10 Important Questions to ask when Starting Your Own Business

Stating any business can be a stressful time but with this checklist you can ensure you have all the appropriate measures in place before embarking on your start-up journey.

1.       Do you have the capital?

Every business will be in need of some start-up capital, even if you are thinking of working at home there will always be costs so you need to know how you’ll meet them. Furthermore, most start-ups won’t make much money in the first few years so be sure to have a plan to keep you going.

2.       How will you budget your business?

Everybody knows that the most important part of a company’s finances is the cash flow. Whilst you need to have a constant in flow of cash this is usually out of your control, so you need to look at the budget. By having a clear and set out budget you will know how much you can spend on a monthly basis, this will stop big surprises at the end of the month when the bills are to be paid. Keep in mind you may need a flexible budget especially when you are unsure of your cash inflows.

3.       Do you have a way of dividing rewards and costs?

This is perhaps one of the most important questions you’ll face. Typically a start-up will go for a simple 50:50 division of rewards and costs, but this tends to be a poorly considered option. In every start-up there will be different levels of responsibility shared and since start-ups are very volatile these responsibilities will change dramatically over time.

4.       Do people demand your product?

Most start-ups are based around what the founder thinks of as a great idea, but you need to make sure there is a market demand. Even niche products needs someone  to purchase them so ensure that audience is out there, get a number of opinions from a range of people, not just friends and family but independent agents too.

5.       What makes you better than your competitors?

For any new business the biggest issues is getting over market conditions. It’s quite likely that the product you are trying to sell is already out there, so you need to find a way for you to compete. Think about why someone would buy from you instead of a competitor, and use that competitive edge to build on.

6.       Have you considered all Legal ramifications?

Not every Founder will be an expert in Corporate Law so make sure you have considered every potential legal issue and employ a lawyer in the early days. It shouldn’t be very hard and will save you lots of money in the future. Just remember, more often than not legal issues are much more difficult to solve further down the line when you want to do things like sell the business or go public.

7.       Can you trust the person you are in business with?

Many start-ups will be founded by families or friends, they are usually the most common choice of partner, but this doesn’t always lead to success. You need to ensure that between you, there are the skills to cover all bases and move forward in your professional life. In addition, it is always wise to keep you personal and professional relationship separate, they can often be in contrast of one and other. (See previous post entitled: Does your business have the right people?)

8.       Do you have a decision make procedure?

Often when start-ups are founded by more than one person, each founder wants an equal part in the decision-making process. Usually the issues are something that can be solved by one person but due to egoism the decision-making process is slowed down and reduced to inefficient levels. This makes it vital that everyone is aware of who is in charge of what area.

9.       How will you market your business?

Even the greatest idea in the world will fail if nobody knows about it. So it’s important to start thinking about bring in customers straight away. (See previous posts entitled: Branding and What You Can Do About It and Brand Promotion)

10.   Who are your suppliers?

Every company you buy from for your business is a supplier, and supplier-buyer relationships are one of the essential to manage. By guaranteeing a smooth and long-term relationship with a supplier you are able to lower costs which will ultimately play a part in giving you the competitive edge over your competition.

Seven ways to protect your business against a downturn

Small and medium-sized businesses are particularly vulnerable to economic downturns. But all too often we see companies going under that could have stayed afloat if they had taken a few elementary precautions at the right time.

The right time to protect your business against a downturn is when it is relatively strong and you still have room to manoeuvre.

Here are seven steps you should consider taking:

1. Don’t rely on just one or two main accounts for the bulk of your revenue. Spread the risk by expanding your customer/client base.
2. Maintain close communication with your bank and share your successes and failures with them.
3. Reduce the debtor days on as many accounts as possible and accustom your customers to paying promptly.
4. If you have to reduce spending, do so in non-core areas of the business.
5. Examine ways to carry less stock without adversely affecting your core performance.
6. Don’t lay off staff unless you really have to, especially those who provide ideas and inspiration. Use any downturn as an opportunity for key staff to develop new skills and coach newer members.
7. The marketing budget is often the first casualty in a recession, but smart businesses continue to market through a downturn and position themselves to take full advantage of the upturn as soon as it starts.

