Many of our clients are aspiring property developers, venturing into this field for the very first time. The prospect of being your own boss has its perks and challenges, but this blog focuses on accelerating your progress through the initial stages. The aim is to help you plan for profitability, maintain a healthy cash flow, cultivate a loyal customer base, find reliable staff or suppliers, and optimize your online and offline presence.
But before you invest any significant amount of money into a property development business, there are a few crucial steps to take:
- Start with a solid Business Plan
While some developers may be sceptical about the need for a Business Plan, especially if they’ve had previous success, it’s essential to engage in at least some level of business planning. Even if you don’t end up with a formal document, conducting an environmental scan and analysing socioeconomic and geodemographic statistics is crucial. This scan helps you define your target customers based on factors like age, income, gender, and specific property preferences, such as the size or type of dwelling.
Don’t forget to include an analysis of your competitors in the environment. Once you’ve completed these assessments, you can evaluate your strengths and weaknesses in relation to the competition. Additionally, look for external opportunities and threats in the market. The absence of competitors in your target area is an opportunity, for example, while the presence of numerous competitors or the emergence of new ones can pose threats.
Developing your marketing and operational plans should also be part of this stage. Set clear objectives, milestones, and goals to guide your progress. While a mission and vision statement may not be necessary at this point, they can provide additional clarity and purpose to your business.
For guidance on writing a property development business plan, you can visit this link.
- Ensure proper legal structuring
Many clients tend to focus on what they will sell and how they will produce their product or service, neglecting the crucial aspect of establishing a legal structure. While it’s understandable, it’s not a wise approach.
The legal structure of your business matters because if your property development venture faces financial difficulties or external crises, you could personally be held liable for the debts incurred. Sole traders, in particular, are personally liable, which means creditors can pursue personal assets like your house or car. On the other hand, setting up a company shields you from personal liability as it is a separate legal entity.
It’s important to decide early on whether you’ll operate as a company or a sole trader. Additionally, consider the tax implications and other complexities associated with each structure.
- Enhance your visibility and availability
Branding plays a crucial role in ensuring that your messages, imagery, logo, and colours accurately reflect your unique features and benefits to your target market.
When it comes to creating a logo, many people jump into it before fully understanding their consumers and competitors. It’s crucial to know your target audience’s preferences regarding colours, shapes, fonts, and imagery. Likewise, analyse your competitors’ logos to differentiate yourself effectively. Consider seeking advice from a professional graphic designer who can guide you on contemporary colours, shapes, and imagery.
- Incorporate marketing into your business plan
While we previously emphasised the importance of having a property development business plan, your marketing plan should also be a significant component within it. Consider it as a dedicated section within your business plan, with the intention of eventually developing a more detailed standalone marketing plan.
Your marketing plan should encompass a clear definition of your target market, an in-depth analysis of competitors, goals broken down into manageable milestones, strategies to achieve those goals, and a monthly measurement and evaluation process to track progress and customer engagement.
- Leverage online activities
Online strategies are essential for any business today. Establishing your property development website, implementing search engine optimisation (SEO) techniques, and utilising content marketing (like this blog) are effective ways to showcase your expertise and the quality of your products or services.
Gain a comprehensive understanding of various online platforms, including YouTube, Facebook, Instagram, Google My Business, Pinterest, LinkedIn, and Twitter. Identify the roles they play in customers’ decision-making processes and tailor your content accordingly to engage your target audience effectively.
Invest in SEO, focusing on keywords, links, AdWords, and regular measurement and evaluation to improve your website’s visibility and attract potential customers. While platforms like AdWords and Facebook advertising are crucial, don’t underestimate the power of electronic direct mail. By purchasing targeted mailing lists, you can reach a wide audience at a fraction of the cost of traditional advertising campaigns.
Ensure that your product or service is competitive or superior to what your competitors offer. Conduct market research to gain unbiased feedback from potential customers. For property developers, involving agents early on is vital to align the messaging of key property features with search engine optimisation and sales scripts. Your pricing strategy should be informed by your earlier environmental scan, determining whether you need to be highly competitive, match your competitors, or can charge a premium based on superior offerings.
