Small Business Secrets: Firing up a bagel business

There are more than two million small businesses across the country, but their success is often determined in their first few years of operation.

Smoking Gun Bagel co-owners Dave Young and Mark Treviranus. Source: SBS World News

Small business partners Mark Treviranus and Dave Young spent about $80,000 building a custom bagel oven at their new eatery Smoking Gun Bagels in inner Sydney.

Mr Treviranus said it was an expensive exercise.

"Firstly we flew over two Canadian stone masons to physically build the oven, so it's a custom-built bagel oven, which no one else in Australia knows how to build," he told SBS.

Co-owner Dave Young said it was a strategy to give their bagels an authentic Montreal-style flavour and a competitive advantage.

"Just to get an oven through council is pretty hard because its woodfire, so we thought, 'if we can get through that no one else is really going to able to suddenly enter and compete initially'," he said.

Smoking Gun Bagel oven

And Mr Young said their persistence was paying off.

"We have people travelling, which was the point, and we have a product which we wholesale," he said.

"We had an order for 100 dozen bagels last weekend, so 1200 bagels."

Their business is one of 280,000 small businesses to open in Australia this year.

But it's that first year many will find the most challenging.

Peter Strong from the Council of Small Business of Australia said a third of businesses close in the first three years of operation.

"The reason that a business ceases to function is often not failure, it's because they change their name, they change their structure or they just don't want to run their business anymore, they've said 'ok, I've had a go at this, it's not for me, it hasn't failed, but I want to move back into employment' or whatever it is," he told SBS.

Mr Strong said cash flow management was the biggest challenge for any new small business operator.

"The King and the Queen of small business is managing your cash flow and that's what they've got to get used to," he said.

"The other things are accessing finance and understanding finance, if that's where they go, looking and understanding contracts, particularly leases and if they're going into a franchise, particularly the franchise contracts.

"They're the big areas and when they employ their first person - that is a huge event they [when] discover a world of complexity and danger - and none of them, I haven't come across anybody yet who said I saw this coming, 'they think wow, it is so difficult to employ your very first person with everything you have to do'."

Mr Young agreed.

"Probably the biggest challenge is managing costs you wouldn't of thought about back in corporate, like wage costs," he said.

"[It] sounds terrible, but it's like you don't want to treat people like numbers."

Mr Treviranus said red tape also took up too much of their time and should be addressed.

"Just simple things like even applying for an outdoor licence, it's quite a process, there's quite an number of forms to fill out, a number of reports to generate and obviously everything costs so things like that I think they could make easier for small businesses," he said.

Australia's small business sector contributes $340 billion to the national economy and employs 4.5 million Australians.