We can help you with all aspects of your business, helping you to secure a sure financial future. Call us today.

How to survive when times get tough

It is important for all businesses, especially small and medium-sized enterprises, to be properly prepared for difficult times.

You need to plan on two levels: in the short-term, you must ensure that you have the resources and flexibility to manage short-term fluctuations. Now might not be the best time to expand or to hire additional staff. But in the long-term, you need to focus on being in a position of strength when the economy improves again.

Debt management

This is essential – you can soon run into trouble if you let debts mount up, a problem which is all the more likely in lean times. Make sure you have a clear policy for collecting debts, which customers are aware of it, and above all, make sure you enforce it. Pursue outstanding debts by letter and telephone, and threaten legal action if you have to.

If your terms of business allow for adding interest on overdue accounts (they should, and at a good rate), add it. If your terms set credit limits, stick to them and stop supplying as credit limits are reached or bills go unpaid.

Keep your customers loyal

In difficult times it becomes harder to attract new customers. Therefore it is more important than ever to maintain loyalty among your existing ones. Consider ways of developing and rewarding customer loyalty – selected discounts (especially for early payment, or cash with order), regular mailings, loyalty cards and so on.

Beware of cutting prices

If sales begin to taper off, it can be tempting to cut prices. But this can be a mistake. Cutting prices can have the negative long-term effect of cheapening your image in the marketplace. Remember that suppliers might also raise their prices, so try to negotiate a long-term discount with them.

Don’t neglect marketing

Don’t fall into the trap of cutting back on your marketing budget when cash flow is tight – it is a false economy. In tough times the marketplace becomes more competitive – you may need to market more vigorously, not less.  If you do not have a strategic marketing plan, now is the time to draw one up.

Concentrate on your key employees

The wage bill is the largest area of expenditure for most businesses, and often the first target for cutbacks when times are hard. But you should always try to keep your key employees: their strengths will help you through any tough time, and you will need them again when business picks up. You could consider flexible working arrangements, or contracting out under-used staff. Cross-train employees now, so that if you do have to lose people the remaining staff will be able to cover for them.

Planning

Planning is vital for the success of your business. You need to plan what changes can be made to strengthen your business against tough times, and how to put those changes into action. But planning is not just about “worst case scenarios” – we can help you plan for your business future with advice on business management, business finances and personal financial planning to help you, your business and your family be financially successful, whatever the future holds.

If you liked this post, check out our next one: Seven ways to protect your business against a downturn, coming in two weeks time

It is essential to take proper professional advice to pre-empt any problems that may arise in an economic downturn. Contact us today, and we’ll help you through the difficult times.

Is outsourcing the best strategy?

Outsourcing non-core operations has become very popular in recent years. Businesses now routinely outsource processes from cleaning to customer enquiries.

Other common areas for outsourcing include: payroll functions; human resources (insurance, recruitment etc); marketing; information and IT systems; and delivery.

The advantages

There are obvious potential benefits:

• Management is free to concentrate on the core business
• The use of resources, including human resources, is streamlined and more focused
• Cost savings are achieved through economies of scale
• Both risks and rewards are shared
• Quality of service benefits from specialisation
• Budgeting costs becomes more reliable in these areas because they are tied into contractual agreements.

Possible pitfalls

But there are also disadvantages to outsourcing:

• Your customers do not draw a distinction between the core services that you provide and the outsourced services supplied by others, so any shortcomings on the part of the contractors reflect on you.

• Some companies have also experienced dissent and demotivation within their own ranks as a result of outsourcing functions such as payroll management to contractors who do not share the same corporate culture and so do not treat employees in the way they expect to be treated.

Factors such as these have meant that some companies have begun taking back in-house’ operations that on reflection they felt to be too important to be left in others’ hands.

A question of balance

As with most things outsourcing is a question of balance. For most businesses there will always be operations they can safely put in the hands of others and achieve both improved efficiency and cost savings.

But equally there will also be operations over which they will want to retain control. The art of good management is to know which is which! We can help you make the right decisions.

Ten reasons to benchmark your business

More and more businesses are discovering the benefits of benchmarking and of developing a plan of best practice. Is it something that your business could consider?

