In 2020, around 85,000 more new businesses were registered than in 2019 in the UK; that is an increase of more than 12%. This shouldn’t come as too much of a surprise. Many individuals found their existing jobs either furloughed for long periods of time or disappearing completely. With fewer employers recruiting – and with furloughed employees finding themselves stuck at home with time on their hands – many of those new start-ups have resulted from necessity.
But not all. One thing the pandemic has made us all do is re-examine our lives. The realisation that life, and our lifestyles, are more fragile than we thought has made many re-evaluate the jobs we are doing, and what we want for the future.
More control over our own destinies and a better work/life balance often come top in surveys of people’s priorities, and owning your own business is often seen as a way of achieving those goals.
Whether you have been forced into setting up your own business because you have lost your job, you are doing it because your life goals have changed, or it’s just something you have always wanted to do, the self-employment path is full of pitfalls.
According to the Office for National Statistics, 80% of new businesses fail in their first year.
Yet there are ways to significantly improve those odds; here are ten tips to help you avoid becoming one of those failure statistics.
1. Be clear on your goals
Knowing exactly what you want to achieve from your new business will help you stay focussed on making it a success. Is it a lifestyle business, designed to give you a better work/life balance? Are you setting up something which will provide a long-term income for your family, and which you will aim to pass on to the next generation? Are you aiming to build something really big, or keep it small and perfectly formed? What is your exit strategy – will you simply close it down when you retire, or do you have a five year plan to sell the business? Each of these objectives will require a different approach as you get your new enterprise up and running.
2. Know your market
Too many people start new businesses without a clear idea of what the market opportunity really is, and what competition they are likely to face. Research the market thoroughly to ensure that what you are planning to offer genuinely meets a need. Know what is important to your audience – not just in product terms, but in other ways such as ethically. You need to build a brand which is true to what you do, relevant to your audience, and differentiating.
3. Get the structure right
Setting up as a sole trader is the simplest model, but that won’t be right for everyone. If you are going into business with someone else, is a partnership model right for you? Should you be forming a company, offering you protection from liability (but also requiring higher levels of regulatory compliance)? If your start-up is going to involve a lot of R&D, then you might want to benefit from tax relief on that expenditure – but you can only do so with the right business structure. There are many things to consider, and expert advice is key.
4. Cashflow is king
This is a cliché for a reason: most businesses ultimately fail because they run out of cash. How you finance the start-up, decisions about whether to buy or lease capital items, credit-checking clients are all vital. Monitoring cashflow should be one of your top priorities.
5. Collect every debt
A key part of keeping tabs on cashflow is ensuring you are being paid. Many new entrepreneurs are reticent when it comes to asking for payment, afraid of upsetting new and much-needed clients. In actual fact, most clients will respect you more if they see that they are being asked to value what you do. It’s too easy to let debts linger until they become a real problem.
6. To VAT or not to VAT
The UK has a relatively high threshold at which businesses have to register for VAT, and for many start-ups it therefore becomes optional. Some shy away from registering because they fear it is too complicated, but especially for business-to-business enterprises, it can be worth registering voluntarily (although often less so for companies selling direct to consumers).
7. Get your compliance set up at the outset
You would be surprised how many new businesses get to the end of year one and find that their record-keeping is inadequate to do what they have to do to file accounts. The days of shoeboxes stuffed full of receipts have gone; with the advent of Making Tax Digital, it’s a no-brainer to set up your day to day accounting on a cloud accounting platform like Xero from day one. This will keep your bookkeeping in order, and it has the bonus of being able to grow with your business, so you won’t have to migrate from one system to another in the future.
8. Consider where you operate
This has been the year of working form home, and many small businesses can be effectively run from a home office. But that won’t be right for everyone, and not just for logistical reasons: if your aim is a better work/life balance, will basing your whole working life in your home achieve that? There are many options, from shared working spaces to low-cost and expandable start-up units.
9. Employing people
Many small businesses get going with just the founder, but if you are successful, the chances are you will need to start employing people before long. That means having processes in places for payroll, auto-enrolment pensions, HR policies, and so on. The consequences of getting this wrong can be very serious, so if you think you will need to take on staff, get these things in place early on.
10. Take advice
When you start your own business, it’s all new to you, but pretty much every problem you are likely to face has been faced by many before you. So don’t be afraid to take advice from wherever you can find it – the Chamber of Commerce, specialist start-up advice agencies, business advisers such as Lovewell Blake, forums on social media – the list goes on. You don’t have to do it on your own.