Starting Your

Own
Business
From Scratch
You basically have 3 options for going into business.

Do you know what they are?

1. Buy an existing business

2. Inherit a business
(most people cannot do this)

3. Start your own business from scratch

(like the athlete who starts from the back mark)
Here is a suggested series of steps to follow to start your own business
from scratch, that we will cover over the next 5 to 6 lessons

Step 1: Think about what type of products or services you could sell.
What factors might influence
your decision (what could you
create, design or sell?)

*What do you have a passion for

or interest in?
Other factors influencing your decision:
• Your specific knowledge or expertise in a particular field

• Qualifications you have or may obtain

• A product you have invented

• Is there already too much competition?

• Do you have family or
friends already involved
in that industry that
you can learn from?
You may also wish to consider becoming a social enterprise?

What is a social enterprise?

A social enterprise is a commercial organization
that has specific social objectives that serve its primary
purpose. Social enterprises seek to maximize profits while
maximizing benefits to society and the environment. Their
profits are principally used to fund social programs.
Such programs might include:
- Providing training for the unemployed
- Improving sanitation in developing nations
- Assisting the homeless
- Improving an existing products already existing to benefit society
- Promoting healthier living

This is the fastest from of small business currently in Australia.

Many younger Australians now want to run businesses that provide
an important social benefit to society rather than only being profit
focused.
There are tens of thousands of social enterprises now operating in
Australia!
STUDENT ACTIVITY: Research a social
enterprise in Australia (Folio exercise for
class or for homework)

• Choose one social enterprise operating in Australia.

Find out the following:
- it’s name
- who started it, when did this occur and what is their mission?
- Explain how this business benefits society
- What are some statistics on its growth and success?
- What percentage of profit is devoted to it’s stated social
benefit?
- What can you suggest to extend this business concept further,
which would benefit society or the environment?
Other factors influencing your decision:
What costs are likely to be involved in running this business and is this realistic for me? (We
will revisit costs in more detail later)

Can I afford this?

Some type of business will obviously be

out of reach initially!

Probably better to start small and work your way up!

 Once you have decided
what products or
services you will sell,
then:

Step 2: Identify
the
characteristics of
your target
market

• Age?

• Gender?

• Income/Socio economic
background?
• Their spending habits?
ie. does your target market like to spend a lot of money or are they more likely to be a
thrifty consumer?
do they buy regularly or less regularly?
what type of retail outlets are they likely to buy from?

• Their likes/dislikes?
Cater for your market’s preferences and avoid what they hate!
Eg. Probably no point in advertising in the newspaper, if your business
which targets young people, because they generally don’t read newspapers!
Advertise on social media platforms instead, which they regularly use.

• Lifestyle & any complimentary goods or services?

Eg. Many businessmen play golf. See if you are selling golf clubs, you may
advertise in magazines such as BRW (Business Review Weekly), which many
businessmen read.
Eg. A hot dog stand outside the football stadium will capture patrons as they leave the match
Step 3: Decide on the possible location of your business
What factors might influence your business location?

*Proximity to your target market.

Be close to where your customers are!
Eg. When Ripcurl started, where did they locate
their wetsuit business?
Torquay – right where the surfers go!

Eg. Jewellery stores and expensive

clothes shops in Toorak.
*Proximity to major arterial roads
If your customers are likely to drive
to your business then it will be
advantageous to be located on a
main road for easy access & for
passing trade
(customers who notice your business
because they are passing by it)
*proximity to public transport routes
ie. make it as easy as possible for
your customers to get to your
business.
Don’t assume that they all have a car
or can drive!
Look at all the food courts available
near Melbourne Central station!
*proximity to car parking
Once again, the easier it is to
get to your business, the more
likely that customers will
come!
If there is plenty of available
car parking either next to, or
near your business, this is an
advantage!
*proximity to suppliers
For some types of businesses, it will be
more important to be closer to suppliers,
than customers.
Why?
Because a major cost may be transport of
raw materials, which can be a major cost
for some businesses (ie. manufacturing), so
this can keep costs to a minimum.
Eg. Ford as developed the concept of a
business park, so that some major suppliers
can be right next door to them.
*Proximity to complimentary
businesses.
What are complimentary business?
Those businesses, who sell products
or services that support what your
business does, or which support the
major business interest in that
location.
Eg. Pubs are often located closed to
major football or cricket stadiums,
where sports patrons can have a
drink before or after the match!
Student Activity:
Locating a Small Business
(Folio Exercise for class
or homework)

