid for goods or services. Credit records: The internal systems used to monitor customer accounts. These will normally include a Customer Account Card, Accounts Receivable Ledger and the Accounts Receivable Aging Schedule. Credit terms: The prearranged terms and conditions under which a credit application is authorised. These terms should make reference to repayment schedule, interest rate and any special concessions such as discounts, penalties etc. Creditor: A person or business to whom money is owed. Creditors' journal: A record of what the business owes to other people. Critical path method: A planning technique designed to avoid delays in a complex program of work and to provide an accurate assessment of the total minimum time required to completion. Crossed cheque: A cheque across which two parallel lines have been drawn. The effect of crossing a cheque is to tell your bank to pay the cheque only through another bank account and not, for example, by cashing it. Current account: An account with a trading bank on which cheques may be drawn. See 'Cheque account'. In records of a business, reflects changes in capital as a result of a firm's activities. Current assets: Includes cash, short term deposits, customers, (or debtors) accounts, stock inventory

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(includes work in progress, raw materials, and finished goods) that will be converted to cash during the normal course of business, within a year. Current Cost Accounting: A form of current value accounting in which financial statement elements are measured in current costs rather than historical costs or other values. Current liabilities: Short term debts such as bank overdraft, creditors and provisions set aside to pay taxation and other commitments (for example, holiday or long service leave) and expected to come due within one year of the Balance Sheet. Current ratio: A comparison of two accounts in a Balance Sheet, current assets divided by current liabilities It shows how able a business is to pay its debts and is also used for inter-company comparisons. Same as liquidity ratio'. Customer's account: A record of items bought and money paid by a customer. Cycle billing: Sending accounts to customers at set intervals during the month rather than all at the one date. Cycle payment: The method of paying creditors at set intervals during the month rather than all at one date. Current portion of long term debt: The next 12 monthly principal instalments due on long and medium-term debts. Data base: Information such as names, addresses or numerical records filed on automatic data processing equipment. Debenture: A fixed interest investment in a company or corporation, which has priority for interest payments, generally redeemable after the lapse of a specified time. Debit: An entry recording the creation of an addition to an asset, the incurring of an expense, or the reduction or an elimination of a liability, owners

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Going Out on Your Own? equity or revenue. Debit note: Sent to a customer to show that insufficient money was paid for goods or services supplied. Debt capital: Money from external sources used to finance a business. Compare 'Equity capital'. Debtor: A person who owes you money. Debtors' schedule: A table showing total debtors balances and corresponding estimates of bad debts according to the number of days the debts have existed. See also 'Accounts receivable aging'. Defacto: In fact, whether by right or not. De jure: By right. Deed: Written document setting out an agreement involving transfer of property, such document being signed, sealed and delivered. Default: To fail to meet an obligation when due, such as paying a debt. Deferred Tax Liability (DTL): Means the non-current liability for the estimated amount of income tax expected to be assessed in the future as a result of the reversal of timing differences. Delivery docket: Record of goods given to a person carrier for delivery. It is a facsimile of the invoice but does not show the price of the goods. Sometimes called 'Delivery note' or 'Consignment note'. Demand loan: A loan which is short term in nature with no fixed repayment schedule and usually provided at an interest rate which is not fixed. Used for virtually any purpose. Deposit account: A bank account that earns interest. Demurrage: The charge incurred for any delay beyond a stipulated time for loading or unloading of goods. Depreciation: Gradual reduction of the value of a fixed asset and gradual application of this cost to the expenses of a business over the useful life of the asset.

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Depreciation schedule: A table showing depreciable assets, the year each was purchased, its cost and written down current value. Direct costs: The costs incurred in addition to fixed costs as the result of manufacturing a product or providing a service. Direct costs are made up of direct material, direct labour and direct manufacturing or servicing costs. Disbursements: Funds paid out of a business in settlement of obligations. Discount: A deduction made from a debt. For example, the amount deducted for prompt payment of an account. Discounted Cash Flow (DCF): The present value of a sequence of future cash flows, discounted at a rate of interest. Dishonoured: The word used to describe a cheque which the bank will not pay, because the customer's account lacks sufficient funds. Dividend: The amount paid to stock or shareholders. A payment in partial settlement of a debt. A distribution of the profits of a company amongst its members. Disposable income: Income remaining to persons after deduction of all mandatory payments such as income tax. Double Entry: The term applied to the underlying principle of all present day accounting systems. The origin lies in the fact that for every 'receiver' there is a 'giver' and vice versa, so that for every business transaction there must be two entries, a corresponding equal debit and credit entry. Drawback: Duty on imported goods, which is reclaimed when the goods are re-exported. Drawer: The person who writes a cheque in payment for goods or services. Drawings: Withdrawals of assets (usually cash) from a business by a sole proprietor or a partner.

