MY BUSINESS partner and I work full time and run a mobile application development business after-hours. What advice can you give on quitting our full-time jobs and taking the plunge to running the business full time? We want the business to be in a sound financial position and stand on its own two feet, but also support our incomes.
YOU'RE absolutely right. Before quitting your jobs and jumping into a start-up, you want to make sure that your decision will support you. There is nothing worse than choosing to follow your passion and ending up in distress over a bad decision. Also, never lose your cash flow! Too many new business owners end up buying themselves a job. Here's what you need to ask yourself:
What is the part-time turnover compared to your current income?
Will stepping up operations subsidise your current pay?
Do you see growth within your existing client base?
Will running the business full-time mean you'll need to expand, and if so, are you prepared for the associated costs?
Starting a business is more than just a full-time job. Are you prepared for the extra hours, responsibility and risks?
Are you both fully committed to the business and on the same page?
In the event that your plan doesn't work out, do you have savings that you can rely on?
The current market is a tough one to start a business in, so the most important thing you can do is be prepared. Take the time to create a proper business plan that takes all costs into consideration, from equipment and operations through to marketing.
Do a competitive analysis to ensure there is enough demand in the market for your service. Mobile apps are huge right now but with popularity comes competition. Look at all aspects of the market and your own strategy before taking the plunge.
I own a modern Middle Eastern cafe/restaurant. We've been in business five years and have a loyal client base. I own 50 per cent and two non-operative partners each own 25 per cent. The business is debt-free, has consistent revenue growth of 15-20 per cent per annum and is making an operating profit of 8-10 per cent. We want to expand and need $400,000-$500,000. The company directors are prepared to re-invest $200,000 and we've begun to seek finance for the rest. Do you have any advice?
Banks aren't that receptive to cash flow loans for small businesses at present but yours sounds like a good one. However, it may be tough to get a large lending institution on board. Going back five years, business owners had an easier time getting access to finance because the banks were making lending decisions locally, and the bank manager often knew the applicant.
Now that many banks have centralised their decision-making process on a corporate level, there isn't as much personalisation and trust and the "man on the ground" manager has less authority.
Your profit growth is great although your margin looks a bit low, so it might be a good idea to look at how you can boost your business before jumping into a second location. If you're set on expansion and are having trouble getting finance from the banks, you might look into private investors or private financiers but be careful with the latter.
If you don't have any debt and you own your home, you might consider taking out a loan against it, but that comes with its own risks. Your best bet might be to keep growing and saving and fund it yourselves.
Mark Bouris is the executive chairman of Yellow Brick Road, a wealth management company and small business adviser offering products and services for home loans, financial planning, insurance, superannuation, investments, accounting and tax through its national branch network.
www.ybr.com.au
If you have a question for Mark Bouris, email it to MySmallBusiness editor Larissa Ham at lham@theage.com.au.
Frequently Asked Questions about this Article…
When is it realistic to quit a full-time job and run my mobile app development business full time?
Consider quitting only after you’ve compared your part-time turnover with your current income, confirmed that stepping up operations can subsidise your pay, identified real growth within your existing client base, and assessed whether expansion costs are manageable. Also make sure you and your business partner are fully committed, prepared for extra hours and risks, and have savings to rely on if the plan doesn’t work out.
How important is cash flow when taking the plunge into a start-up?
Cash flow is critical — the article warns never to lose it. Many new business owners end up “buying themselves a job” when cash flow dries up. Keep regular operating cash flow front of mind and only scale when you can cover ongoing expenses and personal income needs.
What should I include in a business plan before quitting my job?
Create a proper business plan that accounts for all costs (equipment, operations, marketing), forecasts revenue, and includes contingency savings. The plan should also contain a competitive analysis to test demand and a detailed assessment of whether stepping up to full-time will cover your income needs.
How do I assess market demand for a mobile apps business before going full time?
Do a competitive analysis: examine the size of demand, who your competitors are, how crowded the market is, and whether your service or niche differentiates you. The article notes mobile apps are popular but competition is high, so validate demand across all aspects of the market and your strategy first.
What financing options are realistic for small-business expansion like opening a second cafe location?
Traditional banks may be tougher to work with now, especially for cash-flow-based loans, because lending decisions are often centralised. Alternatives mentioned include private investors or private financiers (exercise caution), using home equity (understand the risks), or continuing to grow and save to self-fund the expansion.
Should I work on improving margins before expanding my business?
Yes. The article suggests that even with strong revenue growth, a low profit margin could make expansion riskier. Consider ways to boost profitability and operational efficiency before committing to a new location or major expansion.
Why are banks less receptive to small business loans now and what does that mean for entrepreneurs?
Banks have centralised lending decisions at a corporate level, reducing local manager discretion and personal relationships that previously helped applicants. That makes it harder for small businesses to secure large cash-flow loans from major banks, so entrepreneurs may need to explore other funding routes or strengthen their financial case.
Who provided the advice in the article and where can I get more small-business help?
The advice comes from Mark Bouris, executive chairman of Yellow Brick Road, a wealth management and small-business advisory firm. For more information the article references Yellow Brick Road’s website (www.ybr.com.au) and notes readers could send questions to the MySmallBusiness editor at lham@theage.com.au.
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