The Biggest Trap for New Business Owners
Are you planning to set up in business on your own account and join the tens of thousands of other Australians contributing to the greater economy? You may have big aspirations and see self-employment as a way to safeguard your future, but you've got to be careful that you don't fall into the big trap that many entrepreneurs encounter. What do you have to consider carefully as you're setting out?
What Costs Are You Forgetting?
You've got a very clear idea of your financial aspirations. Now you've got to be able to figure out how much it's going to cost you to operate your business, of course, and how much the market is likely to pay for your goods or services. However, you've got to really have a look at your expenses. Itemise each one and be realistic with your calculation. Don't forget the biggest expenditure of all, however: yourself.
Why Salary Is Not Profit
This is a trap that many new business owners fall into. They somehow consider that their salary is the new business's profit. In other words, they don't include anything for their salary, but somehow believe that it will be taken care of from the margin.
This is a fundamental flaw for many reasons. Firstly, it's going to be very difficult for you to maintain and grow the business if you can't see a tangible return right away. You've got to value your own time and understand that profit is a completely separate notion altogether.
Just think how much it will cost you if you are going to employ somebody else to run your business for you. Be realistic here and this will give you a good idea how much you should pay yourself, as a minimum.
When to Compare with Others
If you don't think that you have enough "margin" in order to pay yourself a reasonable (and never minimum) wage, then you're not charging enough for your goods or services. Have a look at your competitors and even though you don't know what makes their business tick, you can have a fairly good guess at their expense make-up. They are not working for no return and neither should you.
How to Look to the Far Future
Make sure that your targets are realistic enough so that you pay yourself well as you grow the business. What you do with the profit is between you and your shareholders, if you have any. Just don't forget your future and make sure that you account for superannuation, as well.
If you're unsure how to structure your business when setting up, have a word with an experienced accountant to help you.