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Going Out on Your Own? Dumping: The practice of exporting goods to another country at less than their normal value. Dumping duty: A tax charged on dumped goods as a means of protecting an industry from unfair competition. Duty: A tax charged on imported goods. E. & O.E.: Errors and omissions excepted. Earnings Per Share: The portion of income for a period attributable to a share of issued ordinary capital of a company. Economics: The study of production, distribution and consumption of goods and services and their financial ramifications. Economic or Useful Life: The period during which a fixed asset can efficiently be kept in use. Electronic funds transfer: The transfer of funds between individuals' or businesses' bank accounts by means of automatic data processing equipment. Embezzle: To divert fraudulently to one's own use property received on behalf of another person. Encumbrance: A charge or liability, eg a mortgage. Endorse: To write on the back of a document. Equities: Stocks and shares invested in a business and not bearing fixed interest. Equity Accounting: A basis of accounting for intercompany investments where the company in which the shares are held is not a subsidiary but the investor has a significant influence over the company's affairs. Under the method the investment is initially recorded at cost and the value adjusted thereafter to re-elect the investor's pro rata share of the earnings or losses of the other company. Equity capital: Money provided by the owner/s to finance a business. Errors and omissions excepted: Often written as a footnote (sometimes as E.&O.E.) on commercial documents to allow for the possibility of amendments in case errors or omissions are

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subsequently discovered. Excess: In an insurance policy excess clauses specify that the policy holder will be responsible for a portion of claims under certain conditions. Executor: The person whose duty it is to carry the provisions of a will into effect. Ex Gratia: As a matter of favour. An act done when there is no obligation. Exhibit: A document or thing shown to a witness when giving evidence produced for inspection to the court or related to in an affidavit. Expenses: Costs incurred by a business in earning income. For example, rent, advertising, wages etc. Ex-quay: Means that the purchaser of goods must take delivery from the wharf. Extraordinary Item: A gain, loss or provision for loss which results from an occurrence, the underlying nature of which is not typical of the normal business activities of the enterprise is not expected to occur regularly over a period of years and is not considered a recurring factor in any evaluation of the ordinary operations of the business. Factoring: Involves the cash purchase of a business's sales invoices at a discount, after which the factoring company collects the money. Factoring is used where a business needs immediate cash. F.A.S.: See 'Free alongside ship'. Fair Value: The price that would be agreed upon in an open and unrestricted market between informed, knowledgeable and willing parties dealing at arm's length without constraint. Feasibility study: An examination of a particular project or business to assess its chances of operating successfully before committing large amounts of money to it. Fidelity guarantee insurance: Insurance against losses resulting from the dishonesty of employees. F.l.F.O.: See 'First in, first out'.

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Going Out on Your Own? Finance: Money resources. Finance company: Borrows money from investors at fixed rates of interest and lends this money in the form of personal and business short-medium term loans, especially hire-purchase contracts. Financial statements: Formal reports prepared from accounting records describing the financial position and performance of the business. Financial year: An accounting period of 12 months, often coincident, for convenience, with the fiscal year (the Government's financial year). Usually July to June. First in, first out (F.I.F.O.): A method of valuation of inventory and cost of sales valuation in which it is assumed that the first items purchased or produced are the first sold. The cost of articles sold or used therefore is not the current cost, but that of an earlier date, whereas the balance remaining is at current cost. F.I.S.: See 'Free into store'. Fiscal year: The Government's financial year, which runs from 1 July to 30 June inclusive. Fixed costs: Costs which are incurred by a business whether it is operating to generate income or not and which do not necessarily increase or decrease as total volume of production increases or decreases. Sometimes called indirect costs or overhead expenses. Fixed assets: Includes land and buildings, vehicles, materials and equipment owned by a business, which are used to earn revenue rather than being for sale. Flat rate interest: The interest repayable on a loan based on the original sum borrowed. This means that the interest charged is constant even though the principal gradually reduces to zero over the period of the loan. Floating Charge: A general claim on the assets of a corporation, given as debt security without

