Running your own business can be an immensely rewarding experience. The choices you make from the outset can be both the hardest and most important, particularly for people new to entrepreneurship.
Christopher Blunn, Associate Partner at Haines Watts London, shares his thoughts on the key questions to ask yourself when starting out, and some useful tools to assist that process.
There was once a time when a common barrier to starting your own business was a lack of access to key tools for any startup: information, money, and advice.
The barriers today are more often emotional: a fear of failure – or of success, or procrastination rooted in not knowing where to begin (part of the reason this article took me, an accountant, so long to start!).
Will my idea work?
(aka Market Research)
Businesses start with ideas. Generally, a person wants a product or service but finds that such a thing:
- Doesn’t exist or doesn’t appear to exist,
- Does exist but is unappealing or expensive,
- Does exist but is unnecessarily complicated,
- Does exist but is highly unsatisfying.
Before quitting your job and maxing out your credit cards, it’s wise to do some market research. Market research doesn’t have to be a scary, expensive sounding corporate exercise. It can be as simple as talking to friends or family and online searches.
Just because you haven’t seen something, doesn’t mean it doesn’t exist (an argument for Google more than it is for God). You could ask God, but in the interests of speed at the very least, ask Google first.
It may already exist, in which case you can see where it exists, how that aligns with your vision for how it should exist, and what the response has been to it in its current state.
Things to look for:
- Who are your competitors?
- Where are they?
- What do they offer customers?
- How will your offer compare in terms of price, content, convenience?
You may find that not everybody thinks your idea is brilliant. Any fellow fans of Karl Pilkington may remember his clippable mat idea. He ran it past Ricky Gervais and Stephen Merchant and despite his best efforts, they were not so convinced. It’s true that it didn’t exist, but it was unappealing, unnecessary, and highly unsatisfying.
This initial research is an extremely powerful tool in forming the earliest part of a strategy and plan for your business. Write down your thoughts, key observations and the knowledge gained throughout the process. The key is not to allow analysis paralysis to interfere with a good idea and a job to be done. Find your MVP, and start turning ideas into reality.
Capturing this information, although it may not seem vital at this stage, will save you time when you approach an overall business plan.
How much money will I need?
(aka Financial Planning)
Aside from the costs of running a business, you have the cost of running your personal life. If you don’t have a great track record with your personal finances, this would be the ideal time to address it and create good habits, before you bring those habits into a new business venture.
Understand your committed monthly costs
List and total your fixed costs. This includes mortgage or rent, council tax, gas, electric, water and so on.
While this may seem basic, it’s a useful practice from a business finance perspective as it links into a similar process for budgeting your fixed business costs. These will include rent, business rates, technology subscriptions, equipment leases and wages.
It will start to get you thinking about the more complex elements of budgeting such as monitoring cash flows for costs that fall at irregular intervals, and how to determine what your product or service actually costs, especially where its an intangible product or digital service, which are less straightforward to understand the true cost of.
Understand your discretionary spending
The introduction of open banking last year has led to a rise in apps that take the pain out of knowing where your money is and where it’s going.
Emma is one great example of what open banking has allowed. It seamlessly connects to your bank accounts, credit cards, and cryptocurrency (if you got caught up in the fever) and gives you a dashboard of your balances and a categorised transaction history.
This provides an effortless overview and analysis of where your money gets spent and also shows trends in your expenditure.
Accounting software for businesses has been revolutionised over the last decade, with Xero leading the pack. This discipline of utilising technology to take the grunt work out of understanding your spending trends is invaluable in business.
Whilst the financial principles are no different for businesses, they are more complex.
Building good personal financial habits is the first step in establishing those principles within your business.
Where can I get the money?
Once you know how much you need for you and your business to survive, unless you’re very lucky, you’ll probably have a gap between what you have and what you need. Fortunately, there have never been more ways to raise money.
Traditional options include: using your savings, asking friends and family for loans, personal credit cards, overdrafts, and bank loans.
These are all tried, tested, and relatively cheap ways to access the cash you need to build your business. However, with banks increasingly hesitant about lending and the general need to allow the bank to secure debt against your home, the rise of new technology has made funding easier to access than ever before.
Peer to peer lenders such as Funding Circle provide unsecured loans from £10k to £500k. Their rates are generally higher than the high street banks, but that represents the fact that your house isn’t on the line. They also tend to make quick decisions.
Crowdfunding is another great option; check out sites such as Kickstarter for products, GoFundMe for services, or Crowdcube and Seedrs if you want a more structured injection of cash and are willing to give up some equity.
People often overlook the untapped potential in grants and tax incentives that exist in certain industries and for certain types of activities.
Applying for a grant or utilising an incentive can be straightforward or require the help of a specialist, but the biggest challenge is more often the lack of knowledge that it exists and, if it does, whether or not you qualify.
In order to secure funding, lenders and investors will need to understand your idea, why it’s different, and how you intend to return that money to them.
In addition to financial projections, you need a solid business plan, which details your vision, includes your market research and underpins the overall strategy.
This is the moment to get in touch with an expert. Having an experienced advisor in your corner brings the benefit of sector experience, tried and tested business planning strategies and emotional support during what can be an extremely pressurised, but exciting time.
If you’re ready to take the next step, get in touch with us and start your business journey.
Read more startup content here.
Haines Watts London are accountants and business advisors working with ambitious London startups and entrepreneurs.
Want to know more? Call us on 0207 025 4650 or email email@example.com