Planning ahead – a financial strategy is just one piece of the puzzle

If startups focus too much on the financials, they may miss out on the right business model and company culture

 

There is no question that in order to be successful, startups need to have a good financial strategy in place. But a financial strategy is just one piece of the overall business puzzle, and nailing the overall business model is vital.

 

Deloitte Private director Duncan Stevenson says a startup’s focus should always remain on the development and refinement of its business model.

 

“The commercial outcomes of the business model need to support long-term sustainability and through extension, this will also drive your financial strategy,” says Stevenson. “Setting your financial strategy is based on understanding the financial needs of your business model to provide the cash you require, to achieve your goals in the short, medium and long term. Once this is understood, you can consider the likely sources of cash.”

 

He advises that you need to understand where your growth will come from and have some comfort that the growth is supported by market dynamics.

 

“For example, a business planning for unrealistic growth can get out of balance if they over-invest to support sales that do not eventuate, resulting in non-commercial outcomes,” says Stevenson.

 

The Practice senior manager of business advisory Graeme Anstey encourages startups to take the ‘Balanced Scorecard’ approach – that is, focusing on the four pillars of every business.

 

“I know this sounds controversial coming from an accountant, but business owners should first focus on the other three pillars of business: your people, your processes and your customers. These three pillars drive the final pillar, your financials,” Anstey says.

 

“The reason you should develop your financial strategy last is because the success of your financial strategy depends on your ability to fully understand your business, your industry, your competitors and your target market. Without a clear understanding of these, your financial strategy will be a guesstimate.”

 

Pitcher Partners executive director of business advisory David Knowles says prior performance is always a good starting point for a business to build a financial strategy.

 

“If no prior data is available, then begin with short term budgets with estimated revenue and expenses that are monitored. Using other benchmarking information can also assist,” Knowles says.

 

Anstey says that once you develop your financial strategy, you then need to monitor your performance regularly to ensure you’re on track. He recommends startups set key performance indicators (KPIs) to quickly see how they’re tracking against critical measures.

 

“The best way to do this is tapping into the benefits of cloud-based accounting software to build a business dashboard so you can see at a glance how you’re tracking to your KPIs, no matter where you are in the world,” Anstey says.

 

When it comes to communicating your goals to your team, Stevenson says a balance of both culture and strategy is the key to success.

 

“Does culture beat strategy, is an often debated question, but the answer is most likely in the balance. Your team drives your culture, and your culture needs to support success,” Stevenson says.

 

It’s important to remember that a financial strategy is only one piece of the puzzle. Startups need to have a firm understanding of their business model, including their team, their customers and their processes. Through this understanding, coupled with realistic goals and planning, startups can better avoid financial hiccups in both the short and long term.

 

Written by: Nicola Trotman

 

This article is sponsored by Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (ANZ). The views and recommendations that are made in this document are those of the author and not ANZ. To the extent permitted by law, ANZ disclaims liability or responsibility to any person for any direct or indirect loss or damage that may result from any act or omission by any person in relation to this material.

 

Success starts here

If you’re thinking of starting a small business, or have recently launched one, you want to do everything you can to ensure its success. Visit the $2 Billion Lending Pledge to find your local ANZ Small Business Specialist and get an indication of how much you could borrow.

How we navigated our first year

 

From preparing a business plan to negotiating rent, frozen yoghurt business Yogi has ridden the highs and lows

 

In order to break through the barrier of an already saturated market of frozen yoghurt chains, Yogi founders Dale Nason and Katie Jones realised having a point of difference was an important factor in whether their brand would succeed or not.

 

Pairing their interests in a healthy lifestyle with business acumen, Nason and Jones decided to create an entire line of yoghurt sweetened with Stevia, a natural, kilojoule-free sweetener.

 

The Queensland-based pair also focused on getting their financial fundamentals right.

 

After shopping around, Jones and Nason scheduled appointments with a range of different banks and institutions that provided lending before settling on a loan.

 

Jones doesn’t believe Yogi’s point of difference played a huge part in the borrowing process, but thinks that a solid business plan that had been checked by experts was the key.

 

“There’s a lot of things that can be hidden, so having a professional look over your plan and making sure that there’s no stars in your eyes, can make sure that  you’re seeing everything for exactly what it is,” she says.

 

Jones says a good business plan needs to include a realistic budget and she encourages startups to call their leasing agent to determine rent and electricity costs. She also says to plan the number of staff you’ll require and their specific wages.

 

“If you take the time to research, you can set a budget with real figures and get a better understanding of your predicted cash flow.”