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attachment to specific assets. F.O.B.: See 'Free on board'. Forwarding agent: A specialist business for arranging the dispatch of goods overseas. F.O.R.: See 'Free on rail'. Franchise: A business arrangement in which knowledge expertise and often a trade mark or trade name are licensed to an operator, generally for an initial fee and a yearly payment. Franchisee: The purchaser of a franchise licence who operates one or more outlets of the franchise business. Franchisor: The owner of the franchise. Free alongside ship (F.A.S.): The supplier pays transport costs incurred in delivering the goods to the loading port, including wharf age and porterage. The importer pays to have the goods hoisted on board the ship, freight, insurance and costs of clearing goods from the port of entry. Free into store (F.I.S.): The supplier pays all costs incurred in delivery of the goods to the importer's store. Free on board (F.O.B.): The supplier pays all transport costs and handling charges incurred in placing the goods on board a ship or aircraft at the loading port. The importer pays freight, insurance and costs of clearing the goods from port of entry. Free on rail (F.O.R.): The seller pays delivery costs up to the time the goods are loaded on the train. All further costs are the buyers responsibility. Fusion insurance: Covers loss caused by damage to an electric motor by electric current and is particularly important for refrigerated stocks. Future Income Tax Benefit (FITB): Means the estimated amount of future saving in income tax likely to arise as a result of the reversal of timing differences and, or the recoupment of carried forward tax losses

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Going Out on Your Own? Gearing: The ratio between a business's debt and equity finance. General ledger: An accounting record, which brings together information from a company's different books. Going concern: A business that is fully operational. Good: A tangible item or product. Something offered for sale, which is the result of a commercial activity such as manufacturing. Goodwill: The excess price asked for a business over the value of its physical assets; an intangible asset. the price of which represents a payment for the existing client base and future profits. Gross: The total over all amounts. For example gross profit is the trading profit of a business without any deductions for business expenses. Gross Margin: The excess of net sales over cost of goods sold. Gross profit: The excess of net sales over cost of goods sold, usually expressed as a percentage. Group Accounts: The financial statements covering the business of a holding company and its subsidiary companies showing the position as if the group were the one entity. Group Tax: The compulsory method by which employers of ten or more employees must deduct income tax from their employees' wages and pay it direct to the Tax Office. Employers of less than ten people may voluntarily apply to join the Group Scheme. Guarantee: To undertake with respect to a contract or the performance of a legal act. that it shall be correctly carried out. The person giving the undertaking is called the guarantor. Hardware: In computing, the actual equipment used. Hire purchase: System for financing the purchase of plant and equipment. Ownership is vested with the lender until final payment is made. The borrower is

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required to place a deposit and make periodic (usually monthly) repayments at a flat rate of interest. In South Australia hire purchase is called Consumer contract' or 'Consumer mortgage'. Historical Cost: Cost to the present owner at the time of acquisition. Impersonal accounts: All accounts of a business except the personal accounts of debtors and creditors. In bond: Describes the status of imported goods not yet cleared by customs. In transit: Goods, which have left the consignor but have not yet been received by the consignee are said to be 'in transit'. Income statement: A summary of sales and costs for a set period, showing the resultant profit. Indemnify: To make up a loss which someone has suffered as a result of the act or default of another. Indemnity: Compensation for a wrong done or an expense or loss suffered. Indent: An order for goods placed by an importer against an order from a customer. Induction training: Training for new employees regarding conditions of service, physical layout of the work place, safety rules, local conventions and customs and supervisory procedures. Industry ratio: How much a business spends on a particular item divided by the average expenditure of the industry on that item. Injunction: A court order, which directs someone either to do something or to refrain from doing a particular thing. Insolvent: Unable to pay one's debts in full as they become due. Instrument: A formal, legal document. Intangible asset: Those assets of a business which cannot be assigned a firm fixed value, such as leases, franchises, goodwill and patent rights.

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Going Out on Your Own? Interest: Money paid to the lender as the price for borrowing money. Interest rate: The proportion of the principal sum borrowed payable as interest. It is usually expressed as a percentage annual rate See 'Flat rate interest'. Internal funds: Personal finances or the accumulated profits of the business. Intestate: One who dies without leaving a valid will. Inventory: The dollar, value of all the stock of physical items that a business uses in its production process or has for sale in the ordinary course of doing business. This may be valued on a number of bases, but for tax purposes there are only three: cost price, market selling value or replacement value. Investment: Money used to purchase any capital items for a business and expected to yield an income. Invoice: Document, which shows the customer charges for goods delivered or work done. Joint Tenants: Persons who own land in an undivided share in common, with a right of survivorship, ie. on the death of one owner his or her interest automatically passes to the surviving owner. Journal: A book or file containing accounting records. Jurisdiction: The authority of a court to decide matters brought before it. Last in, first out (L. I. F. O.): A method of valuation of inventory in which it is assumed that last items purchased or produced are the first items sold. The cost of articles sold or used is therefore the current cost and the balance remaining are those of an earlier date See also F.l.F.O. Lay-by: An arrangement where the customer in a retail store makes a deposit on an article selected and pays the amount owing in instalments, while the retailer stores the article until the last payment has been made.

