For many small businesses, the first year (or two) after set up is the hardest. By the end of year three, it’s usually sink or swim; you’ve put all your initial enthusiasm and capital into it, and if it’s not at least supporting itself in the water by this stage, chances are that like many small businesses, this is the time it will go under.
So how can you ensure it doesn’t?
Do your Research
It may be your dream to open up a little cafe or cake shop in that delightfully olde-worlde street in the historic part of town, but it may already have its quota of this kind of business – what could you offer that’s different? Could you open your cafe somewhere else, where there’s a need for it and the rent is likely to be cheaper?
Successful businesses fulfil a need. There have to be customers out there who want or need what you can provide, where you can provide it. Your business needs to offer either: expertise; something significantly better than its competitors; something truly unique.
So before you start, research your market, geographical area, competitors and potential start up costs. This could save you the time and money involved in setting up a business that’s doomed to fail, and the anguish of seeing it do so. It could also point you in a more promising direction.
Make a Plan
Even if you’re a one man (or woman) band, and/or you’re not planning to ask for finance, you should still make a business plan that sets out your objectives, target market, marketing plans, pricing, potential problems and projected costs and profits. Think through the whole process, from buying stock (including any delivery charges) to delivering the finished product to the customer, to ensure you’ve taken all expenses into account. Include basic running costs, such as energy, phone, water and internet service bills.
Make sure your plan and pricing is realistic – something your research should help with. If you’ve skipped the research stage, this document won’t be worth the paper it’s written on.
Have Strategies in Place
When you start a new business, it’s very easy to get swept up in the now – the practicalities of making a start. Registering your business, buying a photocopier, getting that shiny new van liveried up…
But you’re doing your business a disservice if you don’t think a little more long-term too. You should know where you want to take your business next, and have strategies for all scenarios. What will you do if your business barely gets off the ground – who will you ask for help and what will you try to change? How will you identify where you’re going wrong? How long can you afford to keep trying, and what’s your exit strategy?
Equally, you need strategies to capitalise on modest success or cope with unexpected triumph. How will you expand your business? And if you’re a sole trader who can only physically produce twenty of your personalised scrapbooks a month, what will you do if in month six, your monthly orders leap up to forty?
Don’t Spread Yourself Too Thin
It’s not unusual for new small business owners to seriously underestimate the time it will take to run their business, and fail to realise how difficult it can be without back-up. What happens if you need to take a step back because you or a family member is ill or you have a crisis to deal with?
If you’re struggling, consider employing someone else, even if it’s just for a few hours week, and using an accountancy service to keep track of your finances. This is a good time for small businesses, with the Government offering allowances and perks to small businesses employing staff, particularly apprentices. Employing someone could free up your time to focus on the areas where your expertise and oversight are most needed. The government website provides useful guides to employing staff for the first time and employing an apprentice.
Don’t Spread the Money too Thin
You may be wary of taking out a business loan; it can seem counter-intuitive to start your business already in debt, knowing a chunk of whatever profit you make will go towards repayments.
But a little capital can allow you to invest in things which save time and money or help your business flourish from the start, such as professional equipment and a good marketing campaign. These days, business finance isn’t all about banks – crowdfunding options are available too, and don’t forget you may be able to get grants from the Government, your council or local consortiums.
These tips should help you avoid the common pitfalls of the early years, ensuring your business has the best chance of success. Got any more tips to add? Drop them in the comments box below!
Want to learn more?
Subscribe to our newsletter to get accounting tips like this right to your inbox
About The Author
We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!