Building your customer base on a budget

Businesses starting out will often be challenged by the need to generate brand awareness but with a limited marketing budget.

Minimising costs will often be at the forefront of business owners minds with uncertain revenue and copious amounts of capital expenditure; marketing is unlikely to be a top priority. However, new businesses need brand exposure in the early stages as potential customers or clients are unlikely to just appear.

Here are some ways business owners can cost-effectively create awareness:

Social media
Many small businesses are reluctant to use social media. Whether they are “time-poor” or “confused” by social media, there are ways to get involved without hassle. Social media could take as little as a few minutes each day and can be delegated to a staff member who is confident with using different social platforms.

Businesses selling tangible products can take advantage of platforms intended for sharing photos such as Facebook or Instagram, as visuals are a key selling point. For businesses such as professional services firms, utilising platforms that sell their knowledge and expertise is important, for example, creating a blog.

Communities of interest
Unlike well-established businesses, new businesses need to form brand equity to attract new customers and clients. When starting out, businesses need to present their brand proposition to target audiences and referral partners, also known as communities of interest. For example, a wine-maker would present themselves at a local wine and food festival. There will be a community of people interested in your product or service, so presenting and engaging in the places where they are gathering makes sense.

Partnerships and associations
“It’s not what you know but who you know” is a popular phrase and for good reason. Social connections and associations are everything. Many businesses will seek out partnerships or sponsorship’s with complementary brands to enhance their reputation via association. If a well-known, respected brand wants to associate with your brand, then people may conclude your brand must have something unique to offer.

Making big profits in small markets

Even though most businesses want everyone to be their customer, this is not necessarily the right approach to making a profit. Instead, it is often best to think small in order to get big. To maximise your sales and profits, businesses should start narrowing their market to get a niche.

Focusing in on a small sub-set of all potential customers seems dangerous. Why limit the pool of customers when it might already be small? But having a well-defined, narrow target market – a niche – gives a small business many advantages.

Choosing a niche means finding something that immediately distinguishes you from your competitors. Having a niche immediately sets you apart from the mass of competitors; gives you a clear focus for your marketing and advertising efforts; gives you additional credibility when you’re trying to make a sale; makes you more memorable and often enables you to charge higher prices.

So how do you choose a niche? Keep in mind that a niche must be based on objective factors – things that customers can quickly perceive. Consider the following:

Demographic group
Selecting a specific demographic group gives you an edge in attracting a certain segment of customers. They feel welcome doing business with you. Over time, you develop specialised knowledge of that market, giving you an even greater competitive advantage.

Type of work
Another way to select a niche is to focus in on a specific aspect of the work you do. Focusing in on what your business does gives focus to your marketing efforts and can even make owners more competitive in securing customers.

Style
Choosing a specific style of service or product is another way to develop a niche. A restaurant could serve only organic food, a furniture store sell only all-wood furniture, a car wash only wash cars by hand. These styles all narrow your potential market but improve your competitiveness with the customers who value your style of business.

Donating to charity

With so many charities competing for donations, it can pay to spend time researching to make sure your money is used for the cause you want to support. Just as important to making sure that the charity you donate to actually receives your donation. Here are some aspects to consider before you make a donation:

Choose a charity wisely
Regardless of what motivates you to support one charity over another, you should feel comfortable with your chosen charity’s activities and how it plans to use its donations. Donating directly to an overseas-based charity can be risky since it can be difficult verifying the information found on the charity’s websites or social media profiles.

How you will donate
There are a number of ways people can donate to charity. Some people feel comfortable making a regular set donation, whereas others prefer one-off donations. Individuals can also support a charity through automatic deductions from their salary. For example, if an employer has a workplace giving scheme, an employee’s donation can be deducted from their pay and sent directly to their preferred charity.

Those who opt to do this earn tax benefits at the time of donation and get a summary of payment at the end of the year. However, individuals should ensure that they can only participate in a workplace giving program if the charity has deductible gift recipient (DGR) status.

Another method of donating is to leave a bequest in your will. To do this, individuals need to contact the charity directly to discuss their plans.

Check if it is a legitimate charity
If the name of a charity seems unfamiliar, individuals should ask for more information about it, like where it is based, what its donations used for and if donations are tax deductible. Even if you have heard of the charity before, it can pay off to check that the person who contacted you is authorised to represent the charity.