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Lead time: The time which elapses between order and delivery of goods or services are provided Lease: A legal contract covering the possession and use of property, plant or equipment between the owner (lessor) and another person (lessee) at a given rent, for a stated length of time. Leasing finance: A method of acquiring business equipment without capital outlay. The bank or finance company buys the equipment and leases it to the customer, in return for regular rental payments for the duration of the lease period. Interest rates on leasing finance are usually higher than overdraft rates. Ledger: A book or file in which a record is kept of debtor and creditor accounts. Legal tender: Currency that cannot be legally refused in payment of a debt. Lessee: A person who enters into a lease contract as the users of land, buildings, plant or equipment. Lessor: An owner who allows his land, buildings, plant or equipment to be used under a lease contract. Letter of credit: A bank document promising to pay up to a certain sum on behalf of a client. Not a negotiable instrument. Liability: A debt or obligation, stated in terms of money, not necessarily due to be paid immediately. An obligation to remit money or services at a future date. Liability insurance: Insurance arranged by a business to cover the possibility of loss from claims made against the business. Licensee: A person who has been granted a licence to engage in a particular type of business. Lien: The right to hold or retain another's property as security for performance of an obligation, such as the pavement of a debt. Limited partnership: Subject to the laws of Western

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Going Out on Your Own? Australia and Tasmania only, a partnership in which the limited partners cannot incur liability for the business's debts above the amount of their capital investment in it. See 'Special partnership'. Line of credit: Funds provided by a lender up to a maximum amount, normally payable on demand. Liquid assets: Cash and short-term deposits. Liquidation: Formal closure of a business by selling off assets and paying liabilities. Conversion of assets to cash. Liquidator: A qualified person appointed by a court to close down a business that is a proprietary company and realise and distribute its assets in payment of its liabilities. Liquidity: The ability to pay financial obligations in the near future, measured by the degree current assets (such as cash. debtors) exceed current liabilities (such as creditors, bank overdraft). Liquidity ratio: A comparison of two accounts in a Balance Sheet, current assets divided by current liabilities. This shows how able a business is to pay its debts and is also used for inter-firm comparisons. Same as 'Current ratio'. List price: The price, usually published, which makes no allowance for trade or other discount, rebate or commission. Long service leave: Paid leave, additional to annual leave, to which an employee becomes entitled after working for the same employer for a number of years (usually 10-15 years). Refer to the relevant Act in your State or Territory. Long term liabilities: Any loans with a term of more than one year, such as mortgage from the bank, a development loan from a government body etc. less the current portion. Long term loan: Financing extended for periods greater than five years. Loss leader: An article sold at a loss in order to

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attract customers' interest in other goods for sale. See 'Price leader'. Loss of profits: Insurance to cover loss of profits incurred by the policy holder in the event of some calamity overtaking the policy holder's business, so that trading had to cease. For example, destruction of the building, equipment and stock by fire. Manifest: A statement of cargo showing description, marks, numbers of goods etc. Also applies to a passenger list. Manufacturers' agent: A business, which assists manufacturers in establishing trading links with retailers or other manufacturers. Margin: The difference between the selling price and the purchase price of an item, usually expressed as a percentage of the selling price. Marginal cost: The cost of producing one additional item or providing one additional service. Marginal price: The price charged for supping one additional item or providing one additional service. Market: All the existing and potential buyers of a good or service. Market forecast: An estimate of the market demand for a given level of industry marketing effort. Market segmentation: The division of a market into segments. Each segment consists of a group of consumers with similar requirements, which can be distinguished from the requirements of other consumers in the market. There will be slight, but distinct differences between the goods or services needed to meet the requirements of each segment. Marketing: Finding out what customers want, then setting out to meet their needs, provided it can be done at a profit. Marketing includes market research, deciding on products and prices, advertising, promoting, distributing and selling. Marketing audit: An independent assessment of a firm's marketing effort, aimed at discovering where

