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Small Business Overview

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Beginning in Business series: Small Business Overview. Paper 1.01

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Small Business Overview

  1. 1. Alan Lewis Accountants BEGINNING IN BUSINESS SERIES SMALL BUSINESS OVERVIEW Paper 01.01
  2. 2. With compliments from Alan Lewis Accountants CONTENTS Page Characteristics Of Small Business ................................................................................................................... 3 Size ………………………………………………………………………………………………………………………….3 Who Are Small Business Operators? .............................................................................................................. 3 Lack Of Success ....................................................................................................................................................... 4 Particular Problems Facing Small Business Operators ........................................................................... 4 Government Attitudes ......................................................................................................................................... 6 Weaknesses Of Small Business Operators ................................................................................................... 6 How Do You Succeed In Small Business? ...................................................................................................... 7 Achieving Expectations ....................................................................................................................................... 8  - ESS BIZTOOLS Pty Ltd - ACN: 078 451 439 Edit by ALAN LEWIS ACCOUNTANTS Pty Ltd – ACN: 137 070 921 PO Box 4295, LAKE HAVEN NSW 2263 Phone: (02) 4390 4156 www.lewistaxation.com.au Paper 01.01/140607/Page 2
  3. 3. With compliments from Alan Lewis Accountants BEGINNING IN BUSINESS SERIES SMALL BUSINESS OVERVIEW Paper 01.01 CHARACTERISTICS OF SMALL BUSINESS There have been many definitions as to “what is small business”. One of the better definitions is that a small business is "a business in which all the critical management decisions are made by one or two people without the aid of internal specialists". For research purposes the most common cut-off point for the determination of small business has been enterprises employing less than 100 persons. SIZE Small business operates on an extremely wide scale and diversity - 95% of all business can be defined as small. Although estimates vary, the number of small businesses in Australia has been estimated at between 700,000 and 950,000. The majority of these firms employ less than 20 people. WHO ARE SMALL BUSINESS OPERATORS?  - ESS BIZTOOLS Pty Ltd - ACN: 078 451 439 Edit by ALAN LEWIS ACCOUNTANTS Pty Ltd – ACN: 137 070 921 PO Box 4295, LAKE HAVEN NSW 2263 Phone: (02) 4390 4156 www.lewistaxation.com.au Paper 01.01/140607/Page 3
  4. 4. With compliments from Alan Lewis Accountants The majority of persons operating small businesses are self-motivated and seek business independence. Statistics highlight that a considerable number of small business persons, whilst having skills in their own particular trade, occupation or profession, have very little knowledge of general management and bookkeeping skills, nor do they understand the reasons for management reports. They do not understand the “business of business”. A large number of persons in small business consider that they can ignore the peripheral activities such as management, marketing, advertising, accounting and finance. They consider that this is not why they are in business. However the neglect of these peripheral activities can do more to erode the business base than anything else. LACK OF SUCCESS Undoubtedly the most disturbing statistic of all is that out of every 100 new small businesses that commence each year, 75 will be out of business within three years. This particular statistic highlights the magnitude of the problem, as the economic costs, social problems, and psychological damage to the small business operators, their families and employees from these failed businesses is immeasurable. PARTICULAR PROBLEMS FACING SMALL BUSINESS OPERATORS Inadequate planning. It is of the utmost importance that adequate consideration is given to planning when starting a small business. The initial planning should include • discussions with a banker, solicitor and professional accountant. Lack of professional advice (especially from Accounting Firms) when a small business is being commenced. This is one of the most significant reasons for the high failure rate of • small business. • Insufficient capital at commencement of business. Inadequate management especially in the areas that are not the strong points of the owner-manager. • • Inadequate bookkeeping systems. • Inadequate accounting system to highlight performance results.  - ESS BIZTOOLS Pty Ltd - ACN: 078 451 439 Edit by ALAN LEWIS ACCOUNTANTS Pty Ltd – ACN: 137 070 921 PO Box 4295, LAKE HAVEN NSW 2263 Phone: (02) 4390 4156 www.lewistaxation.com.au Paper 01.01/140607/Page 4
