As we approach the final holiday period of 2014 many people will reflect on the year gone by and look forward to a new start in 2015 when they can take charge of their own destiny and start (or even buy) their own business.
Starting a new business the first time yourself is not for the faint hearted, so you should be well prepared before taking the leap. The following is a checklist of things to consider before taking action, with some links to some support resources on our websites.
1 – Define the Opportunity
The business idea must have sufficient differentiation in the marketplace to gain traction. Unless you have unlimited resources, this does not necessarily mean introducing game changing technology, or concepts. It is always helpful if the marketplace already understands the need for your product, or services and can clearly see the price, or service (or both) advantage of buying from you.
As part of this evaluation you will need to look at the competition and question whether it is better to start from scratch, or buy into someone else’s hard work through the purchase of an existing business, or even invest in a franchise.
2 – Create a Business Plan
Dwight D. Eisenhower, the famous US General from the Second World War (and subsequent President) once said “In preparing for battle I have always found that plans are useless, but planning is indispensable.”
As in war, so in business. Plans can only go so far in preparing you for what lies ahead, but the act of planning is an essential way of debugging your ideas and recognising the pitfalls you will encounter in trying to get the business off the ground.
Key components of the business plan include: the price point of the product, or service; the cost of manufacture or delivery; payment terms of customers and suppliers; actual lead times to payment from customers. All of these things add up to ‘cash flow’. Visualising how the cash will flow through the business is an essential platform on which to develop the rest of the plan. It will help you recognise if your price point is too low, or your cost base is too high and where additional injections of working capital (ie cash) may be needed – especially in the early months and years.
A critical component of the plan is your personal earnings. If you cannot bring the business to a point where you can earn a comfortable income (one that covers at least your normal expenses) reasonably quickly, you will quickly hit the buffers. This is an acid test of whether the business idea really is viable.
Business planning is not always an easy process so it can be helpful to get advice from an accountant, or even a bank who will often supply ready made templates to help you organise your ideas.
3 – The Support Network
Even if you plan the business in its early stages to be a one man band, you will need to think about who can support you. This is, in fact, more critical for one man band / sole traders than it is for those starting with a team, or in partnership.
If you are part of a family, this evaluation must start there. Starting a business is a bit like having that first child. You are captivated by the wonder of it all (the freedom, the autonomy), but the 24 hour demands can often seem unreasonable and overwhelming.
If you are single, you will not have the problem of highly conflicting demands between family and business, but you may find that the vital emotional support that can come from the family is missing. It is important to recognise this and find a replacement through friends, or even through formal, or informal networks of small business people. In a world of social media this can be easier to solve than it was in the past when personal isolation could break the whole business.
4 – Physical and/or Virtual Location
One thing you will need to consider very early on is whether the business requires dedicated premises. If it will be a shop, or serving the public with retail type services then the decision is made for you. In which case you will need to find a balance between footfall and rental costs as typically shopping centres with lots of potential customers will generally charge a much higher rent. Lower rent options will be available, but may not be in a location that will bring in sufficient income.
For construction type services such as plumbing, or electrical work the business can often be started using the home as a base. While much cheaper to start with, this approach brings its own problems in terms of dividing home and business life and managing costs.
The same is true if the business is an online one. Unlike any other time in history, internet technology makes it easier to setup a virtual presence from the home – so reducing start-up costs.
5 – Sales and Marketing Plan
A common mistake in early stage businesses is to bury the sales and marketing plan into the business plan, or treat the sales and marketing of the business as secondary to the delivery side of the business. For example, spending all of the start-up capital on a van and tools and next to nothing on sales brochures, or advertising.
The sales and marketing plan should be a separate plan. Everything stems from this plan: if you cannot sell, you cannot deliver and if you cannot deliver you will not get paid. If you are starting a business with the thought that you want to stick with the technical stuff because you are not really a sales person, then think again.
All small business people are sales people whether they like it or not. The very thing that drives someone to start a new business is often a passion about a particular product, or service. This passion can be more than half the effort in making a sale as the first sale always has to be to the sales person themselves.
The internet is a huge help here and often existing social networks can be a great platform on which to build a marketing communication plan. However, a dedicated website is an essential tool these days so do not leave the launchpad without one.
To develop your ideas, test the sales argument in some small way to friends and family and, when honed a little, to some strangers. Use the information you get back to work out in practical terms not just how you will sell at first, but how you will ensure you will have a steady stream of sales enquiries that can also grow as you plan to grow the business.
So whilst enjoying the festive season and ruminating about your plans for the year ahead, we wish you every success in your new venture, whatever it may be, and if we can assist you in your plans for 2015, do not hesitate to get in touch.
Merry Christmas from all at A2Z Business Brokers!