Where do we start?

When starting a new business venture, we need to establish how much money we will require to start and maintain the business for at least 6 months, as well as fulfil our personal needs. To do this we can use several financial reports from our financial plan.

Firstly, determine all of your expenses:

1. Establishment Costs
2. Operating Costs (Business Financial Table)
3. Cost of goods/ services- Sales Financial Table
4. Personal Drawings

Operating Costs

Include expenses associated with day-to-day maintenance and administration costs of a business. They are usually associated with revenue-generating activities.

Examples include:

Accounting & Legal fees

Bank charges

Sales and marketing costsTravel expenses

Office supplies

Rent or lease payments

Raw materials

Utility costs

Office expenses

Costing or Pricing your goods and services.

Most companies who sell a product will calculate the cost of producing the goods and add a profit to determine their selling price.

This cost of goods includes:

the cost of raw materials, direct labour costs, overheads and storage costs, it may also include indirect costs like rent, taxes, packaging and admin costs.

➡️Refer to Template for calculating cost of goods in your Sales Financial Table

But how do calculate service cost?

It can be calculated with the following formula:

Take the total material, labour and overhead costs to determine your costs, then choose a profit margin based on your target market and your competitors before establishing a price.

Three different types of operating costs:

Fixed, Variable and Semi-variable

Start-up or Establishment costs

This video explains the Start up costs you need to consider.

***All information about Tax write-offs need to be researched through the Australian Taxation Office or your Tax specialist as laws change regularly.***

➡️Review Knowledge Question 2

Tax Liability, Loan Repayments, Personal Drawings and any acquisitions are classified as “Coverage” and come out of your Net Profit.

***Once all expenses are removed from your revenue the leftover cash needs to pay the following. Refer to your Profit and Loss Table.***

Taxation -GST

 If your business is GST registered, you can claim back the GST you pay on goods or services you buy for your business¹².

You can also charge GST on what you sell, which is collected on the government’s behalf¹.

You can claim a GST tax credit when lodging your business activity statement (BAS). The ATO will balance those credits against the GST you owe when working out your refund or bill².

If your business has a GST Turnover of $75000 or more, you need to:

• register for GST
• determine whether your sales are taxable
• issue tax invoices for taxable sales
• claim GST credits
• account for GST
• lodge activity statements

Handy Hint:

In your Cashflow Forecast you have a column for GST Received and GST Payable. Make sure you keep this money separate so you have it available to pay.

Checkout the link below for more information from the ATO:

➡️Review Knowledge Question 5

Personal Drawings

Checkout your “Personal Financial Table”. Personal Drawings are your personal budget and calculates what income you require to survive.

Remember to keep your personal finances and your business finances separate.

How do Marketing & Pricing Strategies optimise sales?

Your Marketing Plan has established who your target market is. You understand why they buy, how much they are willing to spend and what your competitors are charging. Your market research has provided you with key information about where they search for products, allowing you to develop a marketing strategy that promotes your business where they are looking. The message you choose is selling the benefits of your product/ service and your pricing tactics are attracting your customers and optimising your sales potential.

Your Marketing Plan and pricing strategy help you optimise your sales by:

• Aligning your products with the needs and preferences of your target market.
• They help you differentiate your product and services from your competitors by highlighting your unique selling proposition (USP).
• Your pricing helps you position your product as either premium, economy or value-based.
• The Marketing Plan optimises your profits by allocating resources and budgets to help you achieve your sales goals.
• Your pricing strategy helps you determine the optimal price, maximising your profit margin and sales revenue.

➡Refer to Knowledge Question 4.

How much income do you expect to make?

Secondly, determine what your available funds are and possible future revenue.

1. Calculate your current personal wealth and working capital available.(Assets Financial table)
2. Possible sales revenue (Sales Financial Table)
3. Operating finance requirements (loans)

Following these steps will help you analyse if you need to source some financial assistance or specialist advice in the future.

How to Prepare a Financial Forecast for your Business.

A forecast is the future. It is your estimation of how you expect your business to perform in a set time period.

When starting a new business, you don’t have any historical or quantitative data to analyse. Therefore, you need to refer to your industry experts and expertise to analyse qualitative data and estimate what you think you will achieve.

As time goes on and you build results, your forecasting will improve and you will have a much better understanding of your business.

