Living the dream – why you should take a reality check before starting a business
It’s a sad statistic that one in two small businesses fail within their first two years. So often, people get carried away with the dream of running their own business doing something they’re passionate about without taking a cold, hard look at whether or not the business is viable. Whilst doing something you love is always a good start and something to aspire to in life, it won’t pay the bills.
Here are a few things to consider prior to setting up a business to ensure you’re not on the path to failure before you even begin.
Plan, plan and plan some more
If you need to seek funding to start your business, either from a bank or perhaps an alternative finance source such as crowdfunding, it’s likely you will need to formulate a fairly in-depth business plan. If funding external isn’t required however, it could be tempting to bypass this stage of starting a business and launch straight into it without having any sort of written plan. A business plan is always advisable as it helps to clarify your business idea and identify any potential shortfalls. A business plan should detail objectives, strategies, sales, marketing and financial forecasts. There are lots of business plan templates available online that will help to make the process easier.
Make sure the numbers stack up
Too many people are far too optimistic in their business plans. In order to avoid starting a doomed venture, be sure to be realistic, or even pessimistic in your forecasts, remembering to account for all possible costs. From there, you should be left with an idea of the minimum amount you will see as a return from your business, and will need to decide from there if this is an amount you’ll be able to survive on. Whilst it may be difficult to accept, a business forecast that does not return a profit probably isn’t worth venturing into (unless substantial profits are forecast for future years after an initial period of investment).
Don’t forget to account for your time
Having set up and started my own business, as well as having advised many small business owners during their early stages, one of the things that is often underestimated is the amount of time that needs to be allocated on the part of the business owner. Not only will you need to invest a substantial number of hours in the tasks required to launch a business, but will also need to account for the time needed for the ongoing running and admin tasks on a weekly basis. This is particularly relevant if you’re starting a business that involves ‘selling’ your time as you may well have less time than you think to allocate to clients.
Get advice from the experts
Even if everything seems to stack up in your business plan, it’s a worthwhile exercise to seek advice from expert advisers as appropriate. You may want to speak to an accountant to help decide how you should register your business (sole trader or incorporated company). An accountant will also be able to advise you on how much tax you will be liable to pay and the best way to structure paying yourself in order to be the most tax efficient. If you will be taking on employees from day one, protecting yourself with advice from an employment lawyer is advisable. And if your business will involve a physical presence, such as a shop or office, be sure to check the building has the correct planning use in place for your business type to avoid unnecessary expenditure and potential issues down the way.
You may think that there a load of people out there just crying out for a business like yours to service their needs. But what if there isn’t? Taking the time to conduct some research into the demand for your services/business in the marketplace could save an awful lot of heartache if there simply isn’t a call for what you want to provide. Market research can also be extremely useful in guiding other key elements to launching a new business, such as guidance on price points, identification of target markets and how best to reach your potential customers. Having conviction in your ideas is admirable, but be sure to back it up with proper, concrete research.
Starting a business isn’t easy. Seeking advice from a business consultant, such as the team at Agenda, can really pay dividends; helping to identify the viability of a business and set you off on the right foot with a solid financial plan and practices. For more information, please get in touch with us here.