 

Jones says it can help to have more than one professional look over your plan.

 

“Everyone has different opinions and take from each what you want, that way it also helps you understand your business a lot more. I found it also helps with your planning as well,” she says.

 

For Jones and Nason, this advice included their bank manager.

 

“Our bank manager is amazing, and not just with the financial side of it. She had a lot of contacts and was willing to help with a range of different things, including insurance.”

 

Yogi’s bank manager regularly visits their Surfers Paradise store to say hello.

 

“We see her very often and it’s not just us going to visit her, she comes into our store too. The bank has been great in the relationship building process,” says Jones.

 

Jones says she did not actively seek advice from others in the frozen yoghurt business prior to starting Yogi, but says a large support network has developed as the business has rolled out. She encourages other startups to build a strong relationship not only with their customers, but their suppliers too.

 

“When we first started, we definitely had people in the industry giving us recipe tips and things like that, but there wasn’t one person in particular we went to.

 

“I think when you call up for help, in any industry, your suppliers will help you.”

 

In terms of building up a credit history, Jones says the most important history you can have is a good relationship with your bank.

 

“The better the relationship is, the more financial support you can get to further your business and to branch out and make it better. For us, it’s the history with the bank that has been more important and we have been building that since we started. We’re coming up to 12 months now and there are more opportunities in the financial side of things,” says Jones.

 

Looking ahead, Jones and Nason are considering turning Yogi into a franchise.

 

Written by: Nicola Trotman

 

This article is sponsored by Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (ANZ). The views and recommendations that are made in this document are those of the author and not ANZ. To the extent permitted by law, ANZ disclaims liability or responsibility to any person for any direct or indirect loss or damage that may result from any act or omission by any person in relation to this material.

 

Success starts here

If you’re thinking of starting a small business, or have recently launched one, you want to do everything you can to ensure its success. Visit the $2 Billion Lending Pledge to find your local ANZ Small Business Specialist and get an indication of how much you could borrow.

Five risks startups take when it comes to money and how to avoid them

Whether you’re getting your finances sorted for the first time or are seeking a fresh injection of capital, we outline five high risk financial areas for startups

 

Leigh Dunsford, co-founder of Loandesk refers to cash flow as a “silver bullet that everyone wants to know how to manage”.

 

It’s a critical factor for any budding startup, and is equally relevant whether you’ve been in business for five months or five years. But cash flow is just one high risk financial area that can lead a startup into hot water.

 

Here’s a few other things to consider…

 

1. Get your paperwork and business plan in order

 

 

 

“It’s amazing how many startups will approach a bank without pre-planning,” Dunsford says.“But banks are document heavy and if you have a casual conversation, you’re sure to be turned away.”

 

It’s common practice for business bankers to ask for a comprehensive business plan, and in most cases, they’ll also want to see your assets, and what supplementary income you have to service the amount borrowed.

 

“If you can’t provide answers or show these things, you just won’t get a loan. It’s a tough love situation as far as the bank is concerned,” he says.

 

2. Choose potential investors wisely

 

If you’re seeking finance, particularly from investors, remember you’re not just after cold hard cash.

 

“You want people that can help your business, people that can open doors for you, or provide advice on things like when to pivot,”says Lars Lindstrom, chief executive officer of StartUp Victoria. “It’s about more than just the money.”

 

“You also need to know who’s looking for what as an investor,” says Clare Hallam, chief operating officer at online venture builder Pollenizer.

 

Hallam cautions that some investors are happy to be in the background, whilst others can be a “hands-on” nightmare.

 

“It’s important to find the right investor, it’s like a marriage and it’s crucial to your success. Rarely does a startup get it 100%right, but think about how you’ll grow with the investor in the future, and ask yourself, ‘am I taking the money for the right reason’?”

 

3. Know how much your idea/product/service is really worth

 

When you’ve put your blood, sweat and tears into a startup, it’s easy to believe your own hype. But Hallam cautions against it, and warns that if you follow the angel investment or venture capital path, you may have to give away a bigger slice of your startup than you first bargained for.

 

“A lot of entrepreneurs think their startup is worth more than what an investor would value it at. But you need to be able to show a real solution to a real problem, and know who your customers are. You also need to be able to show some traction – you need to prove that you’ve already started solving that problem for customers. And that you have customers who are prepared to pay dollars for it,” she says. “Even then, you might have to give away a bigger slice of the pie than you intended.”

 

4. Don’t underestimate time and capital

 

“Everybody underestimates the amount of capital they need when starting out. It always costs more and takes longer. It’s universal,” Lindstrom says.

