(OT) Advice on setting up your own business (Australian point of view)

This isn't strictly related to Perl but it is something that comes up regularly. flyingmoose's question about leaving corporate America made me think of some advice I've given to some other people (via email) along the way.

I can't recommend or recommend against anyone starting up their own business. It's a decision only you can make. Having said that, I worked as a contractor doing fixed prices software projects for most of my university education. I then assisted in starting up a consultancy with some friends, got bored of that and went to work for the same university I studied at. Now I'm working full time with my husband in our own consulting company created when we found we were going different directions than the other friends in the previous consultancy.

I love working for myself.

The industry is different in Australia and the legal requirements on Australian businesses are bound to be different than they are in the USA. They may even vary from state to state for you like they do here. I've written the specifics about doing this in Australia because that's what I know. The general ideas should still apply.

If you DO decide to start up your own business my advice is below.

Australian centric acronyms

ABN - Australian Business Number, every business has to have one and place it on their invoices etc.
GST - Goods and Services Tax, a flat 10% on all non-exempt goods and services which must be included in quotes and remitted to the goverment reguarly.
BAS - Business Activity Statement, a quarterly business report telling the government/ATO how much GST has been collected and remitting it.
ATO - Australian tax office

A. Get an ABN and register for GST.

You have to get an ABN if you don't want other businesses dutifully keeping 48.5% of the monies you charge them. If you're likely to be invoicing within 28 days of getting your ABN then make sure you follow up your application with a phone call to the ATO and ask for a "safety net letter" until your ABN arrives. Best to do this immediately. Go do it now, I'll wait. ;)

http://www.ato.gov.au/

Why register for GST when you're not going to earn $50k+ this financial year? Because filling out BAS forms is EASY** and being able to claim back the GST on all of your setup stuff is wonderful. Need a new printer? 10% discount. Need a new monitor? 10% discount. Need a pda? 10% discount. Business cards, trading name registration... 10% discount. Not to mention that keeping the ATO's money for up to 3 months at a time can be a nice way to gain a little more interest (which you'll be taxed on, but not the full amount) :) .

You're an IT professional. That means you pretty much get to claim back GST on anything with electrons in it. :) (Seriously).

It's easier, in my humble experience ;) to register for GST at the start than later down the track too. It should make your book keeping and invoicing easier too. Businesses expect to be charged GST and think it odd when they're not.

** - It's easy if you keep up your book keeping and if you set up your books properly. Contact your accountant for advice on that.

B. Start up as a sole trader.

It's easy, it's just you at the moment and sole traders can employ people anyway.

Companies are a pain in the arse. A necessary pain in the arse however when you start earning too much money. Companies are good because they only get taxed at 30% and you'll reach the point where you're being taxed at the maximum rate pretty quickly. Companies let you pay yourself until you reach the 30% tax bracket and then stop (if you're happy living off that amount of money). Companies need a minimum of 2 people however, so that might be down the way a little.

C. Register a business name.

Become "XYZ trading as You" because XYZ is going to sound a lot more official and company like, and companies like to deal with companies (or at least they like to feel like they're dealing with companies).

Business name registration is fairly cheap and the hardest bit about it is waiting in the queue at the appropriate office for an hour. ;)

C.a. Register a domain name and set up an MX.

you@xyz.com.au looks a lot better than you@hotmail.com for example. If you can run your own servers then set up every alias you can for your name too. you.last, you, last, nickname...

Webpages are good. Even just a 2 page webpage is better than nothing:

This is who XYZ is and what XYZ does
This is how to contact XYZ.

D. Keep good books.

If you're a sole trader then 100% of the profit of your business is yours. Spend it or invest it but record it. If you're obsessive like my husband and I you'll already keep all of your receipts and will already reconcile your credit card statements, bank accounts etc every month.