To see examples of some sales forecast templates you can use to forecast click on the button below:

Steps to follow when sales forecasting:

Step 1:

• Determine your time frame you want to Forecast (1,2,5 years)
• Set up an excel sheet or use a template to complete

Step 2- Gather information and estimations:

• Estimate how many customers you can realistically expect to serve in that time, based on your market share research.
• Calculate the number of days and hours per year you are available to sell your product or service.
• Highlight any peak periods or expected quiet periods based on seasonal fluctuations, public holidays, school holidays etc.
• Estimate what you expect your average ticket or sale to be in $.

Step 3-

• Project monthly sales forecasts based on price per unit or hourly charge rate for labour.

➡️Refer to your Sales Financial Table

Operating Finance (loans)required for business.

Once you have established all funds required from your cost analysis process and then estimated your possible revenue over a set period of time, you can then see if there will be any further funds required for the business. Follow the steps below to see if any loans or “operating finance” will be required for your business in the next 12 months.

• refer to your Establishment Costs- “total funds to be obtained”

Formula is :

Total Assets Required- Owner’s Investment-Own funds

• refer to Business Financial Table

Are there any negative cash flow moments throughout the year?

• Refer to Financial Projections and Profit and Loss table.

Are there any indications of loss? Do you need a loan to get you through?

Any loans are “Operating Finance Requirements”.

➡️Refer to Knowledge Question 5

Specialist Advice for Business

There are many specialists who can support you in your business, especially with your finances. Every business will have different financial needs and taxation obligations. Who you choose will depend on your budget and needs. For example, a bookkeeper can be less expensive than an accountant, but offers different services and expertise. The Australian Taxation Office (ATO) also offers a number of free advice services and apps you can use. 

Procedure for seeking specialist financial advice –

End of Financial year can be quite stressful if you haven’t kept organised records. Clear procedures or processes can help you monitor and review your financial results throughout the year. Decide how much you can do yourself and when you will hire a finance specialist.

Your procedure might be:

• to complete your annual tax return and schedule an annual meeting with your taxation accountant to double check before lodging.
• to send your accounts off to a bookkeeper every week and they organise payments.
• to have monthly, half yearly meetings with your accountant to discuss results and any possible improvements.
• to schedule regular meetings with your bank manager re: overdraft etc.

Take some time to click on the links below to discover what specialist services could help you with your new business.

Key Financial Terminology relevant to New Business Ventures

Take some time to familiarise yourself with what these phrases mean and how they relate to your business.

TRUE or FALSE???

Click on the boxes to test your Knowledge

Digital Accounting Software to help you with Financial Management

➡Conduct research and respond to Task 1-Assessment 2

The Australian Taxation Research Project

The Australian Taxation Office (ATO) offers a website with a wide range of up to date information that can help you with your new business. Take the time to familiarise yourself with the website.

• Bookmark pages you will refer to often.
• subscribe to the Small Business Newsroom.
• set up notifications and payment plans so you never fall behind.

➡Task 2 ATO Research

Research this website, find 3 Key topics applicable to your business and explain how this information can assist you.

Task 3- Learning outcome is for you to:

Use the scenario to establish your income, expenses and possible profit.

Identify possible loans to obtain finance for a van.

Explain why you chose the loan you did and how you intend to pay the loan back.

Consider how this new asset could increase your business when applying for your loan.

Sourcing Finance

Businesses require finance for a number of reasons. They may have plans to grow the business, invest in new equipment or technology, hire staff or increase inventory levels for a peak period.

Please watch this video which discusses how to prepare for a loan application.

How to apply for a Business loan

• Be prepared, have details of your funding request.
• How much do you need? Be specific about the amount which should balance back to your cashflow forecast.
• Explain what will funds be used for?
• How will it benefit the business?
• Demonstrate how, when and why the revenue will increase in future to service the loan.
• What assets can you offer as collateral?
• Have supporting information available for you request such as:
• Historical data
• Tax accounts and relevant management accounts from your accounting software.
• Financial Plan
• Cashflow Forecast
• Asset and Liability Statements-  show your financial ability to pay back the loan.
• Have available any contracts for future business or asset valuations.
• Have a written Executive Summary- business proposal.
• Explain the assumptions made and provide your rationale behind your forecasts.
• Get professional advice!

There are several different sources you could consider to obtain finance for your business. Have you tried any of these?

Document 4 – Assessment 3 – Business Plan Instructions

• Write your full name on the top of the first page “Participant name:”
• Attach a completed copy of your Operational Plan to be marked.
• Attach the completed parts of your Financial Plan that are requested.