Starting your own business can be an exciting time, but also very difficult. Here's our simple seven-step guide to making it as pain-free as possible.
1. Formulate and test your idea
Use market research to gather as much information as possible about potential customers. How large is the market? How much will customers spend? Is there a market at all? Assess the competition, compare rivals' prices with predicted sales figures and meet with possible clients to establish their needs (and discover how current suppliers are failing to meet these needs).
2. Organise a comprehensive business plan
A business plan is essential, even if you don't expect to borrow money from an investor such as a bank. The plan does not have to be very complex, but it should outline the business' main expenses, predicted sales and annual profits for the first few years of trading. Ask yourself some tough questions about your business – the kind that it takes serious thought to answer. Use specialised business planning software to create the necessary charts and tables. Some high-street banks provide this software for free when you open a business account, and Barclays has put together a downloadable Small Business Pack which includes examples of good plans.
3. Find and manage the finances
All new businesses need some working capital. This can be obtained in a number of ways, ranging from personal savings up to bank loans, venture capital and business angels. There may even be grants available.
According to the UK government, only 70 per cent of British small businesses survive the first three years. A high percentage fail because of cash flow problems. Many suppliers expect to be paid immediately, or within four weeks, while a small business might have to wait eight weeks or longer to be paid by some business customers. Factor these kinds of delays into the business plan.
4. Choose a location
Some enterprises can be run from home, which greatly reduces the initial and ongoing costs. Enjoy the financial benefits but beware the capital gains implications of using a large part of a domicile as a business premises. Physical retail outlet or large workspaces can be leased. There are economical advantages to running ventures near other, similar businesses. Additionally, locations in 'Assisted Areas' can make a business eligible for a government grant of at least £10,000. See www.businesslink.gov.uk for more on grants and other funding options.
5. Use technology
Most businesses could not operate without at least a telephone and, in some cases, a fax line too. Of course, you’ll almost certainly need a computer as well, for both communications and things like keeping the books up to date. Email is considered necessary by most suppliers and many customers, while a good website is an essential marketing tool and a rich source of income for online retailers. Email, internet messaging, Voice over IP and other online collaboration tools make it inexpensive and easy for remote workers to cooperate, which is ideal for small startups that may not have a central premises.
Bill Murphy, managing director, BT Business recognises that small businesses have a strong need for technology but operate with limited revenues: "We are providing entrepreneurs and growing companies with cost-effective and successful ways of using communications and business tools without paying the earth for them. This will allow them to compete amongst much bigger players, levelling the playing field with the smarter use of IT and communications technology."
6. Hiring the right staff
A business relies heavily on its staff. Startups need a strong team to get things moving and a founder cannot do every job competently. Focus on core skills and employ specialists for areas such as financial, marketing and sales.
Interviewing prospective employees is particularly important when today's typical worker changes jobs frequently and is adept at writing a convincing CV. Remember that an enthusiastic and bright candidate can be trained, while a highly-qualified but jaded employee is less valuable over the long term.
7. Sales and marketing
Good sales and marketing is essential. Marketing ensures that a business' products and services meet its customer’s needs while informing those same customers of the fact. Marketing encompasses promotion, pricing and distribution.
Good marketing costs money but can also raise the value of your products and encourage more frequent purchases. Establishing a strong brand doesn't just happen, so consider employing someone freelance or full-time to manage marketing.
But of course, just marketing on its own isn’t enough. You need to ensure that your sales systems and channels are in place, so that people can buy your products easily. Where will customers be able to buy? Are you primarily a business based on “sell through” – putting your products onto the shelves of shops – or “sell to”, where you sell directly to customers through a shop you own, mail order and the web. This should be covered in your business plan before you start – otherwise, you may have a great product, generate demand for the product through your marketing, and simply not have the ability to get it into the hands of people wanting to buy it.
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