  5. 5. With compliments from Alan Lewis Accountants Lack of knowledge of what cashflow means and its role as the life-blood of the business operation, especially relating to payment of GST (Goods and Services Tax) and PAYG • (Pay As You Go) tax. • Insufficient capital for growth and expansion. • Over-dependence on debt financing. • Inadequate cash management. • Taking too much money out of the business, especially in the beginning. Living too high! • Not understanding the meaning of profit. • Poor debtor, stock and work in progress control. • Inadequate bank relationships. • Poor location. • Poor choice of a partner. • Failure to delegate. • Problems caused by big outside organisations. • Disinterest by owners (often the second generation). • Owners inability to lead a management team - need for people management. • Lack of sources of equity finance for "larger" small firms. • Failure of owners to provide for succession. Not having attempted to think through potential problems and listing them and the suggested answers on paper. • • Not separating spending on personal needs from business. • Poor staff relationships - Lack of acceptance of the need to build a committed staff team. • Lack of contact with major customers. • Not determining what business you are really in. • Not understanding the market. • Need to be careful with the employment of relations. • No formal Business Plan.  - ESS BIZTOOLS Pty Ltd - ACN: 078 451 439 Edit by ALAN LEWIS ACCOUNTANTS Pty Ltd – ACN: 137 070 921 PO Box 4295, LAKE HAVEN NSW 2263 Phone: (02) 4390 4156 www.lewistaxation.com.au Paper 01.01/140607/Page 5
  6. 6. With compliments from Alan Lewis Accountants • No Budget or Cashflow Forecasts. • Lack of effective outside advice. • No strategic planning sessions. • Have not developed empathy with customers. GOVERNMENT ATTITUDES Small business suffers from inadequate Government attention in that Government’s have great difficulty in focusing on the problems of small business as compared to big business. For example, it is a lot easier to look at problems of a particular employer who employs 800 people in an area and for the Government to stage direct assistance operations than it is for the Government to identify with the required assistance that would be necessary for say 40 small businesses who each employ 20 people in the same area. WEAKNESSES OF SMALL BUSINESS OPERATORS Not appreciating the components of the cost of labour and the need to take into account direct labour costs as well as sick and holiday pay, holiday pay loading, work care • premium, payroll tax, long service leave, superannuation and productivity percentages actually obtained for the particular employee. • Calculation of charge-out rates for the sale of materials and for the sale of labour. • Documentation of estimates. Control of the business overhead costs and a full knowledge of what those overhead costs are. • • Knowledge of the break-even level of operations. • Cashflow control - especially relating to GST and Pay As You Go tax. In the manufacturing, building industries and professional practices inadequate control to highlight the cost of current projects within the work in progress ledger. • Inadequate systems to ensure that progress claim invoices are lodged by the due date in accordance with the contract. • • Attention to and anticipation of changing economic conditions.  - ESS BIZTOOLS Pty Ltd - ACN: 078 451 439 Edit by ALAN LEWIS ACCOUNTANTS Pty Ltd – ACN: 137 070 921 PO Box 4295, LAKE HAVEN NSW 2263 Phone: (02) 4390 4156 www.lewistaxation.com.au Paper 01.01/140607/Page 6
  7. 7. With compliments from Alan Lewis Accountants • Continuing review needed of Government decisions that might affect the industry. Taxation Office requirements for Withholding Tax to be deducted from all wage payments including Directors’ fees and remitted in the Business Activity Statement by • the due date to the Taxation Office. Lack of appreciation of the power that the Taxation Office has for the imposition of fines for late remittance of Withholding Tax and Income Tax. • • Sub-contract control. • Non-recording of important matters on paper. • Funding of debtors, stock and work-in-progress. • Preparation of submissions to banks and other financial institutions. Lack of appreciation of the needs for small business to be adequately informed of its current performance by the receipt of regular periodic accounting reports during the • year on a monthly or three monthly basis. Lack of appreciation of the need to prepare Budgets, Cashflow Forecasts and other management estimates. • • Lack of formal relationships with the business’s bank manager. • Not understanding the need for a long-term business plan. Non-utilization of a Board of Directors/Board of Advice or Customers Advisory Committee. • • Not appreciating that there is a need to "think big" in small business. • Lack of quality control in the business. • Keeping records in a "shoebox". HOW DO YOU SUCCEED IN SMALL BUSINESS? Your chances of success will be considerably enhanced by ensuring that the following has been done:- • Get advice before you start in the business. • Prepare a business plan.  - ESS BIZTOOLS Pty Ltd - ACN: 078 451 439 Edit by ALAN LEWIS ACCOUNTANTS Pty Ltd – ACN: 137 070 921 PO Box 4295, LAKE HAVEN NSW 2263 Phone: (02) 4390 4156 www.lewistaxation.com.au Paper 01.01/140607/Page 7