 

Hallam agrees. “Startups often don’t see it until they’re almost out of money, or they underestimate the timeframe it will take for money to be received in their accounts. Even if they secure investment, it can take months for it to appear in their bank account, and they don’t have a contingency plan if it falls through.”

 

So what to do in these situations?

 

“Go out and get some customers, and get some traction. Get people interested in your product and traction will attract money. You just keep doing what you’re doing, close deals with customers and when you get closer to the abyss, you go and raise some money because now you can prove that customers want your product or service. It’s very hard to raise money before you’ve done anything, but there’s plenty of money for people that can execute good ideas,” Lindstrom says.

 

5. Don’t overcommit your finances

 

Once you’re officially ‘in business’ it’s tempting to want to make a big splash with a cutting edge logo, fancy business cards, or sleek offices. But as Dunsford notes, a bank account flush with borrowed money always needs to be paid back.

 

“When you get a loan, you need to plan. It’s not to pay for a new office chair or desk – it’s to grow your business. You need to spend that money on income producing activities. Borrowed money is an investment in the business. It needs to be invested into something that’s going to generate sales which will make you profit, so you can make the payments back, and then hopefully one day you’ll not have to borrow money,” he says.

 

Dunsford also recalls stories of startups that have overcommitted on their fixed costs. “We’ve had startups come to us and they have a big office space with just two people working in it. In the early days, you really need to keep your fixed costs down and stick to variable costs. Don’t lock yourself into a lease for an office space or take on staff you really don’t need.”

 

Written by: Megan Gamble

 

This article is sponsored by Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (ANZ). The views and recommendations that are made in this document are those of the author and not ANZ. To the extent permitted by law, ANZ disclaims liability or responsibility to any person for any direct or indirect loss or damage that may result from any act or omission by any person in relation to this material..

 

Success starts here

If you’re thinking of starting a small business, or have recently launched one, you want to do everything you can to ensure its success. Visit the $2 Billion Lending Pledge to find your local ANZ Small Business Specialist and get an indication of how much you could borrow.

Business versus consumer credit cards – does it matter?

Many startups can get away with using their personal credit card in the short term, but long-term use could mean havoc for your personal credit history if a business is not successful. It can also cause major headaches come tax time.

 

The appeal of throwing startup expenses onto personal credit may seem obvious. It could mean instant access to funds and you don’t need to apply for traditional financing.

 

And of course the similarities between personal credit cards and business credit cards are many – including the ability to buy things both offline and online, paying for goods over the phone, as well as withdrawing money from ATMs.

 

However, co-founder of credit card comparison site finder.com.au Fred Schebesta notes that the key difference between the two cards are that business cards are issued to a company, not an individual, therefore the company is responsible for any accrued debt, rather than the individual.

 

Schebesta says the ability to differentiate between personal expenses and company expenses will become harder if a startup uses the same account for both. You’ll have to backtrack each month and review what expenses were corporate and which were your own.

 

“Even if you allocate a certain amount of credit to business and personal expenses, there’s always the risk you’ll eat into your personal reserves and be left in a much riskier credit situation,” Schebesta says.

 

Another downfall is the credit score will not only reflect your own, but also your company’s if you find yourself in murky water.

 

Business credit cards may offer advantages that personal credit cards may not offer, such as a number of cards being issued to the one account, Schebesta advises. Different restrictions could potentially be placed on each card; meaning junior employees won’t have the same spending power as senior staff, for example.

 

The comparison business also notes that startups with business credit cards may also be eligible for tax deductions on spending, and receive benefits only available to those with an ABN.

 

Some cards also offer access to a rewards program, including frequent flyer points and gift cards, but Phillip Kemp, executive director of Business Foundations Inc. warns some reward programs have hidden fees.

 

“These days credit cards have loyalty point programs and the like, but these also come at a cost, which is built into the fees and charges for the card,” Kemp says.

 

In addition to rewards costs, Schebesta recommends startups consider the other costs of maintaining the account. Costs may include the annual fee to be paid each year, frequent flyer point fees, added charges per cardholder, minimum monthly repayment requirements and other repayment flexibilities.

 

Schebesta also encourages startups to find out what reporting facilities the card offers, such as itemised monthly reports and expenditure reports, as well as knowing what insurance options are available.

 

“A business credit card can offer some perks such as insurances, frequent flyer points and itemised expenditure reports that startups may otherwise have put extra effort and money into, to get the same returns,” Schebesta says.

 

It’s important to note that business credit cards sometimes have a higher annual fee than other credit cards, which should always be considered when assessing your business situation.

