Top start-up opportunities

Despite the current economic climate, there is still money to be made and niche markets to corner for those willing to establish a new business during a global recession. IBISWorld analysts have identified the ‘Top 10′ start-up opportunities for 2009, and beyond.

The Top 10 list features opportunities from two distinct groups:

1. Opportunities relevant for those looking to establish an owner-operator business, small partnership or work-from-home venture; and
2. Ventures more suited to entrepreneurs or those with significant capital to invest, who may be able to take advantage of the current economic situation to purchase or establish a profitable enterprise.

1. Insulation installation providers

Following the Rudd Government’s $3.9 billion proposal to insulate Australian homes, this is one industry that will be well protected from the raging economic storm, with an estimated 40% of the country’s houses currently without insulation.

At the moment, the market is made up of numerous small players, and there are no specific licensing requirements or qualifications needed to undertake insulation work – making it an ideal opportunity for a low-skilled, capital-short entrepreneur.

Start-up costs are low, since the majority of expenditure is labour related, which is again ideal for sole proprietors or small partnerships – the only major cost to be incurred would be transportation, which could carry the equipment required, although a car and trailer would suffice. However, challenges exist as these latest incentives and the potential for high returns could encourage a flood of new operators into the market, intensifying competition and reducing fees and margins.

Revenue forecast: Up to 50% pa until 2011

Start-up costs: $3,500 – $5,000

2. Tutoring

Growth in the tutoring industry has traditionally been, and will continue to be, driven by immigration, particularly higher immigration from Asia and Eastern Europe, and demand is greatest in Sydney and Melbourne.

The industry is best suited to (although not the exclusive domain of) people with teaching or educational experience, and services range from individual in-home tutoring to small group coaching classes, seminar-style programs and classes instructing English as a Second Language (ESL).

While the current economic climate may result in some price discounting, parents who consistently pay for tutoring do not regard it as a discretionary expense and will continue to pay for the service despite the declining economy. In fact, they may believe studying to sit for scholarship exams or selective school tests to be even more urgent than previously, helping small providers attract a continuing stream of students.

Since tutoring is primarily made up of private individuals or small businesses, it is well suited to new entrants.

Revenue forecast: 6% in 2008-09 then 5% in 2009-10

Start-up costs: $4,000 – $75,000 (Note: The upper end of this spectrum relates to purchasing an existing tutoring business operating from an established location.)

3. Consultants

Both management and IT consultancies should do well over the short to medium-term, as consultants typically enjoy counter-cyclical benefits. During good times, management and IT consultants are hired to develop new strategies and systems to enhance growth and advise on expansion plans, while during a downturn they’re employed to cut costs.

In the current market, those with skills in making redundancies and reducing inventory are particularly sought after, and anyone with this type of experience specific to a certain industry who may have lost their own job is now in a position to promote themselves as a consultant. With many companies looking to restructure in the face of a radically changed financial sector, knowledge of designing and implementing new IT systems is projected to be invaluable.

Those starting out are recommended to use their existing industry contacts to help win initial contracts, as while Australian businesses’ love affair with outsourcing is slowing, this is expected to continue its upward trajectory once the economy begins to recover. As a result, while setting up a consultancy may be an excellent option right now, it is also a solid long-term proposition.

Revenue forecast: Management Consultants: 5% pa / IT Consultants: 5.4% pa

Start-up costs: $10,000 – $200,000 (Note: The higher end of the spectrum relates to the cost of purchasing an existing client base.)

4. Online retailing

While competition in the e-commerce market is increasing, online retailing is still a relatively untapped market in Australia, which is projected to enjoy consistent growth for the foreseeable future.

While retail broadly is suffering right now, it’s important to note sociological and technological trends pointing towards sustained growth in the industry as Generation Y serve up a large category of spenders comfortable with transacting on the internet from a young age.

In addition, the number of broadband subscribers is projected to reach 10.3 million by 2014 – up from 6.9 million this year – which, together with improved security, myriad online platforms and expanding wireless applications, will enhance the potential for trading in an online environment. In the short term, online shopping is expected to be resilient in the face of the downturn as an increasing number of Australians turn to the web to seek bargains, and to better research purchases to ensure value for money.

Start-up costs for online retailing can be relatively low, as new entrants require a functional website, domain and business name, wholesale distribution points, some marketing spend and of course the (extremely variable) cost to acquire supply and purchase stock.

Revenue forecast: 4.3% pa to 2014

Start-up costs: $7,500 – $260,000 (Note: Start up costs can vary greatly for online retailing with website, marketing, and initial stock purchases being dependant on product type. Selling high end products or complex technology may require significant outlay while for discounted every day products this outlay is much lower.)

5. Parking services

Australians love their cars, and our largely suburban lifestyles are extremely car-dependent, which means that despite the fact public transport use is increasing and the economy is slowing, demand for parking continues to grow.

Over the next few years, local councils are expected to come under mounting pressure to either reduce costs or raise more revenue, meaning many non-essential services – including car park operations – will be outsourced, presenting an opportunity for small operators to enter the industry.

The most significant opportunities for new players will be in smaller car parks in suburban areas, since 60% of Australian car parks are small owner-operated businesses, and the start-up costs of suburban car parks are relatively low since the lease contract and automated pay stations are the most significant expenses.

Competition in the industry is also low, although some operators are offering value-added extras such as improved safety and lighting to attract patrons during off-peak periods, but location and proximity to well-frequented facilities such as shops, cinemas, leisure grounds and train stations are vital to succeed.

