Every year approximately 400,000 to 500,000 new businesses start up in the UK. Unfortunately, one in three close within three years and less than one in five survive 10 years.
Decisions taken in the early years of a new business can be the most difficult as well as the most important, particularly for first time entrepreneurs and those with no previous business knowledge or experience of running a business.
To give you the best chance of success, I consider the issues you need to resolve before starting a new business. In subsequent blogs I look at access to finance starting-up, growth and exiting a business.
Preparing for business
Before starting any business there are a number of questions that need to be answered. These are questions that you must ask yourself – and answer as
honestly and as objectively as possible…
Will my business support me?
Making the decision to start a business is one of the most important in your life. The quality of that decision – whether you succeed or fail – largely depends on how you approach it. Proper preparation at the very beginning is crucial and could save you a great deal of time, money and heartache in the future.
One in three businesses fails within three years of starting, with bankruptcy being a common – but not the only – cause. Which is why it’s hardly surprising that fear of failure is a major deterrent to taking that first step. However, there are ways of stacking the odds in your favour.
Researching the idea
With a start-up business it is always a good idea to research the products or services you propose selling before committing to start. Issues such as how well does the product sell: is it priced correctly: can it be improved: what and where is the competition: how do you prices compare: why would customers come to you rather than the competition; does advertising increase sales: where are the best channels for advertising.
Researching your business proposition will reduce risk and improve your chance of
success. It will also give you an idea of your target market and anticipated demand. This not only helps shape the decision but can also clarify issues such as where to locate premises, how much to spend on marketing and particularly, how much start-up finance will be required.
Reducing risk
Wherever practical, you can reduce risk of failure by beginning on a part-time basis. For example, if the circumstances allow, start the business from home before committing to a business premises; or seek out a flexible tenancy offered by some government financed business support agencies.
Then, before starting work on a full-time basis, you need to be as certain as you can be that the business will generate enough profit to provide for you (and your dependants). This usually involves preparing a business plan – a device that not only helps clarify your own thinking but will also form the platform from which you can convince others (such as the bank) that your business has a future. Outsiders particularly banks or equity finance providers will look closely at market data
Starting-up the business
Okay, so now you’re prepared. You’ve done all your homework spoken to the right people and got the best advice you can. And you’re still confident that the
business is a ‘goer’. It’s time to get the show on the road
- To help with the issues in this blog there is a range of information and advice on icaew.com/sme.
- There are also resources available on the government’s business website www.businesslink.gov.uk.