 

“As with any credit card, you need to review your spending and repayment habits and schedules, then look at the expenses of the card alongside the benefits it can provide your team,” Schebesta says.

 

Kemp recommends startups launch with a straightforward account and reevaluate their needs as they grow.

 

“When starting out, choose a basic credit card with the lowest fees and then as the business grows and is generating regular, consistent income, change the card to something that can accumulate points from your everyday business transactions,” Kemp says.

 

Even though your startup team may only be a handful of people, the benefits of having a business credit card sometimes outweigh the seeming simplicity of using your own personal account.

 

Written by: Nicola Trotman

 

 
This article is sponsored by Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (ANZ).

 

Success starts here

If you’re thinking of starting a small business, or have recently launched one, you want to do everything you can to ensure its success. Visit the $2 Billion Lending Pledge to find your local ANZ Small Business Specialist and get an indication of how much you could borrow.

Manage your cash flow like a pro in the first year

Whether you’re learning about the importance of cash flow by experience or by error, here are several ways to navigate the tricky issue in your early stages of business

 

1.Manage slow payment times

 

If there’s one factor that affects a startup just as much as a large corporation in Australia, it’s that invoice payment times are getting longer. The latest research from Dun & Bradstreet’s Trade Payments Analysis now shows that invoices take an average of 56 days to be paid –the slowest rate in three years. So how do you avoid this problem, especially when ‘cash is king’?

 

According to Dun & Bradstreet CEO Gareth Jones, there are two things you can do.

 

“You can build incentives and discounts for early payment into your pricing model, or you can make it clear there are repercussions, like interest on the amount outstanding, for those who don’t pay within your timeframe,” he says. “It all comes back to your credit policy.”

 

 

2.Have a clear credit policy

 

 

As Jones outlines, a clear credit policy is essential for every startup but he says many people don’t think it through upfront.

 

“You must have a clear policy around how you’re going to extend credit to your customers,” he says. “It needs to take into account the cycle of your outgoings versus your proposed income. Your credit policy must reflect when you see income arriving and therefore cash arriving, against your outgoings in terms of buying goods from suppliers and other business expenses.”

 

 

3.Hold onto your cash for longer, and plan ahead

 

 

It’s also important as a startup to keep cash in your bank account for as long as possible, so you’re prepared for unexpected challenges.

 

“No matter what you plan for, something will happen that you’re not aware of,” says Kevin Moore, retail expert and chairman of Crossmark Asia-Pacific Holdings.

 

“A plan is great to say ‘this is the number I want to get to, this is how much I want to turn over, and this is how much I want my costs to be. If you’re continually checking against it, you can say, ‘I think we’re off track and we need to do something about it’ before it gets out of hand.”

 

 

4.Negotiate favourable payment terms

 

 

Moore also recommends that you negotiate favourable payment terms as a strategy for holding onto your cash for longer.

 

“Make sure your payment terms are the best they can possibly be. I know it’s difficult, but you have to be strong in this area. Whether you can get 15, 30, 45 day terms, whatever you can get, make sure it’s the best option for you. Large corporations have procurement departments whose role it is to use you as the bank, but if you’ve got a good product or service, be strong in your negotiations.”

 

 

5.Efficient and accurate invoicing

 

 

In a similar vein, Jones recommends that you examine your invoicing process closely, to ensure you’re not giving customers or suppliers a reason not to pay.

 

“Make sure you have a good invoicing process. Often your customers or their credit departments will look for reasons not to pay, for example, you invoice them and they feel it’s not accurate or there’s mistakes on it. All of those things can delay payment and create cash flow issues. Don’t give people a reason not to pay you,” he says.

 

 

6.Understand your finances

 

 

Entrepreneurs have many skills, and sometimes numbers isn’t one of them. But that’s not a reason to avoid the books altogether. Moore recommends that you keep it simple, and don’t get confused with accounting speak like debtors and creditors.

 

“Look at your payables, your receivables and your bank balance three times per week,” he says.

 

“There’s only three places your money can be if you’re keeping your business together. That’s in the bank, with your suppliers, or waiting to be paid by somebody. Stick to those three things and you’ll have an accurate picture of what’s going on with your cash flow.”

 

 

7.Ask for or hire help

 

 

Moore also recommends that you be diligent with your monthly P&L and balance sheet review. “Spend 60 minutes minimum on it, and understand what the numbers mean to your cash over the next 90 days.” If you’re not up to this task, don’t be afraid to ask for, or hire, help.

