5 important things to know going into starting up your own business
Starting your own business can be one of the most rewarding things you can do, but will nearly always be a huge challenge at the same time. Here are some tips to kick start your plans.
- Self-assess your goals and your family’s circumstances
Before you take the leap at the most fundamental level you need to assess whether you are really willing to put the effort in and the absorb personal sacrifices that will almost certainly be required in the first 12 – 24 months of trading (at least). Equally, if you have a family, they are nearly always impacted either by assisting in some way in the business or by simply not having you around as much while you concentrate on getting the business going. If the answer is a clear yes, then that’s a great start.
- Prepare a business plan
The old cliché of “failing to prepare is preparing to fail” rings so true here. It is absolutely vital that you research and understand every aspect of the business that you going to start and the environment in which the business will operate. Who are your likely competitors? If its bricks and mortar, where are they located? What is the point of difference that makes your products and services appeal? What resources (human and physical) you will need to run the business and when? What are your strategies to attract and retain customers? Surround yourself with good people is one of the best pieces of advice I’ve received. They will be a positive influence on you and your business and help you avoid many of the traps the uninitiated fall into. They will also be a valuable resource to you when the inevitable hurdles are encountered. Work out how will attract or associate with these people and put this in your business plan. What are your plans to keep up with technology ensuring you continue to innovate? How many Nokia mobile phones are around these days? And then there’s financial planning.
- Prepare a cash flow forecast and understand your working capital requirements
Your business plan must include a financial forecast with the emphasis not so much on profit and loss, but more on cash flow, although the two are of course linked. Most new businesses fail because quite simply they run out of cash. Typically this is because they have overestimated the speed at which revenue will grow and underestimated the costs of running the business. Often not enough cash is set aside for all the necessary one off capital and other costs needed to get the business underway. This is particularly the case for business such as those in the retail space where store fit outs are required and those businesses with a need to fund a substantial amount of inventory to hold on hand ready for sale. Be as realistic as you can possibly be in preparing your forecast. Pressure test this by talking to people you trust and your business advisor/accountant. Be sure you factor into the plan sufficient cash outflow to pay you a wage or dividends to fund your personal day to day living requirements and your mortgage if you have one. Then prepare a pessimistic and optimistic version of the plan so that either scenario if it were to eventuate can be measured against the available cash you have to fund the business. Whilst the optimistic scenario is a nice problem to have, it brings with it its own challenges about how to fund the growth in areas such as people and inventory.
- If you can’t measure it, you can’t understand it and you can’t make changes to fix it if it’s broken.
Be sure that your recording systems are in place right from the start. These days there are great products out there that will help you do this both from a back end accounts perspective but also from a customer management and point of sale viewpoint. Informed decision making is so vital to avoid gut feel errors. The only way you can do this is if you have quality financial and non-financial data available.
- Get professional advice
It is important that you set aside the time and money to get professional help right from start. It is almost inevitable you will overlook something important if you don’t. Your advisor can help get the right business structure to meet your needs that provides legitimate tax minimisation and asset protection. They can also be sure you have protected your intellectual property and set up business names and possibly trademarks as well as considering what regulatory hoops you will need to jump through and licences you might need to operate. Changing structures down the track when the business has real value can be a very expensive exercise. You advisor will also be a critical ally in testing your business model and financial projections. Finally, a quick word if you’re going into business with someone else. If you are planning to do this, talk to your accountant and lawyer about putting an agreement in place between the business partners that will detail how key decisions are to be made, who will be responsible for what roles in the business, future funding and considers future possible scenarios like one or more business partners wanting to sell.