  8. 8. With compliments from Alan Lewis Accountants • Prepare a Budget and Cashflow Forecast. • Maintain appropriate accounting records. • Ensure that you receive financial reports on your business on a monthly basis. • Review your Budgets and Cashflow Forecasts regularly - at least quarterly. • Conduct a market survey before commencing in business. • Develop contacts with your customers. • Closely examine whether your business location is satisfactory. • Continually update your product and technology knowledge. • Review on an ongoing basis your quality control procedures. • Hire and keep good staff. • Use your financial data for managing the business. • Know your customers. ACHIEVING EXPECTATIONS Listed in this paper is a brief summary of what small business is and what its problems are. It is essential that Accounting Firms are recognized as being an integral part of the decision making process of small business. Many forward thinking Accountancy Practices now supply services in excess of the standard audit and taxation services that many people came to expect Accountants to perform. There needs to be greater co-operation between Bank Managers, Solicitors, Accounting Firms and other Professional Advisers so as to ensure that adequate advice is given to clients to enable them to survive in the small business environment. Small business has a vital role to play in the development of this country and is at the heart of the very existence of the free enterprise system. Most small business operators do not have all of the skills necessary for them to adequately manage all aspects of their businesses. They need to appreciate that they will need expert advice to enable them to succeed in small business and achieve their expectations.  - ESS BIZTOOLS Pty Ltd - ACN: 078 451 439 Edit by ALAN LEWIS ACCOUNTANTS Pty Ltd – ACN: 137 070 921 PO Box 4295, LAKE HAVEN NSW 2263 Phone: (02) 4390 4156 www.lewistaxation.com.au Paper 01.01/140607/Page 8
  9. 9. With compliments from Alan Lewis Accountants Small business operations should be fun! It should be a daily challenge and at the end of the day you should be able to reflect on the success attained from the day’s endeavours. However this will not be the case unless there has been adequate planning from the very beginning. Unless there is a realization of the short-comings that most people have as managers and a true and frank appreciation of what your strong and weak points are, it will in the majority of cases lead to business failure. It is necessary to plan so that the operation of a small business can give independence and at the same time, an adequate reward for the entrepreneurial skill that is going to be required to operate the small business. It is the appreciation of the management of the "business of business" that determines success or failure!  - ESS BIZTOOLS Pty Ltd - ACN: 078 451 439 Edit by ALAN LEWIS ACCOUNTANTS Pty Ltd – ACN: 137 070 921 PO Box 4295, LAKE HAVEN NSW 2263 Phone: (02) 4390 4156 www.lewistaxation.com.au Paper 01.01/140607/Page 9
  10. 10. With compliments from Alan Lewis Accountants AN IMPORTANT MESSAGE The forms and commentaries contained in this paper are provided as a guide only and should not form the sole basis for any advice in relation to the particular situation of any person without first obtaining proper professional advice. This paper is provided on the understanding that ESS BIZTOOLS Pty Ltd (ACN: 078 451 439) and ALAN LEWIS ACCOUNTANTS Pty Ltd (ACN: 137 070 921) will not be responsible as a result of any use made by users hereof of the forms or commentaries of this paper without first obtaining specific professional advice. Neither shall ESS BIZTOOLS Pty Ltd or ALAN LEWIS ACCOUNTANTS be responsible for any errors or omissions contained in these papers. ESS BIZTOOLS Pty Ltd and ALAN LEWIS ACCOUNTANTS expressly disclaims liability whether under contract or negligence and whether to a direct purchaser of these papers or to any other person who may borrow or use them in respect of any loss or damage flowing therefrom whether direct or consequential. In particular and without limiting the extent of this disclaimer ESS BIZTOOLS Pty Ltd and ALAN LEWIS ACCOUNTANTS accepts no liability if any form or commentary contained herein, whether used in its original form or altered in some way by the user, proves not to be valid or not to attain the end result desired by the user. This exclusion shall extend both to the user and to any client of the user who may suffer loss as a result of the use of these papers and it shall apply even though ESS BIZTOOLS Pty Ltd and ALAN LEWIS ACCOUNTANTS may have been negligent in the publication or preparation of these papers. The user acknowledges that it has not made known to ESS BIZTOOLS Pty Ltd and ALAN LEWIS ACCOUNTANTS any particular purpose for which these papers are required and that it has not relied on ESS BIZTOOLS Pty Ltd and ALAN LEWIS ACCOUNTANTS skill or judgement to provide a paper suitable for any such purpose. INTELLECTUAL PROPERTY NOTICE The authority to use all copyright, trade marks and other intellectual property rights comprised in this paper is held exclusively by ESS BIZTOOLS Pty Ltd (ACN: 078 451 439). Neither these rights nor any part of this paper may be used, sold, transferred, licensed, copied or reproduced in whole or in part in any manner or form whatsoever without the prior written consent of ESS BIZTOOLS Pty Ltd (ACN: 078 451 439).  - ESS BIZTOOLS Pty Ltd - ACN: 078 451 439 Edit by ALAN LEWIS ACCOUNTANTS Pty Ltd – ACN: 137 070 921 PO Box 4295, LAKE HAVEN NSW 2263 Phone: (02) 4390 4156 www.lewistaxation.com.au Paper 01.01/140607/Page 10

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