What is benchmarking?

In a nutshell, benchmarking involves measuring the performance of one’s business against that of others in similar markets. It has been described as “the practice of being humble enough to admit that someone else is better at something, and wise enough to try and learn how to match and even surpass them at it.”

A good benchmarking review will allow you to determine how well each aspect of your business is faring, discover areas where you need to improve, and develop a plan for achieving those improvements. Before you can decide where you are going, you need to know where you are now – and benchmarking can help you do this.

The advantages

The Government-funded Small Business Service cites ten key reasons for implementing a benchmarking process for small businesses:

1. Improving productivity: businesses following action plans can expect productivity gains of up to 40% with a 10% increase relatively easy to achieve
2. Beating the competition: learning about adaptability and change is a benchmarking essential
3. Addressing growth issues: learn how to develop the right products and services at the correct pace
4. Customised to fit all: businesses of all sizes can benefit from the generic principles of benchmarking
5. An holistic approach: it is both qualitative and quantitative, ensuring more accuracy in developing a whole picture of your business.
6. Opens minds to new opportunities: whilst the results can make uncomfortable reading, the process usually raises new challenges for businesses
7. High quality of data: it allows direct statistical comparisons to be made with competitors
8. Helps businesses attract funding: in some areas of the UK, it has been used as part of the bidding process for grant aid
9. Leads directly to an action plan: Rather than simply highlight problem areas, it undertakes a strong review of turnover and profitability
10. Maintain client relationships: by being an ongoing process, benchmarking keeps clients in contact with advisers over the longer term.

Devising incentive schemes

When you introduce incentive schemes make sure you design them to improve the performance of both individual employees and the business as a whole, not one at the expense of the other.

Incentive schemes that focus exclusively on improving individual performance can sometimes undermine teamwork and thereby overall productivity.

On the other hand, schemes that focus solely on improving firm-wide performance provide little incentive for above-average performers to go the extra mile. Not only does this deprive your business of their best efforts, it also increases the risk of your star employees feeling they are under-performing and therefore looking elsewhere for something more challenging.

To avoid this problem, consider offering an annual salary bonus to key employees who meet specific short-term goals, but with half the bonus awarded if the individual achieves his or her individual goals, and the other half if the firm as a whole meets its general goals.

Businesses that have tried this approach have reported improvements in productivity of up to 10%.

Three steps to cheaper financing

At some time or other most businesses have to turn to external sources to finance growth, whether it is to invest in new equipment or machinery, to purchase property, to upgrade technology, or to maintain cashflow while a new product line kicks in.

The cost of external financing can be considerable and keeping it down is a key element in maximising your profitability. Here are three ways in which you can do this:

1. Plan ahead

Plan your financing requirements well in advance – if possible as much as a year before the funds will be needed.

This will give you time to prepare a robust application, shop around for the best source, and negotiate the most favourable terms. Indeed, the mere fact that you are planning your funding so far in advance will earn you brownie points with most sources.

If you leave your funding to the last-minute, not only will you limit your negotiating power, you might also give the impression that your expansion plans are not very well thought-out.

Of course business owners need to be agile and respond to opportunities swiftly, but this does not alter the basic fact that quick money is almost invariably expensive money.

2. Make the loaner bid for your business

Approach a number of sources with a well-prepared funding requirement and ask them to submit a proposal. These days, even banks are used to having to bid for your business.

Ask banks for an overall proposal that covers every aspect of your business. But don’t just look at the costs – consider also factors such as the quality of the working relationship, depth of knowledge of your industry, etc.

Use your track record to leverage a better deal on charges or the amount of collateral required. Remember, the main concern for a lending source is the degree of risk involved, and a good track record will help mitigate this.

3. Ask for more than you need

Many business owners are overly modest in their funding applications fearing that if they ask for too much it will reduce their chances of success. But it is much worse to underestimate your requirements.

Returning a few months later to ask for a top up not only sets alarm bells ringing about the reliability of your business plan, it is also a lot more expensive to process two applications rather than one.

Call us if you think we can help you reduce the cost of your financing.