7 essential things to consider when starting a business

Over the years, we have worked with lots of businesses at various stages of their lifecycles, from start-ups to established businesses and businesses winding down with their owners looking to sell up and retire.

But by far, the most exciting time is obviously the start of a new business venture. Everything’s new, business owners are full of enthusiasm, they want to get out there, they want to get their product on the market and get started. We’d like to get them off to the best start possible so, in this short video, we thought we would chat through some of the key things that are often overlooked in the planning stage of a business.

Business owners often rue the decisions or mistakes they made at the beginning, but that’s all part of the learning curve of being your own boss and having your own business. But with that in mind, you might as well learn from other people’s mistakes because you’ll have plenty of chances in the future to make new mistakes on your own. Starting a business can come with numerous challenges, so before you jump right in with all your hard-earned savings and start trading, it’s important to get a plan in place and that starts with asking some key essential questions about your possible business.


*Edited video transcript*

1. Does anyone need your product or service offering?

The very first thing that I’d urge everyone to consider is you’ve got an idea for a product or service, but does anyone need it? Is there actually a market for what you’re selling? Because if there’s not, then it’s unlikely your business will actually take off so you need to identify your market and identify a need for that product and service.


2. Is your business likely to be sustainable?

The next thing you need to consider is whether or not your business is likely to be sustainable. You want to go and be your own boss, but are you going to be able to live off of that for the next five to 10 years? Think about what you’re selling. Will people come back? Is it the type of thing that people will come back from for more so you have repeat custom, which is great or are you going to be selling a one-off product that means you’re going to need an awful lot of new customers every year to make sure that you’ve got enough to turn a profit and live off of? If it is one-off sales, you might need to consider, are there other product lines that you can introduce?


3. What business structure is best for you?

Once you’re happy that you’ve got a product that’s ready and there’s a need for it, and you’re happy that the business will be sustainable, what’s the best business structure to take that product to market? It’s common to assume that going into business means you’re either going to be a sole trader or a limited company, those are the ones that people tend to have heard of, but in fact, there are at least five possible structures for any business.

There’s a sole trader, a partnership, a limited liability partnership or an LLP as they’re known, a limited company, and they’re also community interest companies, which are not-for-profit companies for the social good. Now your options don’t just depend on whether you’re working solo or if you’re going in business with someone else, there can be more to it than that. For example, some customers might only interact with you if you are a limited company, which would then take the decision out of your hand a little bit, so you need to work out who your customers are.

Now another common mistake when we’re talking about business structure is when people go into business with friends or family, you need to consider what happens if your professional or personal relationship were to go wrong, for instance. It’s really risky to assume that things will never change. They can, and they often do so you need to be prepared. To set up your business for success, I would suggest putting in clear legal call contracts in place and agreeing on the constitution of your business right from the outset if you can. Especially if you’re going into business with family and friends, see a solicitor, get a proper partnership agreement, drawn up just to protect you both going forward.

Also, when you’re looking at your business structure at the start, you need to consider whether you might need to be for VAT or for PAYE from the outset as well and that’s something your accountant can talk you through. Read our article on ‘VAT: What you need to know when running a small business‘ for more information.


4. How will you fund your business?

The next thing that people don’t really consider is how you are going to fund your business. Now, one thing that most established business owners will tell you is cash is key. There are lots and lots of businesses in the past that have failed purely because they ran out of cash, not because they had a poor product or poor management or poor leadership, they simply ran out of cash before they could really get it up and over the line. What I would suggest is that you make a list of all the things that you need to get the business up and running and allocate a cost to each of those items. That gives you a rough idea of what you’re going to have to spend before you can think about any money coming in.

Now, whether you can self-fund that from savings, that’d be ideal, but if you can’t, and you need to look at other sources of funding, such as borrowing, again, we have another good article on the website that shows various sources of funding that are open to new start businesses.


5. What is the value of your product or service?

Next, you need to consider what the value is of your product or service? This is all about how you set your prices and it’s often one of the hardest things to decide upon. For instance, if you sell a product, then you can kind of work out how much it costs you to buy it in or manufacture it and then just add a profit margin. That’s what we would call the cost-plus approach.