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Going Out on Your Own? improvements could be made to it. Marketing Plan: Details of specific tasks worked out by and for a business concerning how market research, product choice and pricing, advertising, promotion and distribution will be done. Marketing strategy: A business's approach to marketing its products services expressed in broad terms, which form the basis for developing a marketing plan. Mark-up: The price increase between buying at wholesale and selling at retail, often expressed as a percentage of the wholesale or cost price. Medium term loan: Financing extended for periods from one to five years. Memorandum of Association: A legal document that lays down the objects of a registered company and details the regulation of the company's business dealings. It is one of the two fundamental documents upon which registration of any company is based. See ‘Articles of Association’. Merchandise: Goods that may be sold or traded. Merchandising: Trading in a range of goods. Promoting the whole range of goods that are sold by a business. Merchant bank: A bank that deals in large scale loans and financing. Merger: The fusions of two or more companies by transfer of the assets and liabilities to one of the constituent companies. Mortgage: The transfer of right of ownership of a property from a debtor to a credit as security for a debt, with the proviso that once the debt is paid, ownership is transferred back. Mortgagee: A person to whom property is mortgaged. In the case of a private housing loan the 'person' is usually the bank or building society. Mortgagor: A person who mortgages property. Negotiable Instrument: A signed document by means

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of which money may be transferred from one person to another or through several hands, eg a cheque. Net assets: The total worth of a business after meeting all liabilities. That is, assets less liabilities. Net profit: The excess after all expenses of an accounting period are deducted from all revenue of the same period. Net sales: The gross dollar amount of sales made during a period, excluding sales tax and after deducting any returns or allowances. Net Weight: The weight of goods not including packaging. Net Worth: The owners' interest in a business, calculated by subtracting all liabilities from the assets of the business Niche: A small, specialised segment of a total market, which is viable for a small business, but not for a larger business Non recurring: Not repeated, such as non recurring expenditure, which only has to be paid once. Not negotiable: Words often written on 'crossed' cheques. This does not prevent the cheque from being transferred, but the person receiving it cannot give a better title to the cheque than the person from whom he received it. For example, if A writes a 'not negotiable' cheque to B and later B passes the same cheque to C, C has no better title to the cheque than B has. Obsolescent: Declined in value due to the introduction of new or superior things. Obsolete: Something of a style or model that is no longer current or in use. Official receiver: A person appointed to investigate and manage the affairs of a company in receivership. Operating expense: All the expenses normally incurred in running a business, during an accounting period, excluding the cost of goods sold. Operating loan: A short term loan obtained from a

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Going Out on Your Own? bank to finance the cyclical needs of accounts receivable and inventories. This type of loan is usually on demand. Option: An agreement, often for a consideration, which permits the purchase or sale of something within a stipulated time, in accordance with the terms of the agreement. For example, a right by a tenant to take up a further lease of a premises, usually under conditions outlined in the original lease contract. Over capitalised: Describes a business in which the net profit does not provide a normal return on the capital invested in it or the assets are greater than necessary to generate the level of business activity attained. Overdraft: A form of loan by which a person with a trading bank current account is given permission to continue making drawings on the account up to an agreed limit, after the balance has been reduced to nil. Overhead: Expenses which are incurred in producing a commodity or rendering a service, but which cannot conveniently be attributed to individual units of production or service. Examples are heating, lighting etc. Paid-up capital: The total capital of a company. It comprises both shares issued for cash or for acquisition of assets and bonus shares. Partnership: A business owned by more than one person, in which the owners share responsibility tot the business's debts and share any profits made. For exceptions to this definition, see limited partnership' and 'Special partnership'. Patent: The granting by a government of monopoly rights to the owner of an invention to manufacture and sell it for a certain number of years, conditional on the owner being willing to immediately reveal the ideas incorporated in the invention, so that they can

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he published for the advancement of knowledge of the general public. Pay as you earn income tax ( P.A.Y.E. ): Applicable to those who receive a regular wage or salary from their employer. The tax is deducted by the employer and paid to the Tax Office either directly or by means of tax stamps purchased at any Post Office. Payee: Person to whom money is paid. Payroll summary: A record of staff wages, income tax and other deductions. Payroll Tax: A tax on the total annual wages paid by an employer. Penalty clause: A clause in a contractual document which specifies certain penalties, or costs, which are incurred should the contract, as set out in its particulars, not be completed by either party. Penalty clauses are particularly common in insurance policies. Percentage of turnover: In relation to leasing business premises. a basis often used by landlords as a means of adjusting rent, where the tenant pays a basic figure which is increased by a specific percentage of the business turnover. Per diem: By the day. Per se: By itself, taken alone. Petty cash: A small amount of money kept for minor purchases for the business, which do not warrant writing a cheque. Petty cash book: A record of petty cash receipts and payments. Plaintiff: Person who initiates legal proceedings against another in a civil dispute. Post dated cheque: A cheque, which carries a date in the future. A bank will not normally pay on it until that date. Posting: Making entries in an account book from original documents such as invoices and receipts. Power of attorney: Power to act on behalf of another

