If you’re considering starting a labour hire business, especially if it’s your first time, you’ll find that a portion of our client base shares the same aspiration – in fact, one out of every 20 plans we do is for such a business. Being your own boss comes with numerous advantages, as well as a few challenges. However, the focus of this blog is primarily on expediting the initial stages of your entrepreneurial journey.
Our aim is to provide guidance that will assist you in planning for profitability, ensuring a robust cash flow, cultivating a loyal customer base, sourcing exceptional staff and suppliers, and optimising your online and offline presence.
Setting the Foundation: Don’t Overlook Business Planning
It’s not uncommon for labour hire businesses to question the necessity of a business plan. This skepticism can be understandable, particularly if you’ve previously run a successful business. However, even if you don’t end up with a formal document, engaging in some level of business planning is crucial.
At its core, your labour hire business plan should include an assessment of the business environment you’ll operate in (eg. the type of workers you’re wanting to provide and the sorts of businesses that may utilise your services). Remember to consider your competitors within this environment.
Once you have an understanding of the environment and competitors, evaluate your strengths and weaknesses relative to them. Identify external opportunities and threats that exist. The absence of competitors in your target area or category, for example, represents an opportunity, while multiple competitors, new online entrants, or adverse industry trends can be considered threats.
Develop your marketing plan and operational plan (more details will be covered later). Set clear objectives, milestones, and goals to provide direction and track progress. While a mission and vision may not be essential at this stage, they can add value if you resonate with these concepts.
A plan for a labour hire business is not something to be done on the cheap, as you’ll need it when applying for your license (see the Labour Hire Authority for more information). If you need assistance to create a labour hire business plan, click here.
Ensuring Legal Compliance: Get Your Legal Structure in Place
It’s easy for aspiring business owners to get caught up in ideas and operational considerations, neglecting to address the crucial matter of legal structure. While understandable, overlooking this aspect can be unwise.
Why does it matter? Essentially, if your labour hire business faces financial difficulties or external challenges like a pandemic, you could find yourself personally liable for its debts. As a sole trader, you assume personal liability, making your assets vulnerable to creditors (including banks and even the Tax Office), who can withdraw funds from your bank account. On the other hand, if you establish your business as a Company, you enjoy the protection of a separate legal entity, limiting your personal liability.
It’s vital to make an upfront decision regarding the legal structure of your business, choosing between being a Company or a sole trader. Additionally, there are tax implications and other complexities to consider. To delve deeper into this topic, keep an eye out for an upcoming blog on our website.
There are also certain licenses that you are required to hold and laws that you need to follow if planning to operate as a labour hire business. These will differ depending on what state you’re in, so ensure that you’ve sought relevant legal advice before proceeding. If you’re planning to offer your service in a state outside your own, you will need to hold a licence for that state and adhere to all relevant laws there.
Enhancing Visibility and Accessibility: Branding and Online Presence
Ensure that your messages, imagery, logo, and colours accurately reflect the unique features and benefits you offer to your target market. If your target customers aren’t receptive to pink, for example, it’s best to avoid using a pink logo.
Interestingly, many people realise they need a logo but create one before fully understanding their target customers and competitors through an environmental scan. It’s important to know your consumers’ preferences regarding colours, shapes, fonts, and imagery, as well as how your competitors’ logos are designed.
Taking an educated approach to logo creation is crucial for standing out and distinguishing yourself from the competition. Seek advice from a professional graphic designer who can provide insights on contemporary colours, shapes, and imagery, and remember that design trends evolve.
The Marketing Section of Your Business Plan
While we emphasised the need for a business plan earlier, it’s essential to also include a top-line marketing plan within it. Consider it a subset of your labour hire business plan and, when time permits, create a more detailed standalone version later.
The marketing plan should encompass defining your target market, conducting a thorough competitor analysis, setting achievable goals, developing strategies to reach those goals, and implementing a monthly measurement and evaluation process. This allows you to track progress, attract customers to your business, website, and/or app, and handle inquiries effectively.
Leveraging Online Channels
Online strategies: These include establishing your labour hire business website, implementing search engine optimisation (SEO) techniques, and utilising content, such as blogs, to showcase your expertise and the quality of your products and services.
