Survive and Thrive; Starting Your Own Business |
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Thinking of setting up on your own, but not quite sure where to start? Jim Surguy, Managing Director of Results Business Consulting, takes a look at what you need to consider. When the going gets tough, the tough get going it is said. Which is why in difficult economic times it is not uncommon to see an uplift in new business start-ups. And in the marketing services industry, certainly in design, the barriers to new entries, at any time, are really not very high. So if you are seriously thinking about being your own boss, what should you concentrate your thinking on? Firstly, think about you (and your partner/s if you have one/them). You need to be motivated by more than a dislike of your present job. You have to burn to want to do it. Absolute commitment is crucial; the half-hearted fail. Statistically 1 in 5 start-ups fail in 12 months alone. So be honest - why do you want to do it? For money - you’ll have less to start with but hopefully a lot more later and possibly a capital sum at the end; for power – being the boss, enhancing your status and reputation; for independence – not being told what to do, or having to explain your actions; or for a sense of achievement and an inner directive sense of satisfaction. Even if you are deeply committed to launching your own business, are you cut out for it? Self-knowledge is extremely important, how much do you actually value job security – not everyone is cut out to be an entrepreneur. Sure, you will succeed or fail on your own merits and there is no job interview or selection process to go through. But ask yourself; are you disciplined and a self-motivated self-starter, are you resilient, healthy and do you have the complete support of your spouse/family/partner. Say no to any of these and think again. You will have to be your own taskmaster, working unlimited hours with uncertain holidays and less pay than you’re used to. There will be no support from teams of workers, or corporate resources to shield and protect you. You may be paying all the outgoings before money starts coming in, whilst your own living expenses have to be met. Scary stuff. But if you’re up for the challenge, the excitement, the risk and rewards and the terrors involved, how do you turn your dream into reality? First, don’t jump out of your present job until you are ready. And when you are actively considering jumping, consider also your legal obligations to your present employer. If you are a director and you are thinking of leaving with some of your chums, or even clients, remember that you have a fiduciary to the company as a director, which is not something to be dismissed lightly. Neither are the terms of your service contract, director or not. It will most likely have non-competition and non-solicitation clauses in it. If you believe you have a client or two who will move with you then go and see an industry specialist lawyer who will guide you through what you can and cannot do. Starting off with litigation around your neck is not conducive to a happy company launch. Assuming there are no legal complications to your start up, you will never the less still need a lawyer. You will need to decide whether you are going to be a sole trader with full personal liability, a partnership in which case you will need a partnership agreement, particularly if you have a partner who is simply an investor and sleeping partner; or are you going to set up as a limited liability company, which means rigorous accounting, audits and a degree of public disclosure. Most start-ups these days are limited liability companies. Such companies can be bought “off the shelf” for £100-£200. The company will have its own constitution, governing what it can and cannot do. This constitution is contained in what is called the Articles of Association. They come with the company but you can alter them to suit your own needs. Equally important, however, you will need a Shareholders’ Agreement. This simply deals with agreements between the shareholders on such things as how will shares in the company be valued in the future; what is the policy on dividends; who has what rights and so on. All too often, we at Results see problems in companies caused by a lack of a Shareholders’ Agreement, so it cannot be emphasised strongly enough that you need to have one. Then there is the matter of the company name, which has to be legally registered and these days you also need to register a domain name for your yet to be constructed website. On both fronts you may find that the name you want has already been registered, so don’t get too besotted by a name too early. This means designing the letterhead and corporate identity after your company name has been registered, not before! Your lawyer is not the only professional advisor you will need since there is the not so insignificant matter of finance. It may be that you have significant spare funds of your own, or your family/friends may want to finance you. Or if you are really lucky, you may have a major start-up client who will pay upfront to bankroll you. Most are not so fortunate, so some degree of funding will usually be required, if only for the initial start-up period. Good cash management and prudent expansion, assuming you are moderately successful, should generate cash flow and profits and should obviate the need for heavy on-going borrowings. So where do you get the star-up capital from? A simple fluctuating overdraft is the optimum solution, and you will need a bank anyway. Banks of course are notoriously risk averse and almost certain to want security for any overdraft or short-term loan. Ideally, try and get finance secured on the company’s book debts, but at start-up, if there aren’t any, you may find yourself having to give personal guarantees. The design industry, whilst robust, may be viewed as risky at the individual level by bank managers. So the manager will want to be sure that you are not being too modest in your requests. Unlike you, he will be thinking of the slack times and the unforeseen contingencies. Another source of finance are high net worth individuals, commonly called Business Angels. They will usually put cash into propositions they like for a share of the equity (NB the Shareholders Agreement again) and a seat on the board, although they will not actively involve themselves in the management of the business. There are a variety of Business Angel networks that can be accessed through the BVCA (British Venture Capital Association). Wherever any finance comes from, and even if you don’t need any, you will need to have a business plan. You should have a target of where you want to be in one year and in three years, however approximate. You need a formal plan against which to measure progress, both for the bank and for yourself. So what should your business plan contain? Well, you can buy books on this subject alone, but in essence, it should contain at least:
The financial forecast and budget and the cash flow forecast are the corner stones of the plan. You will assuredly be very good at your discipline; you are unlikely to be good at these two areas, so use an accountant. They may be boring, but they are a wiz at this stuff, and thanks to the wonders of spreadsheet software, they can keep endlessly changing the financial models until everyone is happy. Whilst you are organising the company formation, its name, identity, positioning, business plan and finance, there are of course other things to get cracking on at the same time. No one said this would be easy! Obviously you will need premises. Small but smart and in tune with your positioning and culture are ideal but be aware of the fitting out costs, this includes the equipment, even when leased. More importantly, without a trading record, you will inevitably be asked for a rental deposit, 3 months if you are lucky but 6 months normally. Property is a major consideration and even if you start in serviced offices or at home, eventually you will need to confront the property issue. Use a good agent, they can save a lot of time and money and unless you are up to speed in the property game, they will ensure you avoid pitfalls. You are very nearly ready now! All you need to do is decide how your accounting function will be dealt with – outsourcing it in the early stages is a common route; register for VAT (your accountant again); ensure you have the proper insurances in place (insurance broker); ensure that you have terms of business to give clients (your lawyer); and appropriate contracts of employment for any/all staff (your lawyer again). You will, however, need no advice on the launch party celebrations! Finally, I cannot but conclude, unless euphoria carries you away, other than to rehearse the commonest causes of failure, which if they are spelled out, you will hopefully avoid. They are; overestimating the sales, underestimating costs, failing to control costs ruthlessly; losing control of cash (including debtor control); failing to differentiate the offer/service; lack of selling skills, taking unnecessary risks (when the adrenaline is running); failing to build a compatible/ complementary team. But if you do the right things and do things right, with single mindedness, persistence and a clear sense of direction, you will have an exhilarating and successful time in front of you. 01/05/30
Results Business Consulting is a specialist adviser to the advertising, design, PR, Interactive and marketing services industry. Providing confidential, impartial advice and management services, the company is actively involved in Performance Improvement Consulting and Corporate Development, including all forms of merger and acquisition work for both purchasers and vendors, nationally and internationally.
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