It may or may not surprise you to know that nearly half of all small businesses fail within the first two years of operation.
One of the largest factors for business failure is inadequate planning and the second is under-capitalisation.
Before we talk about the true cost of starting and maintaining a business, you need to have a plan. You want your business to do more than survive — you want to know if it’s good enough to thrive!
Creating a solid foundation for any business is, in my opinion, one of the most important factors for any new venture. If you start off on shaky ground, it wont be long before you may find yourself sinking fast and all of the hard work and effort that you have put in will be rendered pointless.
So the 64,000 dollar question, What makes for a solid business?
A successful business always starts with a good idea and requires something that makes your business stand out from all the rest.
So how do you know if you’ve got a good idea? Here’s a few questions to ask yourself:
Does your idea provide the solution to a significant problem for your target market?
Does it satisfy a need or want?
Does it create an opportunity?
It probably comes as no surprise to know that the most successful businesses either fix problems (either real or perceived), or they enhance their customer’s lives in some way.
Another important consideration to make would be, is there already a market for your product or service?
Whilst it is possible to create a business from a brand new concept, as a beginner its probably a little more manageable in the first instance to fill a need than trying to create an entirely new market.
Take a little time to think about your target market, Can your target market afford to buy your products or services because if they can’t, it doesn’t matter how great it is, your turnover is likely to be less than required to take your business to the next level.
This also goes hand in hand with pricing, will your target market perceive your product or service as valuable? If they want it, but don’t think it’s worth what you’re selling it for, you may find it difficult to make any sales, particularly repeat sales which are crucial to any business to stand the test of time.
Now lets get down to brass tacks, in the long term will you have the people, the resources and the knowledge to be able to consistently provide your products or services to your target market.
In order to create that all important solid foundation for your business, the first step is always is to create a solid business plan.
So may people spend the time creating a business plan and then toss it in the bottom of a drawer never to be seen again!
Your business plan should be the road map that helps you stay focused and on track.
One of the most crucial pieces of the puzzle in any business is cash flow. So many people fail to take their financial commitments into consideration before starting their own business. I mentioned in my last article that it is extremely common for people to forget to make adequate provisions for their day to day living costs until their business is in a position to generate profit to be able to take care of it. Sadly the mortgage, rental and utility companies are not a huge fan of IOU’s!
You can read my recent blog, Taking care of business, a beginners guide, just here.
Unfortunately, when it comes to starting our own business, none of us have a crystal ball (although if you were to invent one, it would be a total money spinner!)
It can be difficult in the beginning to know exactly what you will need and when because initially, until you dip your toe into the big business pond, you are unsure as to how your new venture will perform and also how quickly.
Hopefully your idea will sky rocket and by putting a little thought into the process at the start, you will be able to adapt much more easily than if you simply throw your ducks in the pond, hope for the best and then try to get them into some sort of order later down the line!
The decisions that you make at the start can have far reaching implications which is why it is important to make certain considerations earlier rather than later, particularly when it comes to finances.
I talked a little in my last article about how it is a misconception that smaller businesses require less than a much larger venture, this is primarily because some of the fundamental parts of both buisness’s are the same.
Based on my own experience, here are some but not all, of the financial considerations that you may need to make when planning your new venture:
Online or Bricks & Mortar?
It is much more cost effective for any business in the beginning to operate online however, for some that is not possible. Whether you are looking to open a bricks and mortar premises or are unable to avoid it, the costs can be high.
It may be that you are hoping to work from home but if you are selling physical products, what happens when your spare bedroom is bursting at the seams and you need to look at storage options?
In these instances, the following costs may apply:
Mortgage and interest repayments or Rental Costs- Any building will cost in one way or another, many prefer to rent to begin with before committing to purchasing a premises but either way the monthly costs must be factored into your business finance plan.
Utilities- This can be anything from electric, water and gas to council tax or business rates. Again, if you are renting premises then its always worth checking to see if any of the basic utilities are included but if not, chances are that your going to need them. Make sure that you contact utility companies promptly and give them your details and more importantly up to date meter readings, if not you may find yourself kindly paying for the people before you took over the premises! You can ring your local council office or go online to find details on council tax, business rates and rateable values. These are likely to be monthly or quarterly costs that you need to factor in.
Insurance- Whether its for contents or public liability, chances are that unless your rental agreement states otherwise, and certainly if you own the premises you will need to secure insurance. This can usually be split into monthly payments but can sometimes work out cheaper if you can afford to pay a one off annual fee.
Fixtures & Fittings- This is an area overlooked by many, Even if you require a desk and chair or need to do a shop fit overhaul, this can work out costly if you don’t do your homework. Nowadays, a good way to make your cash go a little further in the beginning is to look at the local selling pages online or keep your ears to the ground for any other business closing down and possibly selling off their fixtures. If you can make it work for you then it can be a good way to save some much needed cash flow.
