Using our experience of working with small companies over the past decade, we’ve compiled a no-nonsense list of 16 things you should consider before taking the bold decision to start up a new business.
1. Are you cut out to go it alone?
There have been numerous studies into the ‘nature vs. nurture’ debate – whether entrepreneurs are born or bred. Most successful business people have always expressed a desire to succeed on their own, to try new things, and take a certain amount of risk to achieve their goals. There isn’t a set of character traits that one ‘needs’ in order to be a success in business, but having a natural desire to leave traditional employment behind, and the faith that you will be able to succeed on your own is an essential starting point. Having the ability, tenacity and funding, together with a good idea is obviously essential too – but these factors only come into play if you have the drive and faith to take the leap in the first place.
2. Why are you thinking of starting a business?
You need to be clear about why you want to start out on your own. Do you have the right skills, and a viable business idea that people will buy into? Are you simply frustrated with your current job and need a career move, or do you have a strong desire to do something new – on your own?
You need to be sure that you’re doing it for the right reasons, as running your own business can be tough at times (but immensely rewarding if you get things right).
3. Is there a market for your idea?
If you’re going to offer a new product or service, you will either have to be sure that you can create a new market, or take a slice of an existing market. How are your potential competitors faring, and what can you offer customers that they don’t? If you’re entering a busy market, can you do things better than your competitors? If you can’t compete on price, can you compete on quality or something else?
4. Identifying your customers
Once you’ve decided that you have a viable product or service, how to do present it in front of your target audience? What is your route to market? Deciding upon the right sales channel will depend to a great extent on what you are offering. If you’re setting up a web design firm, your sales channel will be very different than if you’re setting up a local childcare business, for example. In all cases, you will need to determine where your customers are, and how they’re likely to interact with your business. Examples include direct mail, PPC (Pay-Per-Click), attending trade shows, sponsoring events, local/national press, and any number of less mainstream (and even ‘quirky’) ways of reaching out to your audience.
5. Do you have the time?
Aside from the assortment of practical factors which determine which start-ups succeed and others don’t, one thing you absolutely must be prepared to give to your business is hard work. No more prescribed working hours, flexitime, or overtime. If you set up your own business, the more time you put in, the greater your chances of succeeding. You may be able to set up your new enterprise and hold down your 9-5 job at the same time – particularly in the early stages. Other businesses can be run perfectly successfully as part-time ventures. But, in each case, you must be prepared to put other aspects of your life on hold and give your all to your new idea.
6. Don’t spread yourself too thin
It may be tempting, when planning your new business, to try and achieve a lot of goals at once. Rather than spending time trying to develop multiple products and ideas, why not focus on trying to deliver one really good product, and then expand your offering once you’ve succeeded with the first?
7. Harness the power of the web
Have you considered how to use the web to market your business? Almost all businesses would benefit from some kind of online presence, even if this is merely an online website to feature opening times and location. These days, you don’t need to be a technical wizard to set up your first website. Most web hosting companies provide ‘out of the box’ software to let you set up a simple site in minutes, but you may need to invest some initial funds to pay a web designer to provide your business with a professional-looking site, or a logo as a minimum. You may also benefit from joining some of the major social media sites to make the most of every marketing opportunity. Facebook, Twitter and Instagram accounts are good places to start, but remember to provide potential customers with regular updates. Find out more about how to get your business online.
8. Do you have the funding?
Most small businesses are initially funded by their owners, friends and family members rather than banks. In fact, many start-ups would rather run up debts on their own personal credit cards and do almost anything else than consider high street lending. As your business grows, you may be more prepared to approach traditional sources of lending – and to secure funds from institutions, and even business angels. Unlike most early-stage funding, which will typically be sourced from your own personal network, you will need to present a credible business plan, and have a viable business model before banks will lend you money.
9. Create a business plan
You may think that business planning is a waste of time. Many entrepreneurs even think that writing down a structured plan will pin them down in some way, and take away some of the energy needed to make a new firm thrive. However, drawing up a plan of how you intend to make your business a success needn’t be time-consuming, and will often prompt you to address issues you may have missed otherwise.
Although there are commonly accepted ways to structure a business plan – from the Executive Summary to the Conclusions, there are no rules which dictate precisely how should structure your plans for the future. If you split your plans into bite-sized chunks (as per convention), you will find it easy – later down the line – to compare how the business evolved, compared to your initial forecasts.
Read some specific business planning tips here.
10. Watch your cash flow
Unfortunately, the single biggest reason why businesses fail – across the world – is running out of cash. You may have spent all your savings, and be unable to borrow further, or be forced to cease trading as you are owed money but third parties. From day one, set up a cashflow management system – even if it is very basic to start with. Make sure you create invoices correctly, submit them on time, and take prompt action if payments become late.
There are dozens of robust, and low-cost online accounting systems out there – enabling you to invoice customers and keep track of what you’re owed at any one time.
The more advanced software providers, such as FreeAgent, will let you know when your tax deadlines are coming up, marry up your invoices with your bank statement entries, and even allow you to file your personal tax and VAT returns via an HMRC interface.
11. Where are you going to be based?
Most start-ups begin life at home, and if your business succeeds and survives the early years, you may branch out and rent/lease or buy premises. Your location and working environment will depend entirely on your own circumstances, but if there’s one bit of advice to share, it would be to make sure you can separate your business and work life. It is notoriously hard to give your business the time it needs if you have a desk in the middle of a busy kitchen, for example. If you’re starting up from home, try to dedicate a room, garage, or shed solely to concentrate on your business idea. If you have kids, it is even more important to make sure you have the ability to switch off and focus on your business – even if the reality of daily life means that this has to be in chunks spread across the day.
12. What makes you different?
How are you going to differentiate your business? What are your unique selling points (USPs)? You may not be able to compete with your competitors on price, perhaps, or on location, but you should be able to identify qualities your business offers which others can’t, or don’t do effectively. What makes you unique may be as subtle as unusual branding, or the way you deal with your customers.
13. Rules and regulations
If you’re thinking of setting up a new business, make sure you’re familiar with any rules and regulations you will be expected to comply with – particularly if you are planning on employing staff. There may also be specific licences you require before you can carry on a trade, and you may need to take out insurance cover (such as Employers’ Liability) to comply with Health & Safety rules.
14. How to structure your business?
Almost all business owners trade as either sole traders (and partnerships) or via their own limited companies. The limited route involves more administration, and the directors have to fulfil a number of legal duties, whereas the sole trader route can be embarked upon almost instantly. In most cases, going limited is the more tax efficient route to take, and the liability of directors is limited, whereas the finances of self-employed people and their business affairs are treated as one (and liability isn’t limited). Find out more in our guide – limited or sole trader.
15. Your obligations to the tax man
Make sure you’re up-to-speed on tax basics before you embark on your new life as an entrepreneur. If you’re a limited company director, you will have to pay Corporation Tax on your profits, as well as paying personal tax on any money you draw down from the company. If you’re a sole trader, your income will be taxed annually via the self-assessment process. Whichever type of business structure you work under, you may also need to register for VAT – and decide which specific VAT scheme is best for your business. The penalties for missing tax deadlines, or for making errors can be costly, so we’d recommend hiring an accountant (essential for a limited company, and recommended if you’re self-employed). Find out more in our tax section.
16. Build up your support network
Although you’re planning on going it alone, what will you do when things go wrong or times are tough? However independent you may be, it is important to share your hopes and concerns with people who understand what you’re going through. Alongside friends and family, look for chances to network with like-minded people. It has never been easier to get in touch and connect with other business owners. If you do just one thing when you’re thinking of starting up, join LinkedIn and create your own profile.