Where to spend and where not to spend for business success:
The start-up phase in a business’ life is often the most engaging and exciting time of trading for most company directors, who are usually at their most enthusiastic.However, when adopting this mindset, many directors neglect key issues to do with the long-term interests of their business, such as; overspending and balancing their cash flow early on, so the business is in a position where it can cope with the added expenditure demands that come from expanding.
Recent business figures have indicated that a staggering 33% of new businesses fail to survive their first year of running, whilst an even higher 50% don’t make it past three years. The reality is that the manner in which you spend your money in the early stages of business is fundamental to its long-term success, so it is important that you are aware of the potential to ‘over-trade’ during the start-up phase and only splash the cash on the things that will form the foundation for your business’ future.
Below are the areas that we believe are the most integral to invest in during the start-up phase of a business’ lifespan, and also what to economise on, in order to give you the best chance of long-term success.
Computer operational systems, apparatus and high quality technology
Investing in the right equipment, computer systems and technology right away will lay a solid foundation for the stable day-to-day running of your business, because you will immediately have the logistics to create an efficient bookkeeping system, pay employees, contact clients and service the product/s you offer. You will always need to have a number of operational computer systems in order to service your product – so don’t skimp. Searching for other pieces of equipment that are relevant to your industry and can make your day-to-day business running easier and more efficient is also worth investing in, as this can only have a positive effect on the long term success of your company.
Investing in invoice and bookkeeping technology from the cloud (ideally) is also a highly advised step to make in the early stages of your business’ life span, because it will go a long way to ensuring your cash flow forecasts are met and you are paid on time. It will also minimise the risk of tax problems in the future, because you will always know how much you owe to the HMRC and will also be given a clear indication of how much you will have to contribute for your employees as well. For bookkeeping, depending on the size of your company you should assess the benefits of using SAGE or Clearbooks – they are at the opposite ends of the spectrum so one of these will usually do.
And above all, remember that what your business ‘needs’ and what you desire are often entirely separate things, and you should prioritise spending your money on the former until that time that your business is established enough to begin spending on things that might not be hugely beneficial to improving its running.
Getting the balance right between not skimping and getting what you need is what being in business is about.
If you need employees then you will need an adept band of workers who can implement your vision for your company and establish a precedent of quality and high standards that will then be a permanent feature of your company. You will need to spend money on advertising job vacancies and or recruitment agencies, and depending on your location may also have to be prepared to pay them a competitive wage in order to attract more highly skilled and innovative members of staff.
Once you have acquired the right people for the job, make sure you keep their motivation and contentment levels up by incentivising high levels of performance and offering them skills training so that they can develop into a top class worker in your industry. An example of the merits of adopting this stance toward your new workers is the success of the delivery company DPD and their ‘Be Amazing Every Day’ initiative, which granted their employees skills training and gave them a sense of importance. The result was a huge rise in the contentment and productivity levels of the company’s employees, and the business managed to obtain an extra £10 million overall!
You may not think this is applicable in a tyre fitting garage in Bradford but an unhappy employee is a bad investment – think bigger than yourself.
Promoting and advertising your business
Expansion and growth is virtually impossible unless your business gets the awareness it needs and the reputation it has earned so watch these areas carefully. In order for you to achieve this, you will have to invest money into advertising and promoting your business, and you need to identify the means of advertising that work the best in your industry. See my previous Blogg on this matter. Recent figures from UKOM indicate that there are 40 million internet users each month, with online marketing and mobile marketing ascending to the top of the most profitable ways to sell a product. Consider investing into search engine optimisation and if you don’t know what this is – then learn, in effect this is a company, which can get you to rank on the top of search engines for a number of keywords that are relevant to your business. For example, if you are a jewellery company, then a search engine optimisations company could ensure that you rank top for ‘London ring company’ or ‘best rings’, which will of course help you attract a larger following.
Alternatively, or additionally you should use local marketing strategies, such as using the radio, print advertisements or even your local paper in order to try and attract a following and garner a buzz round your company. Create social media profiles, such as a Facebook, Twitter and Google + profile, so you can promote special offers and your product to a larger audience, and can then build up a loyal following who will consistently return to your page.
