Running a business from home

[Lost Redditor]

I'm going to assume someone here is savvy on this topic.

I'm helping my partner set up a business (sole trader) that she'll run from home to begin with, and I'm looking into insurance requirements, bookkeeping, advertisement and the like. Neither of us have run a business before. We plan to see a local business adviser once we're back in Aus as we're away on holidays right now. Right now I'm just brainstorming whilst the baby is napping.

I'm a numbers guy and a professional software- and web developer so I'll handle setting up invoicing and finance software etc (will get accountant first year though) as well as run the website.

The business will be a simple singing- and piano teacher gig that she'll run out of a purpose-built music room in our house. Clients will be entering our house for lessons.

So far I have a basic checklist:

• Register ABN
• Register Sole Trader with company name
• Get Accident and Liability Insurance
• Professional indemnity insurance?
• Talk to accountant
• Get biz phone number
• Get invoicing software (looks at Xero, Invoicely, Quickbooks, MYOB)
• Advertisement
  
  • SEO
  • Google ads
  • Flyers
  • Social media
• Improve website
  
  • SEO
  • Google analytics
  • Theme
  • Content
  • Dynamic content creation

I'm looking for advise from anyone who's ran a similar business in the past, anything to look out, and anything I might be missing. Anyone know what insurance might cost for this kind of simple business?

 

[harryhv]

1. Um, what's the a budget? Write a monthly budget and detailed daily plan for payments to suppliers (and yourself)
But remember, profit/loss is irrelevant, cashflow is the only thing that matters.
Prepare a 13-week forward cashflow spreadsheet, the single most important tool of any small business
2. Avoid the feeding frenzy of sharks who gather round any startup and tell you their service is essential eg
a) Advertising - give them nothing. You'll get your customers from word of mouth 90% of the time. Drop some notes in letterboxes if you're keen
b) Web Page - grossly overrated, mainly attracts vermin: competitors and time-wasters trying to sell you stuff
c) Insurance, Income Protection, Key Man Insurance blah blah, nah, save your money. Professional Indemnity is wildly expensive and just attracts vermin who want to sue someone, watch them fade away when you tell them you don't have the insurance. Make sure to tell your customers you don't have it and they can pay for it if they really want it
3. Success depends on winning the hearts of your clients and keeping them. Give them freebies, chocolates, whatever will keep them onside. If you have to cancel an appointment, give them double in return. Never put your own problems or suppliers ahead of the clients, so if a client calls just hang up on your supplier/family/whoever. Hold a massive Xmas party.

 

[Lost Redditor]

Thanks @harryhv, appreciate your input! She's only looking to serve a small set of clients, e.g. 8-12 lessons per week, and we're not terribly ambitious. She's a part-time stay-at-home-mum and so just looking to organically grow the business from local advertising, so we wouldn't be throwing money at that as such. Just some highly targeted google ads, e.g. specifically mentioning our suburb and "music/singing lessons" etc. And only when she needs new clients. As you said, word of mouth is 90%. Hopefully we won't need the Google ads at all.

Love the idea of freebies, I certainly love freebies when I'm a customer.

RE suppliers, I don't think there'd be any, other than perhaps musical notation books, song books, etc.

Good to know professional indemnity is unnecessary, seems expensive. I wasn't quite sure what it was, just ended up on my list to research.

As for budget, there aren't a lot of expenses in running a business like this as fas as I can see. We have a lot of equipment already.

But remember, profit/loss is irrelevant, cashflow is the only thing that matters.

Can you elaborate on this? Cashflow just means money in, right?

 

[downgraded]

Home and contents insurance - inform your insurer of the business operating out of your home. Your policy probably require you to tell them and it may well have consequences - people visiting the premises is the challenge. There have been recent examples of insurers refusing to pay out due to the failure to disclose if nothing else.

 

[Lost Redditor]

Home and contents insurance - inform your insurer of the business operating out of your home. Your policy probably require you to tell them and it may well have consequences - people visiting the premises is the challenge. There have been recent examples of insurers refusing to pay out due to the failure to disclose if nothing else.