If you're not, then it's about time to finally get around to that. It's hard to claim back your GST on something when you can't find the receipt or have forgotten that you made the purchase. Gnucash isn't set up for GST magic but it is a damn fine accounting package and handles double entry accounting very nicely. If you're not sure how to handle your books then it might be a good time to pop down to the library and borrow a few books on accountancy theory just to give you the gist of the idea. If you want specific ideas on categories and accounts ask your accountant.

E. Keep good books.

No, seriously, this has to be repeated. If your books aren't well kept then BAS statements are a complete pain. If your books aren't well kept then your Tax return is a complete pain. If your books aren't well kept being audited is a complete pain.

F. Keep good books. I recommend GnuCash, but if you're lazy, give the ATO's free book keeping package (e-Record) a go. http://www.ato.gov.au/erecord (MS Windows only I'm afraid).

G. Design, or pay someone else to design you business cards, letter head and any other paper stuff you might need.

It's a little expensive but don't forget your 10% discount from the ATO. :) A good business card doesn't guarantee you'll get more work, but it's something you can feel confident giving out at your next industry event. :) Printing invoices onto nice business letterhead looks much better too.

H. Get public liability insurance.

Someone's going to need you to have it sooner or later and it helps lessen the risk of you losing everything when something goes wrong.

I. Plan to make a loss this year.

Or at least plan to spend more money on GST than you bring in (the ATO will pay you back anyway). Setting up a business is expensive. You can put off some of the expenses, but by and large I don't recommend it. Sure, wait a few months before you buy that huge monitor (unless your old one is unusable) and wait a bit before you upgrade your machine or replace your printer, if you can, but plan to spend money on stationary and paperwork and a fax or scanner...

J. Get a separate business account from your personal account.

You don't have to of course, but it should make book keeping easier. Get it in the name of "XYZ trading as You" too, so that you can ask your clients to make cheques payable to XYZ and still be able to bank them. Try to make sure that all business _payments_ go into this account. Where your _expenses_ come from doesn't matter as much. Pay for things from whereever you have the money, but don't forget to record it.

K. Don't cheat.

Really and truly. Don't accept cash payments "under the table" to avoid charging GST. Charging GST is a good thing for you (assuming you don't spend it) and it really makes the book keeping a pain. Extra pain of course if you get audited too.

Remember that paying GST isn't a huge burden on you either. You'll get it back on business purchases. When it comes to your personal stuff (non-business) that's your business.

L. Don't spend the ATO's money!

Invest the GST you collect in a high interest paying account. Invest the tax you're going to have to pay at the end of the year in a high interest paying account (the same one) (there are many tools for working out how much your tax liability will be, ask your accountant if you want some pointers). Or don't invest them if you can't be bothered. But whatever you do, DON'T SPEND THE ATO'S MONEY! Many, many small businesses go into debt not because they can't pay their week to week bills but because they foolishly spend the ATO's money. The ATO doesn't respond in a very friendly manner to that kind of thing.

If you earn $60k next financial year you're going to need to set aside $15k for tax....

M. Consider offering scaling prices.

Something like the following perhaps?

               For period a - b (20 week period)
        Minimum number of hours         Price per hour
        20                              $100
        40                              $95
        100                             $90 
        200                             $80
[download]

And write it into your contract that the minimum number of hours will be charged even if not all used (we've never not used all our hours), extra hours however will be charged at the same rate until the end of the contract period. What this does do is give businesses an incentive to a) tell you how much work they think they have for you and b) give you more work.

Pick whatever prices you want, of course, but support contracts like this for 6 - 12 months let you have a very good idea of what your minimum income is going to be.

Remember to charge clients for the time you spend on the phone with them when they ring up because they "have a quick question". Charge clients for the time you spend emailling answers to their questions.

N. Put all of your clients on contract if you can.

On the other hand some of our best clients have refused support contracts and are still real gems.

