How to Build A Small Business That Lasts
With half of new businesses failing in their first year, it’s important to get the fundamentals right. Find out how here
Britain has always been a nation of entrepreneurs. From the beginnings of the industrial revolution right through to the modern day, there has always been a zest from our citizens to take that leap of faith and gain control of their work/life balance.
However, nowadays every sector is highly competitive for a new start-up which is exemplified by over 50% of the 500,000 new start-ups failing within their first year. For this reason, you need to ensure that your business is built in the correct manner – from infrastructure to tax and insurance, employees and marketing.
Your business has to be set up in the right way to ensure that you are best placed to take full advantage of your target market and enter the business arena with the right tools to succeed.
Below, we look at four key elements of your business which, if set up correctly and managed properly, will give you the greatest chance of success.
The first, and possibly the most important decision you can make with your business is the type of space you invest in and its location. When deciding upon your final premises, the perennial question of cost vs location may arise. Cheap premises are obviously preferred, however if your business isn’t located correctly to best reach your target customer then your attempts at frugality will be outweighed by the loss of sales from poor location.
Consider costs vs benefits whilst choosing your location, as if you believe paying ‘X’ amount more a month will result in ‘X’ amount more sales, then it could be worth spending that bit extra on your premises.
Once you have chosen your premises and are beginning on the path to populating your space, there are often a lot of outgoings but not much coming in the opposite direction. At this stage costs can often spiral out of control as excitement takes over. Therefore it is essential to put a proper plan in place of what’s essential to the day to day running of your business i.e. phones and laptops, what can wait until you’re more financially secure, i.e. client waiting areas, and finally what’s a luxury you could use to treat you and your staff – think ping pong table.
This can vary from business to business depending on your product or service. However a good rule of thumb to live by is ‘if not having this item doesn’t impact my business performance, I probably don’t need it straight away’.
Tax and insurance
Possibly two of the dreariest areas you need to address when starting your business are your legal and financial obligations and liabilities. These are also amongst the most essential steps to creating a legally secure and viable business.
The first step any new business owner needs to undertake is deciding upon a structure for their enterprise. This is important as it helps define your personal obligations towards the business and can impact on your available future funding resources, tax expenditures and insurance liabilities. Depending on your investment and overall business plan, most businesses will open as sole traders and aim to move to a limited company as soon as possible. This is wise both financially and legally as it is essential to try and limit your personal liabilities as much as possible should the worst happen and your business not succeed.
Once you have decided upon your business structure it is time to register with all the necessary government and non-governmental bodies to allow you to trade properly and legally operate. This includes but is not limited to:
- Registering with Companies House – This registers you as a business and allows you to trade freely.
- Registering with HMRC using your Companies House business number – This ensure you are paying a correct amount of tax.
- Register for VAT – Only necessary if you expect takings to exceed £82,000 annually. However VAT registering also allows certain B2B products to be obtained VAT free.
- Register for the PAYE system – A legal requirement for paying staff (this will be further detailed lower down).
Completing all your registrations can be a tedious process, nevertheless it is vital to your business success and is essential to stop any taxation issues further down the line.
Note: It is crucial to keep in mind that once you’ve registered for all the necessary bodies, they will all require some form of annual return. Generally in the form of statutory accounts, annual returns or tax returns. Usually around January – March time.
Once a company is registered, many people believe this is the green light to begin trading, however, this is not the case. There are in fact several legally required forms of insurance that you must purchase for your business. These are:
- Liability Insurance
Every business needs some level of liability insurance. This protects your business if any member of staff is taken ill or suffers injuries that may or may not result in death. By law, most employers are required to obtain at least £5m worth of liability. However depending on your industry it could be wise to look at bigger schemes.
- Motor Insurance
It is a common misconception that if you have motor insurance you can use your car in whatever capacity. This is in fact not the case, and all drivers using a vehicle for business related activities must be covered under a business insurance. This is often at no extra cost, simply contact your insurance to change your plan settings.
- Professional Indemnity Insurance
Not technically a legal requirement, but it would be foolish for a business owner to not see Professional Indemnity Insurance as essential protection. Professional Indemnity covers your staff and business against damage to any property or persons you would encounter during your work. This can be a physical form of professional negligence or, as is becoming increasingly common in the modern marketing place, digital negligence. For example loss of data, breach of copyright and so forth.
In reality, there a million and one types of insurance you can get for your business and these are often dependent on your business type. For some, insurance is protection against a situation that will never happen and for others, insurance is protection against every eventuality.
With your infrastructure and financials organised it is time to consider staff. It is important when considering hiring for your business you ask yourself three key questions:
- Does my business need someone else just yet?
- How much will an employee cost?
- How much revenue will extra staff generate?
These questions are all significant as they not only asses the need for a staff member, but also the feasibility of one for your business and how this will affect profitability.
A business primarily needs to hire staff when the workload becomes too much for the owner. This is both understandable and reasonable, however it is not always as simple as that. When taking on staff many people believe wages to be the only cost but there are in fact many hidden costs to consider such as: the cost of new equipment (desks, chairs etc.) to accommodate staff, the potential rise in insurance and cost of improved office safety procedures, and finally the implementation of PAYE systems and mandatory employee benefits. If all of these costs cannot be covered by the extra revenue of a new staff member, don’t hire one yet.
If things are going well and the staffing costs will be justified by extra revenue it is crucial you get your business ready to hire. You can do this boy following four simple steps:
- Register for the PAYE system – this is legally required and is used for paying staff.
- Register as an employer with HMRC – important for your staff and your own tax returns.
- Get employers liability insurance – a legal requirement for any employer.
- Provide written contracts with job description and all legally required employee benefits included.
Hiring your first employee can be an exciting time as it shows your business is growing and beginning to pay for itself. You just need to ensure you do it at the right time and in the right way.
Marketing is vital to any business as it is the tool by which your product will be seen and heard and your revenue will be generated. But what’s the best method for marketing your new business? Sadly there is not a one-size fits all formula for creating a marketing strategy, only four simple rules to live by: Product, Price, Place and Promotion.
Is your product right for your target market? Is it needed? Are there others like it? It is important to remember that your product isn’t just the physical item. Instead it is the whole purchase from start to finish. Your business is part of the product or service and it is crucial you make the whole process an enjoyable experience for consumers.
Price is important as you need to stay competitive in the market whilst still making a profit. Consider not only your production costs but your overall running costs when setting your products’ prices to ensure that you are making a good return on each product sold.
How do I get my product out to potential customers and where is the best place to position myself? Many of these considerations have been covered by your location. However you also need to think about where you will position yourself within the market generally, and contemplate new ways to positively push your product externally such as trade shows or exhibitions.
Promotion and place are interlinked, yet separate entities within themselves. When you have located the place to market your product you need to entice customers to your company. This is done through your marketing strategy.
Running a business is a fantastic experience and the path to potential financial freedom. There can be many ups and downs but eventually with patience, determination and a little bit of advice along the way, there should be no reason why your business cannot be a success.
Anyone can do it with the right idea, right product, right place and right time, and hopefully this guide will help you on the way to running a successful business.
Please note: This guide already assumes you have funding, a product and a product supplier already, so will not be addressing these issues.