Do I have what it takes?
Running your own business can mean long, unpredictable days, with little respite until you start to make a profit. Reaching that milestone can take years.
You’ll need to be:
Passionate: If not, you’ll find it hard to keep going when you hit a hurdle.
Prepared to make sacrifices: You’ll have less money to spend and may have to give up hobbies and social activities, at least while the business is getting up and running. Make sure your family is prepared for changes, too.
Good at managing risk: It may take time to develop a steady flow of revenue.
Persistent: Things may not always go your way.
Open to learning new skills: You may have to be company CEO, bookkeeper, sales team and cleaner until you hire specialist staff or advisors.
You’re also going to be developing what your business is selling — and working out how to sell it.
How good is my business idea?
There can be big differences between a good idea and an idea that will be a commercial success. Often the most successful ideas are the simple ones, like identifying a gap in the market that can be filled with a new product or service, or adapting and improving an existing business idea.
Taking time to evaluate your idea before you leave your job, borrow money and put your family life on the line is crucial.
Will I solve a problem or fill a need?
Is your idea for a business going to solve a problem — or tap into an unfilled need — for the public or other businesses?
If your answer is no, scrap it and start again.
If your answer is yes, think about the scale of this problem or need. If it’s minor, you’re going to struggle to make sales. You need to solve what’s giving people a major headache, or provide something they can’t get elsewhere.
This is a key aspect of business planning. It’s a good idea to draw up a basic business plan — even just a one-pager — to help test whether you have a sound idea.
Will people buy from me?
Unique Selling Point
Unless you’re going to sell something no one has thought of before, you’ll be competing against other businesses. Your products or services must stand out from the rest.
It’s worth creating personas – fictionalised profiles of the people you most want to sell to – as you shape up your idea. Think about where you can find them, what they value, what they’re worried about, and what they need.
You need to work out what your competitors charge for the same or similar products or services, and how much customers are prepared to pay for your product or service – you can do this by asking a sample group of your potential customers. You should also check if there are industry-standard prices for your type of service or product.
Think about the optics of your pricing too – if you charge less than your competitors could your product or service be seen as inferior? If you charge more, can you justify this by offering better quality products, or superior service?
You need to know how much you’ll have to earn to cover the cost of sales and your monthly overheads. You also need realistic estimates of future income and costs to work out when you’ll be in profit. If the numbers show you won’t make profits for some time – even years –
do you have funds to carry you through?
How much will it cost to start up?
Once you’ve drawn up a basic plan and crunched some numbers, you need to figure out how much money you’ll need to start your business.
TIP: Overstate rather than understate your estimates
Can you afford it?
Assessing whether you can afford to start a business takes careful consideration. The first thing you should do is analyse your own expenses.
Go through your personal spending with a fine-tooth comb. Add up your mortgage or rent, bills, food, school fees and discretionary spending.
Look for things you can cut. Add up the items you can’t to work out the least amount of money you need to sustain your lifestyle.
Running a business can be incredibly fulfilling, but the early days in particular can be a financial squeeze. Being realistic and honest with yourself from the get go will help you avoid financial disaster.
Once you’ve gotten to grips with the impact on your personal finances, it’s time to focus on how much it will cost to get your business up and running.
One-off costs to start up
These tend to be bigger ticket items, including:
•lease or purchase of buildings or land
•permits, licenses or other compliance costs
• equipment and/or machinery vehicles
• shop fittings and/or office furniture branding
•a website and domain name
• registering your intellectual property (IP), eg trade marks or patents. Note, not all need to
These are bills and other costs you need to pay on an ongoing basis, also known as overheads.
These tend to be time-related, eg monthly phone bills or quarterly rates payments.
Common fixed costs include:
•utilities, eg electricity and internet
•rent or mortgage payments
These are expenses that vary depending on how much, or how little, your business produces.
Common variable costs include:
An accountant will be able to run through your projected expenses and pinpoint any others you might not have thought of.
If you’re planning to approach lenders or investors, remember they’ll likely be more comfortable supporting your business if you (or someone in your management team) can demonstrate previous business experience.
If you don’t have anyone with business experience in your team, you may want to try to gain some skills and experience of your own first.
They’ll be interested in what you’re personally investing in your business idea, both in terms of money, and in time and effort.
Forecast your cash flow
Using your estimated costs, the next step is to do a cash flow forecast for your first 12 months of business. It’s typically a spreadsheet that projects your business’s income and expenses.
It’s common to operate at a loss when you first start a business. You’ll need to make sure you have enough money in reserve to sustain yourself during this period. A cash flow forecast will help predict whether you’ll need to borrow money, and if you are financially prepared to start up.
TIP: To help predict your income, use data on your industry type and your competitors.
Talk to advisors
An accountant will give you good insights into how much money you’ll need to get started. Try to find an accountant or advisor who has a good track record with business similar to your own.
Research other businesses in your industry
Another good way to get an idea of profits and costs is to talk to businesses similar to your own. You’ll be surprised how open certain competitors might be to sharing their experiences.
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