4.75 million people are now self employed, thats 15% of all people in work in the UK.
There is encouragement from the government for people to become self-employed and at first it seems attractive, especially if you have recently become unemployed or redundant. Although one of the main attractions of becoming self-employed is no longer having to work for somebody else there are several disadvantages you should consider. These include not being certain of having a regular income, having to arrange your own sick pay and pension and probably having to work long hours.
What should you do before you start your business?
- Create a Business Plan – research shows it will increase your profitby 20%
- Create a cashflow forecast – work out how muc money you will need to run your business and where you will get the funding from
- Choose the right structure – its important to consider carefully whether to be a Sole Trader, Partnership or Limited Company
- Talk to an Accountant – Accountants will help you register and set up your business and avoid the risk of penalties
- Market Research – is there a market for your product or service, how big is the market and why will customers buy from you
You’re responsible for:
According to Government figures, there has been a net increase of 146,000 businesses in the past year, taking into account all start-ups, closures, takeovers and mergers. It means more businesses have started than closed.
The Business Population Estimates also show the number of businesses that employ people has grown for the second year running, with 35,000 more at the start of 2015 than in 2014.
Small businesses continue to make up 99.3% of all businesses and generate over £1 trillion turnover for the UK’s economy.
Business Accountants (Association of UK Accountants) are Chartered Management Accountants (CIMA) and when you start your new business they are will tell you:
- Choose the right business structure for your business – most businesses start out as sole traders but once they start making profits convert to limited companies, this is because sole traders pay more tax than company structures
- Choose the best VAT Scheme you might be better off with Flat Rate or Cash Accounting
- Choose the most suitable accounting software
- Don’t mix up Business and Personal Expenses – always have separate bank accounts
- Reconcile your Bank Transactions regularly – its easy to forget what you have spent checking the bank account keeps you in control
- Understand and manage your cash cycle – how long does it take to get paid and what credit terms do you suppliers give you?
- Manage customer payments and make it easy to pay your invoices
- Understand and Comply with rules like National Minimum Wage and Holiday Pay
- Understand and set money aside for Tax, don’t be late paying your tax
- Have a Business Plan and Forecast it will improve your chance of success
Starting a new business is always a challenge but there are some common financial mistakes that all start ups should avoid.
- Lack of Planning – Businesses normally start with a great idea but you need to have business model that works and to at least have a basic business plan and cash flow.
- Over Trading – this happens when a business expands too quickly for its working capital, when you start a new business its tempting to accept every order without considering whether you can have the resources and the cash to deliver.
- Wasted Marketing and Advertising – new businesses are an easy target for marketing companies but its important to stick to the essentials to start with, having a website, e mail and business cards are essential, magazine advertising and other things can be done as the business grows, in the early stages you are experimenting and finding your market so if you spend too much too soon you might promote the wrong things at the wrong price.
- Wrong Business Structure – Before you start your business get some advice from your accountant, its important to choose the right structure not just for tax reasons but also for investment and ownership.
- Wrong Staff – Choosing the right team is critical for business success, choose staff that have the right skills, the right attitude and are dedicated to the success of the business.
- Over Ambitious – All too often businesses plans are over ambitious with sales growing rapidly, often they prove to be unrealistic, when preparing a sales forecast start with your order book and be cautious in your assumptions.
- Overheads – Many businesses over spend on overheads for example renting premises too early, work from home, if you can, to minimise costs.
- Stock Problems – Buying the wrong stock, under or over stocking are also issues for start ups, try to adopt a ‘just in time’ stock policy.
- Getting Paid – A sale is only a sale if you get paid, any one can give things away, make sure you manage your clients and get paid on time.
- Competition – Keep an eye on your competitors, they will be watching you and responding to maintain their market share.
Before you can sell you need to master the sales process, the following is a link to a 9 step process to help improve your sales process – WikiHow
Or you might prefer the 1941 Chevrolet approach
Once you are selling, how can you maximise your sales revenue…….
- Understand your clients needs and wants, sell products that they want, or make them want what you have to sell
- Keep your promises and earn your clients trust
- Look for opportunities to sell additional services and products
- Offer good value and service
- Get testimonials, recommendations and referrals
- Use your contacts and social media and tell them your success stories
- Credit Check your clients, a clients isn’t a client if they don’t pay and you aren’t running a charity
- Bad Debt Insurance could help reduce your risk but its not appropriate for all businesses
- Set up a customer rewards program and offer incentives
- Follow up leads within 24 hours
A business plan is a written document that describes your business. It covers objectives, strategies, sales, marketing and financial forecasts.
A business plan helps you to:
- clarify your business idea
- spot potential problems
- set out your goals
- measure your progress
But its no good unless you have business model that works as Doug Richards explains
Research by the national enterprise campaign showed that last year 484,224 businesses were started, compared to 440,600 in 2011.
According to the FSB
at the start of 2012:
- There were an estimated 4.8 million businesses in the UK which employed 23.9 million people, and had a combined turnover of £3,100 billion
- SMEs accounted for 99.9 per cent of of all private sector businesses in the UK, 59.1 per cent of private sector employment and 48.8 per cent of private sector turnover
- SMEs employed 14.1 million people and had a combined turnover of £1,500 billion
- Small businesses alone accounted for 47 per cent of private sector employment and 34.4 per cent of turnover
- Of all businesses, 62.7 per cent (three million) were sole proprietorships, 28 per cent (1.3 million) were companies and 9.3 per cent (448,000) partnerships
- There were 907,000 businesses operating in the construction sector – nearly a fifth of all businesses
micro: 0-9 employees, small: 10-49 employees, medium: 50-249 employees (updated October 2012)
The best bit of advice I have heard is this piece from Doug Richards ‘Take the Order’
Once you have a business model that works, then create a business plan, here is a link to some free plans to get you started http://www.bplans.co.uk/sample_business_plans.cfm