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Some dos and don’ts for businesses starting up in 2012

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Thursday January 12, 2012 at 9:00am

Amidst all the doom and gloom of 2011 I was encouraged to read that according to recent research 470,000 new businesses were created last year an increase of 18 per cent on figures for 2010. Even taking account of the high number of insolvencies there was still a net gain of 455,000 new limited companies. It’s not unsurprising as in previous recessions when large numbers of people have been made redundant many have elected to set up their own business, often offering their skills and experience back to their old employer and others in the industry from which they emerged.

There’s nothing to suggest 2012 won’t see a similar surge in start-ups. It’s not easy when you first start a business and in my view the first 12 months are critical to long term, sustainable success. There’s lots of business advice available but here are my top dos and don’ts for any new business owner.

  1. Do develop a business plan. There’s a lot of rubbish spouted about business plans and the business planning process. Academics make it look very complicated, the banks are only really interested in one dimension of your business (the money) and many business owners don’t see the point of writing a plan when they feel they already have a very clear picture of what they want their business to do. 

    An effective business plan is practical, not theoretical and in fact the process of developing the plan is often as important as the end written result. A good business plan considers all aspects of the business, often across 4 dimensions: finance, people, customers, production/process, with goals set and action plans developed for each of these areas.  

  2. Don’t listen to your mate down the pub. That may be a little bit harsh, but do take the advice of friends and family with a pinch of salt. Look for them for support and encouragement by all means but when it comes to the important decisions you will need to take, whether about the legal structure of your company, how you will market your business and even the process for recruiting staff, get help and advice from people with the right experience and expertise.  
         
  3. Do set the financial side up right at the outset. Make sure your business is properly registered with the revenue from day one. Be clear about the financial records you will need to maintain and the best systems to use for keeping your books, a cardboard box under the bed is rarely the best solution.

    Check out the VAT thresholds and decide whether you should register for VAT and which VAT scheme is the most appropriate for your type of business. And make sure you prepare and use a cashflow forecast, it will be possibly the most important management tool you’ll use during your first 12 months.  

  4. Don’t make mistakes with your pricing. This is one of the most common errors we encounter in companies. Make sure you fully understand ALL the costs to produce and sell your products, otherwise there’s a real danger of selling at a loss. Consider the levels of margin you want to make. Check you are getting the best possible price for any materials you buy in, ideally get 2 or 3 quotes for everything and negotiate volume discounts where you can. Look at your competitors but don’t get drawn into price wars, instead look for ways to distinguish your products or services from the rest of the market and add value to justify any price differential.   
      
  5. Do plan for your personal future as well as your business future. Think about your family, your retirement, your plans for down-time. It’s all too easy to get so wrapped up in the excitement of your new venture that it becomes all consuming. Perhaps the most important point is to make a personal financial plan, alongside your business plan. Whilst it may seem difficult initially to find money to invest in a pension, for example, the longer you delay, the greater the long term consequence.

If you’re starting a new business in 2012 good luck, and if you need advice, give me a call. I’m always willing to offer any new business owner 30 minutes of my time to advise on the basics of start-up.

Andy Parker
Chartered Accountant and Business Advisor

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Parker Chartered Accountants and Financial Advisors is the trading name for Parker Business Development Ltd (Registered No. 4116664), Parker Tax and Trust Ltd (Registered No. 06950353) and Parker Financial Planning LLP (Registered No. OC347027). Parker Financial Planning LLP is authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales – registered office contact details here