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Small home office is here to stay

THE Small Office Home Office (SOHO) has been around for well over twenty years. However, its importance as a growing area of small business has emerged strongly only in the past five years.

Around 58 percent of all small to medium enterprises in Australia are now ‘micro-businesses’ that employ fewer than five people.

According to the Australian Bureau of Statistics, in 1997-98 there were 674,400 self-employed people who operated 433,600 small businesses with no employees.

This represents some 21 per cent of small business employment and 46 per cent of all small businesses – a rate similar to other countries.

In the European Union SMEs represent all but 40,000 firms in the total economy and 55 per cent have no employees!

The rapid growth in SOHOs over recent years has been driven by the availability of efficient computer and communications technology.

A Yellow Pages Small Business Index survey found the proportion of small firms in Australia with computer modems grew from 19 percent in 1994 to 63 percent in 1999. Forty-two percent of firms with one to two employees are connected to the Internet.

This type of technology has also fallen substantially in price, thereby enabling more people to set up an efficient and effective SOHO within their first year of trading. SOHOs have proven particularly popular with women as they enable them to work from home and combine business and family activities.

For those seeking to set up a SOHO it is important to remember that you are running a business like any other.

If you are working from home you need to take care that the family does not ‘take advantage’ of your presence around the house to distract and burden you with domestic duties.

It is common for home-based businesses to fail due to the owners spending too much time ironing, washing and cooking when they should have been making sales calls.

This can be particularly so for parents with young children working from home.

Many small start-up businesses fail in the first one to two years due to inadequate preparation prior to the commencement of trading.

The owners usually did not adequately research their market and prepare a cash flow forecast. Failures also occur as a result of inadequate systems and lack of planning.

Finding and winning new customers can require a good deal of hard work and the business may not have adequate income to cover its costs during the early years.

Purchasing too much expensive office equipment or renting high priced office space can wipe out any profits and push your business into a cash flow crisis.

Get yourself a good accountant – one who has experience with assisting small businesses – and have them help you to prepare a cash flow forecast for one to three years.

Talk to them about tax compliance issues, particularly provisional tax and the likely impact of the GST next year.

Once trading, watch your cash flows and be mindful of the need to separate your business and personal expenses.

If you have a computer or telephone/fax system that doubles for both work and family use, care must be taken to identify what proportion of the equipment is used for what.

An audit from the taxation department is not the time to be developing your accounting records!

l Tim Mazzarol is executive director of the Small Business Unit at Curtin Business School.

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