Starting a Business? Get your priorities right

Starting a new business can be very exciting but also very challenging. There are so many conflicting priorities and so many demands on your time that it can quite bewildering. However, by having a good plan in place before you start and making sure that the right building blocks are in place, then it is possible to proceed with confidence that you have done all you can to succeed.

  • Choose the right structure

It is important to choose the right structure for your business. Should you start as a sole trader, a limited liability company (ltd), a partnership or some other legal format.? Take appropriate legal and financial advice, as each structure has its own legal, tax, financial and other regulatory issues.

  • Make sure you register with the appropriate authorities

Having formed your company, register with the appropriate authorities before you start trading, otherwise you may find yourself in difficulties with them from the outset. Register for tax, and, if eligible, VAT. Make sure that any licensing requirements – for example if you are selling food or drink – have been met, and if employing staff, that you have registered with your local social security and/or payroll tax office.

  • Don’t try and go it alone

Make sure that you have good advisers on hand to assist with the initial set-up and also perhaps to act as an independent sounding board as well. Typically these would include an accountant and a lawyer, as well as an experienced business person, perhaps in the guise of a family friend, to act as a mentor. Such people can give you quality advice in specialist areas where you may lack the requisite skills yourself – for example finance, legal, IT, or marketing.

  • Create effective processes.

To run your business well, you need good processes and systems in place. These may include invoicing, shipping, production and quality control. Good systems allow you to:

Run the business efficiently;

Ensure the delivery of efficient and cost effective products and services;

Employ new staff and bring them up-to-speed more quickly knowing there are established procedures for them to follow;

Delegate the management of the business in your absence – if you go on holiday or are sick for instance;

Make your business more valuable to a potential buyer.

  • Implement strong billing and client management

Many new businesses fail due to cash flow problems. One of the principal causes of this comes from poor control of accounts’ receivables. Services or products are sold on credit, and these sales invoices are not collected sufficiently early enough to cover supplier payments, and other liabilities, like taxes, which have to be paid out of the business. If you must sell on credit – and check if other options are available, such as cash on delivery, or discounts for early payment – then it is important to have an efficient credit management process in place.

Such a process might include the following:

Checks on the credit-worthiness of all new clients;

Written agreements by customers to your terms of trade before you start selling to them;

The imposition of credit limits;

Prompt invoicing and the issue of statements to customers;

Immediate follow-up of late payments, and established escalation methods for overdue amounts – email, phone calls, follow-up visits, legal threats as appropriate.

  • Install a good accounting system.

To make the right decisions, you need timely and correct information. Installing a good accounting system allows you to:

See the state of your business at any point in time – how much has been sold, what cash balances are available, how much is owed to suppliers etc.

Generate immediate financial reports – profit and loss accounts, budgets, accounts’ receivable etc; and

Bill clients, track payments and flag overdue debtors for your attention.

Of course, having a good accounting system and not being able to use it is a problem. Ask your accountant to recommend one that is sufficiently easy to use for your needs, or engage their services on a consulting basis so they can help maintain it for you, and provide you with the information you need to run your business.

  • Identify your KPIs – and monitor them.

Every business has key performance indicators (KPIs). Some of these KPIs are common to all businesses – for example, gross and net profit margins, average debtor days or the bad debtor percentage. Others will be unique to their business sector or industry – these might include website visitor conversion rates for an online business, production units for a manufacturer, or billable hours for a professional service firm like lawyers or accountants.

Decide what are the key drivers for own business and create suitable KPIs based on them. Then having created your KPIs, monitor them!

  • Build good relationships with key stakeholders

There are a number of stakeholders in your business – customers, suppliers, lenders, staff and consultants/advisers. Try and build good relationships with all of them, as they can help you grow your business or assist you if you hit a rough patch. If you pay suppliers on time, they will come to trust you and will be more willing to be lenient in terms of offering you credit if cash is tight one month. Lenders will trust you if all loan repayments and interest is paid on time, and may be more willing to extend the loan or renegotiate terms accordingly. Your staff are more likely to go the extra mile for you if treated well, and kept informed as to your plans and on any issues that may affect them.

Starting a business can be very challenging and there are many pitfalls that could trip the unwary. However, by planning ahead and putting the necessary building blocks in place, you can ensure that you are well placed to not only survive the first few months of trading but to grow and prosper in the long term. Choose the right legal structure, register with the relevant authorities before you start trading, create effective processes, get a good credit management and accounting system in place, and identify and monitor the KPIs that drive your business. Form a good relationship with all key stakeholders and remember don’t try and go it alone. Not only can a team of key advisers give you qualified advice in areas not covered by your core key skills, they can also act as a sounding board and give valuable support so that you can feel you are not facing all these challenges alone.

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