Starting your own consultancy may seem like a great idea, but make sure you plan it carefully from the outset, warns Mark Pinder
So, you have had a bad day at the office and things haven’t gone exactly as you had hoped. After work, you head to the pub with a couple of colleagues. You have not been there long when all of a sudden someone says, ‘Let’s leave and start our own company’. Before you know it, you are all busy dreaming up a name for your future enterprise.
I am sure this is how many design consultancies have started. The question is how many of them are still in business today, largely through a lack of planning?
If you do intend to set up your own design group and dream longingly of choosing who you work for, building your own reputation and enjoying the financial benefits that accompany making it a success, here are a few things to consider before you rush back to the office and hand in your notice.
Starting a company is not like doing a little freelance work at the weekend. You do not have the safety net of getting paid every month, holiday or sick pay, and you have the legal obligations that come with having your own company.
It may seem obvious, but, first of all, make sure you really know who you are going into business with. Do you know their strengths and weaknesses, and are you sure that you can trust them?
Do you have the right skills? You and your colleagues may well be great designers and know how to look after clients, but can you find new business, manage staff and be good with money?
The best thing to do – and this is very important – is not to rush into anything. Take your time and do not tell your employer until you are completely ready.
It requires a lot of time to set up a company, so it can be best to do many of the start-up jobs in the evening or at the weekend, while you are still in full-time employment and someone else is paying you.
The first thing to do is to agree the legal status of your new enterprise – whether it will be a limited company, a partnership or a limited liability partnership. Each one has a different legal and tax status, so find a good accountant and get their advice on all aspects of starting and running a company from the start.
The next thing to do is to draw up a financial plan. Now is the time to get your personal finances in order, so if you need to move house or get a bank loan, this is the time to do it. Once you have handed in your notice, you will be self-employed and most banks will want to see three years of books before lending you any money.
It is vital to make sure that your financial plan is right, whatever size of company you are planning on starting, as you will be amazed at how quickly the overheads mount up.
After salaries, your biggest overhead is going to be your office. The thing to be careful about when looking at offices is that nearly all landlords will want you to give personal guarantees as well as deposits, and this will make you personally liable.
If at all possible, try to avoid such personal guarantees because they can easily add up and, if things don’t work out, you could find yourself in serious trouble.
The secret is to start small and build on success. A rented office in a shared building may not be to your own taste, but, at the beginning, it is a much wiser idea than giving a ten-year personal guarantee on a building.
Invoice factoring is not always cheap, but it will keep your cash flow positive and may well save you from giving a personal guarantee to a bank for the use of an overdraft facility, should your clients not pay on time.
In my experience, when it comes to equipment, try to buy it, never lease it. By buying it, you will also save money in the long term.
Another important issue for a new company is suppliers. Once you have landed that big job, who is going to print it, manufacture it or even deliver it? Most suppliers will want you to give credit references, or pay half up front. So try to keep a good relationship with the suppliers you are working with while you are still in employment.
In some circumstances, appointing a non-executive director can also be of assistance. Having the experience of someone who has been there and done it before can be very useful, but it can also be expensive, so make sure you choose carefully.
Mark Pinder is co-founder of Brand Frontier
Thinking of setting up yourself?
• Consider taking out indemnity insurance
• Make sure you have a good database for tracking clients, suppliers and invoices
• Get lots and lots of advice – talk to the Design Business Association, the Chartered Society of Designers, the Department of Trade and Industry and your bank manager
• Don’t quit the day job too soon
• Get a good financial advisor
• Decide which type of legal entity your business will be
• Don’t sign too many personal guarantees
• Consider appointing a non-executive director for guidance