So you want to start a business. (1)
Over the years I have started a few businesses, some of them have been successful and one a dismal failure. I would like to share my experiences with you so that you will not make the same mistakes that I have.
It might work with your business but …
Often when one imparts ones experiences, as advice, one gets one particular remark more than all others. That is “Ah yes, it might work in your business but it wouldn’t work in mine”. Those remarks are more than often made by people with rather closed minds which is a shame. Especially amongst people wanting to run their own business. In business one must constantly be examining new ideas and conceptions if one wants to succeed.
If it ain’t broke, don’t fix it!
Lets look at a famous American catchphrase – “If it ain’t broke, don’t fix it”, now let’s examine a basic Japanese philosophy which is, “if it is working, and working well – let’s sit down and work out how we can make it better”. Those of you whose grandfathers are still alive should ask them about the quality of Japanese products just after the war. They were shoddy and just imitations of our own better made goods.
About this time (mid to late ‘forties) an American, W Edwards Deming, tried to sell the idea to other Americans that they should never be satisfied with their products and should constantly try to improve. He wasn’t exactly laughed out of America but he was laughed at, and was so disappointed with the way Corporate America threw his ideas out, probably with the words “It might work with your products but, no sir, it would never work with ours”, that he went over to Japan who immediately took up his ideas.
Iver the last fifty years Japanese products went from worse to good to extremely good (except Minolta of course.) Their cars are everywhere, their computer printers, scanners, and other peripherals span the world. Japanese cameras are everywhere, Nikon, Canon, Olympus etc. And their top industrial award is the coverted Deming award. And our American Hero, last time I heard of him, had returned to the US where, in his eighties, was the most sort after “after dinner speaker” around.
What can we learn here? Once you have your business plan, and start up your business, whether in the manufacturing or service industry, don’t ever be satisfied. Ask your customers to complete surveys (but if you do, read the bloody things), ask them how they feel you could make your company easier for them to do business with. You have to make it as easy as possible for your clients to spend their money in your business!
The most important subject when starting up a new business is finance and cash flow. I am presuming you are already in employment and are thinking of taking the plunge.
Their are many stages in preparation but what I am about to say is a little novel but if you take it on board you will start up with an excellent cash flow.
Your bank account should be healthy before you start and if you have loans on your credit cards pay them off before you start, even if it means putting your plans off for a year or so. Make sure your car is as new as you can afford to have it, and that it is fully serviced before you start.
If you need a computer for the business, make sure you have the best the job requires before you start. Do not ever purchase any goods or services on easy terms, credit or lease. Leasing is fine for the larger company but the smaller company will surely die when times are hard if they have large fixed monthly outgoings.
Imaging you have a turnover of £200,000 a year with fixed outgoings of £75,000 a year. There is a recession, or a rival opens up in your area of location or expertise and sales fall by 50%? That now leaves £25,000 a year for your salary and variable expenses, something will have to give and the more that gives will equate to your new annual turnover shrinking even further.
I was in a store looking at the latest gizmo recently and the salesman must have been sure I was on the point of purchasing – I was! So he thought he’d throw in a clincher – he said I could buy on easy terms. That was his one big mistake as I suddenly ‘came to’ realised I was on the point of buying something I didn’t really need, and walked out. You see, since I lost a good business because I had so much equipment on lease, I had conditioned myself to turn off immediately anyone says anything that suggests I will be paying interest or fixed payments.
So you see, all payments, whether in your home, or your place of work, which occur regularly, which you cannot switch off, are the real killers when times get hard. And believe me, whether you are John or Jayne Smith, or Richard Branson, times will get hard from time to time – if you cannot cope with such challenges, don’t read further and, for heavens sake, don’t give up the day job.
Learn how to make a business plan, also how to draw up a cash flow and finally a marketing plan. I know it is difficult but if you want to be successful, you must also know as much as you can take on board about accounts and accounting.
As a one-person business this will save you money. As you expand into a company, and maybe a corporation, this will ensure you can check to see if an employed accountant is not milking your company. Don’t you read the newspapers? Whilst you are clearing your credit cards, updating your car and acquiring the required office equipment, go to evening classes and learn how to handle your accounts, book-keeping really isn’t that difficult. Just remember Credit has an “r” in it, so it is on the right hand side. Debit therefore must be on the left!