Also, be wary of giving out your credit card details, as there are other ways of donating if it is a reputable charity contacting you.

Check if your donation is tax-deductible
A donation will only be tax deductible if it is donated to a charity that has been endorsed by the ATO as a deductible gift recipient (DGR) organisation.

Tax deductions are only given for donations that are $2 or more and claimed in the person’s tax return for the income year in which the donation was made.

Cash flow statements

Contrary to what some business owners may assume, a cash flow forecast is different from a cash flow statement

Cash flow forecasts look forward while cash flow statements look at the past to report cash generated. Cash flow statements are critical financial statements and are very useful in determining the short-term viability of a business; particularly its ability to pay bills.

A cash flow statement accounts for the cash that has come into a business over a quarter or year and the cash the owner has paid out. The statement is prepared along with a business’s balance sheet and profit and loss (P&L) statement.

While they are similar, P&L statements track revenues and expenses as and when they occur. A cash flow statement allows owners to see how much cash their business has generated and excludes non-cash revenues and expenses.

P&L statements do not track when cash enters a business’s bank account and going off these statements alone will not paint an accurate picture of a business’s cash posture.

For those who seek investment, a cash flow statement is particularly important as it provides a clear idea of the short-term viability of a business. For businesses that consistently generate more cash than they spend, the statement can also shed light on:

• The business’s ability to pay off debt

• Potentially increasing the business’s dividend

Why your cash flow is out of control

Cash flow is one of the biggest obstacles facing small businesses trying to secure funds for their growth. On top of ongoing expenses and bills, poor cash flow strategies can negatively impact a business’s customers, staff and clients. Here are some of the potential reasons why your business’s cash flow may be out of control, and how you can change things up to make your business thrive once more:

You don’t know the difference between cash and profit
Profit is the difference between a business’s income and expenses. Cash is how much money the business has in the bank. Even if a company is considered profitable, as its expenses accumulate (paying off loans, purchasing equipment etc.) the business can still go broke if customers fail to pay on time.

To avoid problems like timing issues, businesses should work to build up their working capital (short term cash). Using an income and expenditure budget (which tracks how profitable a business is) as well as a cash flow budget (which represents cash inflow and outflow each month) can help build up working capital.

You don’t monitor your cash flow budget
Businesses need to learn how to create and use a cash flow budget, so they can monitor their financial information on a monthly basis and analyse the information so any necessary changes can be made immediately.

You’re not managing your debtors
If your customers aren’t paying on time, here are a few methods you can put in place:

• Provide specific quotes that include the due date for payments

• Organise to receive deposits or payments up front

• Don’t wait to send an invoice – send your bill as soon as the work or project is completed

• Format your invoices correctly with the specific due date for payment (rather than ‘in 14 days’)

• Make it easy to be paid by offering BPAY, EFTPOS, credit card and website facilities

You misunderstand short term and long term cash requirements
Short term cash, also known as working capital, is money needed to cover the period between when working for a customer commences, and when the customer pays for the work. Long term cash is money that every business needs to buy or set up a business, fund medium to long term growth and asset/equipment purchases.

What are profit drivers?

Profit drivers are determinants that have a significant impact on a business’s bottom line. They are often categorised as financial and non-financial drivers.

Financial profit drivers are directly connected with dollar figures and are most commonly considered in relation to profit. Examples of financial profit drivers include:

• price

• fixed and variable costs

• sales volume

• inventory

• cost of debt

Non-financial profit drivers also impact a business’s bottom line, even though they’re not expressed in dollar terms. Client satisfaction and bad weather are two examples of non-financial profit drivers that can have an impact on sales and an increase or decrease profit. Non-financial profit drivers include:

• productivity

• client satisfaction

• quality of a product or service

• training of employees

• employee satisfaction

• business culture and values

• product and process innovation

• market share

• employee safety

Businesses should keep track of their profit drivers and their relative importance. Working out why they’re important to the success of a business and regularly measuring their impact can help owners evaluate the success of a business’s strategies.

Tips to achieving business loans

Applying for a bank loan can be a difficult process. But despite the borrowing challenges facing small business owners, it is possible to have your loan approved.

Bankers are not in the risk business, protecting their capital is paramount. Their careful examination of the integrity of a business has made it a priority for businesses to maintain a good relationship with their bank in order to preserve their future access to funds.

