1 Have a good business idea and research it
It doesn’t have to be a new idea, but you do need to have an edge – whether it’s creative, technological, locationor service-based – that distinguishes you from the competition. Look at your market and consider the size of it, the prospects for growth and the likely competitors.
Talk to people in a similar line of work and take professional advice about areas that fall outside your own expertise.
2 Assemble a winning team
What resources and skills do you need across the business to bring your idea to life?
Initially, there may be gaps in the ideal team. Outsource financial advice, technology skills, new business and even creative work if need be. In all cases, quality is what really counts.
Having identified the right people, consider how to attract them and what package to offer. If they do agree to take a risk and join you, what legal barriers must you overcome? Fighting injunctions at the start is not going to help matters. Take good legal advice at an early stage.
3 Sort out your systems
Your main equipment consideration is likely to be IT. What platform will you run on? Should you consider mobile technology? What are you used to? What will be compatible with your clients’ needs? Much can be outsourced, including office packages, accounting, e-mail and Web. Remember any database will need to comply with the Data Protection Act.
If you’re coming from a large consultancy or group, don’t be lulled into a false sense of just how much effort goes into providing a fully serviced desk, PC, telephone and mobile. Understand the options and don’t get locked into inappropriate systems. Typical areas that need attention are:
• Cabling design, choice of cabling contractor
• Project managing architects and cabling contractors
• Network design and purchase
• Communications options
• Telephone switch options and growth path
• Mobile phone options and choice of tariff
• Accounting and job-costing software
• Presentation formats
• Mobile communications and remote access
• E-mail and diary
• Organised filing
• Systems security, firewalls and backups
Ideally, you should employ at least three full-time IT staff to manage strategy, projects and the help-desk. As a bare minimum, you will need support to develop a pro-active IT policy.
4 The business plan
Financial projections can take on a mystical quality for entrepreneurs with no previous experience of them. They shouldn’t. The plan is merely a way of documenting the financial implications of all your decisions and looking at the cash result of those assumptions. It is relatively easy to translate cost assumptions into projected financial results. However, these should include profit forecasts and cash forecasts, which can differ significantly, especially when buying expensive assets with cash as this expenditure does not get charged against profits.
Remember timing differences between cash and profits – VAT and rent are usually paid quarterly. Predicting costs is more certain than predicting income.
Assess the sensitivity of the forecasts to changes in income and other variables.
5 Finding the funds
Establish what the founding team can raise and what proportion of the business each of you want. Consider allowing external funders to become shareholders as a way of financing the business. Can you persuade clients to fund your business by paying in advance? Will a high street bank lend you money?
Generally, banks will not put more into a business than the management. They may ask for directors’ personal guarantees. Avoid these if possible.
Trade investors usually like a majority stake (more than 50 per cent) and the option to acquire the rest. Individuals who know the founders are far more likely to invest than strangers, but Business Angels offer an alternative.
6 Get established
Decide on a business structure: should it be a company or a partnership? It depends on where you want to trade, how risky your business is, what funding you need, your attitude to privacy and what the marketplace expects.
Seek professional advice on what’s best for you.
7 Tax responsibilities and tax planning
Your liabilities will depend on what business structure you choose, the size of the business and whether it is profitable. Other issues include VAT registration, company pensions, tax-efficient remuneration and whether you qualify for special small business schemes.
Understand the difference between employees and freelances. The tax treatment of each is different and creative businesses are often caught out. Tax is complex, so seek specialist advice.
8 Accounting and payroll
Retain orderly accounting records from the off. That way you’re disciplined and prepared for when the business expands. Will day-to-day accounting and payroll be done inhouse or outsourced initially?
9 Ongoing financial management
Even if you’re making profits, keep your eye on the ball when it comes to managing cash flows and making sure you have enough working capital. Prepare management accounts monthly, so you know exactly what position the company is in. Look ahead at your cash requirements – such knowledge helps to build a good relationship with your bank.
10 Insurance and pensions
Insurance must be considered in relation to physical asset, but also health and safety, professional indemnity and credit protection. Think about life assurance, critical illness, ‘key man’ insurance and shareholder protection insurance.
Talk to a good independent financial adviser, who can also help on stakeholder pensions, which you must offer by law once you have more than four employees.
The key contents of a business plan are:
• Introduction/executive summary
• A description of the business and market opportunity
• A description of the management and resources
• Summary financial projections
• Awards and press cuttings
• Detailed financial projections