CHAPTER SUMMARY

Chapter 6
Start-up regulation and financing

Start-up business
• A start-up business establishes itself once ideas have been tested and affirmed, and
the business is ready to begin trading.
• The business needs to consider how it wants its internal environment to operate in
the first instance.
• The business will begin building its relationships within operating environments at
the start-up stage.
• A PESTLE analysis is a useful tool for start-up businesses to use to analyse the
external environment that will influence the start up.
• Business sizes can be classified according to the number of employees or turnover.
These categories are micro-, small, medium and large.
• The term Small-to-Medium Enterprise (SME) is commonly used in Australia to
collectively refer to micro, small and medium businesses. This is due to the way
economic data is reported and government policy is structured.

Business pathways
• There are three main business pathway entries a potential business owner can
consider: start a new business, purchase an existing business or franchising.
• Starting a new business suits people who are entrepreneurial as they can structure
the business based on their ideas and goals. There can be a high level of risk in
choosing this option due to having to make business purchases before trading
commences (the business earns revenue).
• Buying an existing business provides more financial security to a business owner as
trade is immediate. However, the business owner must attract new customers,
satisfy former customers and potentially rebuild the reputation of the business.
• Franchising is an entry method where a business owner pays a fee in exchange for
a licence to trade under a large business name. The business owner is responsible
for financing and human resources and is supported with training and marketing
materials.

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Legal and regulatory requirements
• Start-up businesses must meet their legal obligations before they commence trade.
• Initial legal requirements include applying for an Australian Business Number and
registering as a company (if applicable) along with registering an approved business
name.
• If a business is trading under the business owner’s name and no other, such as
‘James Smith’, then the business name does not need to register.
• Start-up businesses are required to pay income tax and the Goods and Services
Tax (GST). They must regularly report to the Australian Tax Office regarding the tax
collected and spent.
• A business must also apply for licences, permits and certificates with the local
government to ensure they are able to trade.
• When employing staff, a start-up business owner must be aware of their rights and
responsibilities under the Fair Work Act 2009 and follow superannuation and anti-
discrimination laws.
• The Fair Work Act 2009 stipulates 10 National Employment Standards to moderate
how modern awards, agreements and employment contracts are implemented in
business.
• Workplace health and safety legislation must be followed in all workplaces. A start-
up business needs to also consider if there are any industry regulations or codes of
practice that align with their business, to ensure they are meeting safety
requirements.
• Mandatory standards must be followed by businesses that sell particular products.
This can include labelling requirements or censorship disclaimers.
• Start-up businesses must also comply with codes of practice relating to practices
including advertising, working with animals and use of chemicals.
• All businesses must obtain insurance to protect the business and its stakeholders
from risk.
• The main insurances include professional indemnity, public liability, product liability
and workers compensation.

Financial objectives

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• There are five financial objectives a business will strive to achieve in their business.
These are: profitability, liquidity, solvency, growth and efficiency.
• Profitability relates to a business striving to achieve a profit, through profit
maximisation and profit margin strategies.
• Liquidity relates to the business’s short-term cash flow. The business should aim
towards a consistent inflow of money, which can be used to purchase assets and
pay expenses.
• Solvency relates to long-term financial positioning and the ability for a business to
use its assets to pay down liabilities or maximise investment through owner’s equity.
• Growth relates to the expansion goals of the business and needs to be carefully
planned financially to ensure the business maintains its viability.
• Efficiency relates to the use of resources and finding the right balance between the
number of assets a business has and its potential to achieve maximum profit. It also
relates to minimising expenses that relate to assets.
• A PESTLE Analysis can inform a small business owner of external environment
factors that influence financing.

Sources of finance
• Start-up businesses can source finance through debt and equity. They use these
funds to purchase business assets and to support its establishment.
• Equity finance relates to funds contributed by the business owner or investors, who
will expect a return on their investment through the business’s achievement of profit.
• Debt finance relates to funds provided by a financial intermediary. A contract that
outlines repayment schedules, interest payments and time frames forms part of this
source of finance.
• A business needs to consider when to use equity and debt finance, and if it is a
short-term or long-term situation.

Budgets
• Businesses create budgets to forecast the potential income and expenses of a
business to calculate a residual balance.
• A surplus balance in a budget means the business has estimated it will have earned
more money than it spends, and deficit means the business’s estimated expenses
exceed expected income.

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• There are many different types of budgets, including start-up budgets, monthly
budgets, month-by-month budgets, marketing budget, staffing budgets and cash
budgets.
• The break-even analysis tool is essential for a start-up business to assist the owner
to identify how many products are required to break even, or what the total dollar
value of sales are required.
• A business can also use break-even to judge its fixed costs and sales price and how
they align with the business achieving its financial objectives.

Business plans and action plans

• A business plan is a document prepared by a business owner that outlines the
goals, strategies and plans the business has prior to trade. It is often given to
financial intermediaries and investors when the business owner is seeking debt or
equity finance.
• An action plan is a list of tasks a business owner needs to complete in order for the
business to begin trade. It is often established after a business plan has been
completed. An action plan should link to business objectives, be allocated to a
person and have an expected due date.

Strategic networks
 A start-up business owner should connect with business networks and like-minded
people to build business knowledge, gain more customers, learn about competitive
advantage, seek out a mentor and build professional capacity within their relevant
industry.

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