As we start 2009 with warnings of a protracted recession and a sharp rise in unemployment, one ofthe side effects is likely to be an increase in the number of new small business owners. As large businesses shed staff with redundancy packages, many of these people will look to secure afuture income stream by starting or buying a business. Most of these people will not have been in business before.
Some will set up simple consulting businesses, particularly where governments or large businesses have adopted the strategy of turning fixed costs into variable costs by metamorphosing employees into consultants.
Some will seek the apparent security of a franchise – where business systems, location and inventory have already been determined and prescribed and the profits are relatively predictable although limited. But for most, being a first time business owner will be a vastly more complex occupation than being an employee. In thinking about this daunting prospect, I came up with a list of things you should know before you go into business;-.
1. If you think you are going to be your own boss – think again. You will have an endless stream of people telling you what to do, including your customers, your bank, and the Taxation Office. All levels of government will impose regulations, ranging from where you can conduct business to what staff you can’t refuse to employ. Your employees will tell you what hours they will work and your suppliers will tell you when they can deliver and how quickly they require payment. Inevitably, at some stage, you will ask yourself who you are working for
2. You will have to perform tasks that no corporate executive has ever contemplated - because there is no on else to do them. Likely washing the coffee cups, taking out the bins, backing up the computer and changing the cartridges, renewing the domain name and making sure the website is maintained.
3. The ‘boring bits’ can be the difference between success and failure. Business owners who concentrate on establishing their systems before they start operating have a much better chance of success than those who embark enthusiastically on trading and leave systems issues unattended until a crisis is reached and they can no longer be ignored. It is no surprise that business failures can often be directly attributable to poor systems Chartered accountants who go into business are often successful because they focus on putting systems in place first. People who do this know from day one what their profit margins are, what wastage they have, whether pre-determined key performance measures are being met, how productive each employee is, when cash flow is likely to be strained and how quickly each inventory line is being turned over. With this information they can make quick decisions and plan ahead. They are in control of the business.
4. Don’t think of professional fees as just costs. Your professional advisors can and should add to your profitability. They should form part of your team, providing the skills that are needed by the business that you don’t have yourself. It is surprising how many business owners don’t know how to properly use their advisors. You should have an initial meeting with each of them to understand what they can do for you and then negotiate their charges with the knowledge of the value they can add.
5. A business plan should be costed into your initial funding requirements. It can be critical to your investment decision itself and the future success of the business. But it must be done thoroughly – based on the best market research you can get, and using expert assistance with the strategic and financial aspects of the plan. This is the road map for your business. It may look to be paved with gold but if it is based on incorrect data and invalid assumptions you may find it is actually a dead-end, and a costly one at that. Spend the money to get the business plan right – it is an investment, not an expense.
6. Make sure you have sufficient capital – not just for the purchase price but also for working capital. Your business plan should show you just how much funding you will really need
7. If you have been used to working regular hours, prepare yourself for a shock. While your business may only be open during business hours, your work doesn’t end there. You will have all kinds of paper work to attend to, planning to do, advisors to meet, financial reports to review, employees to interview and counsel, equipment and premises to maintain, inventory to order, banking to attend to, and much more. Your will need the support of your family who will have to share this burden with you, even if only indirectly through your absences from home.
8. If you think you are just buying yourself a job then that is probably all you will achieve. But if you have a passion for what you do and aspire to build an enterprise through clever strategy and creativity, then, with sound advice and a solid financial base, you may indeed develop a business that can ultimately be sold for considerably more than your original investment but, just as importantly, that can provide you with an enormous sense of personal fulfillment and achievement