HomeAdviceThinking of a business start-up – advice from an expert.

Thinking of a business start-up – advice from an expert.

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Well, an experienced campaigner anyway, who has made some classic errors over the years and (hopefully) learnt from them as well as a few successes.

Like the old saying – everybody has at least one good novel in them, we all have a least one good start-up business in us but very few people can turn a good idea (a novel or a company) into a successful source of income and wealth. Are there any secrets to making a successful business, any do’s and don’ts? I think that the answer is a heavily qualified yes – qualified by a dose of good fortune and good timing. A well thought out business plan plus a lot of effort will survive bad fortune and timing and ride the wave of good fortune and timing.

The obvious converse applies in spades – a poorly thought out plan and execution will fall as soon as times are hard and will not fully achieve a successful outcome in good times.
Here are a few of my thoughts and tips.

1. Having a good idea is not enough.
People tend to overplay the importance of having a good business idea and underplay the need to set out a clear business plan. Many times I have been confronted with a business proposal based upon a product idea – a ‘Dragon’s Den’ idea, without too much thought about the how, what and when of the critical first year of a new business.

Now the programme Dragon’s Den is all about entertainment of course but where the programme does reflect reality is the interrogative approach of the dragons towards market analysis, sales and profit forecasts, business plans etc. And how often are the applicants found wanting? So the key need is to develop a sound plan, fully costed, which addresses how the market will be served, the product made and the whole thing funded. Start-up really is about lots of planning and effort overlaying a good idea – 10% inspiration and 90% perspiration as the saying goes.

2. Plan, plan, plan.
There are so many aspects to a business start-up plan; many absolutely critical to survival, that are so often overlooked. Financial considerations are of course the front and centre core factors in a plan. The conflicting consideration between the desire to plan for success with heavy up-front investment in infrastructure – offices/premises, manufacturing plant if appropriate, advertising, staffing etc versus the absolute necessity of strict limits to expenditure and debt is the aspect of greatest financial risk. The essential components of a plan are; a realistic income forecast, cost of sales and overhead costs. Included in the overhead charges will be staff costs – usually you. Will you be relying on income from this business for your own salary, if so how long can you survive without an income?  What unavoidable costs are associated with marketing and (if appropriate) manufacturing costs? What will be the payment terms in and out – cash flow is everything in a new business.

3. ‘Sales’ is vanity, ‘profit’ is sanity, ‘cash’ is reality.
A common mistake (not one that I’ve made of course!) is to grossly underestimate the true cost of providing the goods or services and therefore underachieving profit. But even if you have got this about right, profit is in reality a notional measure of performance; it is a business measure that dates back to the Venetians I believe (the inventors of double entry book-keeping) and it is essential not to confuse profit with cash. Companies fail due to a failure in cash flow – not having sufficient funds to pay bills.

It is therefore a matter of prudence to factor into the planning stage a realistic cash flow forecast. This will be founded on the invoice-receipts cycle bearing in mind that some creditors (the VAT man or HMRC) don’t generally take kindly to delays in payment whereas corporate customers see payment to small suppliers in a timely manner as a voluntary exercise. The best customers are those that pay at delivery of the service (or before is even better) so if your proposed business is a service to the retail market you should allow delays in payment.

4. Keep break-even sales to a minimum.
The running costs of your business, factored into you plan; determine what sales you need just to keep the doors open. Sales above that level – the break even sales level, generate profit. So think in terms of contribution –accountant’s terminology, which means that all sales income above the break- even point, less the actual cost of delivering these sales is direct contribution to profit. So every sinew in your body should be geared to keeping any unnecessary expenditure to a minimum, you should not commit any expenditure that does not directly contribute to sales. Sorry, that means you can’t have your fancy office, you can’t have your posh stationary, you can’t have the mahogany desk with the designer chairs. I once chaired a board meeting at which the only remaining thing we could think of to generate some cash was to sell the solid mahogany board room table we were sat around – which we did for over £1000.

So there you have my introductory course in start-up businesses;

  • Having a good idea is not enough by itself. A thought through means of achieving successful exploitation of the idea is essential.
  • Build a decent plan around your business idea that addresses financing and service/product delivery at the very least.
  • Cash flow is everything. Get the cash in, don’t spend any money.
  • Keep the break-even point to a minimum. Again, only commit to expenditure that is essential to furnishing sales

And once your business has achieved a plateau of performance you can get the board room table.

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