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Going Out on Your Own? person for specified purposes. Prepaid expense: An expense paid in advance during an accounting period (for example, a two year insurance premium) part of which will be used up in the upcoming accounting period. The unused portion of the expense is considered a current asset and recorded as such on the Balance Sheet. Present again: Stamped by trading banks on returned cheques to indicate that if represented, there will probably be sufficient funds in the account for the cheque to be cashed. Present Value: The value today of a future payment or series of payments discounted at an appropriate interest rate. Price leader: An article sold below its normal mark-up or at a loss in order to attract customers interest in other goods for sale. See 'Loss leader'. Prime cost: The direct costs of production: direct material costs, direct labour costs and direct manufacturing expense costs. The mole commonly used term for this is 'Direct costs'. Principal: In the case of a loan, refers to the actual amount borrowed and on which interest is paid.. Property or capital assets, as opposed to income. The owner manager of a business is sometimes referred to as the principal. Privity of Contract: A principle that restricts contractual rights and obligations to the immediate parties to a contract. Probate: The proving of a will, the acceptance by the Probate Division of a Supreme Court that the deceased's Will is valid and the last will in existence. Product: Anything tangible or intangible that can be offered in a market to satisfy a consumer need. Production overheads: The indirect costs of production: indirect materials, costs, indirect labour costs and indirect manufacturing expenses. Production scheduling: The planning of a timetable

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for producing goods. Productivity: A measure of the output of a business or industry, often expressed in units of output per worker. Profit: Total revenue less total expenses for a period of time calculated in accordance with generally accepted accounting principles. Profit and loss statement: Statement of revenue and expenses showings the profit or loss for a certain period of time. Profit margin: The amount that the price of a product or service is raised above its cost in order to provide a gross profit. Pro-forma invoice: A document giving all the details of a proposed transaction, but not committing either the sender or recipient until the recipient pays the sender the amount shown. Program: A sequence of operations in a computer to handle data or provide solutions to problems Projection: A forecast of future trends in the operation of a business. Promotion: Means of increasing the public's or industry's awareness of a business and its services or goods Proprietorship: The value of the proprietor's assets in a business less any external liabilities. Proprietary Limited company (Pty Ltd): A business which is owned by not less than two persons and not more than 50 persons and which restricts the right of shareholders to transfer shares. Such a business is a separate legal entity; it must have the words 'Proprietary Limited' or 'Pty Ltd' after its name. Pro rata: In proportion. Prospectus: As applied to securities - a printed statement which describes a particular security offered for sale. Provisional Tax: Tax paid by trustees or individual owners of a business in advance of the end of the

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Going Out on Your Own? current fiscal year on the estimated non salary or wages income of that year. Public liability: Liability to claims for compensation from the general public for personal or property damages, injury or loss caused by a business. Purchase order: A document, usually serial numbered, bearing the name of the person or business ordering goods, and details of the goods and quantity required. In legal terms, it is an offer to buy goods from a supplier. Quick ratio: Current assets less inventories divided by Current liabilities less overdraft. This provides a measure of ability to pay debts. Quote: A spoken or written statement of the price of goods or services offered by a business. Rate of return: See 'Return on investment'. Rate of stock turnover: The ratio of cost of goods sold over average stock (at cost). This indicates how many times, on average the entire inventory (stock) was sold and replaced during the year. Rateable value: A notional value of a property, based on market values and determined by a local authority, for the purpose of assessing the property tax known as 'rates'. Receipt: Documentary evidence provided by a person/s in business that goods or money have been received by them. Receipts: The amount of money received from sales or other sources. Receivership: The legal condition a company is placed in when an official receiver is appointed to investigate and manage its affairs. Refer to drawer: Stamped by banks on unaccepted cheques It means that there are insufficient funds in the account to meet the cheque and the bank does not expect to be able to meet payment if the cheque is re-presented. Registered office: The address to which official

