Top tips

Draw up a business plan and include day-to-day running costs

Pay as many expenses upfront to keep a tight rein on cash flow

Use your networks for business advice and to network for potential customers

Keep your bookkeeping simple and talk with your accountant

The business
Max Wald has been in the business of bringing a splash of glamour to events and
places for more than 15 years. He can transform a function room into a Parisian cafe,
design fashion parades for shopping centres or mastermind a lavish wedding.
Max learned the art as an in-house stylist for high-end hotels in Australia and Brazil. He
then progressed to event production and design, teaming up with audio-visual and
lighting specialists to create the full experience.
When Max decided to start his own Melbourne-based event-design
company, Clymax External link (opens in same window), he knew the risks of
starting a business from scratch. He took a conservative financial approach, 'I tried to
minimise risks,' says Max of his first year in business. 'It's very easy to not have a small
business.'

The challenge - keeping costs contained

Max drew up a business plan to anticipate costs. He researched this by talking to
mentors with similar small businesses and also by drawing on his industry experience.
He broke the company's goals into three stages, the first stage based on working from
home to contain initial overheads. Clymax's philosophy was to pay for most expenses
upfront. Following advice from his accountant to keep things simple, Max drew up a
basic spreadsheet of incomings and outgoings, avoiding using software tools. He then
shared the document with his accountant.

In that first year, Max used $15,000 in savings to stay afloat, buying a computer and a
printer, as well as other office incidentals. The biggest expense was a car, essential to
transport decor items that are needed for the event, such as vases and table linen. 'I
tried to keep things really tight,' says Max. 'At that size you really can't afford big
surprises.
Fortunately, the planning paid off and there were no debilitating outgoings. Max was
also vigilant in keeping cash flowing in by drawing up a cost estimate for clients long
before the events. 'Because we have an outlay before we go onsite, we require 50%
prepayment. Then seven days prior to the event the balance is due.'

Issues along the way - growing your business

means extra costs
Within a few years the second stage of his business plan went into action: to move out
of home into a more professional environment to expand his client base and share more
jobs with peers. Max is now well into this stage, working from an office in inner-city
Melbourne. He used the oldest, cheapest but most effective means of finding the right
office space - spreading the word via his wide-spread network. A former colleague who
runs an offsite catering company offered Max a sub-lease on a floor in her building. 'I
wasn't expecting a first-floor dwelling with offices but this fell into my lap,' says Max,
gazing around his sunny space with a spacious foyer and three separate rooms for
offices. He made the most of the space, turning it into so-called creative studio and
sharing the rent with a fashion designer and an IT professional. He also works on jobs
with the catering company.
Despite a good deal on the office and provision for standard costs like public liability
insurance, furniture and utilities, there were unexpected outlays. The building is old and
the office was vacant for 18 months. 'I had to spend a couple of thousand dollars in
cleaning and painting just to get things presentable,' he says. 'I thought I'd need maybe
40 litres of paint - I needed 100 litres.'
Then there was another $1,500 to $2,000 to rewire old telephone lines and the loss of
rental income from one of the rooms that he hasn't time to refurbish. All up, Max
estimates the move has cost him about $9,000.

The result
By moving into an office and expanding his reach, Clymax has managed to roughly
double its revenue and make a profit in the past year. Max continues to make the most
of his networks to tout his business and to partner with other event experts.
'I've had a busy year, the business is still in its infancy,' says Max. 'I should be making at
least 100% growth over the next few years.'

Top tips

Draw up a business plan and include day-to-day running costs

Pay as many expenses upfront to keep a tight rein on cash flow

Use your networks for business advice and to network for potential customers

Keep your bookkeeping simple and talk with your accountant

The business
Max Wald has been in the business of bringing a splash of glamour to events and
places for more than 15 years. He can transform a function room into a Parisian cafe,
design fashion parades for shopping centres or mastermind a lavish wedding.
Max learned the art as an in-house stylist for high-end hotels in Australia and Brazil. He
then progressed to event production and design, teaming up with audio-visual and
lighting specialists to create the full experience.
When Max decided to start his own Melbourne-based event-design
company, Clymax External link (opens in same window), he knew the risks of
starting a business from scratch. He took a conservative financial approach, 'I tried to
minimise risks,' says Max of his first year in business. 'It's very easy to not have a small
business.'