O. Get a job tracking system.

We like RT. There are other options out there. Set up aliases so that support-abc@xyz.com.au goes to your abc queue and support-qrs@xyz.com.au goes to the qrs queue. This will help you keep jobs for your different clients separate. Try to keep everything in your job tracker. Record your phone calls, bounce emails sent direct to you etc. Think of it as two things:

a good way to keep all things about any particular task in one place for easy finding
a great way to cover your arse. (I explained in email on the 5th of Never that this, that and the other thing would probably go wrong if you chose option c....)

I'm serious about this. If you speak to a client on the phone about anything remotely serious send them a follow up email reiterating what you spoke about on the phone. Write something at the end to the effect of "if you feel I've missed anything importantat or misunderstood anything from our phone call please feel free to add your own comments". Then you can point to the fact that they didn't do that if anything goes ugly.

P. Declare conflicts of interest as soon as you spot them, sooner if you can.

Consultants get a lot of their work from word of mouth. This can mean that you might end up working for one of your client's clients. Sometimes this is okay, but sometimes it isn't. Consider the following case. Client A has been a good client for ages and recommends your services to (their client) Client B. Client B asks your professional opinion about alternatives to the service that Client A provides them. It is in Client A's interest that you say they should stick with Client A. It may well be in Client B's interest that you say that this other option might suit them better. In this case it is our policy to say that due to our relationship with Client A it would not be appropriate for us to advise them on that matter.

Q. Expect to waste some days on email and web browsing.

Working at home, alone can be boring. Sometimes your email, or favourite websites can be much more attractive to spend a few hours on than your clients' projects. Some of this is okay, you need to balance it.

R. Don't forget to go home at night.

It's very easy to spend 60+ hours a week "at the office" just getting this last thing done. Go home. Don't work on weekends. Pick a time at night when you don't work after. Try to maintain a balanced and normal life, because being a consultant will slurp up every hour you give it.

S. Take days off occasionally.

Not days in the office when you do nothing. Plan ahead days off in advance. Get out of the house. Go shopping if you like that, or walking or swimming or visiting friends or go see a movie. Spend all day on the couch with a good book. Anything that makes you feel like you've had a really good mental health day. Plan these days or they won't happen and you'll spend longer and longer reading the news, surfing the web, replying to email and not working each day and feeling terrible about it.

T. Give yourself holidays.

Plan to take off a week or two around your religious or seasonal celebrations. If you like to go home for New Years let your clients know by November 1st that you will be out of contact from xth of December to xth of January. If you don't plan these holidays in and let your clients know about them in advance then people will feel awfully put out when they call you on Dec 29th desperate for your help and you tell them you're on holiday.

Make sure that you remember that you're planning these breaks when you do your project scheduling. Don't say "the project will take 10 weeks so it'll be finished in 10 weeks time" if your calendar has you in Fiji for 2 of those 10 weeks. I've seen this happen, I've done this myself.

U. Be cautious when considering hiring new people.

If you want to hire someone because you're at 120% of your capacity you're choosing a bad time to do it. We've been burnt a few times trying to do this. You need to be at about 60% - 70% of your maximum capacity. This will give you enough free time to babysit your new employee for a few weeks until they understand what you need from them and you know how well they'll be able to do their tasks. Hiring people is expensive (in time mostly). You'll need to have almost a whole 40 hours free to advertise, screen, interview, decide and trial.

Remember that "small business shock" is very real and very much a problem. Hiring a good friend who's only every worked in big corporates to come and help you in your one person business may result in a severe case of "small business shock". In a small business there is no slack to get things wrong, there's no clearly defined tasks or sections of code responsibility. People working in a small business have to be across everything and there aren't numerous managers and co-workers to heap praise upon you. There's often just a very frazzled employer who wants you to bank this, drop this off, code this, test that and contact that other client... If your employee isn't expecting all of this they'll probably up and leave on you, which is even more expensive than if you'd gone through all the employee hunting and hadn't found anyone. It's more expensive when you've taken on work that you intended to give to them and now you're stuck with all of it. We had one full time employee resign after 3 days to return to a business she'd told us she hated.