A reliable and on-the-ball accountant
A recent study conducted by Sage found that 52% of businesses now utilise their company accountant as their primary financial advisers, surpassing banks in this role. This illustrates the importance of having an adept and efficient accountant at your disposal right from the outset of starting up your business, as the role they now play in today’s business world is integral to the long-term financial stability of a company.
You should shop around when searching for an accountant, and make enquiries into a multitude of different firms in order to find the optimum candidate for your company. Make sure that the person you eventually choose has some form of expertise within your industry, as this will have huge impact on how useful their advice about your business decisions will be. You should also make sure that you will be dealing with one person, as this makes the entire process of engaging with them on a regular basis far easier. And remember that finding the accountant with the lowest fees is not necessarily a good thing; in many cases finding one who charges a little bit more, but has an impressive track record for companies within your niche, is worth paying for . An accountant will make sure that your employees are paid on time, the HMRC are kept happy, and will advise you on the best steps to take if you encounter quintessential problems that businesses do in their first year of running. This includes keeping cash flow figures in the black and your business on track. If you are unsure then ask for referees (past clients) and speak to them if you don’t then you may be building your business on sand. When faced with a winding up petition or liquidation, your accountant may be able to point you in the right direction to speak with an insolvency specialist.
If you are looking to keep things tight in this area, then get the best accountant for your company, but make sure that you do not employ someone who debits you per minute or per hour. You will ideally want someone who charges you per year or per month, as you will want to utilise them as frequently as possible in order to keep your company finances stable and secure at all times.
Your business residence
Even though searching for a new building residence for your company is often one of the most thrilling parts of starting up a business, it doesn’t mean that you should simply be overawed by this emotion and compelled to spend big on the premises. This is a key cause of failure for start-ups in the first 24 months. You could consider use a shared office or a meeting room in order to cut costs during the start-up phase, but base your residences in a booming and upcoming area so that you stand to benefit in the long term. Many businesses do not need to have personal meetings with their clients, so it is not the end of the world if you don’t have an office in an ideal location. In today’s climate, property costs are far higher than ever before, and as such minimising your spend on your business residence- at least during the start-up phase- will mean that you have more money to establish your business and stabilise its finances at the start. You can then always move to a bigger and more attractive area and office when your company is established and can cope with spending more on residence costs, but initially this is not that important. With this in mind keep commitments to a minimum and have a ‘break clause’ as part of any lease agreement.
Your business loans
Even if you have a number of committed and wealthy investors giving you financial backing, the likelihood is that you will need to access some form of credit in order to further your businesses aims. Whether this is through a business credit card or some other financial product is unimportant, what is integral to your long term financial stability is making sure you acquire a suitable loan for your company that does not necessitate that you pay extortionate rates of interest. Remember, a slight difference in the interest rates attached to loans can have a big difference on how much you pay back in the long term, particularly on larger loans, so make sure you compare online and find the best deal for your business.
Moreover, make sure you work on your personal credit rating in the months leading up to your business start-up, as your own credit history will have an impact on the rates and the range of products that will be made available to you. A bad credit rating may even affect whether some banks will allow you a business bank account. If you do have impaired personal credit then try; Barclays Business as at the moment as long as you don’t want an overdraft they will provide an account. Economising in this area will have a huge effect on the long term cash flow figures of your company, and should ensure that you do not create too large a deficit for yourself right from the outset that you will be unable to overcome.
Always check locally to see what Government help may be available in grants and you should search the Government’s website for start-ups.
Utilities and other service bills
A lack of competition and awareness of smaller suppliers has meant that today’s world is characterised by large utility corporation market supremacy, and this applies to all servicers of everyday essentials, including the utility, insurance and energy industries – but there are smaller providers if you look. Make sure that you compare online when seeking to acquire services in all these areas, because you will find that your annual bill can be substantially reduced as a result of a few hours searching. In particular, smaller energy companies currently offer far more competitive prices than the ‘big six’, and could save you a lot of money. Using comparison sites are a great way of reducing how much you spend on water, electricity and heating, so make sure you start doing it straight away, to get into a good routine for the future.