Thanks you I do remember an article in ABC News about this now that you mention it

 

[MEL_Traveller]

Thanks you I do remember an article in ABC News about this now that you mention it

This!

It was the people ‘selling’ (bartering) eggs from the end of their driveway on a farm… invalidated their home insurance.

Ridiculous. But better to have the bases covered.

Professional indemnity insurance would be a ‘must’ if you were running some sort of hands-on or advisory business… where you could be sued for making a wrong decision or giving poor advice. I would talk to your insurance broker regarding your circumstances… they will have all the facts and risks and be able to tell you any pitfalls for or against.

 

[tgh]

Some good advice in post #2 but forget the cashflow, just start the process, kiss rules…..
Agree about the household insurance, also make sure the neighbours know who these people are coming and going.
Will the increased noise disturb anyone ?

 

[OrangeRoughie]

Home and contents insurance - inform your insurer of the business operating out of your home. Your policy probably require you to tell them and it may well have consequences - people visiting the premises is the challenge. There have been recent examples of insurers refusing to pay out due to the failure to disclose if nothing else.

This is very good advice, even be prepared for your home and contents insurer advising they are unable to cover your home because of this, which is ridiculous but unfortunately it is the way a lot of insurers are going.
As @MEL_Traveller says you don't need PI insurance, however, a stand alone public liability policy would be recommended, this should not cost more than a few hundred dollars. And as they also pointed out, speak to an insurance broker.

Local schools a good one to approach about her offering, from what I have seen specialist music teachers/lessons at schools is becoming less accessible.

 

[Mwenenzi]

Thanks @harryhv, appreciate your input! She's only looking to serve a small set of clients, e.g. 8-12 lessons per week, and we're not terribly ambitious. She's a part-time stay-at-home-mum and so just looking to organically grow the business from local advertising, so we wouldn't be throwing money at that as such. Just some highly targeted google ads, e.g. specifically mentioning our suburb and "music/singing lessons" etc. And only when she needs new clients. As you said, word of mouth is 90%. Hopefully we won't need the Google ads at all.

You are not starting a big Aussie nation wide business, employing many people and selling gazillions of items. Keep it simple and low cost.
Talk to an accountant. They have experience with setting up and operating a small business. A Pty Ltd company has on going costs if you want to go that way

• With 8-12 lessons a week (8-12 or less people?) could at the start, just do invoices on an excel spreadsheet. Will lessons be pre paid or invoiced~paid every week/month. Getting the $$ in the bank is everything.
• Depending on the state may wish to register a business name (as distinct from company name)
• Advertising on google seems over the top
• Having a separate business phone and email accounts works for some. Some~most small business owners have just 1 phone.
• Will need a separate business~company bank account . Keep business & private cost/money very separate. Same for business/private assets. Some small business operators do not--> not good.
• If claiming a portion of rates, house insurance, electricity, etc --> accountant. Ask about capital gains on your property.
• Public liability needed. And effect on home, contents & car insurance needs to be considered.
• As above professional indemnity *very* expensive and is about deep pockets and risk. In my (now closed) consultancy business told clients did not have PI. The funds my company's bank account would have paid the fees for an attacking PI lawyer for 1 minute. My personnel assets a little longer. No deep pockets. Only worked on one state govt project that wanted PI. They paid the full amount.
• I was the sole employee of my company, and as such paid state mandated workers compensation insurance

 

[blackcat20]

Also check with your council what the rules are for running a business from home. I run mine from our house, but cannot have customers on site.

 

[Hvr]

Looks like you may have students under 18 years old. You will probably require WWC and maybe even WWVP checks/cards for all adults who reside at your home.

 

[Seat0B]

For context, I’ve run a small adult education firm with mainly government clients since 1996.

Insurances
I also agree re PI insurance not being needed. This is the insurance you have in case a client suffers because of your negligent advice or service. I don’t really think this is likely to be a problem for piano teaching.