The challenge - keeping costs contained

Max drew up a business plan to anticipate costs. He researched this by talking to

mentors with similar small businesses and also by drawing on his industry experience.
He broke the company's goals into three stages, the first stage based on working from
home to contain initial overheads. Clymax's philosophy was to pay for most expenses
upfront. Following advice from his accountant to keep things simple, Max drew up a
basic spreadsheet of incomings and outgoings, avoiding using software tools. He then
shared the document with his accountant.
In that first year, Max used $15,000 in savings to stay afloat, buying a computer and a
printer, as well as other office incidentals. The biggest expense was a car, essential to
transport decor items that are needed for the event, such as vases and table linen. 'I
tried to keep things really tight,' says Max. 'At that size you really can't afford big
surprises.
Fortunately, the planning paid off and there were no debilitating outgoings. Max was
also vigilant in keeping cash flowing in by drawing up a cost estimate for clients long
before the events. 'Because we have an outlay before we go onsite, we require 50%
prepayment. Then seven days prior to the event the balance is due.'

Issues along the way - growing your business

means extra costs
Within a few years the second stage of his business plan went into action: to move out
of home into a more professional environment to expand his client base and share more
jobs with peers. Max is now well into this stage, working from an office in inner-city
Melbourne. He used the oldest, cheapest but most effective means of finding the right
office space - spreading the word via his wide-spread network. A former colleague who
runs an offsite catering company offered Max a sub-lease on a floor in her building. 'I
wasn't expecting a first-floor dwelling with offices but this fell into my lap,' says Max,
gazing around his sunny space with a spacious foyer and three separate rooms for
offices. He made the most of the space, turning it into so-called creative studio and
sharing the rent with a fashion designer and an IT professional. He also works on jobs
with the catering company.

Despite a good deal on the office and provision for standard costs like public liability
insurance, furniture and utilities, there were unexpected outlays. The building is old and
the office was vacant for 18 months. 'I had to spend a couple of thousand dollars in
cleaning and painting just to get things presentable,' he says. 'I thought I'd need maybe
40 litres of paint - I needed 100 litres.'
Then there was another $1,500 to $2,000 to rewire old telephone lines and the loss of
rental income from one of the rooms that he hasn't time to refurbish. All up, Max
estimates the move has cost him about $9,000.

The result
By moving into an office and expanding his reach, Clymax has managed to roughly
double its revenue and make a profit in the past year. Max continues to make the most
of his networks to tout his business and to partner with other event experts.
'I've had a busy year, the business is still in its infancy,' says Max. 'I should be making at
least 100% growth over the next few years.'

Financial advice for top five

small businesses problems

'The most common financial problems effecting small

business are: cashflow, rising costs, taxation and business
regulation, the high Australian dollar and interest rates.'
Top tips

Make sure you're getting paid

Review your processes and costs

Keep up-to-date with regulatory changes

Look for efficiencies to offset the high Australian dollar

Do scenario planning so you know the impact of changes in interest rates

1. Cashflow
Cash flow is the life blood of business. If your business is suffering from poor cash flow
then here are a few things that you could look at:

make sure you're getting paid: if you dont have a process to manage the
collection of your debtors, then cash could be hiding in your accounts receivable.
Check our debt collection and recovery page for help with this
look at when you pay your suppliers: it is important to pay your suppliers on time,
but that doesn't mean you should pay them early. Also, if you need more time to pay
then get on the phone and ask for an extension

stock and work-in-progress: if you hold stock or have work in progress (if you are
a service business you may have work in progress) then cash could be hiding here
also. If you hold too much stock, or if you take too long to complete work, then this
could be draining your cash. Make sure you turn jobs around quickly and quit old
stock, as this will help to improve cash flow

budgeting and management reporting: also really important when it comes to

managing cash flow. Continue reading some useful budgeting tips.

2. Rising Costs
Yes business costs are rising, but that doesn't mean you can't get a better deal.
Try the following:

shop around for quotes on insurance, telephone and electricity. You'll be

surprised how much you can save by taking a closer look at what you are paying. If
you dont want to change suppliers, ask them for a better deal. Use Choosing and
managing suppliers checklist to make sure you cover everything
talk to suppliers about early payment discounts or volume discounts

review your bank loans (business and residential). Again, shop it around and

ask your bank to match the best deal.

review your internal systems and processes. Are your staff being as effective as

they can be, are they following old processes that could be automated or updated?
It's a good idea to update your budget based on these savings as this will help to ensure
savings identified flow through to the bottom line. Use our financial management
calendar for monthly handy hints on things to focus on to save you money.