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communications to a registered company may be sent. Registration of a business name, premises, equipment: the process of obtaining official recognition or approval. Residual value: The pre-agreed estimated value at the end of the leasing period of an item subject to a leasing agreement. Retention monies: Payment for work done which is held by the client for an agreed period after completion of the work until the job proves satisfactory. Return on investment: The ratio of net profit after income tax over owner's equity. Usually expressed as a percentage. Revenue: The gross proceeds received by a business from the sale of goods or services during an accounting period. Right of assignment: In relation to business premises. a right given in the lease agreement for a tenant to assign the lease to another tenant when the business is sold. Running costs: Usually refers to machine or vehicle costs related to the amount of use. Sales projection: An estimate of expected sales for a given period in the future, usually based on trends in previous sales. Sales tax: Tax charged on the sale value of goods, usually a percentage of the wholesale price. Contact the Australian Tax Office for more information. S.A.V.: See 'Stock at valuation'. Search: An examination of official records, as, for example, is conducted before granting a trade mark or registering a business name. Secured: Protected or guaranteed, as in the case of a loan where the lender holds the title of some asset until the borrower has repaid the loan in full. Secured Creditor: A creditor who holds a mortgage,

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Going Out on Your Own? charge or lien on the property of the debtor. Secured loan: A loan for which the repayment is virtually guaranteed, since the lender holds temporary title to some property or security of the borrower or his associate until the loan is repaid. Security: A document establishing a right to some form of property. for example, a bond, shares or mortgage. Property pledged as collateral. Insurance against risk. Selling expenses: Those operating costs directly related to the selling of a good or service. Examples include sales persons' salaries, commissions, advertising etc. Service agreement: Establishes the conditions of service of an employee, covering salary, other benefits and conditions and designed to protect the interests of both employee and employer, subject to satisfactory service by the employee. Shareholders' funds: A company's issued capital and reserves Short term loan: Financing extended to a business for one year or less. Silent partner: A partner in a business who takes no active part in running the business. Also known as a 'Sleeping partner'. Simple interest: Interest calculated on a principal sum but not on any interest earned by that principal sum. Sinking Fund: A fund to which periodical contributions are made for the purpose of ultimately paying a debt on a purchase of some kind. Slander: The publication of defamatory material in non permanent form. Small business: A business in which all the main management decisions are made by one or two people without the help of internal staff management expertise, and which has a small share of the total market and a labour force which is small in

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comparison with the largest units in the same industry. Software: In computing, the operational sequences used in computer hardware in order to handle data. Sole proprietorship: A business owned exclusively by one person. Sole Trader: A person who trades by them self without the use of a company structure or partners and bears alone full responsibility for the actions of the business. Solvent: The condition of a business when all debts can be paid as they become due. Special partnership: Under Queensland law only, this type of partnership may have partners who do not incur liability for the business's debts above the amount of their investment in it. Stale cheque: A cheque dated more than 13 months ago. A bank may decline to accept stale cheques. Stamp duty: A tax paid to State or Commonwealth Governments, levied on specified transactions. Standards: Official rules related to the provision of information about, and design of, products. Standing costs: Machine or vehicle costs that are paid even it the machine or vehicle is not used. for example, vehicle registration, insurance and depreciation. Statement of account: A document sent out by banks and financial houses to investors or account holders, showing debits and credits for a given period and the balance or amount owing in the account. A document sent out by a business to its clients, showing a summary of all invoices and payments for a given period (usually one calendar month) and the amount of money owing or in credit at the time the Statement was mailed. Statutory warranties: Promises implied or expressed required by law to be made by the manufacturer or seller about good or services which are the subject of

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Going Out on Your Own? a sales agreement. Stock: Also known as Inventory. In a trading business, 'stock' refers to the goods held for resale by the business at any time. In a business using parts, components and raw materials to provide a service, those goods held by the business is the stock in hand. In a manufacturing business, stock is the raw materials, work in progress and finished goods held by the business at any time. Stock control: The method of determining how much stock should be held and how much needs to be reordered and when, with the aim of controlling stock holding costs while maintaining efficient operation of the business. Stock at valuation (S.A.V.): Stock valued at wholesale or cost price. When a business changes hands, valuation is usually done by an independent consultant. Sub-lease: A secondary lease. Often occurs where the original lessee subdivides the property and releases it as a means of making a profit or of reducing costs. Consent of the lessor is usually required. Subpoena: A writ, which commands the appearance of a person and/or for the production of specified documents. Superannuation: A form of saving to provide income during retirement. Supplier credit: Terms of repayment offered by the suppliers of inventory or services to the business. Surrender value: Amount of money repayable to the insured when an insurance policy is handed back to the insurer before its term expires. Tangible asset: Something substantial or real that is capable of being given an actual or approximate value. Tare weight: The weight of packaging. Gross weight less tare weight equals net weight of contents. In the case of vehicles, it is the unladen weight of the

