Identifying whether or not you are in the right business can be tricky. There are many types of businesses that you can choose to operate in and deciding which one is best for you can be daunting. Some of the ways to assess whether or not you are in the right business is to identify how intimately you know your business, create a good business plan, ensure your business structure is appropriate and exercise vigilant management skills.

• Knowing your business
  
• Creating a well-designed business plan
  
• Ensuring your business structure is right
  
• Prudent management

Knowing your business

Every business is unique and is managed and operated in a different manner compared to others. Therefore it is vital to have a good understanding of the type of business you are running and the industry you are operating in. To be a winner in business, you must understand your business closely and be able to properly identify your mission. This is especially important in today's rapidly changing economy. In addition to knowing your business, it is also important to do something you enjoy and to be engaged in a business that best utilises your interests and skills.

Once you have determined you are in the right business, it is important to remember that a successful organisation doesn't grow overnight, rather it grows slowly on a well-designed business plan.

Find out more about starting a small business >>

Creating a well-designed business plan

Creating a good business plan is an essential ingredient for every entrepreneur. A well designed business plan that is followed up with implemented action is the way to move forward. A common technique used in planning is SWOT analysis which looks at a company's strengths, weaknesses, opportunities and threats. You can use this analysis to examine your company's internal and external environment. An internal evaluation looks at factors such as products and services, staff, customers, systems and processes as well as finances; while an external evaluation looks at industry trends, competitors, changes in government policy and social changes. It is imperative to have a good understanding of how both the internal and external factors play on your business. Opportunities and threats determined in the SWOT analysis should be followed up with an action plan which maximises your company's strengths and finds ways to overcome or minimise its weaknesses.

Find out more about developing a business plan >>

Ensuring your business structure is right

Different business structures have various advantages and drawbacks. You should have a solid understanding of the pluses and minuses of the various business structures and the ways in which they affect your taxes, assets and operating costs. One way to determine whether or not you are operating your business in the right structure is to assess what your business will look like in five years' time. Often the structure you choose to operate in will determine whether or not your business will be able to accommodate growth and reform over time. Some of the different business structures include sole traders, partnerships, companies and trusts.

Sole Traders

If you choose to operate your business as a sole trader, you have control over all aspects of your firm. Sole traders often have few tax and legal formalities coupled with the full benefit of profits. However, as a sole trader you will be limited by your resources and are legally accountable for all aspects of your business. If your business ends up in debt, your losses cannot be shared and you might lose private assets.

Partnerships

Partnerships offer more protection as a structure compared to operating as a sole trader as you are able to share the workload as well as the losses and legal responsibilities. However, you will also be sharing the profits of your business and you might be responsible for the debts accumulated by your business partner.

Companies

A company structure is a relatively complex arrangement that is regulated by the Australian Securities and Investment Commission (ASIC). It is usually expensive to set up and has numerous administrative costs; however, it does offer a multiple tax benefits. Additionally, if you run a company you will have greater access to capital and increased asset protection.

Trusts

If you choose to operate your business as a trust, you will have flexibility and control over the way in which income and profit is distributed. As a trustee, you will be responsible for holding income or property for the benefits of others (beneficiaries). You also have increased asset protection compared to that received in a company structure and won't be responsible for paying tax. Instead, tax obligations are passed onto unit holders in the trust. Whilst there are a number of advantages, operating a trust is expensive and complicated to establish. It also requires a significant amount of paperwork to be completed every year.

Prudent management

Once you have developed a solid business plan, it is important that your finances are managed smoothly. One way of ensuring that happens is to exercise prudent financial management skills. Implementing a good cash flow system helps you prepare financial projections for a period of time, allowing you to anticipate outflows and inflows of cash for a period of time.

In addition to good financial management, you should also incorporate some good business management skills. One key business management skill encompasses handling the paperwork of your business and there are a number of paperwork requirements that should not be overlooked. These include:

• filing for applicable licenses and registrations
  
• filing for patents and trademarks
  
• protecting intellectual property
  
• ensuring appropriate business insurances are in place

Ensuring you are in the right business can be a confusing process. There many types of businesses you can choose to operate in and while it is important to strive for something financially viable, it is imperative you love the business you are in. The right business is first determined by the industry and market you enjoy operating in and one you have a solid understanding of. This, coupled with a clear business plan and correct business structure, will help move your business forward. Lastly, remember to oversee key aspects of your business such as finances. A good cash flow model is often the determining factor of a successful business.