V. Expect holidaying friends and family to drop in on you "just for lunch" and stay all afternoon.

I haven't got a good suggestion of how to get rid of them either. Try to get everyone to understand that you really are busy even though you're working from home and that you really do have to get things done. This tends to reduce the frequency of this kind of thing.

W. Have fun.

Running your own business shouldn't destroy your life. You probably won't be able to "only work a couple of hours a week and have enough to live on", but you should have fun working your 60+ hours a week. ;) It's hard work and sometimes you'll really hate your clients, but take satisfaction in the fact that you're working for yourself.

It can be very profitable.

X. Check your finances.

Being in a full time job tends to give you a very secure financial situation. You may find that you voluntarily spend all (or more) that you earn but you usually have enough to get by and you get paid holidays, sick leave etc. Banks like people with full time jobs. They're safe to give loans and credit cards to.

Being a consultant tends (at least at the start) to give you a very insecure financial situation. You can be left begging the clients to pay on time so that you have the money to pay for your rent/mortgage/food/bills. Banks don't like people who are self-employed (or at least ones who don't have 2+ years of financial records of being self-employed). These people are too much of a risk. If you have a full time income at the moment, now's the time to get yourself a credit card.

We went into consulting with enough money to live comfortably for 9 months even if noone paid us anything. Not everyone can do this, but it is the recommended approach. If you're desperate for money now then life for the next few months, or year is going to be one challenge after another. This doesn't mean you can't be a consultant, but you have to realise that clients will be slow in paying their bills and that all of your bills will keep having due dates at the worst possible times until you're financially secure again.

If you've got a partner, it's probably better to have one of you working full time and one of you consulting for the first while until the consultancy is up and running and you can afford to lose the full time income.

Y. When a client starts having trouble paying give them _shorter_ due dates and harsher penalties rather than more time and laxer penalties.

Invoice them more often (weekly if necessary) so that each individual invoice is smaller. Invoice them on tasks that are still in progress rather than only jobs that are completed.

When I say harsher penalities get them to sign a contract that says that they

understand that you will stop all work for them the moment they're overdue.
understand that you will charge them interest at <a given> rate from the day the invoice was served if they're ever overdue
understand that you will report them to a credit defaulting agency if you feel that they're unlikely to pay.

Why? Because clients who are having trouble paying are a HUGE risk! Giving them more time, or being more lax about things means you're probably going to be paid last and then only if there is money remaining. Threatening to stop all work and charge them interest will make them pay you first. This way you don't get ripped off.

Z. Be lovely to your clients.

If a client pays well and doesn't pester you too often and always sends requests to your request tracking system and does everything properly: reward them. Give them a Christmas present or Easter egg or birthday present or whatever might be appropriate for them. Give them a jar of jam you made yourself, or eggs from your free range chickens or invite them to join you at lunch one day when you're working on site and shout them.

Happy clients means a happier consultant.

One of the biggest requirements for successfully running your own business is self-confidence. Sometimes you have to fake your confidence. Do you shy away from the idea of calling a client and insisting that they pay you? Do you shy away from having to make calls to tell people bad news?

I certainly do.

But I still have to make those calls. I still have to look and sound confident.

The other requirement is, as someone said earlier, being damn good. It doesn't matter how confident you are if you can't pull off miracles when the clients need it. I'm regularly surprised about the obvious and silly mistakes I see people make because they don't know better. Learn better! Why write a 60 line Perl program to emulate wget?

If you're running your own business you won't get the slack cut you in a 9 to 5 job. It either works or it's your fault. If it isn't your fault you've forgotten what your job is. :) Never be afraid to take the blame for something wrong on a client's system and never be afraid to say you're not the best person to do some work.

I hope this helps

Jacinta

Update: Someone seemed to think that a title clarification here would help. Yes this is Australia-centric, hopefully it'll be useful to non-Australians too. :)

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