Online marketing: It’s crucial to understand the roles that platforms like YouTube, Facebook, Instagram, Google My Business, Pinterest, LinkedIn, and Twitter play in influencing consumers’ choices between you and your competitors. Once you grasp their significance, determine the amount and type of content to provide on each platform, tailoring it to meet the preferences and needs of your target audience.
Search engine optimisation: Employing effective SEO techniques (such as incorporating relevant keywords, building quality links, utilising AdWords, and continuously measuring and evaluating your website’s performance) is essential. If your service requires consumer education, online purchasing, or preliminary research before contacting you, SEO becomes even more critical. Just as businesses couldn’t ignore the Yellow Pages in the past, neglecting search engine optimisation today would be unwise.
Electronic direct mail: While advertising via platforms like AdWords and Facebook is vital, electronic direct mail remains one of the most effective forms of communication if executed correctly. With the ability to purchase mailing lists and directly email potential consumers at a fraction of the cost of an extensive advertising campaign, it’s worth considering incorporating electronic direct mail into your marketing strategy.
Services: Ensure that the quality of what you offer is at least on par with your competitors, if not better. Conduct specific market research to obtain unbiased feedback from unfamiliar individuals about the superiority of your service. For a labour hire start-up, providing same day hire, coverage for a wider range of industries, seamless payment processes, and long-term hires may be necessary. However, it’s generally advisable to avoid competing solely on the basis of lower prices. Before adjusting your pricing, consider the market environment and research findings. Studies indicate that people are typically unwilling to pay more than a 7% premium.
Expanding Visibility Beyond the Internet: Offline Strategies
Getting yourself seen and available offline is often misunderstood by labour hire start-up businesses. While advertising is recognised as important, the need to establish a presence in other physical locations using methods other than advertising is often overlooked.
Hiring Employees: The Employment Process
It’s crucial to have a clear job description and a person description (in other words, the ideal qualities and characteristics of the person suited for the job as described).
Surprisingly, many individuals expect to find the perfect fit for their labour hire business straightaway, but these employees are something of a unicorn. While exceptional candidates do exist, relying on chance alone is impractical – especially if people play a vital role in your organisation’s service and operations. You’re likely to have employees who interact with clients face to face, communicate with them over the phone, or handle emails, so it’s essential to define the values, approach, and style that will align with their role and responsibilities.
Your obligations to your employees go beyond just hiring them. These include ensuring fair pay, providing superannuation contributions, fulfilling payroll tax obligations to the government, prioritising their safety, and providing them with appropriate employment agreements. In many industries, there are currently skill shortages or difficulties in finding employees who meet desired standards. This has resulted in unsuitable candidates being employed in many cases.
By becoming an employer of choice and treating your employees fairly, promptly, and with respect, you can attract and retain high-quality talent. Remember, they directly influence the quality of your service and play a significant role in cultivating customer loyalty.
Managing Finances: Bookkeeping and Accounts
It may be tempting to stick with Excel for financial tracking, but using dedicated accounting software like Xero, MYOB, or Quicken offers numerous advantages. These programs come preloaded with formulas, calculations, up-to-date tax rates, and charting capabilities. It’s essential to set up a cloud accounting system sooner rather than later. Additionally, with the introduction of Single Touch Payroll, an Excel-based financial system becomes even less practical.
Create a simple system to organise bills, receipts, invoices, and don’t forget about petty cash.
If possible, consider obtaining a dedicated company credit or debit card to keep your personal and business finances separate.
Starting Your Bookkeeping Immediately
Many labour hire business owners spend their own money without realising that these expenses could be tax-deductible. They are also unaware that losses can be carried forward. Even if your business hasn’t generated revenue yet if you’re investing your own funds, such as taking an Uber to scout a potential location, these expenses can be considered deductible losses. These losses will be offset against your future revenue.
Another reason to start your bookkeeping right away is that it’s much easier to establish systems when there are only a few transactions to record. It’s simpler to grasp and manage a couple of receipts totalling $150 and a few sales before dealing with a large volume of diverse expenses.
Start-Up Costs and Expenditures
Begin by creating a start-up budget, ensuring it covers both your personal living expenses and all the necessary purchases for your labour hire business. Rather than diving straight into purchases, it’s advisable to make a list, conduct research, and seek advice from others to ensure you have everything you need. This approach prevents budget overruns and helps you set up your new premises within the desired timeframe.
