Back in 2011, Shane Cann, an associate at Bush & Co Limited Chartered Accountants, decided to start a business with his wife, Marie. It wasn’t a difficult decision as he thought that he had a good background in the relevant skills. The only problem was that the business was in an industry neither of them had any direct experience of.
This is the first of a three part series on the subject of starting a business. This has been written by Shane following his experiences of owning and running a restaurant in Dawlish Warren, Devon. Although Shane is an accountant and tax advisor, the experiences he gained prove invaluable when advising on starting up a business or speaking to a potential entrepreneur.
Before setting up a business, there are a vast amount of things to consider. Without a business idea which subsequently grows into a plan, there isn’t actually anything to get started. Sometimes these come organically via a hobby which escalates into a commercial enterprise or an idea so inspiring that it takes hold and the result is a start-up business.
The next stage tends to be that feeling of “wow this is going to be great”, it’s at this point in my opinion that determines how well the business will start and how it will perform in its infancy. Incredible businesses will sometimes be successful without much preparation and work, these are rare in so much as I am struggling to think of a client or national business as an example.
In my experience, the level of thought that goes into this stage really differentiates the more prepared business owner from those who just stumble into running a business.
This stage doesn’t necessarily need to be recorded into a formal document although this is sometimes helpful to refer back to. This process should cover the following steps:
- What is it we will be selling? Is it something that there is a market for? Is this want the actual customer wants or is this what we would want?
- What will be our competitive advantage or unique selling point? Service, captive audience or price?
- What are we aiming for? What will the business look like in 1 year? What will it look like in 10 years?
- How will we get to these business visions? What will be willing to sacrifice to get there?
My advice is to really try and understand what level of work will be required and how is that going to affect your life and your family’s life? Most budding entrepreneurs underestimate this and find that it strains relationships in the early stages of their business ownership. In my opinion, you cannot get too much information on this subject so research this and speak to family, friends, even speak to an accountant such as myself, most people will be willing to help you.
Once you’ve made your decision, you need to really commit to it and you won’t be able to do that properly without really thinking about the realities of what’s coming.
At this stage, it then becomes important to prepare financial forecasts. I cannot stress enough how important it is to be as realistic as possible with these, from my own experience, getting these forecasts wrong can lead to a false sense of security.
The forecasts are generally driven from sales which is certainly as good as anything however don’t forecast sales and then change the costs up or down to ensure that the forecasted profit is at the level you hope for. Instead, deal with every item on its own merits, for instance, a cost of sale would normally have a direct relationship with sales whereas the rental cost is what it is as is electricity.
By creating forecasts in this way, it will mean that you’re not over spending on your fixed costs and kidding yourself that it is ok as it is less than the forecasts.
It may mean that the business is forecasted a loss for the first year or two. If this is the case (and realistically, this is normally what actually happens in my experience) then it raises questions now such as how will these losses be funded?
No one wants to think about their fledgling business making a loss however if it does, you want to know that you can cope. If it makes a small loss in the first year and you need £24,000 as an individual to live then you are clearly going to have a problem, you can choose to deal with this issue now (when you’ve got a chance to change your actions) or after your first year when it could be terminal.
If the business needs funding, it is at this stage when you should apply. Most banks will want to see a formal business plan along with financial forecasts and details of the owners. Waiting until the business is in difficulty is not advisable as it is often too late. Having working capital funded in advance can really take the burden off of the business owner.
Thinking about business structure is important at this stage but don’t be overwhelmed by the options available. There are plenty of options available however sometimes they structures have very little difference other than the taxation of them. If you choose to incorporate then it is likely that you will have to give a personal guarantee to a borrower or landlord anyway. This is an important decision so it is recommended that you speak an accountant who can guide you towards the best option however don’t get too worried about it.
Once you have a business structure, finances in place and a plan, it is time to go out and start being a business owner. This is where the fun begins and the challenge really starts.
When setting up a business you need to create a plan however formal or informal, you do need something. Without it, you will have no idea of what you are letting yourself into. Of course, a lot of it will be guess work however engaging an accountant to review the plan will at least give you a guiding hand.
10 Tips for Creating a Business Plan
- Be realistic about sales, don’t set too high targets and then become despondent
- Be realistic about costs. Be generous and round up.
- Don’t add a “contingency” as it will give you a false sense of security and it will inevitably be spent even if it is a notional figure.
- Think about what you’ll offer and how you’ll sell it.
- Think about the first year in as much detail as possible.
- Make sure you incorporate the plan into a longer term strategy to ensure you know where you want the business to go.
- How will you carry out the work? Can you do all of the jobs?
- Seriously consider arranging finance well in advance of requiring it.
- Make it a document which you will refer back to, again this goes back to being realistic.
- Think about using an accountant early in the process (naturally).
If you’d like to find out more about starting a business then please contact Shane Cann on 01392 432525 or if you’d like to leave a comment then please do so below.
Image courtesy of https://www.flickr.com/photos/thenext28days/
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