In the recovering economic climate more and more people are setting up their own businesses. Most people are attracted by being their own boss, having flexible working hours, and controlling their own destiny. However, with 50% of all businesses failing in their first year, and only 5% making it to their fifth, how do you give your business the best chance of survival?
What follows are my top ten aspects of advice to help you get your business off to the best start in life and give it the best chance of survival in the long run.
1. Plan and prepare – You didn’t turn up for your driving test without learning how to drive first, so why start a business without thorough research. Aside from family and health, your business is often the most important thing in your life, so give it the respect it deserves and plan every aspect of how it will run (sales, employees, operational systems, processes, premises, stock, equipment, legal requirements etc. etc.). And remember to repeat this process from time to time as you plan how you are going to achieve your goals in the next business cycle.
The irony of these *plans once completed is you will never use them! However it is the very process of preparing the plan, the due diligence on your ideas, that is where all the benefit lie. This is beautifully conveyed in Dwight Eisenhower’s famous paradoxical quote “In preparation for battle I have always found plans to be useless, however planning is indispensable”.
2.Learn – where your business plan identifies weaknesses in your skills set, bridge those gaps by reading. The most successful business people are life long learners, constantly reading other business people’s stories. They know that reinventing the wheel is folly. Almost everything has been done before, and bitter lessons learnt in what to and what not to do. Here’s a general one for you to start with; “The Seven Habits of Highly Effective People” by Stephen R Covey.
3. It’s all about sales – This is the most important skill, because if your business can’t sell, well you won’t have a business for long. The first rule is don’t fall into the trap of trying to sell “features” you personally like, you must rather only sell benefits your customers want. “What’s in it for me?” is the sub-conscious question every customer asks themselves when you offer them your product. So think like the customer does, aim to satisfy their unsatisfied need uniquely well, and your sales results will be a success. As above, plan and prepare by writing a dedicated *Sales and Marketing plan.
4. Manage everyone’s expectations, and your own – An all too common downfall of new start-ups are disputes with suppliers, landlords, customers, employees, business partners, professional advisers, finance providers and so on. Make sure you agree all of your formal business relationships in writing. There are numerous *free templates for most contractual arrangements now available cheaply or even free from your professional advisers. Whilst the agreement of terms in writing for all your business relationships appears time consuming and bureaucratic, they are worth there weight in gold should a dispute ever arise.
5. Use the right trading style – should you be a company, a sole trader, partnership or LLP? A company will provide you with protection against losses in a possible future business failure via “limited liability”. In this event the only money you will lose is the capital you invested and any personal guarantees you made, with your personal assets being protected. A company structure also provides lower tax burdens for the owner-manager, in addition to many other tax strategies for attracting investment finance, creating group structures and retaining and motivating employees (as covered in a previous article). If you’re going into business with other people, a company format also provides you with enhanced rights and responsibilities as to how you and your fellow shareholders conduct yourselves within the business.
The business may however incur heavy start-up costs creating losses in the early trading period. If so, then a sole trader or partnership format would be preferable as this may produce tax refunds from those losses. This format can always be converted into a company at a later date with some professional assistance.
Both the company format and sole trader formats have many, many other characteristics that may be personally preferable to you. The key message is take proper professional advice from a qualified accountant who will cover all of those advantages and disadvantages and help you make the right choice.
6. Protect your investment – Think of what could go wrong and at some point it probably will! But you can reduce, and in most cases eliminate the effect of these inevitabilities by completing a *Risk Assessment Analysis. The basics are fairly straight forward, so minimal insurance cover is essential such as public, employee and professional liability cover to avoid the associated financial loss. But have you considered what would happen to your business if you’re not there for 3 months, or your manager left at the drop of a hat? Aside from the obvious key-man insurance cover, have you systemised your business enough so that it can be run by other people to the same standard in the absence of you or your key managers? (see below). You should also make sure you have offsite back-up arrangements for all of your paper based and software programs, as well as the data held upon them. So in the event of a disaster such as a fire, flood or major power disruption, you should have plans in place to enable you to be back up and running as soon as possible with minimal interruption to your customer service. You may also want to protect your brand and trademarks from being imitated by others; you can do this by properly registering them with the help of The Intellectual Property Office.
7. Systems – Many people start their own businesses seeking to escape the red tape of their old employers, and look forward to delivering their services in a more perceived friendly and informal manner. The irony is however that systems are the lifeblood of every well run business, and lack of them is one of the main reasons for business failure. As above, write expectations down, and here I mean how you want things to be done in your business, the same way, every time, without exception, no matter who is doing it. For example, many people are slavishly loyal to apparently poor quality fast food restaurants. Whilst the quality of their food may be poor, you cannot fault them for how consistent it is, and it is that consistency those customers love and go back for time and time again. As soon as you start your business, create standard procedures flow charts, standard letters, checklists, forms, and standard scripts you and your team will use. You’ll minimise inconsistency and maximise quality as a result and your customers will love you for it.
8. Surround yourself with great people – With almost everything in life, the cheapest is always the most expensive in the long run. Do not be tempted by the lure of underqualified employees willing to work under the going rate, or advisers happy to undercut. The initial sweetness of cheap labour or professional fees is inevitably replaced with a bitter aftertaste when things don’t get done. Create a circle of properly rewarded, qualified and experienced advisers in creative, legal and financial fields who will make sure you comply with all the relevant legislation affecting your business, facilitate growth and maximise your returns.
Some free advice is available! Networking groups, industry forums and online discussion groups provide an excellent resource of experienced business people, delighted to share their knowledge with you to compliment your own employee and professional adviser teams.
9. Take action! – Apathy is another disease of the small business owner. You’ve read the book, attended the seminar, or had the strategic report prepared on the state of your business, and you feel energised to put some changes in place that are going to turn your business around. This is called “working on the business”. But for what ever reason, none of it gets done and you’re still working long hours for seemingly little pay, dealing with the same problems. You went straight back to working “in the business”.
MAKE TIME! Once a week, once a fortnight, or at the very least once a month for your strategic review meeting and systemise that commitment by blocking a reoccurring date out in your diary. Between these meetings develop an *agenda between you and your key people (this may only be your partner or friend if you’re a sole trader, but do it no matter how small your business). From each meeting you will have an action plan and accountability to execute those tasks before the next meeting, the review of which is item number one on the next agenda.
10. Cash is King! – Businesses ultimately fail for one reason, they run out of cash. Firstly make sure the financial structure is correct. The type of finance should be matched to the underlying need. Start up capital should ideally be funded by equity investment, assets with long lives should be funded by long term loans, cash to fund the day to day running costs of the business might be funded by a factoring facility and an overdraft provides a very short term back-stop to unforeseeable short term cash shortages. Again, use your professional team, your accountant or finance professional will help you find the right match. If you have your systems correctly in place (you’re beginning to see the theme here) you should know with some accuracy what is coming in and what is going out in the short term. Never manage your cash flow from what is in the bank right now. Know what your PAYE, VAT and major supplier payments are on the horizon, and make sure your cash collection systems are working like clockwork so you are paid on time to cover them.
Please feel free to get in touch if you would like any of the templates above marked with *.