Tough Luck, You’re Not Going to Get Rich Quickly in Your New Business

In starting up your own business there are some things you must do if you want to succeed. If you go through these steps and decide at the end of it that you are not ready, you have saved yourself a lot of money and frustration. On the other hand, if you have all these answers and are still keen, you have a much better chance of making it work. There are a lot of people, self-help books and websites out there to assist.

The Business

• Decide exactly what your business is to do. Are you selling products? Services? Consulting? Advisory? Buying? Define it in ten words or less. Then define your objective within ten words, e.g. ‘Be a world-leading producer of top class music recordings’. This is where your dream gets expressed and you should imagine the best results that you can.

• What skills, qualifications and work experience do you bring to the business?   Having work experience in another business of the same type will give you a good start and enhance your chances of success. It will also inspire more confidence in your investors or bank that you know what you are doing.

• Prepare your Business Plan. This includes everything about how you intend to achieve the objective. It is how you will make money with your business and how much over how long a period. It states how you are going to set the business up and what you will need to use (people, money, materials, time, machinery, etc), what risks you anticipate, what hurdles must be surmounted, and your best estimate of how much money you expect the business to spend and to bring in over the course of one, two, and three years. This is important for deciding a lot of these details for yourself but, if you wish to borrow money, a lender will also want a copy. It is proof that you have thought it through thoroughly and that it is feasible to expect to end up with more in receipts than payments. Wherever possible use lists to keep things succinct. Even if you think you are ‘no good at numbers’ you still need a plan. Just get on with writing down all the things you have worked out in your head or get help, but don’t just skip over it. The bank might be able to give you a template, or you could find one with a bit of research in the library or on the Internet.

• You also need to put thought into ‘what if I succeed?’ What if the business is still running well next year? In five years? Are there any ongoing costs to take into account, e.g. maintenance or equipment replacement? A fun one is ‘what if I am a raging success?’, but it’s worth a thought about ‘get more staff, move premises, acquire more equipment’ or whatever would be needed if you got more work than you could handle. It will uncover any areas where a trap might loom.

• If you’re going to be selling things, how are you going to buy or make whatever you will sell? If you are buying anything in, you will need a plan for purchasing, transport, quality control, delivery, payment, and storage. If you are making things, your supply plan will include raw materials and equipment and you will need a quality management plan. Don’t forget the insurance and maintenance plans for the equipment. You will also need a contingency plan; what if you can’t get your supplies or your equipment doesn’t arrive in time? There is a wealth of valuable advice available relating to supply, stock management, and storage (warehousing) that is worth looking at before you decide to jump in.

• Are you hiring anyone? It is a good idea to already have 6-12 months wages in the bank. There are rules and regulations about hiring (and firing) and about maintaining a safe and healthy working environment, e.g. some jurisdictions require display of the Health & Safety Regulations in the workplace. You need to understand these requirements and be able to comply.

• If you want a limited liability company, you will need to get your lawyer or accountant to set it up for you. Be prepared – a registered company has legal obligations, such as filing annual accounts with the Companies House. This will need an accountant and must be included in your budget. You are also obliged to keep accounts – a strict record of what goes out and what comes in. There are a number of small business accounting software packages on the market. It’s worth asking your accountant if he/she has a recommendation. For example, if they use software that will only need your backup copy for the accountant to do the annual accounts, it will save you a lot of time and hassle. But you will need to use that particular software to be able to do it that way.

Finances

• You need money to start with. Where’s it coming from? Do you have enough savings, are you borrowing from the bank, or is someone else investing? How much money is enough is very dependent on what you are planning to do. If you can cover your first year of operation you are in a very good position, provided you expect to make more money during that time. If you are planning to borrow, you need to know exactly how much you require and how long you think it will take to repay. The lender will need to be convinced that you can make your proposed business idea work and have researched it and identified your market.

