By Darren Fell, founder of Crunch.co.uk, the online accounting service for small businesses
Many people dream of setting up a small business and being their own boss: not only do you get the chance to build something of your own, you set your schedule, make all the decisions and work in a manner best suited to your lifestyle.
But lots are afraid to take the leap into the unknown, frozen by fear of failure and the potential rising debts that would accompany many new ventures. The only way of allaying such fears is to prepare meticulously, make financial projections and be sure of the path you are about to take.
According to Department for Business, Innovation and Skills’ (BIS) Business Population Estimates report, in 2010 there were 48,000 new start-ups, accompanied by a sharp fall in the number of companies going bust. However as the Government’s austerity measures take effect, 2011 looks set to be more challenging, so it will be crucial to leave nothing to chance.
Choosing what business to run
As well as having the desire to be a director of your own company, you need to have an interest and passion that will translate into revenue. For some this may relate to the job that they are already performing — perhaps feeling that they could make better use of their expertise if they weren’t restricted by a controlling boss.
What’s crucial is that the business is tightly defined — and provides a service to an identifiable customer base who will see value in parting with their money.
With this in mind, you should be able to create your own ‘elevator pitch’ — a business description that can be succinctly communicated in a few sentences.
Preparing for take off
Armed with a clear understanding of what you want to do and the service you will provide, now you need to prepare for success. The term ‘5 to 9er’ is used to describe those people who work on their own business interests at the end of the working day. Many even soft-launch their business during this time, avoiding the sink or swim scenario of quitting a day job.
Get your brand established online via a website, and make yourself easily contactable — networking site LinkedIn is a must for most self-employed professionals. There are so many free online tools which you can use to market your business, it would be foolish not to use them. You can establish a Facebook page for your business or a Twitter account relevant to your industry. It’s also worthwhile paying for business cards to accompany your elevator pitch.
Face-to-face networking is a great way of getting yourself known in the local community. It’s integral that you are knowledgeable about what’s going on in your industry, so be aware of the trends by reading industry publications and following the tweets of relevant people. You may end up inspired to tweak the service you provide.
And remember, let everyone including friends and family know about the service you are providing; you’ll surprised at who might just need your service.
Choosing a business structure
Traditionally, many small businesses owners would choose to launch as a sole trader. The logic being that it would be simpler and less expensive than forming a Limited company. However, the cost of incorporating a company is now very low and the process can take just a few hours. Online Limited company formations have made this process much easier; at Crunch.co.uk we once had a contractor’s Limited company set up in less than two hours.
The major benefit of forming a Limited company is that you are not personally liable for business debts as the business becomes a separate entity. It really does offer piece of mind when you know that your own possessions aren’t at risk if you run up debts or are sued by a client.
Stick to what you do best
Many small business owners make the mistake of bearing the burden of their tax paying responsibilities without the advice of professionals. Attempting to save money this way is a false economy. By having someone on hand to give you advice on how to reduce your tax liability and ensuring you don’t fall foul of the taxman will make life a lot easier. It’s particularly crucial in the infancy of a business that you are able to focus on the business itself and not have your head stuck in an accountancy advice book.
When your business is fully launched, the aim is to be making money, and in the long-term, more than what you were previously being paid. So, make sure you have a business plan that sets out your target profits; in the first six to 12 months you should be rather modest and simply aim to make enough to survive. Anything more is a bonus. If you are truly passionate about your new start-up, this is a short-term price you will be willing to pay.
After the launch of the business it’s crucial to create a steady cash-flow even if that means being willing to provide work at a lower rate; for example, you might want to entice potential customers with special discounts. There’s no better advert for your business than a happy customer passing on the word to others.
When people realise the value of your service, your customer-base will grow, as will the amount you’ll be able to invoice.
Starting a small business can be a smooth transition from a life of regular employment — as long as you follow a few golden rules it needn’t be the scary proposition that many people perceive it to be.