Develop a strong business plan
This is one of the first vital steps to ensure that the bank will identify you business as a low risk and gain the confidence to provide funds. A comprehensive business plan will highlight the viability of the business, provide the owners and managers business experience, the expenses that the loan will cover, the financial situation of the business, market changes and detailed sales expectations.

Improve your financial understanding
It is important to be aware of the financial status of your business by obtaining credit reports and public records. It will help to show the banker that you know your business and are mindful of the research the bank will acquire when deciding on the amount, if any, to loan to the business. Learn the banking language Understanding banking terms such as credit ratings, cost of capital and other financial drivers will place business owners in a secure position when negotiating the terms of their loans.

Keep the advisor informed
Financial advisors are there to advise and will have an intimate knowledge of bank processes. By keeping them posted of any plans or changes, the advisor can better advise the business on the best course of action, and ensure that the business will continue to prosper.

Getting rid of products to improve profit

Businesses looking to improve their profitability may need to consider cutting under-performing products and services. There are a few simple ways to decide which products should stay and which should go.

• 80/20 rule

An often used marketing and business rule states that businesses should focus their attentions on the 20 per cent of products that generate 80 per cent of revenue.  Using this principle, companies should compile a shortlist of the products and services that bring in the most profit and scrutinise the products that fall short of this mark.

• Emotional attachment

There will always be those few products that have emotional significance, however for the sake of profitability; businesses should emotionally detach themselves from their products and services.

• Trial run

If it is still too difficult to make the right cut, businesses should consider doing a trial run. Going a week or month no longer promoting and marketing the least profitable products will help businesses imagine a life without them. At the end of the chosen time, analyse the results.

When is the best time to register for GST?

The Australian GST system can appear to be quite complicated for some small businesses just starting out, due to the different types of GST goods and services, such as input taxed, GST-free and GST taxable.

Input taxed items are commonly financial services or products and rent from residential property.

GST-free items are goods and services provided as a part of education, medical and health services, and unprocessed food and produce.

Goods or services that are not classified as input taxed or GST-free are considered to be taxable. These products or services must have GST included in their selling price if the business selling them is registered for GST.

A determining factor of whether a business should register for GST is whether or not they can pass on the GST in the price they charge, or whether their industry’s market determines their product price, meaning GST cannot be added to the price.

Another factor businesses need to consider is whether they are able to increase their selling price to include GST. Businesses who cannot increase price effectively lose one-eleventh of the selling price (which must be paid to the ATO).

Businesses that turnover less than $75,000 a year are not required to register for GST. These businesses receive an Instalment Activity Statement, rather than a Business Activity Statement, from the ATO that advises them of their PAYG tax instalments. The IAS also must have completed the details of amounts paid to employees and how much has been deducted as PAYG withholding tax.

Lending options for your business

Whether your business is experiencing sudden growth or financially struggling, it is crucial to manage your cash flow effectively. Cash flow gaps or being unable to access extra funds can put a real strain on a business. However, there are lending options available to businesses that can help with different cash flow needs.

Before considering lending options, businesses should draft a cash-flow projection to predict their sales and expenses such as cash in, monthly loan repayments, stock levels, set-up costs, and fixed and variable expenses. Cash flow forecasts can help to prepare for best and worst-case scenarios while allocating what times of the year extra cash are needed.

To best meet your cash flow requirements, lending might be necessary. The lending option chosen should meet your business’s needs. For example, a business credit card may be appropriate for immediate purchases and paying off smaller bills. Alternatively, a business overdraft is more suitable for larger, more frequent seasonal gaps.

Inventory management is key to good cash flow. Stock levels should co-ordinate with high and low sale seasons. For example, if you run a seasonal business where peak sales are during the holiday season, you must account for higher levels of cash to be available.

A business line of credit may be a viable option for long-term or larger purchases. A business line of credit provides lower interest rates with the flexibility of an overdraft allowing long-term access.

For business owners looking towards long-term investments to re-invest in the business, a business loan may be more appropriate. If you are seeking to purchase new equipment or business vehicles, asset finance may be suitable. Asset financing uses assets such as accounts receivable, as security interest to borrow funds.

Lending is a great way to stay on top of your finances provided that the lending solution is correctly matched to your business’s needs.