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vehicle. Tariff: A tax levied by the Government on certain imported goods. Tax stamps: Companies employing less than 10 employees can account for tax instalment deductions by purchasing tax stamps from any post office to the value of PAYE tax due. The stamps are affixed to individual cards for each employee. The stamp cards provide the proof that tax has been paid. Tenants in Common: One or more people entitled to occupy the whole of land in common with others. There is no right of survivorship. Tender: An offer in writing to carry out work which has been specified by another person. The offer quotes a fixed price which will be charged lor doing the work. Tenders are 'called' for most Government and official works (usually through advertisements in the local newspapers). Term loan: A loan for a fixed period of more than one year usually for capital expenditure by businesses and repayable by regular instalments. Testamentary Capacity: The ability to draw up a will, the mental capacity to know what is being done. Trade credit: An arrangement to buy wholesale goods or trade services on account, that is, without making immediate cash payment. Trade discount: An allowance made, usually by a wholesaler to a retailer, at the time of purchase. It is deducted from the total price. Trade mark: Used to distinguish goods as the produce of a particular manufacturer. Trade marks may be reserved for one particular business by registering them at the Trade Marks Office. Trade Practices Act: A Commonwealth Act which encourages fair competition and protects consumers and ethical traders by prohibiting certain restrictive trade practices and misleading, deceptive and other specified conduct.

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Going Out on Your Own? Transaction: The movement of money, goods or services between two or more persons. That is, an exchange of goods or services for an agreed monetary consideration called 'the price'. Trading trust: An arrangement for distributing the income and assets of a business among a group of people. Unlike a company, trust is not itself a separate legal entity. Trial balance: A list of all balances in the ledger at a given date. Trust: A way of arranging legal affairs, sometimes to minimise tax. See 'Trading trust'. Trustee: A person who is responsible for the property of another person. Turnover: Net sales. That is, gross sales less returns. Under bond: Goods subject to Customs or Excise control Under capitalisation: Insufficient investment of funds in a business to permit the purchase of all land, property and equipment required while leaving adequate cash to operate the business. Underseal: Where a company commits itself to some form of contract by stamping the contractual document with its Common Seal. Unsecured loan: A loan made without any back-up to guarantee that the lender will be repaid. Only borrowers considered to be good risks are likely to obtain unsecured loans. Usually unsecured loans are restricted to personal loans at a flat rate of interest. Valuation: The process of appraising the worth of property or an article according to some recognised criteria. Variable costs: The costs additional to the fixed costs of running a business. Variable costs increase in proportion to the amount of income-generating work done In the case of vehicles or machines, variable costs are normally called 'running costs'.

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Vendor: The seller of goods. Venture capital: Capital subject to considerable risk. Often called 'risk capital'. For example, capital invested in a new business where the chances of success are uncertain. Voucher: A document that vouches for something. For example, it may specify that goods or services have been received and that payment to the vendor is authorised. Walk in, walk out (W.I.W.O): Expression normally used unabbreviated form in advertisements of businesses for sale indicates that the business is a going concern and can be purchased without ceasing trading. Warranty: A minor clause in a contract, the remedy for breach of which is damages. Wholesale: Selling in large quantities to businesses which will then resell to the consumer in smaller quantities. W.I.W.O.: See 'Walk in, walk out'. Word processing: The preparation and printing of documents using automatic data processing equipment. Workers compensation: Money paid to an employee to compensate for injuries received in connection with his or her work. The law requires that all employers insure against claims for compensation of this kind. Working capital: The excess of current assets over current liabilities of a business at any time. Writ: A document in the Monarch's name and under the seal of the Crown, which commands the person to whom it is addressed to do or refrain from doing some act.

Here is what a few people have had to say about these books 177

Going Out on Your Own? (Genuine Unsolicited Testimonials): “We have read your Going out on your Own? and must say we really like the practical advice that you offer in such an easy to read format” Simon & Schuster, International Publishers (A Viacom Company) “Congratulations, I like your style and your obvious understanding” B.S., Sydney, Australia “I want to thank you for writing your book The Invisible World, it’s hot property with all my friends” N.T. South Australia “I have found the information easy to follow and the writing style he portrays makes excellent reading” P.H. Queensland, Australia “Thankyou for sending me The Invisible World, this is a brilliant publication and will save me many hours of searching and many thousands of dollars, please convey my congratulations and gratitude to the author” R.W. New Zealand “Thankyou for your brilliant work and for publishing your knowledge” J.H. Queensland, Australia

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