Starting your own business
How to start your own business is an often asked question but also one not clearly answered. As a result this can be the biggest barrier to becoming self employed and working for yourself.
This article explains the basic fundamentals to starting your own business, the considerations the benefits of being self employed and of course the drawbacks.
Why start your own business?
There are many reasons one might consider starting their own business. These could be:
- Financial reward
- Control over the way a business is run
- Existing knowledge in a business sector
- Identifying a gap in the market
- Wanting to make your mark on the world
The list is in fact near endless and personal to the individual, however not all the points above are good reasons.
The good the bad and the ugly of starting your own business
As mentioned above not all the reasons for starting a business will be correct. For example:
- âFinancial Rewardâ, while it is true a business can grow and make significant sums of money they can also drain an individualâs savings and capital. This can be especially true where large sums of money are needed at the outset or initial growth.
- âFlexibilityâ, can vary on the type of business being run, as although limiting your hours is possible the reality is spare time is usually spent marketing and business growth
With the above points known letâs look below at how to start your own business.
Research your business Idea
Market research is needed which ensures there is a need for your service or product. What may be a good idea and needed by the business owner may not be needed by the wider public.Â Understanding who will buy your product, what demand there is and also who else is offering a similar product or service is essential. Analysing a competitors website, financial results and marketing strategy can help.
The main review points are:
- Is there a need for what you are offering
- Is the market saturated with competitors (local or global view)
- Is there restrictions on what you are offering
Writing a business plan
A business plan is the basic structure a business is built around. What makes up the business plan will help guide you on your road to success and can also be needed to raise capital for your business from banks or investors. A well written plan will clearly explain the business idea, a strategy of achieving goals such as sales and finding customers, a vision you and any staff should work towards. Expenses as well as risks and how they will be overcome will also help spot problems from the start.
The following points should make up the basic business plan:
- Description of the Business
- Who are you selling to (location, business sectors)
- Skills and Experience in the business sector
- How will customers be won
- Who are your competitors
- How is your idea different
- What funding is needed (Value and Reason)
- What growth is anticipated
- How will the business be marketed
- Budgeted financial plan (Income and expenses)
- Evidence of how the above points were worked out
Many templates can be found online however what to write to complete is not always understood. To better understand put yourself in the shoes of the investor. If someone approached you for money what would you want to make sure of and understand before handing any over. Dragon Den and other such programs offer a good insight as the contestants are effectively telling them their business plan.
Fund your business
A well written business plan will detail how much it will cost to set up and run your business. If you donât have the require amount investors or bank loans will be needed. Any investor will make a decision based off of your plan as their main focus is their Return on Investment (ROI) or how are you going to pay them back. Also if you are not working elsewhere you will need to be able to fund your living during start up or if seasonal when sales are slow.
Depending on what your sector is, the location will be very important when you start your own business.Â For example; an accountant maybe able to work from home and serve the local community which has less impact on where to locate a business. However, if you consider a coffee shop then the location will need to be in a popular area possibly with near by parking. A factory making a product needs to consider transport, can lorries access, can staff get there to work, is it near a main route for speed of delivery. All of these factors can have an effect of income and expenditure. The coffee shop may be in a cheap quiet location to reduce expense but no customers come in. A factory may well find cheap premises outside the main cities but the increase in cost of transport may offset this. Â
Sole Trader or Company
Should I be a sole trader or start a company is an often asked question when starting your own business and the answer is, âIt dependsâ. Â A sole trader does not differentiate between you and the business and so effectively you are the business. An example would be âJohn Smith trading as ABC toysâ. Any debts run up by the business are also your debts.Â A company has some segregation between you and the company and you are effectively an employee of the company which is its own legal entity. However in most cases you would play the part of company director which has its own legalities.Â Companies also pay tax on their profits and pay dividends out at a reduced rate to an individuals higher rate tax band. With this in mind and the separation of debt risk from the company many people go with this option. There are also more regulations such as filing company tax returns.Â If unsure what way to go it is strongly recommended to take your business plan to an accountant for advice. Â
What should my business name be?
A business name can be quite a challenge! It should be memorable, maybe give an understanding of what your business does. There are some rules when choosing a name such as itâs canât be offensive, include Limited. Ltd, PLC etc (anything that gives an impression of a company). It should not be the same as an existing trade mark such as Coca Cola.
Register a business or Company
Depending on the country location once a business is ready a government agency such as the tax office or companies house should be informed. A company number or Self employed reference number will be given.
Business Insurance and permits
Knowing your business and the within the business plan it should be understood what permits you will need. For a cakeshop this could be for health and safety. Also insurance will often be needed such as personal indemnity. Â Personal indemnity insurance protects you against any law suits which arise from you operating your business. In the above example it could be a customer gets food poisoning or a staff member slips and hurts themselves on your property at work. Building and contents insurance may also be needed, again if there is a fire in the property the cakeshop would lose property and equipment. An insurance advisor is best placed to advise on the specifics of your business. Permit may be needed if you decide on selling alcohol so this should all be reviewed in the business plan as part of the growth strategy.
Open a business bank account
Opening a business bank account allows for segregation of funds to that of your own. It easily shows what is coming in and out of the business. This will also make cash flow statements easier to create and identifying business receipts.
Keeping business records
Keeping records of sales and expenses is usually the worst part of any business owners day. However keeping clear accurate records can save you time and money.Â If an accountant doesnât have to spend days going through your paperwork their bill will/should reduce. It is recommended to invest in some accounting software. If possible attend a bookkeeping course as this will give you the background on preparing financial records and also aid in the creation of the business plan.
Other legal rules
Understanding the local rules and regulations that are relevant to your local country, business sector. If you hold customer information in Europe GDPR may apply so knowing these rules will ensure you stay compliant with any regulatory bodies.
Starting your own business
Starting your own business can be both rewarding and challenging but a good plan to start with gives the best chance of success.