Online E-Commerce or Bricks & Mortar:
Insurance- Whether you are online or bricks & mortar, public liability insurance may be required. Another form of insurance to consider is personal insurance which would cover you for a period of time should you injure yourself at work or be unable to work for any reason.
ICO & GDPR– If you are collecting personal data for purchasing or even their E Mails for your newsletter, its always worth checking with the ICO (Independant Commissioners Office) as to whether you need to be registered a s a data handler or controller. In this day and age, GDPR compliance is a costly business if you get it wrong and can carry a hefty fine. You may also need to factor in the cost of a compliant cookie and data blocker plug in or similar if you are planning on opening up a website for your business, online compliance is vital for any business and also offeres reassurance to your customers helping you to build a trustworthy brand. You can find more information by visiting the ICO website here.
Software and Equipment- You may already have a laptop or PC that you are able to utilise for your new venture but if not, I found that it is an area where a little investment is worth it in the long run. Storing all of your business data in one place is much easier in the long run than having various programs on different devices.
Communication & Online Presence- How are your customers going to contact you? Unless you are happy to use your personal mobile for business calls, you would have to filter in the cost of a telephone and the monthly charges that go along with it whether that be mobile or landline. Nowadays, most businesses need some form of online communication, even if you are just offering E Mail contact to your clientelle, for office based business, broadband facilities will probably need to be taken into account at some stage as will online security.
Website Hosts & Providers- If you are looking to create a new website for your business, there’s quite a lot to take into consideration, This is one area that you need to get right, my motto is always think twice and act once! Whilst it is possible to start your business with a free website package, in the long run it could end up costing you. Many of the free website offers give limited usage and basic packages, in order to add onto them usually requires additional add ons which can soon stack up. You can read a little more about the different types of host providers and packages on offer in my recent blog just here.
Permits, Licenses and Fees– These expenses may be needed to start your business or perform certain activities. Some licenses and permits are a one-time expense you’ll need to pay at the commencement of your business, while others require renewals. The different types of requirements vary depending on your niche, even things like starting up a business bank account can come with a monthly or annual fee so its always worth doing your homework to check that you have everything in place from the start.
Stock and Equipment- If you are looking to sell a product then upfront purchase costs and quantities that you may be expected to purchase will definitely need to be factored in. For example, if you are looking to offer a personalised clothing or gift service, there may be minimum order quantities for the colours, sizes and products that you would like to offer to your potential customers. You would also need to take the equipment needed to perform the service into consideration whether you were buying outright or leasing. For retail sales, you could explore the option of drop shipping which is a much more cost effective way to get your business off the ground but make sure that you research companies and sellers thoroughly, their reputation can become your reputation so the goods on offer must be up to your standards.
Staffing- If you are unable to start your business without the help of others or if you find yourself in a position that you need to take on additional help, the costs and responsibilities involved in securing good staff is essential. If you only require help on a short term basis then It may be that you could secure help from self employed workers including Virtual Assistants which could lessen costs such as holiday pay and sick pay but this can have downsides, generally self employed people are free to choose their own working days and hours and are free to head off and work for someone else if they choose. The only way to ensure against this would be to employ your own staff. Employees and the benefits that go along with them, significantly impact the cost of running a business and can sometimes be unpredictable. Speak to an employment agency or get in touch with the HMRC to find out your responsibilities as a good employer before taking anyone on to work for you.
Death and Taxes!- The only 2 certainties in life! When you work for yourself, you need to make sure that not only are you registered for self employment but also that your business is compliant too. As a self employed individual, you are solely responsible for reporting your earnings and paying your tax owed over to the HMRC. It may be worth investing in some accounting software to keep your finances in check or if cash flow allows, an accountant can be a great asset when it comes to year end!
Although the term “bootstrap entrepreneur” describes most small business owners, having enough initial capital to be able to get your business off the ground and keep it afloat is vital to your survival.
Most entrepreneurs have great skills and abilities, but no one does everything well. You probably already know what your strengths and weaknesses are. There are loads of resources out there and a wealth of information available for those who are looking to start their own business and do it properly. They can help you to build your skills in your weaker areas, or offer advice for getting what you need.
Take a look at the Udemy Online Educational Resource Website just here, they offer practical learning on getting started in business, offering everything from personal development courses in various niche areas to getting to grips with computer coding and website building.
Its always worth remembering that its best to be upfront and honest with yourself. At the end of the day, if not, you are only kidding yourself and potentially setting yourself up for failure before you start.
By facing up to the true cost of running your own business in the beginning, learning early as well as been willing to learn often, you will inevitably benefit from all of the hard work and planning in the long term by building yourself a fantastic business with rock solid foundations that will stand the test of time.
If you would like to give your business plan a kick start, head over to my website and get your copy of my 90 Day Business Journal and Planner Bundle digital download just here.