Revenue forecast: 2.8% pa to 2014

Start-up costs: $20,000 – $100,000+ (Note: The start up cost given relates to establishing a business through leasing an existing car park. If an operator wished to purchase land the start up cost would dramatically increase.)

6. Towing services

As the Australian economy continues to slow, many people will delay upgrading their existing vehicles, and will put off repairs, maintenance and servicing – leading to an increase in the number of breakdowns and the volume of motorists needing emergency roadside assistance.

Over the longer term, ageing fleets and higher traffic volumes will also support growth for the towing services industry as commuters who opted to use public transport during tough economic times move back behind the wheel once the economic climate improves.

The gradual emergence of an increasing number of electric cars on Australian roads will also benefit the industry since the technology is new (leading to teething problems) and battery life is limited, which means motorists may be caught unawares.

New entrants into the industry must become accredited by the state roads or transport authority and pay regular license fees (combined cost of around $3000), as well as complying with regulations including driver log books and environmental stipulations.

The cost of a tow truck ranges from as low as $20,000 for a used vehicle, to around $60,000, and operators also need to invest in tracking and communications systems. To succeed, it will be important to have an existing strong network of contacts with insurance companies, mechanics and panel beaters – or to quickly establish a rapport.

Revenue forecast: 3.8% pa to 2014

Start-up costs: $30,000 – $70,000+

7. Bicycle retail

Despite the deteriorating economic climate and waning disposable incomes, bicycle retailers are expected to comfortably ride out the storm as consumers switch to bike riding as an inexpensive form of exercise compared to costly gym memberships, personal trainers and pricier recreational activities such as golf or skiing.

Last year total bike sales, in terms of purchase, grew by 38% from 2007 to 1,401,675 and while total sales for sports and camping equipment retailers are estimated to rise by 1.5% this financial year, bicycle retailers can look forward to growth exceeding 2% over the same period, with even better returns projected for 2010.

Government support for healthier lifestyles, and initiatives such as the Victorian and New South Wales Governments’ initiatives to extend and build new bike lanes around city CBD areas are another indication the time is right to enter the industry.

Bicycle retailing is relatively easy to get into with the industry lacking clear-cut major players and reasonably low capital requirements to start up. However, within this sector retail location is paramount, and securing a lease in an advantageous location could be expensive for a new entrant. Contracts with reputable overseas suppliers can also be difficult to secure. Startup costs, as with any retail venture, can be as high as the business owner wishes to go – depending upon the quality and quantity of stock ordered, and money spent on store layout.

Revenue forecast: 2.3% growth in 2009-10

Start-up costs: approximately $80,000

8. Financial planning and investment advice

The growing proportion of Australia’s population entering retirement or approaching retirement age is rapidly rising, supporting growing ongoing demand for the services of financial planners and investment advisers.

With a large majority of Australia’s financial planners aged in their fifties and therefore approaching retirement, and most businesses run by sole operators employing just a few people – the next five years are expected to see an influx of existing practices coming onto the market.

On the negative side, in the immediate future the sector will experience a slump in revenue of up to 20% for the current financial year as the value of existing funds under advice falls in line with declining asset and share market prices – bringing down the recurring fees or trailing commissions generated, based on the value of the assets under advice.

The current climate may also open up opportunities for advisors to expand their client base as difficult financial market conditions can encourage people to seek financial advice, although if these new clients are less wealthy, then they may generate lower fees.

Revenue forecast: 6.4% pa to 2014

Start-up costs: $150,000+ (Note: This is largely comprised of the cost of purchasing a client base.)

9. Child care services

While the collapse of ABC Learning may have scared many potential investors away from the childcare sector, IBISWorld believes this event is the reason childcare is now an excellent proposition for new players in 2009.

Although the initial costs are high compared to other options, there will be around 241 centres available for sale at a cost of around $1 million each, and demand for childcare remains high.

While demand for childcare places may dip slightly during the global recession, the industry’s long-term outlook remains strong, and the Federal Government is continuing to fund childcare through initiatives such as the 50% childcare tax rebate to encourage parents back into the workforce. Training requirements to operate a childcare facility are minimal – while some staff require accreditation, many of the necessary qualifications can be obtained quickly and easily.

Choosing a centre in a prime location is critical to success, as parents’ key criteria for selecting a facility is usually its proximity to work or elder siblings’ schools, and careful planning for future demographic changes is essential.

Revenue forecast: 5% growth pa to 2013

Start-up costs: $100,000+ rent (independent location) – $1 million+ (established name)

10. Fast food franchises

Small to medium-sized fast food enterprises will be uniquely placed to capitalise on the global financial crisis as falling disposable incomes and rising unemployment force consumers to cut back on eating out at full-service restaurants, instead opting for fast food outlets or low-cost local takeaways.

Low to medium barriers to entering the industry and capital requirements that aren’t prohibitive make this a potentially lucrative option for new players, depending on the type and brand of franchise chosen. The cost of establishing a major franchise, such as McDonalds ($1.8m); KFC ($1.1m- $1.7m); or Subway ($250,000) is probably out of reach of those new to the food industry, however lesser known franchises may be available from around $90,000.

The cheapest start-up option is steering away from brand-name franchises altogether to set up a fish and chips style takeaway venue, and it is predicted that we may see many more of these appearing on suburban street corners in the coming years.

Revenue forecast: 5% in 2008-09 rising to 5.4% in 2009-10

Start-up costs: $8,500 – $1.8 million

This report was prepared by IBISWorld. For more information on this report and other IBISWorld industry reports, click here.