You DO need public liability (PL) insurance for peace of mind and it is quite cheap- I pay $600 year for $20 million coverage. This is the insurance you have in case a student trips up your front stairs and breaks all their teeth, jams their fingers in the piano lid and amputates one, or falls over a rug and gets a brain injury. Not very likely (although with kids ) but if it happens could cripple your family financially. So I would have this one for sure. Check with your House insurer because in some states, a low level of PL for invited guests is already included, but this will probably not include paying clients. And I second the comments about checking that this little business activity does not invalidate your home insurance.

will she use the car for business purposes eg going to shops to buy small treats for students, buying music, visiting potential clients, going to schools etc for demonstration days, etc? That too needs to be advised to the insurer. Thinks about the way you’ll claim for business use of car - you will need to keep records whichever way you go, so check with your accountant.

Business continuity, key man, income replacement, I agree not really needed in your circumstances

 

[stm1sydney]

Professional indemnity insurance would be a ‘must’ if you were running some sort of hands-on or advisory business… where you could be sued for making a wrong decision or giving poor advice. I would talk to your insurance broker regarding your circumstances… they will have all the facts and risks and be able to tell you any pitfalls for or against.

Don't talk to an insurance broker for advice on PI insurance because they will tell you you definitely need it when you don't. The business is just music teaching. No PI risk.

But certainly you would need public liability cover in case the customer trips and injures. Issues well covered by other commenters above.

 

[Seat0B]

Building a Business

this is the fun part!

first think about who your clients are. You may have 2 groups - the actual students and their parents if your students are children. So you need to find ways to encourage both those groups to come to you.

I’ve always found that a bit of generosity is a great investment- as noted upthread, people LOVE freebies. So get out and about a bit so people can “try before they buy”. Eg go to the local preschool or primary school once you have your WWVP card (tax deductible) and offer to run a free singing class/ activity for the little ones and their parents (make sure parents are invited, they are the decision makers) and make it FABULOUS. If you do that a couple of times, and send a simple, pleasant (not pushy) flier h9me, you will get business. Offer to do a session at a play group for the really little ones - maybe charge a gold coin per child just to get started. These kids will have older siblings that may want more formal lessons. Go to the local music shops and offer to play, for free, during their busier times - that helps the. Bring in clients and displays your skills - people buying pianos are highly likely to want lessons and if you are on the spot….wha5 about the local library- they no doubt do story time and might be open to a sing along op related to books eg dingle dangle scarecrow, Christmas songs, whatever - and again do a great free job and before long people will want to book you for birthday parties or private lessons.

see if you can get interviewed for a local radio/ newspaper. Those local rags are always after content and you just need a bit of an angle and they are keen - eg new mum starts local business, kids who sing are better at maths whatever but has to be truthful. This is a great source of name recognition and people will follow up.

I would be happy to offer any further advice I can, if it’s helpful. I’ve loved running a business. Just PM me.

 

[Seat0B]

Also visit this web site Grants and programs finder | business.gov.au

the Federal government offers a lot of support for start up businesses including to develop business and marketing plans etc and even if you don’t use these, the ideas are good. Many states also offer support.

 

[RooFlyer]

For accounting, I'd strongly recommend Xero (just ask @Pushka who converted from MYOB recently ). Very easy to use. Very difficult if not impossible to make a mistake that can't be rectified.

I ran my own business from home for many years but it involved much overseas air travel, hotels, outside expenses - much more complicated than your set-up - and I didn't have any 'book-keeper' or any similar. Just got my accountant's advice on how to set up the software (chart of accounts, bank feeds) and most of the 'data entry' was done automatically from linked business credit card# (expenses) and business bank account (receipts) feeds; accountant did BAS/GST returns (software in the cloud - they could access) or I could do . I withdrew funds from the business bank account for my living expenses (forget account treatment - repay director's loan??) then at end of financial year, accountant did a clean-up, converted loans to salary (I think - whatever it was, it was legal!!) and ended up the year with no business profit, so no business tax.

Will you need to register for GST? Probably not - life's much simpler that way.

Would advise not to claim expenses of work area of home against income tax - complicates things should you sell the house.

