There are many reasons why you may consider setting up a business – financial, entrepreneurial spirit, passion, invention, hobby, work life flexibility – but often the owner(s) of the business will end up working long hours for little financial reward, even incurring losses for which they will be personally liable.
Whilst passion and drive for the business is essential to help it succeed it is important to be realistic from the start – draft a business plan, consider all aspects of running a business, plan an exit strategy.
You may accept that you will have to work 50-60 hours a week providing goods or services to your customers but it is easy to overlook the amount of time (or money) you will need to spend on other aspects of the business – advertising, marketing, IT, development and maintenance of a website, dealing with suppliers and customers, book-keeping, accounts, taxation (PAYE, VAT), insurance, funding, staff.
Be realistic about what you can deal with yourself and what you can outsource – marketing companies can deal with your marketing, advertising and website creation/maintenance; accountants can deal with your book-keeping, taxation, payroll and advise on funding; and IT companies can deal with IT support. Outsourcing can however be expensive. Before you lock into a contract for monthly fees consider whether you need ongoing services or would it be cheaper to obtain the service only when you need it. Can you deal with some of the issues and outsource only those business areas where specialist advice is necessary?
How will you fund the business – savings, loans from friends and family, a bank overdraft, a bank loan? How much money do you need monthly to cover personal expenses, utility bills, mortgage, food, etc? The business will need to cover its own costs as well as generate the minimum amount you personally need to cover bills. You may be able to use savings or a loan to cover a shortfall in the short term but this is not viable in the long term.
Produce a business plan for years 1 -3; prepare an annual cash flow statement and budget; and monitor your profit / loss and cash-flow closely on a monthly basis. Regular monitoring of your business finances means that you will be in a position to change your plans on a timely basis if required.
All businesses will have different time-lines as to when profit and cash-flow will be positive. If you have researched your market and prepared your business plans and financial forecasts carefully – use them – if cash-flow and profit are not as expected revisit the plans and revise them as necessary.
Be Realistic. Starting a business, developing it and seeing it become a success is very rewarding but continuing with a failing business can be devastating both emotionally and financially. Research and planning are the key.