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Time to go it alone?

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Thursday November 29, 2012 at 9:00am

Earlier this month saw a real focus on entrepreneurs as the Department for Business, Innovation and Skills (BIS) announced a number of initiatives for Global Entrepreneurship Week.

Encouragingly BIS pledged its support for small business, announcing that two entrepreneurs will be given advisory roles in government, helping to advise on small business issues and to make sure the needs of entrepreneurs are properly considered by policy makers.

In times of recession, start-up numbers tend to increase, and BIS claims this year has seen a record number of 4.8 million SMEs in the UK. This increased focus from government is a welcome addition to other initiatives such as the Seed Enterprise Investment Scheme (SEIS) launched in April this year which offers tax breaks to individuals investing in small companies and the broader Enterprise Investment Scheme I blogged about last week.

It is good indeed to see the ‘entrepreneurial spirit thriving in the UK’ according to a recent survey by smallbusiness.co.uk. Apparently just over half of the 2,000 people questioned said they were interested in starting their own business. The most popular reasons cited were to have a 'better life balance' (33 per cent) followed by 'wanting to be my own boss' (25 per cent) and 'having a great idea' (21 per cent).

Starting a business is a real option, especially for those emerging from larger organisations with a good deal of experience and the cash buffer of a redundancy payment. But you do need to be realistic and develop a planned approach.

If you are tempted to start your own business, the first year is likely to be the most critical if you are to go on to future success. Here are some key points to remember.

  • Do your research and have a plan. Who are your competitors? What will you do that is different or better? Is there even a market for what you’re proposing? These are just some of the questions you’d need to ask when setting up. A good plan will cover these and all aspects of the business, including finance, people, customers, production/process, with goals set and action plans developed for each of these areas. The time taken early on to draw up a plan will not only help you avoid some costly mistakes but is a point of reference to keep your business development on track as it grows.
  • Ensure you are informed. Running a business is a serious business! There are legal considerations, employment law, health and safety legislation, copyright, trademarks, consumer rights and the like. Don’t let this put you off but it’s important to be on top of these issues or you could find yourself in hot water through ignorance. Something as simple as not researching a proposed company name sufficiently, could leave you in breach of another firm’s trademark and with costly changes to make to your signs, vehicle livery etc.
  • Take professional advice. An accountant can help you decide how to legally structure your company, whether to register for VAT etc. They will ensure you manage your taxes effectively and meet all your financial reporting obligations. Having a simple and easily managed book keeping system and getting proper reports which let you know whether you are operating profitably soon become essential tools you will need.
  • Cash is king. Possibly the most important management tool you’ll use during your first 12 months is a cashflow forecast. Setting out all the costs and likely income will help focus your mind on making the right decisions on purchases and motivate you to keep on top of your credit control. 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.

If you are starting out in business getting some of the basics right from the outset is essential. You’re bound to need help along the way, just don’t be afraid to ask.

Andy Parker
Chartered Accountant, Birmingham

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Parker Chartered Accountants and Financial Advisors is the trading name for PLW Advisors Ltd (Registered No. 10396831), 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