Top Tips for Business Start-up Success
In the aftermath of the recession and redundancies, a lot of people are examining the option of self employment.
Those starting a business may be faced with many risks, but during a difficult economic climate, there are even more perils to overcome.
In this article we summarise some key tips that start-up businesses should take heed of in order to help ensure that their business is a success.
Structure- partnership, sole trade or company?
Don’t be fooled by the myths- you do not need to set up a company when you begin to trade! However, it may be tax efficient for your business to operate as one. It is advisable to seek the advice of an accountant when deciding which structure suits your needs. They will be able to talk you through the practical, administrative and tax implications.
VAT registration
Contrary to popular belief, unless there are particular circumstances, businesses aren’t generally obliged to register for VAT until their turnover has reached the registration threshold (currently £73,000). But if you’re planning large capital spends or are going to be trading predominantly with VAT-registered businesses, then it may be in your favour to register for VAT voluntarily. It is recommended you seek professional advice from an accountant when considering whether to register for VAT though and the benefits of the special VAT schemes.
Finance
Using your Cashflow forecast, you should be able to identify the cash required by the business. You need to aim to get your estimated funding requirements as accurate as possible; over-borrow and you incur unnecessary interest and under-borrow and you could face challenges when seeking more finance and more charges, not to mention you may run out of stock and fail to meet orders.
Banking
Getting the right bank account is really important and don’t feel you have to go with the bank your personal accounts are with. Obviously, you need the right facilities for your business, such as internet banking, in-credit interest, low paper charges (for those businesses using a lot of cheques), low electronic transaction charges (for those businesses doing a lot of online transactions) and a local branch for those businesses handling a lot of cash and cheques that will need to be banked. Also make sure you have a rapport with your business bank manager, as they can play an important part in the business and you may even be able to exchange contacts with them.
You should aim to get at least 12 months’ free banking, but some banks may offer up to 24 months. Whilst these are tempting, make sure you know what the account will cost you once the introductory period is over. Some banks even offer a lifetime of free banking, but pay particular attention to the terms as there is usually a limit to how much you can pay in each month and a cap on the number of cheques.
Grants
Grants tend to be given to stimulate innovation, research and development, and therefore tend to be in specialist industries or deprived areas of the country. Most grants have favourable credit terms, so shouldn’t be overlooked. However, be aware that the application process can be complex and you will often be expected to inject some cash yourself.
Cashflow/ budgets
If you are seeking finance to help your business get off the ground, then you will most certainly need to provide the bank or lender with a Cashflow forecast. A cashflow forecast will literally show the estimated cash in and out of a business. Therefore, unlike a Profit and Loss Account, it will include personal expenses, loan repayments, HMRC payments etc.
A Cashflow forecast should show that with your cash injection and the bank’s finance, the business will be able to meet its repayments and eventually generate a profit. Furthermore, they are a handy tool for any start-up businesses, as they illustrate whether the business proposal is financially viable and also act as a benchmark to compare the actual results with, once trading has started.
Real-time accounts
Up-to-date accounts allow you to make well-informed decisions and identify financial weaknesses in the business, such as goods with low margins, slow moving stock or an impending cashflow shortage.
Good, accurate, timely records are also a HMRC requirement and failure to comply can lead to fines.
Expenses
It is always advisable to seek professional advice, particularly in your early years of trade. One of the benefits of an accountant is that they can talk you through what expenses you can claim and the paperwork you’ll need to maintain. A particularly tricky area to get right is motor expenses and how vehicle ownership should be structured. Again, an accountant can walk you through your various options so you can decide which is right for you.
Employer obligations
It is best practice to employ a Human Resources consultant when you first take on an employee, as there is so much ‘red tape’ to be aware of. You will need insurance, contracts of employment and health and safety policies, and you’ll need to be aware of their statutory rights to leave and pay etc.
Procurement and stock management
Be smart about purchases of stock. Make sure you shop around and fish for discounts. Don’t necessarily go for the cheapest product though- if the quality is really poor, it may cost you more in the long run due to wastage levels and returns. And whilst bulk discounts can be tempting, think about the working capital that large purchases may tie up.
Also make sure your insurance covers you and if you transport the goods yourself, you may need Goods in Transit insurance too.
Credit terms and management
It has been covered in the press that customers are abusing credit terms, and as a result, there is to be a ‘name and shame’ page on the Cabinet Office’s website. But in the meantime, make sure your invoices set out your credit terms, and if you have some large, key customers, you may want to consider writing your terms and conditions up in a separate document for them to review and sign.
A separate terms and conditions document provides you with the platform to clearly set out any credit limits, discounts, interest rates etc. And if they do end up paying late, call them and offer to send copies of the outstanding invoices and statements. If none of this works, threaten to take them to court. Court is a last resort though, because it is usually a lengthy, stressful and expensive process.
Timeliness
Customers will appreciate punctuality- so don’t send out invoices and orders late. Furthermore, make use of suppliers’ credit terms but don’t push your luck! Think of the damage to your reputation. HMRC and Companies House forms and registrations always have time limits too, and failure to meet them can lead to penalties, interest and in some cases, prosecution. In these challenging times, businesses should avoid squandering money on such things.
Target-market analysis
Know who your customers are and what they want. Conduct your own research or pay a specialist, third party to do it.
You also might want to subscribe to some industry publications, RSS feeds or newsletters, so that you keep up-to-date with changes and developments in your sector and don’t get left behind. A lot of this material can be accessed free of charge too.
Competitor analysis
Know your local competition using simple techniques, such as checking out their website and shops, search for them using a search engine such as Google or Bing and see what results you get, find out what their prices are and make sure you know when they’re running special offers.
Customer relationships
Keep your customers happy- make sure staff are trained on how to take calls and write correspondence, and what to do if a customer has a grievance. Use feedback forms to gauge how you’re doing too. And keep in touch with them- particularly your larger customers.
The Internet and Advertising
Advertising is key, but in our modern times, don’t forget the online mediums. Consider whether your business needs a website, blog, Twitter account and Facebook profile, and LinkedIn is becoming a very popular tool with entrepreneurs and business people. You may also like to try email marketing, but make sure you know the rules set out by the Privacy and Electronic Communications Regulations.
Also, should you appear on rating websites such as TripAdvisor, make sure you know about any reviews people are leaving you and that you address any bad reviews quickly, professionally and effectively.
And see if you have any local networking groups in your area such as BNI. They can be a great way to meet business people and promote your business.
E-Commerce
If you’re selling goods (rather than services) look into the costs and viability of selling via an e-commerce site such as EBay or Amazon. It might not suit every business and might be too expensive, but it can be a great way to reach customers, particularly if the business sells high volumes of low-cost items. EBay can be particularly useful in clearing slow-moving, old stock and frees up space for current stock. Registration with HMRC and putting aside cash for your tax bill
Make sure you know your responsibilities with HMRC for registration, submission and payment dates. In your first year, try to put aside at least 25% of your profits, but ideally 30%, for your tax bill. This should ensure that your tax bill doesn’t come as too big a shock.
There are always opportunities to be had- even during a difficult economic climate. But in addition to the warnings and tips above, it is advisable that you steer clear of too many risks in the early stages of the business.
Operating with your resources and cash stretched to breaking-point is not only stressful, but the line between success and failure can be very thin. Only once you have established that the business can operate safely within its limits, should you think about pushing the boundaries a bit more. Flexibility is also important so be prepared to think out of the box and your comfort zone.
Posted by Emma Clarke
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We would be delighted to assist with the preparation of your business plan, and to help you choose the best structure for your business. Call us today to book your free initial consultation.
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