By Steve Taklalsingh, Managing Director UK – Business Banking at Amaiz (www.amaiz.com)
Chaos and uncertainty can also be an opportunity. As current circumstances drive home the message that almost no-one can claim to have a ‘safe’ job, the prospect and risks associated with starting a business don’t seem quite so daunting. If we are all just a month away from redundancy, then taking control of your fate, setting up your own business and working for yourself, can seem like a sensible option. What do you need to know? How difficult is it to set up a business?
Too many people believe that if you have a good idea you’ll have a successful business. While a good idea will help, being an effective innovator doesn’t necessarily make you good at business. However, the idea is a good place to start. You don’t have to be first to market (in fact that can be a tough place to be as you will have to educate your customers to want your product or service) but you must have a clear place in the market. What are you offering that others aren’t? What problem are you going to solve for your customers? What makes you unique, or better than your competition? How will you attract customers? Why would a customer come to you instead of someone else? What do others charge? Do you want to be cheap and go for high volumes or expensive and niche? Start writing notes and research all these points with great care. From this you can start to build your business plan.
Check the legal requirements. Different countries have very different laws concerning setting up a business. Some make it difficult, other countries, including the UK where I’m based, make it very simple. However, it’s understandable that there are additional barriers depending on what you’re doing, for instance financial services. You may need to register with an official body and prove your qualifications and assets.
You will also need a business address. Many small businesses use their home address. If you have a work premises you can use that. However, if neither of these suit you, consider your accountant’s or lawyer’s or even a virtual address. Make sure you have easy access to the post there. If you miss a legal demand it could be expensive.
The legal structures in the UK are typical of what you’ll find in other countries. The two you’ll probably need to choose between are:
- Sole trader – This means that your company is not a separate legal identity. It is the least bureaucratic of the options, but if you don’t make sure you’re organised, you will find that your personal and business finances get confused. You have no protection if things go wrong. Your business creditors will be able to pursue you and have a charge against your personal assets (including your home). The other disadvantage is that your customers and suppliers may refuse to do business with you, particularly in the financial services sector. However this may work for you if you’re essentially setting yourself up as a freelance contractor.
- Private limited company – This gives the company a separate legal identity with distinct finances from the people who run it. You’ll have shares and shareholders (you can own 100%). Typically, you will be regulated by your government. In the UK that’s Companies House and they will publish details of the directors, registered address, and summary accounts. Failing to provide the right information to Companies House makes you liable to a fine.
To register your company, you need to choose a name. This can be more difficult than you think, and far more difficult than naming a child! You will find that there are legal limitations to avoid you giving a false impression to customers (e.g. To suggest you’re an official body) and you can’t give yourself a name that someone else already has. Of course, you can have a different brand name to your business name.
Aside from the legal requirements, make sure you consider the impression that your name will have on customers. Quirky and made-up can work well, but if you get too whacky customers will struggle to remember the spelling. If you try and use a standard noun, you’ll find that they’ve all been used. This doesn’t stop you using the noun, but legally you will need to make it part of a longer name and that increases the potential for you being confused with other businesses, so check out the others to see what that potential is. Given the challenges, many people use their own name. This is fine initially, but will make it more difficult for you to exit the business (if that’s what you plan) as the brand is closely associated with one person and you may find it strange to sell your own name.
Research what your chosen name means, and if you have international plans check what it means in other languages (that can reveal some horrors). Also check what derivations of the name are available as a web address. Again, there are ways around it if someone already owns your desired domain, but customers will be able to find you far more easily if your name and web address are along the same lines.
At this point you should finalise your business plan. In addition to the research material referred to above, draw up a month by month estimate of all the costs and likely income (Excel with automated sums works well for this). At what point will you turn a profit? Do you need to borrow money for equipment or staff? Are you going to be able to survive on your projections or do you need to cut costs or increase your prices? How realistic are your sales projections? What is the impact of the different price points? How can you cut costs? It is only through this detailed forecasting and scenario planning that you will be able to understand how the business is likely to work in financial terms.
Next review your projections, to check they’re based on solid research and facts and not unfounded optimism. Put yourself in the Dragon’s Den. What’s the worst question an investor could ask you? How would they prove your business can’t work? It is very easy to get carried away when planning a business, it’s exciting and friends and families will not want to deflate you, so may not be entirely honest in their feedback. However, it is really important that you get this right and don’t kid yourself. Try to get someone, well informed and brutally honest, to give you their opinion. There are some great online resources and mentoring programmes that can help you.
It is important to keep the finances for the business as separate as possible so at this point it is worth opening a business account for your banking. That way it is far easier to manage your business. You don’t need to go to a high street bank now for this. There are many FinTech products, like Amaiz, that cost far less and give you additional features, such as bookkeeping software, to help you run your business.
Of all the things that cause businesses to fail, the most common is a failure to manage cashflow and bookkeeping. As a business owner you can become so immersed in delivering a great service to your customers, you forget the obvious things, such as invoicing them. That’s why it makes sense to employ a bookkeeper or bookkeeping solution to take care of this aspect of the business and to ensure you have good processes in place from the outset, so things aren’t forgotten. As this resource is only needed for a few hours a month, it doesn’t have to be expensive.
It does take a lot of energy to run a business, and the path to success can be a bumpy one, but I hope you find it satisfying.