Here’s our top 10 things to consider when starting a new business.
A study has found that an extra 84,758 businesses were set up in 2020 compared with 2019. This is equivalent to a 12.3 percent increase year on year, which is the highest percentage growth since 2011, and the highest actual growth on record.
If you are considering starting your own business sometime soon, we have put together ten things you need to consider before taking the plunge.
- What product or service will you provide?
- Nobody plans to fail…
- Where will you work?
- What’s in a name?
- How will you structure your business?
- Stay on the right side of the law…
- How will you market the business?
- Keep the cash flow flowing…
- Do I need to work with others or employ people?
- Technology
1. What product or service will you provide?
Most people start a business based on their existing knowledge and experience of working in a particular industry sector, whilst others spot a gap in the market, but you need to establish whether there is a market in the gap. Make sure you carry out research, with companies and individuals who don’t know you – friends and family will generally tell you what you want to hear!
The next question you need to ask once you have decided on your products and services is ‘so what?’ In other words, what are your key differentiators, what makes your product or service unique? What can you do that is better, faster, or cheaper than your potential competition? If you don’t have an answer to this question you could end up as just another me too! You need to work out how to position your company and create a proposition for those all-important sales calls.
2. Nobody plans to fail…
…but many companies don’t make it past the first year because they fail to plan. You can increase your chances considerably by putting together a business plan even if you are the only one that will ever see it. A business plan should provide you with a map of where you intend to go supported by information on how you will achieve it. After all, you wouldn’t plan a journey abroad without first establishing the costs, time scales, the language you need to speak when you arrive, and how you would reach your destination. ‘The Definitive Business Plan’ by Richard Stutely is the most comprehensive guide to business planning I have seen and is well worth a read.
3. Where will you work?
For countless people the prospect of working from home may be a lifelong ambition, but scores of people in this position already find it difficult to focus and often feel isolated. Marcel Ekkel, independent project manager and consultant (SynergyhSnyQ Ltd) has worked from home for many years and said he copes by “planning regular meetings out of the house, doing grocery shopping to get some fresh air and uses online messenger applications to talk regularly to team mates”.
Today there are many options of where to work open to us from leasing unfurnished office space, sharing with other businesses, to working from fully serviced offices. With more competition in this market it is worth shopping around, but make sure you compare like for like, as some serviced offices offer no frills whilst others provide no end of value added services. You also need to be aware that if you need a registered office address not all managed offices will facilitate this requirement.
4. What’s in a name?
The choices are endless, but there are a number of things to consider before naming your business. Will it be a family business? Do you want to grow it with a view to exiting after a period of 5 years? Do you need a web presence? Should the name of the business reflect what you do? Are you going to register the name as a trademark? The answer to all these questions is an article in itself but you should carry out a couple of basic checks.
To register a company name is quite simple and costs in the region of £350 – £400 to register against specific product or service categories visit www.rockand.co.uk for more information. When choosing a company name log on to companies house (www.companieshouse.gov.uk) and check in both the existing and proposed names section of the website. Whilst you are there it would also be advisable to review their list of ‘sensitive words or expressions’ to avoid. If you plan to set up a website, enter potential company names into a ‘domain name’ registration search site such as 123reg to establish if somebody has beaten you to it. By creating and then going through a checklist in this way, it will save you time, money and potential disappointment in the future.
5. How will you structure your business?
Sole trader, partnership, limited liability partnership (LLP), limited company and plc, again there are numerous choices. “I’m not sure of the percentage, but sole trader is by far the most common for small one owner businesses, usually chosen for the simple registration process. Not always the best for tax or personal security, but this must be considered on a case by case basis,” says Alistair Brown of Advoco Consultancy Services.
If you do take this route and trade under a company name you need to display the name and address of the owner at your premises and on your stationery, whilst limited companies must display their full corporate name on places of business and stationery as well as including registration details on all business letters and forms.
Most people launching a business for the first time ask – is it better to launch as a sole trader or limited company? One of the main things that you need to consider here is, as a sole trader you personally are carrying the risk if things go wrong, but by setting up a limited company you will limit your individual liabilities. Limited liability partnership has only recently been introduced and means that it is the limited liability partnership that would be liable for any debt rather than individual partners as with the ordinary style of partnerships.
6. Stay on the right side of the law…
…by informing the Inland Revenue as soon as possible that you have started a business. You have 3 months in which to notify them from when you start a business. Failure to do so will result in a £100 fine and the potential loss of benefits. You must also check which class of National Insurance Contributions you will need to pay and you will find more information by visiting www.inlandrevenue.gov.uk/startingup. If you intend to hold data on customers or prospects, you must register with Data Protection at an annual cost of £35 that can be paid easily by direct debit on an annual basis.
For those who are considering setting up a company for the first time, you would be wise to seek professional advice from an accountant and a solicitor particularly if you are considering starting a partnership. You may all be friends at the start but this can soon change! It needn’t cost a lot of money, but could certainly save you more money in the long term.
We can help you as we have helped others…
7. How will you market the business?
Many great new products and services never see the light of day due to poor marketing. Establishing a web presence, direct mail, employing direct sales people, networking, display advertising, – “what approach will work best for your product or service?”
There are many different approaches to consider, see how we can help create a targeted marketing plan for your product or service.
This again depends on what you are selling and it is better to use a number of different methods initially to see what works and then go for it. If you don’t know where to start, it may help to find out how your competition is marketing their wares – if it works for them it could help to get you started!
8. Keep the cash flow flowing…
…by setting out clear terms and conditions you are likely to deter late payments and bad debts. Cash flow is the lifeblood of any company; ignore it at your peril! When you write your business plan you should have created a cash flow forecast, but don’t lock it away, regularly review it and update it. Don’t overstate projections and assume that because you have revenue coming in you will be cash flow positive. Another classic is forgetting to put money aside to pay your tax and VAT bills. Do allow a contingency fund for the unexpected, like an opportunity for cheap advertising or funds to buy a specific piece of equipment that will help you to work smarter or increase your product or service range.
9. Do I need to work with others or employ people?
Employing people brings with it risk, additional costs and responsibility. Unless you need to employ people at the very start, it is better to wait a while. With more people opting to be self employed in order to establish a better work life balance it is much easier to outsource activities that are not core to your business. If you do need to employ people, be aware that a raft of legislation and regulations comes into play when you have five or more people even if some are part time.
10. Technology
Some businesses don’t need technology to operate successfully, maybe they’re the lucky ones, but for most there will be a requirement to use a computer even if it is just to keep the books – unless of course you outsource this activity to a bookkeeper or accountant! Continual advances in technology now make it possible to work anytime and almost anywhere you want. Whatever you do, always make sure you regularly back up your data and your computer configuration. There are some great back up programmes on the market that are easy to use and you will sometimes see them on the free discs at the front of computer magazines.
Begbies Traynor, insolvency and business recovery specialists work with a number of businesses that are in trouble each year. An alarming 40% of businesses fail before the end of the second year and the main points of failure are no business plan, insufficient market research and poor cash planning.
All that said, a survey carried out by the company late last year proves that the entrepreneurial spirit is alive and business is booming.
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