# with your own business, you probably know - a small 'business' credit card is really just a personal card (personally guaranteed) in the name of the business. Your partner's business may not incur enough expenses to warrant a credit card - any expenses it needs could probably be paid personally and accounted for as director's loans in Xero. I did that frequently when I didn't have my business cc at hand.

 

[downgraded]

For accounting, I'd strongly recommend Xero (just ask @Pushka who converted from MYOB recently ). Very easy to use. Very difficult if not impossible to make a mistake that can't be rectified.

I ran my own business from home for many years but it involved much overseas air travel, hotels, outside expenses - much more complicated than your set-up - and I didn't have any 'book-keeper' or any similar. Just got my accountant's advice on how to set up the software (chart of accounts, bank feeds) and most of the 'data entry' was done automatically from linked business credit card# (expenses) and business bank account (receipts) feeds; accountant did BAS/GST returns (software in the cloud - they could access) or I could do . I withdrew funds from the business bank account for my living expenses (forget account treatment - repay director's loan??) then at end of financial year, accountant did a clean-up, converted loans to salary (I think - whatever it was, it was legal!!) and ended up the year with no business profit, so no business tax.

Will you need to register for GST? Probably not - life's much simpler that way.

Would advise not to claim expenses of work area of home against income tax - complicates things should you sell the house.

# with your own business, you probably know - a small 'business' credit card is really just a personal card (personally guaranteed) in the name of the business. Your partner's business may not incur enough expenses to warrant a credit card - any expenses it needs could probably be paid personally and accounted for as director's loans in Xero. I did that frequently when I didn't have my business cc at hand.

This post highlights one of the key decisions - just operating a sole trading business with an ABN (with or without GST registration depending upon turnover) , and/or creating a company as a separate entity...

 

[SYD]

This post highlights one of the key decisions - just operating a sole trading business with an ABN (with or without GST registration depending upon turnover) , and/or creating a company as a separate entity...

Yes, this kind of relates to the PI discussion. In this case not required and similarly, setting up a Pty Ltd - whilst not expensive, also would be overkill if you’re unlikely to be sued for all your worldly possessions.

Not only contact your general insurer (house/contents), ask if they have an option that provides the necessary cover. Alternatively, BizCover is quite affordable - I’m required to have set amounts of PI and PL that only costs my Company $800 pa (the PI being about 3/4s).

 

[RooFlyer]

Also, get business cards printed. Very professional look and you can leave them at schools etc with permission; you can send the kids away with their next appointment written on them (as well as in their phone!). I get mine done by a graphic designer but you can do it cheap on-line ... maybe even by OfficeWorks.

Web site - I resisted having a web site for my initial business because it was high level corporate advice and I didn't advertise and cultivated the 'exclusive' vibe. But for my next venture, even though it again had a fairly self-contained client base, I did get one done because if they don't know you they WILL look you up on the web and expect to find you.

setting up a Pty Ltd - whilst not expensive,

Actually, reading the OP I immediately thought of a company but of course for a sole trader not necessary.

But setting up a Pty Ltd isn't that cheap is it? It was a couple of thousand over 20 years ago, from hazy memory. May have changed. I still pay ASIC abt $250pa for the Annual Review as I've kept the company on as a vehicle for my retirement writing and publishing.

 

[SYD]

But setting up a Pty Ltd isn't that cheap is it? It was a couple of thousand over 20 years ago, from hazy memory. May have changed. I still pay ASIC abt $250pa for the Annual Review as I've kept the company on as a vehicle for my retirement writing and publishing.

$495 to register online* but yes, the ongoings add up and need to be factored in.

ASIC annual filing fee $290, accountant for annual tax return (I effectively doubled my annual tax return costs - personal and seperate company return). Plus any trailing costs for maintaining insurances (some of my contracts have 5 year post work obligations), but they could be converted to some sort of runoff insurance.

The upside is GST input credits and deductions for business/work related things like mobile phone (hardware and monthly fee), computer / office equipment, internet, some travel costs etc. Many also deductible as a Sole Trader - so really not worth it for OP scenario.

*Single director company. Someone setting up a family business or multiple directors will need a Constitution, so DIY can be more problematic but there are middlemen who do it for an additional fee.