*Please distribute the exercise ‘Locating a Small

Business’.

1. Students need to mark on the map

in coloured pencil or pen, where they
would put all of the listed businesses.

2. Justify why you have located each business

in the exact location you have, taking into account
all the factors influencing location, that we
have looked at.
Step 4: Conduct market
research

Why is this necessary?

Because you need to
know whether your
business idea is likely to
generate enough
customer interest for you
to eventually make a
profit!
Methods to research
your market may
include:
*Designing survey questions to ask potential
customers.
What type of questions do you ask?
- What sort of features are you looking for in
this product?
- What price would you be prepared to pay for
that
product/service?
- What type of quality do you expect for that
price?
- What improvements would you like to see in
existing similar products?
- How important is the right packaging for you?
- What strategies would entice you to buy this
product?
Other methods may include:

*Produce a small sample of the product to ‘test’

potential customers to see what they think.
This type of market research is
more practical and realistic!

*Spend time observing the competition!

Here you could spend several weeks or months
looking closely at what your competition does.
You may even to decide to work
for a competitor for a while, to learn the finer points
of that industry first, before starting your own.
(Note: Some businesses make you sign confidentiality
clauses in your employment contract)
• Once you have taken Steps 1 to 4, if the
results of your market research were very
positive, you could then take more
serious steps to get your business
underway!
• (We will examine Step 5 onwards)

• However, if your market research results

were negative, then you may need to
seriously reconsider your business idea!
• (Better to rethink now, than waste a lot of
your own money!)
Step 5: Develop a professional Business
Plan

Your Business Plan needs

to be done really well
because bank managers
will want to see it, if you
are thinking of applying
for a business loan.

So what do you include in

a Business Plan?
Key Features
of your Business Plan:

(We will cover each

feature separately)
Key Features of your Business Plan

1. Executive Summary
This contains a one-page nutshell of
your mission, your vision & your purpose.

2. Target Market
Who are your products/services intended for?
Include the results from your Market Research.

3. Competitors
Define your competitors: their strengths & weaknesses.
Determine your competitive advantage: How are you different?
4. Human Resources
Will you need additional staff to help you run this business initially?
You may decide you can do it on your own to begin with.

What will you pay them? Can you afford this? What is the award wage for that
type of work?
What skills & experience do they need to have? Could you train them?
5. Vendors/Suppliers
Does my business require regular supplies?
ie. raw materials, food, paper, components, machinery, etc?

Relevant questions to find out from possible suppliers?

• What quantity of supplies do I need for a certain period?
(Remember to start small to begin with)

• What price can they charge me? Negotiate!

• When do I need the supplies by?

(Timing is critical because you can’t keep customers waiting!)

• Are the supplies the right quality that you need?

6. Marketing Plan
Key Questions:
• How will you get your products/services
in front of your clients/customers?
• What are the best ways to communicate
your message to them?
Your Marketing Plan will include all the strategies
you use to help your products/services sell, along
with the results of your market research (Step 4)

This can include:

* Product design with features customers want
* Locating your business close to where your customers are
(already covered in Step 3)
* Setting the right price to attract your target market
* Choosing the right forms of media to promote your business
* Choosing the right retail outlets to distribute through if you
if you are a manufacturer or wholesaler.
7.Operations
How will you actually run your business?
ie. how will you manage all your inputs, processes and outputs?
What is the most efficient or effective way to operate?
This will very much depend on what sort of business you will run
& what skills, resources and expertise you have available to you.

