Hundreds of thousands of new businesses are formed each year. Some will be a great success, but the vast majority will no longer exist in five years time. One of the main reasons why businesses fail lies in the preparation stage.
Small business owners often have unrealistic expectations, fail to spend time on research, or fail to adapt to changes in the marketplace. As a result, the majority of small businesses (53% according to the ONS) will have failed within 5 years – many within just 12 months.
Top 10 Tips
With this in mind, here are ten tips for potential small business owners to consider before making the leap from being an ‘employee’ to running a small enterprise.
1. Is there are market for your product or service?
Before making the jump into self employment, you must be certain that people or other businesses have a need for the product(s) or service(s) you intend to supply.
2. How strong is the competition to your business?
Is there a gap in the market for your product(s) or service(s)? Is competition in your chosen sector intense, or weak? What is your Unique Selling Point (USP) to differentiate yourself from the competition?
3. Have you secured funding for your start-up?
Many new businesses are self-funded, however others may require a business bank loan, or alternative financing facilities such as factoring in order to get going. Ensure you have a contingency fund in case start-up costs are higher than you initially expected (they usually are).
4. Are there any industry-specific issues you should be aware of?
Make sure you apply for any licenses or organisation memberships if they are legally or otherwise required in your line of business. Also ensure you have adequate insurance cover in place – this is mandatory if you have any employees.
5. Have you got the right skills to run your business?
Try to be objective and honestly assess your own skill set. Ask colleagues, family members and friends for their input. You must be honest about your weaknesses as well as strengths and be prepared to seek outside help if it is needed with either permanent staff or freelance help.
6. Are you personally suited to running a business on your own?
Although there is no single blueprint for a successful business owner, you do need a certain amount of courage to go it alone. You will also need to be tenacious, a quick learner and be prepared to give your all to your new venture. Only when you are prepared to give 100% to a business is it likely to succeed.
7. What business structure are you going to use?
Before you start your new business, you will need to decide what type of business structure you are going to operate as. If you are starting up on your own, you can either work as a sole trader – which is often referred to as being self employed – or form a limited company.
There are advantages and drawbacks to both options, and you should consider carefully which structure suits you and your business going forward. It’s an important start-up decision so make sure you take the time to read up about it and seek advice from an accountant if you have any doubts.
8. Are you being realistic?
It is hard to be completely objective when starting up a business for the first time. Not only is it crucial to spend most of your time researching the market for your product(s) or service(s), but you should also solicit opinions from people you trust – who know you well and are happy to point out potential pitfalls in your new business idea.
9. Hire a good accountant
Your accountant is likely to be your most important adviser during your time as a business owner. Ask for recommendations from other business owners, as a good accountant will save you money and provide valuable advice.
10. Do you have an exit strategy?
If you own the business with other people, make sure you have a partnership or shareholders agreement to fall back on just in case disputes arise or if one or more partners wish to sell their share of the business.