3. Taxation and business regulation

As taxation and business regulations continue to change it's important to understand
how as a business owner you can stay up to date with these changes.
A couple of ways to stay up-to-date is:

read the business press regularly as they often cover changes to tax and
business regulation which affect small business

subscribe to other publications like SmartCompany or the Small Business

Victoria update.
It's really important to keep your accounting records up-to-date. There is some
fantastic cloud based accounting software (such as Xero) which make it so much easier
to keep your records up-to-date.
Also, talk with your accountant or adviser before you make substantial changes to your
business or assets (e.g. buying or selling a property). It's always much easier to plan for
change than to try to clean up the mess afterwards.

4. Australian Dollar
The rise in the Australian dollar has impacted SMEs across Australia. As movement in
the Australian dollar is largely driven by global factors it is difficult to determine how long
it will stay at current high levels.
If you are an importer, you are no doubt happy with the high dollar, but how will your
business perform if the dollar drops? You need to start thinking about this now.

If you are an exporter you will no doubt be feeling the pain. Improving the efficiency in
your manufacturing or service delivery will help to reduce costs to offset the impact of
the dollar.
Determining the profit made in each export market will help you to make decisions as to
whether you should ride it out or change strategy. If you are going to ride it out, then
work closely with your export customers on ways in which you can add value to improve
price to offset the impact of the higher dollar. The Victorian Government has a number
of programs to help exporters so check if you're ready to export.

5. Interest rates
The final financial problem SMEs around Australia are concerned about is fluctuations in
interest rates and the impact of these movements on their business and lifestyles.
While rates are relatively low at present, it might be a good time to think about fixing the
interest rate on some of your debt.
Fixing the interest rate on your debt generally means that you are not able to pay off the
debt faster than the agreed term, so it may be wise to fix the interest rate on a portion of
your debt. This will give you some flexibility to pay debt down faster if needed.
As a business owner, you should also be aware of how increasing interest rates will
impact your business. Including some scenario planning with your budgeting and
forecasting is a good idea. This could be a simple as looking at the profit budget and
cash flow forecast using a range of different rates.
Planning early will mean that you are ready to act quickly should there be a sudden
movement in interest rates. If you don't have a cash flow forecast already, read our cash
flow forecasting page.

Common costs when

starting a business
Ensure you have enough money to start a
business.
On this page

Review your business plan

Estimate your start up costs

Work out ongoing costs

Three steps to work out your start up costs

Different businesses will have different set-up costs. Step through this process to work
out how much it costs to start your business:

1. Review your business plan to determine your major

expenses
Your business plan helps you to identify the cost items. If you are unsure of what they
are, talk to others that have started a similar business and do further research on the
needs of your business.
Business Plan Template Guide

(DOCX 81.35 KB)

2. Estimate your start-up costs

Depending on the nature of your business, break down your costs into:

one-off costs (establishment costs e.g. licence fees, insurance)

cost of purchasing all necessary equipment to be used in the business over the next few
years (for example assets such as equipment, tools)
working capital, which is the money you need to set aside to cover the initial set-up stage

of your business for running costs

Some common start-up costs are listed below. Bear in mind not all costs are applicable
to your business and some costs can recur on a regular basis.

Premises
Common costs relating to your business premises are:

site design/architectural plan

basic premises modifications: electrical, lighting, painting, security system, ventilation

system
fit-out, kitchen installation, bathroom construction and plumbing (gas and water)

Compliance needs
There are often many licences that come with starting a business. Some you should
consider are:

licences: business registration, ABN, GST, council permits etc.

food handling certificate, Responsible Service of Alcohol (RSA) certificate

insurance - public liability, professional indemnity, building, contents, income, WorkSafe

etc.

legal work and lawyer

accounting work and bookkeeper/accountant

Use Australian Business Licence and Information Service (ABLIS)External link

(opens in same window), a one-stop application that helps you find all the local, state
and federal licences, registrations and permits you need.

Marketing
It's important to factor some marketing into your plans so you can get customers to your
business. Some things to consider are:

graphic design for signage (logo etc.)

opening marketing, including advertising

website design, internet connection/hosting fees, domain name registration

Staf
Often, businesses will need to employ staff from the beginning, if you need staff then
you should consider:

recruitment costs

wages and salaries

uniforms

Fees
In the set up of your business, it will often be necessary to employ professional
services. Some fees to consider are:

banking or loan fees/costs

electricity, telephone, fax, internet connection and running fees

3. Determine your running costs

Running costs can include wages, buying of stock, internet access fees,
shipping/delivery fees, rent, and utilities. For this, fill out the detailed profit and loss
sheet in the Financial Statements Template.
Financial

Important
Review your financial statements regularly to check your margin, markup and
breakeven calculations are still correct. Doing this check provides a good way to
spot any increase in expenses so you avoid losing money.