You’ll also need to find a good accountant and lawyer. This doesn’t mean you have to take them on board straight away. Use the year or two setting up to quiz business friends and colleagues locally and see if you can find someone who comes highly recommended.
Further advice is to get a computerised accounts program that will also give you management accounting information. I have used many in the past but do have a liking for Quickbooks. It is ideal for the small business and allows you to make mistakes and to totally erase entries so you can post the correct entry. Some accounts programs insist on no erasure, you then have to make an ajustment and then repost the entry again. For someone who makes mistakes like me, this produces messy accounts which cost more when being audited. Quickbooks isn’t like this and allows deletions. Remember, the more you can do means the more an expensive accountant can charge you.
Enter all your accounts as often as you can. Definitely at least once a week. This way you can always see exactly where you are. Once you enter all your figures, don’t close down, print a cash flow or a profit and loss report. A balance sheet will give you a pretty good picture of what your business is worth. And, by pusting one button, you can produce an up-to-date balance sheet every week. The same goes for a profit and loss account!
My wife and I use the smaller home program, Quicken for our household accounts. We set and maintain budgets, our shares are listed and everytime we log on to the internet, our shares gain the current price automatically, and we always have a “bottom line” of our exact worth. After a couple of years of doing this we have found we have much more disposable cash available – and I am talking four figures here!
Unless you are willing to take the time to enter current information to get a regular update of your “bottom line”, you’ll hit the bottom line, pretty quickly.
Sales & Marketing
Every business needs to market both themselves and their products. If you have built a better mousetrap, people will not come flooding to your door – you have to go out and find them!
In addition to this every business owner must be a salesman. If you can’t go out there and sell, you are lost before you begin. Before you even sell products you have others to sell to.
First of all, you have to sell your idea to your spouse. It is no good giving up the security of a regular monthly salary unless your spouse is not only with you all the way, but is prepared to help. They have to realise that, working for yourself doesn’t mean you can do the shopping during working hours, look after the children when you have to go out and sell your services, or when you have to see your bank manager.
Talking about bank managers, if you have to raise finance and pay interest, you will have to close the “sale of your life” to get past all their objections. Don’t even think about a visit unless you have a full businessplan worked out and a full marketing plan. Within your businessplan you must have a full cash flow shown, with inflated costs and pessimistic sales – show worse case scenarios. If you fail here, you’ll fail miserably as the bank, although extortionate in their rates, are still usually the lowest game in town. Don’t use credit cards for financing as that is the very worse thing you, or anyone else, can do. And don’t forget to include your own salary in the plans. The bank will ask!
Now consider marketing logistics. If you need to advertise in magazines, how many cover your industry? If it is an obsure subect and only two or three cover your subject you are in luck – you can cover 100% of your possible customers with two or three regular adverts. If, for example, you are in the computer industry, there are literally dozens and dozens of magazines and it will cost you a fortunate to cover 100%.
When advertising in newspapers or magazines there are three things to consider. (a) Advertise regularly, in every issue, as it often takes many issues before someone takes the plunge. (b) Ensure your advert is large enough to catch the eye – I don’t mean you need huge page adverts, but they must be large enough for your main catch line to be at least 16 points high, and your body never smaller than 10 points. Your catch line is the only important part of your advert. If it is not good people will never read your advert. If it is good, the reader will always read the next paragraph. (c) Always ensure your advert is placed on a page with some copy on it. Pages of adverts alone are usually never looked at by the majority of readers.
Before you advertise, where do you want to sell? If your business needs you to be close to your customers and you want to advertise in the Daily Mail, you need to find out how many readers are in your catchment area, and work out the cost per thousand based on that figure. Do this with all your adverts and you will see the true cost to you for each newspaper or magazine.
For example, a magazine charges £1000 for your “size of advert” and has 200,000 readers. That works out at £5 per thousand. But if there are only 2,000 readers in your catchment area, that will work out, to you, at £500 per thousand. A big difference after you have done your homework, isn’t it? Now check those figures against other forms of advertising, a local newspaper for instance. But remember, if it leans too much to the left, or too much to the right you will know that half the people will throw it away as soon as they read it. You can still advertise in it but, when you are working out the cost per 1,000 discount their publication figures by 50%!