Establishment costs

There are many costs associated with establishing your business, including:

• preliminary accounting and legal advice
• tenancy/lease bond
• stamp duty and lease agreement advice
• telephone/internet installation
• power connection and bond
• signage and initial promotions
• equipment
• fixture and fittings purchases
• initial stock purchases.

Under-capitalisation (starting up or buying a business without enough money to make it work) is one of the major reasons why many small businesses fail.

To save yourself from this common mistake, carefully work out how much money you will need to start. A qualified accountant is an ideal person to help you do this.

Important! It's essential that you fully understand the financial details of your business, even if you use professional service providers to help complete this part of your business plan. You need money and the tools to manage money to make it work.

Financial planning checklist

Consider the following.

1. Know your costs. This is vital, especially when setting prices and calculating the break-even point for your business.
2. Always remember that profit is not the same as cash. Profits may be tied up in stock, assets or debtors yet to pay. If these items cannot be converted to cash, your business may not be able to meet its debts when they're due.
3. Regularly review sales turnover, customer numbers, average purchase ($) per customer, gross and net profit margins, fixed and variable costs, return rate of customers, and stock levels.
4. Know what sources of finance are available to you, including friends, family, banks, grants, and venture capital.
5. Prepare a financial plan and budget for the first 3 years of operation.
6. Keep accurate records of all financial transactions. Visit Record keeping in the Finance section of the Toolbox for more information.
7. Tax and reporting requirements.
8. Discuss your financial plans with an industry or government expert.
9. Establish a consistent credit policy, which provides a sound basis for collection of debts, without restricting your cash flow.
10. Keep abreast of market developments that may affect your business operations, for example, wages, interest rates and inflation.