Taking the time to outline how your business will operate is an essential part of hitting the ground running, says Christopher Allen.
A business owner will need to undertake a number of activities when setting up a business, including marketing, book-keeping, and possibly hiring staff. However, the real starting point should be a business plan, as this will give your process structure and organisation.
From the outset, it is important to identify from the reasoning behind creating a business plan. Is it to secure funding such as grants and loans, or is it simply for structure? If it is to secure funding, the business plan should tell a story about the business, making it easier for the lender to understand the vision, strategy, revenue and profit expectation.
One area I suggest paying close attention to is the sales forecast, which helps the lender to understand how financially viable the business is. These are usually projected over one, three and five-year periods and include sales revenue, gross profit, net profit and the amount of products or services that will need to be sold to generate a profit.
When completing a cash flow forecast, start by identifying the business’s expenditure, so that you can find your ‘breaking even’ figure. So if the product or service sells for £100 and the monthly expenditure in rent, stock, equipment and insurance equates to £500, you must sell five products to break even; any additional sales would be considered profit. Refer to your forecast regularly, to ensure the business is moving in the right direction.
Even if you do not require funding, creating a plan is still beneficial, as it can provide structure and help you identify how the business will operate and whether there are any key requirements, such as licences, permits, registration or qualifications. This should be researched from the outset, as there may be costs and timescales attached when obtaining them, and not complying with legal requirements may result in the business owner being fined or prosecuted.
Below are a few other areas to consider when starting a business:
Registering the business: Whether you start as a sole trader, limited company or partnership, you are required to register with HM Revenue & Customs (HMRC) and Companies House. Once registered, you will receive documentation and a registration number; either a Unique Tax Reference, a Company Registration Number or both.
Insurances: Business owners should consider acquiring specific insurance policies to safeguard the business. For example, if you intend to hire staff, you are legally required to have employer liability insurance. This usually protects you and the employee in the event of a workplace injury. Other insurance policies can range from public liability insurance and business interruption insurance to product liability insurance.
Solicitors: Starting a business is likely to involve obtaining and reviewing legal documents. It’s worth using a solicitor to review a contract before entering into it. This may come at a cost, but it could limit your exposure and save you money in the long run. In legal documents, look out for price, term/duration, obligations, cooling-off periods, fees, limitations, deposits and break clauses.
Business bank account: As a sole trader, you should ideally use a separate bank to your personal bank account. Equally, if you operate as a limited company, limited liability partnership, charity or a community interest company, you must use a business bank account. This will help separate your personal finances from your business, making it easier to complete your end-of-year accounts.
Health and safety: Health and safety requirements will differ depending on your sector and number of staff, and will involve completing risk assessments and complying with rules and regulations. It is worth contacting professional bodies, local authorities and the HSE for sector-specific advice.
Handling personal data: If your business involves handling personal data such as names, addresses and CCTV footage, you may need to register with the Information Commissioners Office. Completing a self-assessment on the ICO website should help you determine whether you need to register.
The key requirements for starting a business are not restricted to the above considerations, but they make a great starting point. Often, the biggest barrier to starting a business isn’t the operational aspects, but the business owner’s lack of belief in their skills, willpower and confidence.