Starting your own business can be an exciting time but it can also be hard work. Research shows that out of every five new businesses started, four will close within their first three years, so you are working against the odds of success.
But with passion, and some forward planning, the statistics can be beaten.
So what can you do to increase your chance of success? Before you take the plunge have a look at our simple and practical tips.
- Why start your own business?
Establishing a new business is a big task. The possible rewards can be great, but it is not for everyone. Some people do not have what it takes to step out on their own.
Be honest with yourself. What is the driving force behind your idea to set up a new business? To build a successful company? To have a better work/life balance? To make enough money to pay the bills and enjoy some extra spending money?
Many people look at starting their own company because they don’t like their current job. That’s not a good enough reason to start your own business. Find another position which suits you better.
Have you decided what your business will do?
Running your own firm requires a lot of work, time and patience. At the start, you may be on your own and be faced with juggling numerous tasks every working day, making decisions, picking up new skills, dealing with problems and the administration side. These are all jobs that you may have relied on someone else doing before. Can you adapt to that?
What is important is a clear goal, objectives and a vision of what you want to achieve. Think about where you want to be in several years’ time. Will running this business help you reach that point?
- What will be its structure?
Evaluate the different business structures and decide which to trade under. There are three main choices – operating as a sole trader called being self-employed, setting up a partnership or forming a limited company. Each format has different tax and legal obligations. Personal circumstances and long term plans will usually influence your decision of which to go for. Seek advice from a solicitor or accountant.
- Your skills and weaknesses
The most successful businesses know their weaknesses as well as their strengths. It’s a good idea to write down your skills and identify any weaknesses. Do a SWOT analysis (strengths, weaknesses, opportunities, threats) and be honest!
Your business needs to be making the most of your skills and possibly seeking outside help for your weaknesses.
- Cash flow is key
It can take a while for a new business to build up customers and bring in money so it is also important that you stay on top of your cash flow management. Ensure enough cash until the business generates some.
Be watchful of what you spend, and make sure that you get paid on time.
One of the main reasons why businesses fail is because they run out of money.
Before starting look at how much funding your business will require. Set up costs, stationery, marketing, IT, premises etc. There are a host of funding options for companies, such as commercial finance facilities or business banking facilities, so do your research.
Services businesses or those businesses which are primarily knowledge based will require less infrastructure than a retail business for example and so the start-up costs can vary widely from sector to sector. You need to plan for this – do you have enough funding to buy stock, rent offices, hire machinery etc? Or can your enterprise start out working from an office at home with a computer and decent broadband?
- Research the marketplace
Before you get started, it’s very useful to talk to potential customers. Relationships and contacts are key here. In talking to them you can understand what might make them use your services and buy from you.
This will help you find out whether there is a market for your product or service. It will also determine whether your new business is filling a gap in the industry or whether you will be trading alongside other competitors in a strong marketplace with room for your company.
- Who are your competitors?
This should never be underestimated. Spend time researching how your competitors operate, whether they have niche markets so you can exploit others, identify any weaknesses they have, and don’t be complacent. New businesses can often fall into the trap of following the same structures and working procedures as previous places of work. This is a time to change and improve processes, schedules and output levels. You will need to work on the ethos of your business – it needs to be unique and it is one of your best selling points.
- Structure your thoughts and plan ahead
Some people write a business plan, others just determine their objectives and pathways. It is always useful to have something to look at in future as a marker even if they can sometimes quickly go out of date. Ideally use your plan as a tool – monitor and modify it to accommodate changed circumstances.
Regular planning meetings with an accountant, solicitor and business advisor are helpful to keep your business on track and avoiding any unnecessary surprises or bills.
- How many employees?
Staff can be a costly expense. At first, as a start-up business you may be able to run it on your own, but as the company expands you may need to employ people to help you out and manage different aspects of your operation.
With hiring staff comes responsibilities. Wages, pensions, sickness, maternity cover and holidays. You may also have to look at new premises to accommodate more people. In some industries you can hire self-employed contractors as and when needed.
If you do decide on hiring, take your time and make sure your people have the right skills for the job and you get on well with them. Getting rid of staff is much harder than hiring them.
- Use professional advice
Surround yourself with professional advice – lawyers and accountants do cost but they can save you thousands in the long run. They can help you with legislation, insurance, funding and general business issues. Business turnaround specialists can help to transform a company and keep it running smoothly, preventing it from slipping into difficult trading.
- Keep an eye on what’s happening – cash flow and the market
Most businesses fail for one of two reasons (or both) – not researching the market thoroughly and not keeping on top of their cash flow. Planning and a keen eye on the bank balance are key.