However, if you’re selling a service, effectively your time and your expertise, then how much do you charge? How much are you worth? You could work out what you need to make per month to make the business worthwhile and set an hourly rate based around that but you also have to consider that at the end of the day, your pricing isn’t just down to you, because you need to consider what your competitors and your customers think. Knowing how much other people charge for a similar good or service gives you a good starting point. It also gives you a good indication of what your target market is likely willing to pay.

Now, we often find that many new startups haven’t thought about these first five areas in much detail, but the better prepared you are, the more likely you are to develop a sustainable, profitable business that you can then go on and grow.


6. Knowing when to ask for help

One other thing that new business owners sometimes fall foul of is thinking that they should be able to do absolutely everything themselves, so that’s why this next slide is all about knowing exactly when to ask for help. Now, it’s natural when you start off in business to wear lots of hats when you’re getting your business off the ground, you’re the finance director, you’re the sales team, you’re procurement, and I know that no one will work harder in your business than you, but while hard work is essential, you need to consider how to work smarter as well. The key thing to remember here is that if you find yourself spending too much time working in the business, dealing with admin and compliance and things like that and not on the business, essentially winning work and delivering to customers, then that’s the time that you need to seek outside help.

Often it’s best to hand tasks that you’re not an expert to someone who could get it done faster, better, or cheaper than you could do it yourself. That frees up your time to go and run the business more effectively. It’s common for people to outsource things like bookkeeping to an accountant or a third-party bookkeeper. However, if you want to retain control of financials, then investing in Cloud Software, like Xero, can make your life easier. Watch our video on ‘Why you need cloud accounting‘ to find out more about the benefits of having a cloud system vs traditional spreadsheets.

There are other things you can outsource too. For example, you can outsource your payroll, HR, diary management, or even just general admin support so please don’t feel as though you have to do everything yourself.


7. Paying attention to the paperwork

Now, one of the areas we find people get bogged down in at the start is the paperwork and the finances and it wouldn’t be right for me as an accountant not to mention that one thing since business owners tend to dread it. You need to pay attention to the paperwork and keep on top of it. This isn’t just about checking that there’s money in the bank on a daily basis. The more up to date your financial information, the more accurate and relevant it will be to you, to the point where you should be able to base future decisions around it. Now we know that managing your records isn’t the reason that you got into business. That’s why there are people like us to help with the boring tasks like bookkeeping, while you get on with all the interesting stuff.

But whether you get accountancy help or not, you still need to keep adequate records and reliable records mean that you won’t have headaches if your accounts are ever inspected by HMRC or audited. Now, if your records are inaccurate or worse, non-existent, then that could lead to bigger problems with HMRC in the future, including the possibility of fines and penalties and no business owner wants those hassles, so it’s important that you get your books in order from the start.

Good bookkeeping information will help you understand where the money’s coming into your business, what it’s being spent on, which areas of the business you make money on, and which areas of the business you’re maybe not making so much money on. You can then use that to compare your results to your initial business plan and take action as required.

The world of bookkeeping’s moved on considerably in the last 10 years with manual books and spreadsheets totally eclipsed by cloud accounting packages like Xero. These cloud-based systems can help automate some of the work, helping you speed up the bookkeeping process and reduce the risk of human error when entering the data.

When picking the right system for you, whether that’s Xero or outsourcing the bookkeeping completely or maybe a mix of both, we have more information on the online accounting software available to you, as well as links to video tutorials so you can see how it works before you dive in. With us being Xero Gold Partners, we can provide you with all the information you need to make an informed decision. We can help you set up the system, and then we can be as hands-on as hands-off as you require.


In summary

Obviously, I’ve just skimmed the surface of some of the things that you need to think about when you’re starting up and I hope that it’s been of some use to you. Combined with the other start-up business support articles on our website, hopefully, we sent you off in the right direction.

If you’d like to get in touch with us to see how we could help you and your start-up business, please complete the contact form below and a member of our team will get back to you soon.