 

“Once you get a bit bigger, the best thing you can possibly do is employ a really good accounts receivable person,” says Moore. “Don’t get hung up on someone who’s just a bookkeeper or just an accountant. You want someone that’s numerate, confident and a communicator, because they’re asking for money over and over again.”

 

Written by: Megan Gamble

 

 

This article is sponsored by Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (ANZ). The views and recommendations that are made in this document are those of the author and not ANZ. To the extent permitted by law, ANZ disclaims liability or responsibility to any person for any direct or indirect loss or damage that may result from any act or omission by any person in relation to this material..

 

Success starts here

If you’re thinking of starting a small business, or have recently launched one, you want to do everything you can to ensure its success. Visit the $2 Billion Lending Pledge to find your local ANZ Small Business Specialist and get an indication of how much you could borrow.

Cash flow dangers – Six issues that bring a startup down

The first 12 months of a startup is hugely exciting time, but important to your success is cash flow.

 

 

Issue one: Slow payment times

 

 

Nothing can bring a startup undone faster than slow payment times, and waiting months to get paid for products or services is an instant path to a cash flow crisis.

 

With the average payment time in Australian business taking around 56 days, the implications for that cash struggle are huge, says Dun & Bradstreet CEO, Gareth Jones.

 

“Depending on committed outgoings against your income, it can easily have impact on the ability to pay wages, the ability to pay other trade suppliers, and the ability to purchase new products.”

 

“Those figures show cash collection is the worst it’s ever been in Australia,” says Kevin Moore, retail expert and Chairman of Crossmark Asia-Pacific Holdings.

 

“And as a backdrop to that, we have startups and SMEs stuck at the bottom of the chain. A lot of large corporations complain about large retailers, but the large corporations are also holding money for smaller businesses. It’s a whole ecosystem where everybody is struggling to collect cash.”

 

 

Issue two: Lack of a credit policy

 

 

Any startup worth their salt must have a clear credit policy that takes into account the rhythm and cycle of the business, says Jones.

 

“Establishing a model that says, ‘OK my business needs to expend this amount of cash over a 30-day period, and therefore I need a certain amount of cash in to balance that book’ should be done upfront, as it will help you set your credit policy. This process is absolutely critical, but often it’s not executed properly, or it doesn’t reflect what’s really going on in the business – and that can quickly bring you undone.”

 

 

Issue three: Not doing your homework

 

 

A failure to perform due diligence sees many entrepreneurs lose sleep at night. And it’s a two-step process.

 

First, there’s the diligence you need to perform on your own business.

 

“When you’re in the startup stage, you need to be diligent that every single week you’re looking at your bank account, you’re looking at how much your business is going to cost you, and you understand where your breaking point is,” Moore says. “Those are things you need to look at all the time – if you don’t, you’ll find yourself in dangerous territory.”

 

Then there’s doing your homework on your customers to avoid potential disaster.

 

“Doing credit checks on customers is absolutely critical,” Jones says. “This will give you a lot of insight in terms of the risk that you’re taking and allow you to plan for it accordingly, rather than extending credit terms to everyone and ending up in a cash flow hole.”

 

 

Issue four: Losing control of the finances

 

 

According to Moore, ‘businesses don’t go under because they’re not profitable. They go under because people are not managing their cash’.

 

Startups often struggle to gain ground in the early days, and it’s okay to be losing some money –provided you’ve done your homework when it comes to your balance sheet.

 

“If you’ve got a business that’s got the right backing, you can lose money for a period of time – if it’s got the right balance sheet and cash structure available,” says Moore. “But if you lose control of your cash flow, your business is vulnerable.”

 

 

Issue five: Taking on bad debt

 

 

Bad debt is a killer. And for a startup, putting policies and procedures in place to mitigate risk is absolutely critical. But according to Jones, most startups fail to have a rigorous process when it comes to managing their accounts receivable base.

 

“When you’re just starting out, if one of your customers isn’t either willing or able to pay you, and you have to effectively write off a significant amount of income (and therefore cash), that can be crippling, based on the size of that customer and the proportion of your income stream or cash flow that it is.”

 

 

Issue six: Avoiding commercial realities

 

 

“Almost everyone who starts their own business does so because they’re passionate about one thing. But to be passionate about something doesn’t mean you’re a business person,” says Moore.

 

Which is not to say that you can’t learn those skills. But if you know that numbers isn’t your thing, don’t stick your head in the sand –ask an expert for help, or you’ll be staring down a cash flow hole before you know it.

 

In the case of startups and finance, ignorance is not bliss.