Relevant considerations here may include:

- Developing a reliable supply chain
- Working out the best store layout
- Training staff to specialise or to be multi-skilled
- Working out the most efficient production methods
- Ensuring your have reliable IT systems in place
- Keeping track of your income and expenses
8. Financial Projections
Key Questions:
• How much start up capital you will need
to start up your business?
This may include money for:
- Lease of a shop
- Initial purchase of stock
- Equipment you will need
- Advertising costs
- Obtaining a government licence to operate
• How much working capital will I need,
to keep the business running? ie. per month?

Regular expenses here will include:

- Bills to pay ie. utilities, council rates, lease
- Wages to any employees you hire
- Advertising costs
- Replenishment of stock
- Loan repayments
- Insurance
Will my income cover all my expenses?
All businesses aim to make a profit.
What is a simple definition of profit?
Answer: The excess of revenue minus expenses.
The revenue of a business is primarily generated through
income from sales.

But will you be able to generate enough sales to cover

all your expenses?

The reality is that many businesses during their

establishment phase, will not be able to earn enough
income to cover all their costs!
This means that your business is likely to run at a loss,
at least for a while.
You will therefore need to tap into your savings to cover this loss or
you will need to obtain finance (ie. a business loan) to cover yourself.
Your Business Plan needs to conservatively estimate
your realistic monthly sales projections for the first year of operation,
as well as your expected monthly expenses,
so that you can calculate monthly profit/loss.

Any bank manager will want to see

all of these calculations, as part of your
Business Plan.

This brings us to the end of the Business Plan.

We will now proceed to Step 6 in Starting a Business
from Scratch.
Student Activity: Planning a Business
(Folio Exercise for class or homework)

Go to the 10 Eco/Bus site of Canvas and find under Topic One on

Business Entrepreneurship the exercise entitled:
‘Planning a Business’
Please print and complete the 3 questions plus the crossword on the
second side of the Handout.
Step 6: Obtaining
a business loan
Some people prefer to borrow money from
family or friends.
What are the risks in doing this?

If you think you will need to obtain finance from

a financial institution, there are a wide range to
choose from.
ie. banks, finance companies, building societies,
credit unions.

You will need to organise an appointment with

a loans manager from one of these institutions.
Bring your completed Business Plan.
You will need to find out the
following information from the
financial institution:
*How much can I borrow?
(This will be based on what you have already calculated
for start up capital and working capital)
* What size deposit will I need to obtain this loan?
* What period of time do I get to pay the loan back?
• Is a shorter or longer period better? Discuss.
* What type of interest will I be paying?
ie. fixed or variable rate?
• Which is better? Discuss. (See next two slides for more detail)
* What will my monthly repayments on the loan be?
* How will this affect my cash flow?
* Who can I get to act as guarantor for the loan?
Fixed versus Variable Interest rates
Which is better?
Well, it depends on a number of factors in the future,
which can be hard to predict?
1.Firstly it depends on what period of time you will pay the
business loan off by.
If you pay it off quickly, and the variable rate is lower than the fixed rate,
then the variable rate would be better.
Likewise, if the fixed rate is lower than the variable rate, then it would be better to be on a fixed rate.
However, you need to remember that the bank you borrow from is also a business, and so they will not offer you a
very low fixed rate for very long.
Why not?
Because the bank would be losing too much income from you, if their fixed rate is too low.
They could have been charging you higher interest, so they will only offer you an attractive (ie. low) fixed rate for a
short period of time – perhaps one or two years. After that, the fixed rate is likely to rise.
The longer period that you want to borrow for, the higher the fixed rate will be, since it is harder to know with
certainty what variable (ie. market rates) will be in the longer term
Eg. If you wanted to lock in a fixed rate of interest for the next 10 years, then you will pay a higher fixed rate than if you
borrowed at a fixed rate for 3 years.
When running a small business, you also do not want to become
obsessed with just paying off the loan so quickly, that you are
starving your business of important cash flow, through higher
monthly repayments on your business loan.
So a more sensible approach would be to take the loan out over a
longer period of time, to avoid monthly repayments robbing your
business of cashflow.
It is effectively a balancing act between paying off the loan and keeping your business running effectively!

