So you’ve got the itch. Maybe you’ve been working at a 9 to 5 job for a couple of years and it hasn’t satisfied your creativity and ambition. Or perhaps you’re just starting out and want to build your own brand rather than contribute your time and effort to somebody else’s.
Whatever the reasons, starting your own business can be a daunting prospect. When statistics bear out that two thirds of new businesses fail within two years, and that only a third survive to ten; the uphill battle a new business owner faces is clear. Good planning and money management are necessary tools to overcome these obstacles. So we’ve compiled this list of things you need to know before starting a new business.
Whether you’re applying for financing or not, creating a business plan is a great first step in establishing the parameters of a new business. When writing out your plan, you should have an idea your organizational structure — whether you’re going to work as a sole trader, as part of a partnership with a friend or colleague or starting a limited company. Each structure has its own benefits and drawbacks so you’d do well to examine each before deciding what works best for you.
You also need to have a strong sense of the competition you’ll face in the industry. Is there a large firm that controls most of the market share? Or are there many smaller businesses that are competing for the same segments? Look for gaps in the market and opportunities you can exploit through pricing, quality, marketing or unique features.
Understand your target audience, demand drives your business so everything you do from product design to marketing must all appeal to your core demographic. Test your products and services thoroughly before taking them to market so you can minimize the financial risk of a launch failing.
If you don’t have sufficient savings to start a business then you may need to secure funding through a bank loan or by bringing an investor on board, there may even be government grants available depending on your industry. If you do decide to take on debt, it’s important that this remain within manageable levels — your payments won’t stop regardless of whether your business succeeds or fails. We would recommend starting small and achieving some success before seeking out external sources of financing.
Businesses run on revenue, you need to have enough cash to pay your rent, suppliers, staff and any maintenance costs in order to keep it running. Keep track of the average payment period of your customers and design strategies to encourage quicker payment. Identify customers that make up the largest portion of your cash flow and focus efforts on them. Organize your own payments to suppliers and employees around these cash flows and averages. Minimize expenditures where possible and keep your business as lean as possible to start off with. Look into hiring a good accountant or firm that can offer business solutions and help with financial planning.
Starting a new business will put an enormous financial strain on you and your family; you will need to have sufficient income to keep up with your living expenses. Your initial budgeting needs to take into account how much money you will need to sustain a lifestyle while cutting out any unnecessary expenses. We would recommend keeping an emergency fund that can sustain you through a 6-12 month lean period where cash flow may not be consistent. If possible, don’t quit your regular job so that you are earning a regular income as profits for start-ups are often inconsistent or non-existent.
Remember your business’s finances should remain separate from your own, think of yourself as an employee and shareholder with the business existing as a separate entity. You are the most important element to ensuring the survival of your business so make sure your health and finances are in order before the business’s.