 

Written by: Megan Gamble

 

 

This article is sponsored by Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (ANZ). The views and recommendations that are made in this document are those of the author and not ANZ. To the extent permitted by law, ANZ disclaims liability or responsibility to any person for any direct or indirect loss or damage that may result from any act or omission by any person in relation to this material..

 

Success starts here

If you’re thinking of starting a small business, or have recently launched one, you want to do everything you can to ensure its success. Visit the $2 Billion Lending Pledge to find your local ANZ Small Business Specialist and get an indication of how much you could borrow.

What is best: Business loan or personal loan for your startup?

Trying to decide whether to go for a business loan or personal loan to fund your startup can be tricky.

 

Generally speaking, if you’re a sole trader, a personal loan could be the right choice.

 

However, if you’re set up as a company, a business loan may be a better option, depending on how it’s structured, according to Kane Munro of Accountancy Online.

 

“Obviously when you’re just starting out, you don’t have a track record to show the bank, so you’re well within your rights to go for a personal loan to fund your startup,”Munro says. “However, at some stage, you’ll need to tell your lender what the money is for.”

 

When assessing your eligibility for either loan, the lender will consider your employment history, savings track record and earnings, he says.

 

“A loan is a far better way to go than re-drawing on your mortgage to launch a startup. You should never stake a house or car on a startup, and make sure you only ever borrow what you can afford to lose,” Munro says.

 

A personal loan of up to $20,000 isn’t too difficult to secure from most lenders, however beyond that you’ll need to provide greater detail on what the money will be used for, he says.

 

Every situation is different, so make sure you compare packages from your chosen lender before signing on the dotted line, advises senior manager, marketing of accounting firm The Practice, Brendan Keogh.

 

If you’re going with a business loan, you will be offered either a term loan or business overdraft. A term loan offers a finite term of usually five to 15 years, by which time it will need to be paid back in full. An overdraft facility, on the other hand, is used to fund working capital and if the facility isn’t drawn down, no interest is charged for the month, Keogh explains.

 

The next decision you need to make will be whether you want a secured or unsecured loan, he says.

 

An unsecured business loan is more difficult to obtain as the bank has little chance of recouping the funds if it isn’t paid back. And as a result of the bank taking on more risk, they charge a much higher interest rate, Keogh explains.

 

“By securing a business loan with property, it significantly reduces the interest rate as well as increasing the probability of the funding being approved by the bank due to the perceived risk the bank takes on,” he says.

 

“The negative from the business owner’s perspective is that it increases their risk in the event that the business fails, exposing the property to be sold if the loan is unable to be paid back.”

 

When shopping around, be sure to ask if the loan has a pre-payment penalty in case you want to pay down the loan completely, Keogh adds.

 

“I’ve seen business owners pay down loans without gaining any benefit. The money would have been better in a high interest saving account and only paying off the minimum requirements.”

 

However, bear in mind that it’s very difficult to swap from a personal loan to a business loan from an administrative point of view, advises the founder and co-director of LoanDesk, Leigh Dunsford.

 

“It may be more difficult to secure a business loan when you’re starting out, but it may be a better way to go. That way, when you’re 12 months down the track and need additional funding, you’ve got a track record, so you don’t have the hassle of proving your personal loan was funding your startup.”

 

And remember that being stuck on a smaller credit limit can be a massive hindrance, especially if you experience an unexpected growth spike.

 

It’s best to discuss your projections with your banker and plan for adequate cash flow over the first 12 months, Dunsford adds.

Startups need to be realistic. A stable income from a job, a partner able to support you, or income from an investment property is an ideal way to pay the bills so you can reinvest back into the business, he says.

 

“I’ve seen it time and time again. Startups that really thrive are the ones where the business owner doesn’t have to pay the bills out of the money made from the business in those early days,” Johnson says.

 

Written by: Nina Hendy

 

 

This article is sponsored by Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (ANZ). The views and recommendations that are made in this document are those of the author and not ANZ. To the extent permitted by law, ANZ disclaims liability or responsibility to any person for any direct or indirect loss or damage that may result from any act or omission by any person in relation to this material..

 

Success starts here

If you’re thinking of starting a small business, or have recently launched one, you want to do everything you can to ensure its success. Visit the $2 Billion Lending Pledge to find your local ANZ Small Business Specialist and get an indication of how much you could borrow.

Credit or overdraft – what is the best approach for a new venture?

Trying to decide whether to fund your startup by loading up the credit cards or applying for a business overdraft is a challenge felt by everyone starting out.

 

So what’s the right choice for your situation?

 

A business overdraft can be handy because it offers a flexible source of short-term cash, ideal for managing unexpected costs and fluctuating cash flows throughout that treacherous first year.

