STARTING UP IN BUSINESS
PUTTING THE PIECES TOGETHER…
A guide for individuals who are contemplating starting up in business for the first time, written and published by DMO Accountants…
If you are contemplating a new business start-up, perhaps due to loss of employment, then the present coronavirus disruption is very definitely a factor you will need to consider. But there are a bunch of other – important – issues you will also need to consider:
- Planning and research
- Dealing with red tape
- Tax opportunities and pitfalls
- Managing your business
- What’s next?
Of these, planning and research is probably the most critical aspect.
PLANNING AND RESEARCH:
Your planning and research should cover the following issues:
- What does it take to run your own business?
- What skills will you need?
- What do you know about your competitors?
- How much capital will you need to raise?
- What resources will you need: plant, equipment, computers etc?
- Could you start on a part-time basis and delay leaving the day job?
- Can you run your business from home?
- What special considerations do you need to look out for during present economic downturn?
Let’s expand on these points:
What does it take to run your own business?
Certainly you will need to cope with stressful situations. The old adage is quite correct; when you are running a business the buck stops with you! Do you have the interpersonal and management skills to deal with staff? Confidence will come from knowing the business products or services you are about to market, inside out. If possible you should have personal experience of operating successfully in your chosen market from your previous employments or business endeavours.
NOTE: if you have tried and failed previously in business, and are convinced that you can make a success if you tried again, beware. Learning from past mistakes is a painful affair. Test out your resolve to try Plan B with your professional advisors or family and friends whose opinions you trust.
What skills will you need?
It is important to distinguish between skills required to:
- create income for your business and
- those you will need to manage your business.
In order to be a successful entrepreneur you should have personal experience of supplying goods or services in your chosen market place. We have seen numerous disaffected employees set up in business doing something ‘completely different’. Disgruntled engineers starting up a restaurant, retired nurses opening a shop… You will always have an advantage if you go into your new venture with a clear understanding of the challenges you face. If you want to switch from engineering to the restaurant trade take a job in a local restaurant and see first-hand the problems you will need to overcome. Otherwise you will risk losing your hard earned capital as you attempt to wow your customers with skills you do not yet possess. Of course, there are always exceptions.
When you start your business you must split your time between the two issues we have raised in this section: creating income and managing your business. At first sight there may seem to be no difference between the two. There is… Most first time business owners get caught up in the daily round of winning and taking care of customers. You must also take care of your business. For instance:
- managing cash flow
- managing staff
- maintaining your accounts
- meeting your statutory obligations, to file accounts, tax returns and other statutory returns
- managing relationship with suppliers
- creating and monitoring a business plan
- paying tax and VAT on time
- marketing, the list goes on…
Becoming expert in accounting, tax, marketing, personnel and legal matters is probably beyond the skill sets of most of us. The trick is to decide what you are going to manage and the skills you need to buy in. For instance rather than spend every weekend catching up with your book work you may decide to employ a part-time bookkeeper.
What do you know about your competitors?
The customers and prospective customers who you will want to tempt with your business services or goods will generally speaking have an advantage – they will know what your competitors are offering. If the present slow-down in the economy continues, business and public consumers are going to become ‘shopping around’ experts. You too must familiarise yourself with your competition, and not just the price they are charging for like-for-like services and goods. For example:
- How do they advertise?
- What information can you glean from their website, how does it compare with yours?
You should be on the lookout for ideas that you can take on to improve your business model.
How much capital will you need to raise?
We cannot over-emphasise how important it is to produce a business plan before you start up your business. A good business plan will prepare you for the journey ahead. Placing your savings in a bank account and diving in, without considering or planning your activity is a recipe for disaster. At a minimum you will need to produce a three-year forecast in the form of Profit Statement, Balance Sheet and Cash Flow. Ideally this will be backed up with a report that includes:
- what share of the market are you aiming to capture,
- how price and service competitive will you be,
- your marketing plans,
- steps you have taken to secure supply of goods to resell or other key resources in light of the present coronavirus disruption and impending Brexit.
What resources will you need, plant, equipment, computers etc?
Most homes these days have a computer of some sort and perhaps you know someone that has an unused piece of equipment that could be used to start your business. Until you have demonstrated to yourself that you can make a success of your business try and keep your initial outlay in this area to a minimum. You will need capital to support the growth of your business as well as the set-up costs so don’t use up more cash resources than you need to buying brand new equipment.
If you have to invest in new equipment consider leasing or hire purchase as well as outright purchase.
Could you start on a part-time basis and delay leaving the day job?
It may be impractical to consider ‘trying out’ your business venture on a part-time basis: you may have no full-time employment, or it may be impossible to provide the service you intend to offer part-time. If at all possible though do give this option serious thought. Financially it provides a buffer; your personal needs will be met by the day job releasing more of your start up capital to fund your business.
Can you run your business from home?
As for the previous point there may be good reasons why this option may not be available to you, lack of space, planning considerations (running a printing press in your garage will upset the planning authorities, your mortgage company and your neighbours). This option is less likely to work if your business is manufacturing or needs considerable storage facilities for trading stock. Retail businesses will need a shop front, and so on.
If you are setting up a virtual business trading on the internet, working from home is ideal. It requires discipline, especially if there are little ones to consider but there may be no need in the early days of your business to spend capital renting a small office.
This option also has the compelling advantage that it would suffer less disruption in the event of further COVID related lock-downs.
What special considerations do you need to look out for during the present economic downturn?
Cash is king. How many times have we heard that cliché bandied about? During a recession or depressed economic activity, cash flow, the end of the trading cycle, is king. Most entrepreneurs are obsessed with sales; winning a new customer, selling more goods and services. Business people with an eye to sustainability are concerned with sales and profitability. In a recession you need to be concerned with sales, profitability and cash flow.
There is no point in lending money to your customers; and if you think that is something you would never do take a careful look at your aged debtors list and unpaid sales invoices. Accountants refer to the management of your unpaid sales invoices as credit control. In recessionary times you will need to keep an iron grip on debt collection and credit control. Setting up and maintaining an effective system is fairly straight forward, but to be effective you will need to understand its relevance.
If your sales are £5000 per month and you offer 30 days to pay and if your customers take 60 days to pay your business will need to replace the £5000 it should have received from another source – by increasing your overdraft, or by introducing additional personal savings and so on. You have not lost any sales, you have not reduced your profits, but if you suffer extended delays in the payment of your sales invoices your business will suffer. Ultimately you could run out of cash, be unable to pay your bills, and find yourself out of business.
Take advice on an effective credit control process for your business and stick to it. There’s no point in winning new customers if you are forever chasing them for payment.