Consider your financing options, such as business loans, personal credit cards, equipment leasing, or bringing in an equity investor. Select the right lender based on factors like loan terms and interest rates, and be sure to understand the process of submitting a successful loan application. In case your loan application is rejected or you need guidance, explore the possibility of working with a finance broker.
Understanding Financial Reports
To successfully run your labour hire business, it’s crucial to comprehend the three main financial reports: profit and loss, balance sheet, and cash flow.
Understanding a profit and loss report involves conducting a sales forecast and carefully tracking all your costs and expenses. Remember, costs fluctuate based on sales volume, while expenses remain constant. In a labour hire business, for example, wages could be considered costs, as they change depending on whether that person has worked during the pay period or not, whereas utilities (such as internet services) are categorised as expenses.
Calculating Profit Margin
Gross profit represents the amount you earn after deducting the costs associated with providing your services. In a labour hire business, after accounting for the contractor’s cut of the fee, you’re left with your gross profit. Next come the “expenses.” Once you subtract all the expenses (including internet costs, electricity, and air conditioning), you arrive at your net profit or EBIT (Earnings Before Interest and Taxes).
Determining whether you have a good margin is important. Fortunately, the Australian Taxation Office provides benchmarks for various industries, which can be found at www.ato.gov.au/business/small-business-benchmarks/.
To calculate your break-even point and gauge when you’ll reach it, you can use the following formula:
Fixed Costs / (Average Sales Price – Variable Costs)
This formula helps you determine the number of units or services you must sell each month to cover your fixed costs and variable expenses. Let’s consider an example:
- Fixed operating costs: $5,000 per month
- Variable expenses: $1,500 per month
- Average price: $2,500 per job/unit/service
$5,000 / ($2,500 – $1,500) = 5 jobs/units/products per month
Selling five units at $2,500 each per month will enable you to break even.
Compliance with the ATO
If your labour hire business turnover exceeds $75,000, it is essential to register for Goods and Services Tax (GST) to comply with Australian tax regulations. Delaying this step will only attract unwanted attention from the government, as they expect businesses to fulfil their tax obligations when they generate income.
While GST registration is straightforward, other areas of your business require meticulous bookkeeping, as they present opportunities for tax deductions. Keeping your bookkeeping system up to date and working closely with your accountant will ensure you identify eligible deductions and potentially save money. Be careful to differentiate legitimate business expenses from personal ones to stay on the right side of tax regulations.
Additionally, make sure to diligently separate your personal and business expenses. It’s crucial to prepare for the payment of quarterly or monthly Business Activity Statements (BAS) and payroll tax to avoid financial strain when the payment deadline approaches.
Watchouts for Labour Hire Business Owners
Have you addressed all the aspects mentioned above?
If not, consider prioritising the areas where you feel the least confident and create an action plan for each of them.
Sending Inexperienced or Unskilled Workers to your Clients
A client who receives a worker that has no idea what they’re doing is not going to have a very favourable opinion of your business. Ensure that you have properly vetted potential candidates before adding them to your books and hiring them out to your clients. This could include a general screening, a registration and induction, reference checking, license and visa checking, and so on. Performing thorough checks will ensure that you personally know each worker on your books, that you understand their skill set, and have an idea of what they can and cannot do.
It can also be a good idea to ask your clients for daily feedback on how their hire is going so that you can get a better understanding of their suitability for the role. This information can also be useful when placing that candidate in the future.
Even as a start-up, a labour hire business will be dealing with a number of candidates and clients on a daily basis, so your scheduling system needs to be rock solid. Whilst it’s a great bonus if you can offer last minute placement, ensure that your candidates have as much notice as possible for when and where they’re needed. If something changes, be sure to communicate this with your candidate or client as soon as possible (both over the phone and in writing to ensure there is no confusion). Candidates who arrive on time and know exactly where to go will always look more professional, whereas candidates who are late or don’t seem to know if they’re in the right place are likely to leave a bad taste.
If you want to start a labour hire business and want some help getting your business plan sorted, get in touch with us on 1300 644853 or at email@example.com (24/7 website chat and enquiry available).