 

However, they’re not easy to come by. Your lender will want to see a rigorous business plan and budget, which can be expensive and time-intensive to prepare, according to independent business banking expert, Neil Slonim, from The Bank Doctor.

 

“For a business overdraft, you’d be going into the bank, cap in hand and hope you’re seen in a favourable light,” Slonim says. “It can be a daunting process if you’re not used to borrowing money for a business.”

 

If you do manage to secure a business overdraft, be sure to spend the money wisely, advises Pitcher Partners principal of corporate transaction services Simon Johnson.

 

“I’ve seen plenty of people get access to an overdraft facility and max it out on expenses that aren’t related to growing the business,” Johnson says. “Every dollar you borrow should be spent making a profit for the business, rather than a shop fit-out or the latest technology.”

 

For example, hiring an employee able to generate an income, or a marketing campaign designed to build interest in the business is money well spent, he says.

 

On the other hand, there are far less hoops involved in obtaining a credit card, which is why they appeal to so many startups.

 

“We all get those letters from the bank offering to increase our credit limit, so it’s just a matter of approaching the bank and applying. If you’ve got a decent credit history, it’s an easy way to get access to borrowed funds,” Slonim says.

 

The other bonus is that credit card applications are processed a lot faster and sometimes offer 30 days of free credit.

 

However, the lender will insist that the credit facility is in your personal name, not the name of your fledgling business, Slonim says.

 

The downside of a credit card is that you could be paying an interest rate of between 14 and 20 per cent, depending on the specials being offered by lenders at the time. This compares to a business overdraft of around eight to 12 per cent, Slonim says.

 

“There are advantages and disadvantages to both, so you’ve got to consider how quickly you need cash, and what you’re using it for,” he says.

 

Whichever you choose, be conservative in your assumptions so you’ve got a contingency plan in case something goes wrong, Slonim adds.

 

For example, if you need $20,000, add a contingency of $5,000, he says.

 

“And always abide by the bank rules and read the fine print. If you can’t understand the small print, go and see a trusted advisor and seek help.”

 

Johnson adds that while big dreams are one thing, don’t start out under-capitalised or you’ll never make it.

 

Startups need to be realistic. A stable income from a job, a partner able to support you, or income from an investment property is an ideal way to pay the bills so you can reinvest back into the business, he says.

 

“I’ve seen it time and time again. Startups that really thrive are the ones where the business owner doesn’t have to pay the bills out of the money made from the business in those early days,” Johnson says.

 

Written by: Nina Hendy

 

 

This article is sponsored by Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (ANZ).

 

Success starts here

If you’re thinking of starting a small business, or have recently launched one, you want to do everything you can to ensure its success. Visit the $2 Billion Lending Pledge to find your local ANZ Small Business Specialist and get an indication of how much you could borrow.

It’s not personal, it’s business: why it matters to get the right bank account

You may think it’s convenient to use your personal bank account for your startup finances, but a little extra effort to create a separate business account could protect your legal liability and bring tax advantages down the track.

 

Legally BAS owner and MYOB advisor Debra Anderson says not having a separate business and personal account is one of the most common financial management mistakes startups make. In fact, she calls it a “huge error”.

 

“Get a business account so you can link it to the financial software, keep it clean and know where your money is going,” she says.

 

Loandesk co-founder and director Leigh Dunsford agrees.

 

“Advantages of having a business account include building a trading history for the bank to see, having a separate debit card just for business expenses and if you plan on accepting credit card payments, a business account is mandatory,” he says.

 

“Come tax time, it will make it a lot easier to separate your personal and business expenses and you should always consult your accountant about the tax advantages. It’s also a good idea to develop good business habits early when starting out, as well as showing your customers you’re serious.”

 

It’s generally free to set up a business account and using a personal account could not only affect your customers, it also suggests to potential investors and employees you’re not serious.

 

Also if your startup involves partners, then a business account is a must to allow for transparency.

 

“Each partner will have access to the account and therefore be accountable to any expenses that occur. I am sure you won’t be giving anyone else access to your personal account,” Dunsford says.

 

In terms of legal liabilities, operating with your personal bank account may put you front and centre if any claims were to be made against your business. However, when starting out and operating as a sole trader, you will still be personally liable, even if you operate from a business account, Dunsford explains.

 

“When a person carries on business from their personal account on behalf of a business, there is a strong argument to assume that even if that person states that the liability should lie with the business, due to the fact that all transactions happened from the personal account, then that person is the sole personal operator and personal responsible for the businesses actions.”

