By Tsepak Tsetsang, Principal.
Starting or acquiring a business is an exciting and rewarding endeavour, but it also comes with a great deal of responsibilities and risks. It is therefore important to take the time to carefully consider and understand all aspects of what it means to own your own business. We have put together a few factors to take into consideration before taking this leap.
Define your goals
Carefully think about what your personal and professional goals are. Are you looking for financial freedom, a flexible lifestyle, growth or to give back to the community?
Once you have defined your goals, consider whether starting or acquiring this business can help you achieve them. Financial gain is usually the focus but that isn’t or shouldn’t always be the case; a simple example would be if your passion is to travel, then perhaps one of the criteria when looking at businesses to start/acquire should be one that you can operate online from anywhere in the world.
Understand the risks and challenges
Every business involves risks. It is therefore crucial to identify these risks so you can implement strategies to mitigate or manage these to an acceptable level.
Starting a business (especially on your own) means taking on a lot of responsibilities and various roles such as management, operations, marketing, and finance. Do you have the necessary skills and experience? Are you willing to learn or can some of these roles be delegated to staff or professionals?
Budgeting and forecasting
Cashflow is one of the main reasons why small businesses fail.
Before starting or acquiring a business, it is important to develop a realistic budget that outlines your startup costs, fixed/variable costs, and projected revenue. Use your market research and understanding of the risks to test different scenarios to see how it affects your profit and cashflow. This will give you a better understanding of the financial stability of your business and will help you more effectively manage cashflow.
The business structure you choose will affect your legal and tax obligations, so it is important to seek professional advice before you make this choice.
The four main structures that you can choose from are:
- Sole trader – the simplest and cheapest structure, only used for small businesses run by a sole owner.
- Partnership – involves 2 or more partners sharing the income/losses.
- Company – is a separate legal entity that operates the business. Limits your personal liability.
- Trust – where a trustee is responsible for operating the business on behalf of the trust’s beneficiaries. This can be setup in various ways and when used in conjunction with a company, can limit personal liability while providing flexibility in income distribution which can be an effective tax planning tool.
Registrations, licenses, and permits
Complying with legal and regulatory requirements is essential for any business. The types of registrations and/or licenses your business requires will depend on a range of factors such as the type of business, industry, size, location, business structure, and whether you employ staff.
A business plan is a great way to document the things to consider that we have listed in this article. A comprehensive business plan should outline the business concept, strategies, goals and objectives, market research, risk assessment, operational procedures, and financial projections. A well-crafted business plan will not only act as a roadmap for your business’s growth and success but is also helpful when seeking finance from banks and investors.
If you are considering starting or acquiring a business and need advice or support, please contact our office.