2. Secondly it depends on what happens to variable interest rates

over the time of the loan, and this depends on economic factors
and how the Reserve Bank responds.
Interest rates have been relatively low for many years now!
Will they continue to stay low?
Probably, in the short term.
In the longer term, who knows?
In the end, there is probably not a great deal of difference between going for a variable rate and a fixed rate!
Student Activity: Comparing Fixed versus Variable
Interest rates
(Folio Exercise for class or homework)
• Students are to research & compare
fixed interest rates versus variable
interest rates over the last 10 years in
Australia, to find out if you would have
been better off on a fixed rate or a
variable rate.
*When making your comparison,
please include relevant graphs and a
clear written conclusion in your response,
referring to specific periods of time.
Financial security or collateral will also need to be
provided to the bank.
What is collateral?
These are the assets that must be forgone to the
bank, if you default on your loan obligations.
Entering into a business loan, is a legal contract.
The bank will acquire these assets, if you are unable
to meet your business loan repayments.
So you will need someone to act as guarantor for this
loan, if you do not have sufficient assets to cover the
full value of the loan yourself.
Your guarantor will firstly need to agree to sacrifice
their nominated assets, if you fail to repay the loan.
What assets will be sufficient to more than
cover the total value of the loan?
Usually, the value of a house and other
significant assets. ie. an expensive car, other
property, significant shares.
So the bank really doesn’t take much risk in
providing you with such a business loan – you
take the risk!
Or your guarantor does!
Perhaps a family member of close friend may be
prepared to act as your guarantor.
Again, there are risks in involving family or
friends!
Step 7: Lease or purchase a business premises
Now that you have obtained the necessary sources of finance for your business, you are now in a position to decide
whether to lease a premises or whether to purchase a commercial property, depending on what type of business it is.
ie. is it a shop, a small warehouse, a small factory, an office, a mobile business, or one that just really needs a website.

It would be probably wiser to try and lease a premises, until you know how successful your business will be, unless you
can simply run your business from home.
You can always consider purchasing a commercial property to run your business from later on.

You will need to research the cost of leasing commercial premises!

Once again, the better locations will be more expensive!
What can I actually afford within my budget?
Step 8: Obtain any relevant licences to operate your business
Many businesses will require a special license to operate in that particular industry.
For example, hotel proprietors will require a liquour licence, in order to sell alcohol under the Liquor Control
Reform Act 1998 (Vic), and if poker machines were to also be available, then a gaming licence would also be
required.
Other types of businesses commonly requiring licences to operate include:
- Any business selling food, beauty products, tobacco, broadcasting, aviation, nuclear energy