 

Although you may think business and personal accounts offer the same benefits, there are a range of features to consider when selecting your business account. Features include interest rates, risk protection options, overseas currency protection and the ability to connect payment systems.

 

Before opening your business account, shop around, as some banks offer a limited amount of fee-free transactions while others have unlimited fee-free transactions. Monthly maintenance fees also vary, as do the interest rates on offer.

 

Banks offer different security mechanisms but generally focus around a single-use password that expires after a set period of time. If a business trades in international currencies, some banks offer protection against foreign exchange risks as well.

 

Some will allow you to link additional accounts, whether business or personal, and access can be delegated to other people, such as employees or your accountant.

 

One of the main features is the ability to connect payment systems from different devices. These include iPhone and iPad payment systems, Eftpos terminals, as well as Internet payment gateways.

 

Written by: Nicola Trotman

 

 

This article is sponsored by Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (ANZ).

 

Success starts here

If you’re thinking of starting a small business, or have recently launched one, you want to do everything you can to ensure its success. Visit the $2 Billion Lending Pledge to find your local ANZ Small Business Specialist and get an indication of how much you could borrow.

Best foot forward – how to pitch to your bank manager

Pitching your startup idea to a bank manager may seem like a daunting task, but you don’t have to be a sales expert to walk away with the funds to launch.

First impressions count, and it’s essential to know the ins and outs of your business, from financial forecasts to what differentiates you from your competitors.

Before meeting with the bank, startups should familiarise themselves with the formal loan application process, Rob McGuinnes, partner in business advisory and consultancy at Nexia Australia says.

This includes preparing a professionally worded business plan for your bank manager and being aware of what questions they are likely to ask.

Loandesk co-founder and director Leigh Dunsford recommends getting the manager’s business card and emailing them a very brief outline of what you will be discussing in the meeting.

“Make sure it’s short and to the point, waffling on will give the manager the sense that you’re inexperienced,” he says.

Similar to a job interview, you also need to present yourself well. You need to walk into your appointment well dressed, looking professional and demonstrate you are serious about business. Go prepared with your business plan and financial forecasts.

Although it may seem like commonsense, you need to be clear on the amount of the loan you require, and explain to the bank manager the reason for obtaining the loan, McGuinness says.

“Be sure to justify these reasons and provide a clear repayment timetable as this demonstrates commitment to and understanding of the loans process,” he says.

Startups need to be able to illustrate they understand where their business is heading financially, says BusinessNAV executive director Ben Farrands.

“This is best displayed with a cash flow and budget forecast, ensuring your assumptions for growth are realistic and detailed,” he says.

“A clearly worded business plan and an ability to demonstrate the quality of your service or product and what differentiates you from the market could convince a traditional lender you’re a worthwhile risk.”

Startups should also consider getting their business plan and financial forecasts looked over by an expert before they approach a lender. This could be an accountant to ensure the numbers are spot on, or an experienced entrepreneur to ensure your pitch is right.

Banks are risk averse organisations and therefore the bank manager will need to know that the chances of you not repaying the loan are very low, says LegalVision chief executive officer Lachlan McKnight.

“If you’re launching a company, this usually means providing security over collateral which has a similar or higher valuation to the amount being borrowed,” he says.

Security may include equity from your property or investing some of your own money into your business venture.

Dunsford says being willing to negotiate this way shows how committed you are to your plan.

“If you don’t want to offer it [collateral] up as security, the banks will question why you’re not willing to put some skin in the game but expect the bank to take the risk,” he says. “Banks don’t ever want to take your collateral when you default on a loan, but it makes sense that they don’t want to be left out in the cold if you decide it’s time to walk away.”

Not all startups are successful when pitching their business idea to a bank manager the first time, but it’s evident that you can increase your chances by being prepared. It’s important to not only know your businesses strengths, but also its weaknesses, and to be honest. Constructing a well thought out and professional business plan with spot on financials will show the lender you are serious.

Lastly, and most importantly, practice your pitch and sell your dream!

Written by: Nicola Trotman

This article is sponsored by Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (ANZ).

Success starts here

If you’re thinking of starting a small business, or have recently launched one, you want to do everything you can to ensure its success. Visit the $2 Billion Lending Pledge to find your local ANZ Small Business Specialist and get an indication of how much you could borrow.

Lending for startups – What you need to ask and know

Getting a bank loan for a brand new business should be straightforward if you approach it the right way

You have a brilliant startup idea that you are certain will become a thriving business. The trouble is you need money to fund it. You need to sell your bank manager your dream to get your first business bank loan secured.