• What’s your budget?   What income do you expect and what do you expect to pay out? Don’t forget the overheads like phone, broadband, rent, rates, electricity, water, cleaner, window cleaner, gardener, etc. You will need to include (and earn) some money to pay yourself a living wage, so this goes into the budget as well. Some banks offer a ‘new business’ package, which includes guidance on keeping your accounts. Break down the budget so you know how much income per month you need to earn in order to keep your head above water. It is also useful to develop a payments plan at the same time. This uses the same information as the budget but lists the payments that you expect to make each month. This will show the effect of the quarterly and annual payments on your bank balance and whether you will need to negotiate an overdraft facility to cover any difficult spots.

• Who is going to do your accounts? You will need an accountant for the annual returns but what about the day-to-day bookkeeping? Some businesses simply record and collect all receipts and payments and hand the records to the accountant who then provides financial reports. Some hire a part-time bookkeeper that comes in once or more times a week just to do the bookkeeping. You can do it yourself and be more on top of the numbers, but the time you spend doing it is time spent away from earning money and doing the job that you love doing. A daily update of a small business accounting package is not hard, however, and will save you money if you can do it easily yourself.

Marketing

• Research your market. Are there enough people who want to buy what you are selling? Will they come back again or could you run out of customers in a year or two? Who are your likely customers – young people, middle-aged men, elderly folk, and other small businesses? The answers to these questions belong in your Marketing Plan along with the answers to the next question. This is another useful document for the bank, as part of your Business Plan.

• Why should people buy what you are selling? Is it something they need (like care services, chiropractic services or shoes)? Is it the best quality on the market? Is it the only blue one in the world? You need to identify what makes your product or service special. This is your Unique Selling Point (or ‘USP’) and should be a part of any advertising you do.

• What is your plan for telling the world about your business? People will not come through the door unless they know it’s there. Review every option you can find. Are you going to use Internet marketing? Are other people recommending you? If you are planning on an advertising campaign, it is very important to know how much it will cost, before you commit to it. Having identified your market (above), where will those people see your advertisement? Watch out for con artists who tell you they can earn you millions of pounds over the Internet with their ‘special software’ or similar. If you don’t understand exactly how it will work, you probably don’t want to get involved, however attractive the £ signs might appear. There are exceptions but, as a general rule, you should be able to approve a copy of any advertising or directory entries before you pay anything.

• Do you need a venue? If so, is it easy to access? Do you need a spot where you will get ‘passing trade’ (people walking past the door)? If passing trade is important then location is critical. It is usually a plus if there are other similar businesses close by as people will come looking in that area for what you offer. You also need to assess how ready the space is for starting business. Does it have all the necessary amenities? (e.g. Toilets for you and staff, sink with drinking water, facility for making tea/coffee, security locks, Fire Exit signs, power supplies for equipment). Check the insurance cost and what the rates will be. If customers will be visiting, your venue needs to feel welcoming – clean, light, comfortable, smart and business-like. Don’t overdo the smells. A clean smell is good but strong bleach is off-putting. Incense and other fragrances can trigger allergies in some people, which might stop them at your door.

Once you’ve started…

• Keep your personal money and the business accounts totally separate. You may have to lend money to the business to get it going. Make sure it is properly recorded in the accounts as a loan. It is a debt that the business owes you and can pay back without you having to pay extra taxes on it. But this will only be if you have properly recorded it and kept everything separate. There is no such thing as ‘just taking that back out of the cash box’. If you have a limited liability company, the law requires you to regard the business as a totally separate thing – like another person. Anything that passes from it to you will be wages, ‘director’s emoluments’, loans or ‘drawings’. If in doubt, don’t touch and consult your accountant.

• Update your accounts regularly. Once a day is excellent, once a week is good, once a month is rarely enough.   The further in the past things are, the harder they are to remember or track down. Doing the bookkeeping frequently will make it easy. It also means you are very much in touch with how your business is doing and can address problems before they become too big.