Remember that you will be breaking the law, if you operate without the necessary government licence!
Step 9: Obtain the necessary supplies & equipment
As you have already researched possible suppliers (see Your Business Plan), and found out the relevant
information, it is now time to place your first orders of necessary stock, as well as any equipment you need.
ie. computers, cash register, printer, mobile phone, desk, specialised tools for your type of business.
This could be based on:
- Customer orders you have already received
- Estimates of how much stock you may need for your first few weeks of operation
- It will be essential to develop a good relationship with your suppliers! They can make you or break you!
- It is also important to monitor your stock levels, as this can help you estimate future stock purchases
(although seasonal factors may influence your sales, and hence your supply needs.) Discuss.
Step 10: Register your Business Name
In order to stop other businesses from using your own business name, It would be wise to register the
business name you have created!
Register your business name with the ASIC (Australian Securities Investment Commission)
What restrictions apply to use of business names?
* Names already in use
* Names similar to existing businesses in that industry
* Names containing offensive words
* Names of existing governments or royalty
* Names that are misleading as to the function of that business
ie. purporting to be a charity if you aren’t one.
Student Activity: Critical issues in Success/Failure
of a business
(Folio Exercise for class or homework)
Go to the 10 Eco/Bus site of Canvas and find under Topic One on
Business Entrepreneurship the exercise entitled:
‘Critical Issues in Success/Failure of a business’
Please print and complete all questions on both sides of the Handout.
Student Activity: Design your own business names!
Divide into pairs and think of your appropriate business names for the following types of
small businesses, keeping in mind the restrictions we have just looked at:
a) a bakery
b) a hardware store
c) an Indian restaurant
d) a music store
e) a computer retailer
f) a legal firm
g) a medical clinic
h) a health food retailer
i) a chemist
j) a sports store
Step 11: Patent your designs or inventions
It will be worth considering patenting any specific designs or inventions that you have created!
What is a patent?
This provides an inventor with a government authority conferring a right or title for a set period, especially
the sole right to exclude others from making, using, or selling an invention.
However, obtaining a patent is often very expensive and may cost several hundred thousand dollars!
The law is also very restrictive on what you can obtain a patent on.
For example, you can only protect your very specific design but not the
product in general.
Step 12: Advertise and start trading!
Before you open for business, it will be worth considering the best ways to advertise your business, in order
to attract customers. (See Step 4 and also your Business Plan point 6)

You may think about the best places, forums and places to advertise your business and what is the best way
to get your target market’s attention!

Methods of advertising?
*word of mouth
*local & daily newspaper
* Social media platforms ie. Facebook, Twitter, Instagram
* T.V. & cinema
* Radio
* sponsoring local clubs
*posters, pamphlets, billboards
Important considerations when advertising!
1. Choose the right media form for your business.
There is no point going on national television to promote
your business, which is operating only in the local area!
Local businesses should focus on only local forms of advertising.

2. Grab the attention of your target market!

There may be lots of ways to do this.
Common techniques include:
- A sale or special promotional deal
- Sex appeal
- Use of a comical character or musical jingle
- Use of key statistics for the educated consumer
- Appealing to a sense of indulgence
Student Activity: Persuasive Advertising
(Folio Exercise for class or homework)

Watch YouTube video clip (13min 27) :

Types of Advertising Appeals & Great examples of Top Brands
• https://www.youtube.com/watch?v=vpwYsGUWIT8
1. Ask students to take notes of the 23 categories of
advertising appeals
2. Ask students to collect 6 different examples
of advertisements (either in electronic
form or hard copy) and to provide an explanation
of how that advertisement attempts to persuade
the customer to buy that product.
3. Consider the timing & frequency of your advertisement!
Consider the best times to advertise!
Time of the day? Eg. Drive time on radio, evening news
Time of the week? Do you want to coincide with an event?
Time of the year? Seasonal factors to consider?
Current events in the news?
Is there something you could take advantage of or avoid at the
moment, which everyone is talking about?
Also, consider how frequently you need to remind consumers
about your product.
Repetition can influence consumer psychology!
However, repeating messages is expensive!

4. Consider how much the advertising will cost you!

Advertising is usually very expensive, particularly for
larger media platforms.
Can you afford to pay this and how many customers
might be generated from this advertising?
Open for
business!
Once you have followed all of these steps
thoroughly, you should be ready to open your
business!
*Remember, those who fail to plan their business
properly, plan to fail!
*Of course there will be lots to do, after you have
started. You will need to treat customers well and
keep them coming back, called repeat business, as
well as attracting many more!

*There will be taxes to pay, staff to keep happy &

hopefully you will eventually make a PROFIT and
benefit society at the same time!
Student Activity: Setting the wheels in motion
(Folio Exercise for class or homework)

Go to the 10 Eco/Bus site of Canvas and find under Topic One on

Business Entrepreneurship the exercise entitled:
‘Setting the wheels in motion’
Please print and complete all 8 questions on both sides of the
Handout.