Getting Started

7 ways to ensure you survive the first year of business

- February 28, 2023 3 MIN READ

 

Whether you’re launching a business or starting a side hustle, the first year of trading is make-or-break. Yet, there are well-established means of boosting your chances of success, writes financial advisor and author Helen Baker.

No one goes into business with the aim of failing. Yet the reality is that most new businesses in Australia fail within four years; roughly one in five don’t reach their first anniversary.

The silver lining is that with so many failures come so many lessons on how to avoid the same fate.

1. Do your homework

Just because you think you have a winning business idea doesn’t necessarily mean paying customers will agree.


Undertake market research to trial your idea with other people – do they like it? Will they pay for it? How much? How often?

Don’t simply canvas friends and family who may be inclined to agree with you to avoid hurting your feelings in place of honest, meaningful feedback.

2. Avoid over-extending

A big no-no for any new business is splurging on all the bells, whistles, expensive kit, and latest tech. It bleeds money and weighs down you and the business with huge liabilities, which could sink you both.

Focus on your core operational needs – that is, what is necessary to get paying customers in the door.


Perfect your MVP (minimum viable product) and leave the flashy cars and other luxuries until your business can afford such things.

3. Charge what you’re worth

Try to avoid the temptation to offer discounts to attract customers. Discounts eat into your profits, of which you have little to none in those early days. Plus, it sets a precedent that can be hard to escape – customers will expect that discount forevermore.

The same goes with mates-rates and family freebies – if they really want to support you, they will spend with your business.

Instead, look at incentives that bring more, not less, money in. For example, three months free on a 12-month subscription locks in nine months of revenue for you; package product deals allow you to upsell goods.

Don’t race competitors to the bottom on price – add more value and superior service. Customers typically pay more if they feel like they are getting better value for money.

4. Keep cash flowing

In business, cash flow is king.

Ensure you have the systems and processes in place to manage your cash flow: visibility over your costs and revenues; chasing invoices promptly; paying bills on time to avoid late fees; negotiating supplier discounts for early payment. Keep cash readily available: swap large lump-sum bills for smaller regular instalments. Reduce your commitment to fixed costs.

Personal sacrifices will be needed, but be strategic: suspend personal fun and dip into your emergency fund to finance your new business rather than selling investments. Work part-time on the side to generate income. Whatever it takes to keep food on your table and the business able to trade without risking your financial future.

5. Pay yourself

In the early days, you may want to forgo paying yourself wages and super to preserve cash and reduce business tax. However, it is risky and requires discipline not to become entrenched.

If you take this approach, have a plan for when you will start extracting your wages and super and use superannuation catch-up rules to replace that money.

Be aware that not paying yourself regularly makes it harder to catch up as the amount owed to you grows. Should the business fail, you’ll get nothing back. If you sell it in future, a buyer won’t want to backpay your wages and super on top of the purchase price.

6. Get good advice

You don’t know what you don’t know, which means you’ll need good advice – for your business and yourself.

Tailored financial, tax, business and legal advice will ensure you and the business are set up properly, tax-effectively and profitably.

The cost of professional advice pales in comparison to the savings achievable and expensive mistakes avoided. It’s generally tax-deductible too.

7. Look after number one

Starting and running a business is tough. It sounds basic, but looking after yourself is the best thing you can do for your new business. Because it needs you present, thinking clearly and acting decisively.

Don’t skip meals, sleep or exercise because you ‘don’t have time’ – schedule work time around them. And seek support when you need it – from family, friends, peers, business mentors and coaches. Because there will be tough times, but you needn’t face them alone.


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