• Keep an eye on whether you are making money or losing it. From month to month the figures will vary but you must know if your plan is working out in reality and identify any issues that can be corrected. If the numbers show that more is going out than is coming in, you will need to increase the income and/or decrease the outgoings to stay in business. A monthly review is usually sufficient to know what’s happening and soon enough to apply remedial measures. This is another important reason for keeping the accounts up-to-date. Badly maintained records increase the chances of an expensive mistake.

• Step back and take an overview that is as objective as you can make it. A monthly review of how close you are to your objective should keep you on track, e.g. ‘How close am I to being a world leading producer of music recordings? It means that you have worked out how to measure the activities in your objective and are keeping tabs on it. If your objective has ‘quality’ in it somewhere, do you have someone else measuring the quality? Are you getting reviews on it on your website? Are they good or bad? Are you 5-star or ‘no comment’? If you want to be world leading, which magazine should be talking about you?   This review should tell you if you are out of focus or if you should really be producing boots instead of shoes because you do that better and like it better.

• Keep a notebook. Write down everything that happens – receipts, payments, and agreements with people, phone queries that you make, decisions you make. You will have what you need when you have to check up on ‘what did I say?’, ‘the tax people told me something about this’, or ‘I didn’t agree to that, did I?’ Also, it is a reference point when you are doing the weekly accounts and need to clarify something. Don’t duplicate effort and let the receipt book be the receipts record, but have everything recorded somewhere. Using your memory is unreliable and clutters it up when you need to be focussed on the job.

• It’s sad, but you can’t expect business colleagues or contacts to be your friend. They are in it for the business and will be very nice to you but don’t try borrowing money from them or expect them to hang around waiting for money you should have paid them. The basic rule is to keep your personal life quite separate from business. It’s what everyone else is doing, so you need to understand it and fit into the flow. If you get a ‘nasty’ letter, don’t let it upset you, just see it as someone ‘doing business’. Getting advice before you respond could also prevent you making a mistake based on an emotional reaction.

• Similarly, you shouldn’t accept poor service or low quality just because you want to ‘be nice’.   It’s not doing anyone a favour to let them sell you something that’s not fair value. Some people will try to sell you nothing for something and it’s to their benefit as well as yours to just not play that game. You can be nice as you do it, but people will respect you more for being firm about what you want.

• Market, market, market. If people don’t know you are there, how will you get business? There are a lot of companies that will help you with marketing (for a price) but there are many things you can do for yourself. Prepare a professional-looking website and a brochure that can be handed out or posted. A website won’t be enough by itself – what prompts people to look at it? Where would you expect to see your sort of service and what are other people doing? Get some professional photographs of what you sell and put them on the website and into your brochure. Where will you advertise? The local Chamber of Commerce may have advice or there are a number of government or local council initiatives that could assist.   Look at other opportunities e.g. fairs, a display case, magazine advertising, local papers, brochures in the local hairdressers, or a notice up in the library.

• Look smart. A tunic or apron is appropriate for some jobs but in any event you need to look well cared-for and as though you are successful at what you do.   Clothes must look clean and tidy. Holes in jeans may be the ultimate fashion at the time, but not many customers would be impressed by it. Make sure your hands and nails are clean, keep a nailbrush on the hand basin and use it. If you work with your hands and keeping them clean is impossible on the job, wash them thoroughly before you are in front of customers.

• Celebrate your successes and see mistakes as challenges and opportunities to know how to get it right next time, when it might be more important. There will be times when it looks too hard, but it gets easier if you can look back to your high points.

• Pay all the right taxes. Don’t pay any more than you should, but don’t try to cheat. Cheating is not smart because (a) you’ll get caught and it will be far more expensive than paying the right amount in the first place would have been, and (b) it takes you off-focus for succeeding at what you do best and want to do in your business.   If you’re paying taxes, you must be earning money. The UK government Revenue and Customs website has a lot of very helpful information about what you can claim as expenses when you are self-employed and they provide free training courses.

And – tough luck – don’t expect to get rich quickly. It’s more about doing something you love doing and being your own boss while you do it. You might get rich if you do whatever it is very well. The more you believe in it, and the more you work towards doing well, the more likely you are to succeed.