This is the first in a two-part series on establishing an e-Commerce business in Australia.
The e-commerce industry is booming here and across the globe. Last year, Australian’s spent over 30 billion dollars shopping online. As a chartered accountant in public practice, I’ve seen the number of young entrepreneurs wanting to set up an online store explode over the last two years. The problem: their vision is clear, but their business plan is inexistent. In this article, the first in a two-part series, we will cover the benefits of an online business and explain why it’s imperative to draft a business plan prior to establishing yourself as an online merchant. In the second, we will consider the different business structures that are ideal for an online business, where to source products and ways to stock inventory, and obtaining insurance and any required permits.
Why an online business
Online businesses are increasingly appealing, especially to young entrepreneurs, as more and more people want to make money from the comfort of their own home or with the ability to travel and work remotely. Then there’s the conception that online businesses are a way to make quick and easy money. Unfortunately, this idea of quick and easy extends to establishing the business itself, with many of the belief that establishing an online business is as easy as setting themselves up on eBay, Amazon or Kogan and learning as they go.
The largest online shopping platforms operate globally, with eBay the biggest both internationally and here at home. Selling on these global platforms is relatively cheap and easy, and to start, generally only requires the completion of a four-step process and minimal start-up fees and costs. They’re also growing at a rapid pace, both in sales and the number of online merchants signed up to the platform. This means that those wishing to set up a business on one of these e-commerce platforms should expect tighter and fiercer competition and lower margins in the very near future.
I recommend that online store entrepreneurs ask themselves one or two questions at the very early stages of establishing their online business:
- How serious am I about this? And,
- Is this a hobby or a business?
A serious business with the potential to make an income will take more than a four-step process and a start-up fee. It will take a robust business plan.
Why a plan?
The questions I’m often asked when consulting with the owners of newly established online stores include:
- How can I increase profits?
- How can I reduce tax and claim more tax deductions?
- How can I obtain a business loan or other types of financing?
Unfortunately, without a relatively clear plan from my clients, I can’t answer these questions and in fact, I tend to ask more. This is around the time I send a business plan template to prompt some thinking and clarity for all parties.
Like with any other business, starting and running an e-commerce business is a task that requires research, planning, and professional consultation. It is crucial that those planning to embark on the journey start by researching their market and conducting feasibility studies well before undertaking any business activity. They need to refine their product offerings, margins, sales expectations and overhead structures while grasping a good understanding of the market at play, its challenges, demographics, psychographics, and their competitors.
A business plan will document these considerations and help budding business owners grasp an overview of their expenses, better assisting them to establish a business with realistic goals.
It is only when these online store entrepreneurs understand e-commerce business realities, for example the fact that eBay and other markets are extremely competitive and host many other sellers, and are capable of answering the basic questions about their business venture that they can establish a comprehensive business plan which can be refined with an advisor like myself.
When presented with the groundwork, refining the business model becomes much simpler and provides them with specific, measurable, achievable, relevant and timebound goals to work to. It also enables the budding business owner/s and their advisor to decide on an appropriate structure for the business, which is something we’ll consider in part two.
For more information on business planning, please contact your local William Buck Business Advisor.