Enter your sales and expenses information into our Financial Statements template to
calculate your margin, markup and breakeven figures within the profit and loss, balance
sheet or cash flow statements.
Financial statements template

(XLSX 301.88 KB)

Calculating your price of goods to earn a profit

There are two margins that need to be considered when monitoring your profitability:
gross margin and net margin. Knowing these figures helps to set prices for goods and to
calculate your sales targets. Figures used in the examples below are included in the
example Profit and loss statement within our Financial Statements template.

Gross margin
Definition
Gross margin is money left after subtracting the cost of the goods sold from the net
sales and can be a dollar value (gross profit) or a percentage value.
Net sales are the total value of sales for a given period less any discounts given to
customers and commissions paid to sales representatives.

Gross margin is not commonly used for service businesses as they usually don't have
cost of goods.

Formula
Gross Profit (dollar value) = Net Sales less Cost of Goods Sold
Gross Margin (percentage value) = (Gross Profit dollars / Net Sales dollars) x 100

Examples
Gross Profit: $52,000 - $31,200 = $20,800
Gross margin: $20,800/$52,000 x 100 = 40%
Using the example figures Joe's Motorbike Tyres has a gross profit of $20,800. The
business's overhead expenses must be less than this to earn a profit.
Once you have your gross margin you can calculate your net margin.

Net margin
Definition
Net margin is your profit before you pay any tax (tax is not included because tax rates
and tax liabilities vary from business to business). Net margin is your gross margin less
your business overhead expenses.

Formula
Net Margin can be calculated as follows:
Net Profit (dollar value) = Net Sales less total of both Cost of Goods Sold and Overhead
Expenses
or

Net Profit (dollar value) = Gross Profit less Overhead Expenses

Net Margin (percentage Value) = (Net Profit dollars / Net Sales dollars) x 100

Example
Net profit: $20,800 - $15,600 = $5,200
Net margin: $5,200/$52,000 x 100 = 10%
If the net margin is 10 percent then for every dollar of goods sold you will make 10 cents
in profit before tax after all the cost of goods and overhead expenses have been paid.
Using the example figures Joe's Motorbike Tyres will earn 10 percent of $52, or $5.20,
from every tyre sold.

Markup
Definition
Markup is the amount of money above the cost of purchase or manufacture you sell
your goods for. The price of goods sold needs to cover the cost of goods plus overhead
expenses and allow for profit to be earned.
Markup is generally used when referring to the sale of products rather than services.

Formula
Markup is calculated as follows:
Markup percentage value = (Sales less Cost of Goods Sold / Cost of Goods Sold) x 100
or
Markup percentage value = (Gross Profit/Cost of Goods Sold) x 100

Example

66.67% = ($52,000 - $31,200/$31,200) x 100

Using the example figures Joe's Motorbike Tyres' markup percentage is 66.67%.
To reach the gross profit of $20,800 by selling motorbike tyres bought for $31.20, Joe
will multiply his unit cost price by the markup percentage ($31.20 x 1.6667 = $52 ).
Each tyre will have a minimum price of $52 each to earn enough money to cover
business expenses.

Calculating your breakeven point

Definition
The break even calculation identifies the number of sales to be made, (in dollars or
units), before all the business expenses are covered and profit begins. (before tax).
If you know the units sale price and cost price and the business operating expenses
you can calculate the number of units you need to sell before you start making a profit.
Breakeven analysis is helpful information when preparing and updating your business
plan and can be used to set sales targets.

Formula
Use the following simple calculation to find where profit really starts:
Breakeven dollar value needed before net profit = Overhead expenses/ (1 (Cost of
Goods Sold / Total Sales))
Breakeven number of units to be sold before net profit = Overhead expenses / (Unit
selling price unit cost to produce)

Example
Breakeven dollar value: $15,600/(1-($31,200/$52,000)) = $39,000

Breakeven number of units to sell: $15,600/($52-$31.20) = 750

Joe's Motorbike Tyres will need to sell $39,000 worth of stock or 750 units before the
business earns any profit (before tax).