Lastly, don’t limit your visibility to the online realm. Explore alternative methods beyond advertising to make your presence felt in different locations. For instance, you could advertise through social media and also distribute flyers in the area you wish to target. This combination of advertising and physical presence can significantly increase your visibility and reach.
- Hiring employees
When it comes to employing people, it’s essential to have both a clear job description and a person description. Many business owners hope to find the perfect candidates who are a perfect fit for their property development business. While such individuals do exist, it’s not wise to rely on chance when people are a crucial part of your organisation’s operations and services. If you have employees who interact with clients, communicate with them, or represent your business through emails, it’s vital to define the values, approach, and style they should possess to align with their job description.
- Responsibilities as an employer
As an employer, you have certain obligations to your employees, such as fair and timely payment, providing superannuation, complying with payroll tax requirements, ensuring workplace safety, and offering employment agreements that cover their roles. In industries experiencing skill shortages or where sub-par employees may be hired, becoming an employer of choice by treating your employees well and paying them fairly is crucial. Employees directly impact the quality of your product or service and contribute to customer satisfaction.
- Bookkeeping and accounts
It may be tempting to continue using Excel for your financials, but it’s more trouble than it’s worth. Excel lacks the preloaded formulas, calculations, up-to-date tax rates, and charting features found in accounting software like Xero, MYOB, or Quicken. Setting up a cloud accounting system is recommended, and it’s important to establish a system to track bills, receipts, invoices, and petty cash. It’s also advisable to separate personal and business finances by obtaining a company credit or debit card.
- Starting your books right away
Starting your bookkeeping as early as possible has several advantages. It allows you to take advantage of tax deductions and carry forward losses, even if your business hasn’t generated revenue yet. Setting up systems when there are fewer transactions to handle is simpler and helps you familiarise yourself with the process before dealing with a larger volume of expenses.
- Start-up costs and expenses
When considering how to finance your property development business, options like business loans, personal credit cards, equipment leasing, or bringing in equity investors should be evaluated. Choosing the right lender based on terms and interest rates is important, and lodging a successful loan application requires careful preparation. In case of rejection, knowing when to engage a finance broker can be beneficial.
- Understanding profit and loss, balance sheet, and cash flow
Understanding how a profit and loss report works, creating sales forecasts, and accurately accounting for costs and expenses are crucial. Distinguishing between costs (which fluctuate with sales) and expenses (which remain constant) is important. For property development, costs may include materials and direct labour, while expenses could be wages or utilities like internet bills.
- Calculating profit margins
Gross profit is what remains after deducting direct costs, and net profit (or EBIT) is what’s left after subtracting all expenses. Understanding your margins is vital. The Australian Taxation Office (ATO) provides benchmarks for different industries, helping you assess your performance. Calculating break-even points involves dividing fixed costs by the difference between average sales price and variable costs. This formula determines the number of units or products you need to sell to cover your costs.
- Complying with the ATO
Registering for GST is necessary for businesses with a turnover exceeding $75,000. Staying up to date with your bookkeeping and working with an accountant can help maximise tax deductions. Ensure you differentiate between personal and business expenses and be prepared to pay your BAS (Business Activity Statement) and payroll tax on time to avoid financial difficulties.
Before moving on, there are also some important watch-outs for property development business owners, specifically:
- Product mix
When planning your product mix, it’s crucial to consider not only the types of properties or renovations you offer but also the environmental factors and socioeconomic characteristics of the target market. Aligning your product mix with the market scan can greatly impact profitability. Whether catering to budget or premium segments, understanding the market’s preferences and needs is essential.
If you want to start a property development business and need some help getting your business plan sorted, click here. Alternatively, get in touch with us on 1300 644853 or at info@smallbusinessplans.com.au (24/7 website chat and enquiry available).