You’ve had a great business idea and you think it’s going to be a success…. or will it?
You might think you’re onto a winner, but make sure you avoid these Seven Sins or you could be on the road to disaster..
1. Poor Market Research (or none)
Don’t invest all your money before conducting proper market research. Find out whether there really is a need for your product or service, who’s going to buy it, who are your competitors, how much can you realistically charge?
Always check whether your idea is any good. Seems simple… but it’s easy to get carried away on what seems like a brilliant unique idea when it’s really a dud. A good measure is that if it is a good idea you’re unlikely to be the first to think of it, so there will be competition. If there’s no competition, test your idea carefully!
Never over-estimate the size of your target market. Think about how you will get your product or service into the market.
Don’t just think about the positives. Be a realist, not a dreamer!
2. Bad Business Planning
You have an ingenious idea – you also need detailed planning. Think of it like mapping out a journey to a remote foreign location. Think ahead about each stage of your ‘journey’.
Dedicate time to a business plan that would support the next steps. It will be time well spent. Work out what you need to do each stage of the way, when you need to do it, and how.
Don’t rush the marketing of your product or service without having a clear focus. Know who is most likely to be your customer (no, not anyone and everyone). If it is a wide market, work out how you are going to approach it.
Try to work out realistic sales projections – don’t just guess. It’s no good baking 1,000 cakes if you can only sell 100 before they pass their sell by date. Better to run out of stock than have too much.
Stop to consider whether you have the start up capital in the first place. It’s essential to have a proper cash flow projection that includes all your future expenses in order to work out how much capital you really need.
Have a disaster recovery plan – what happens if your smartphone or laptop is stolen or breaks and it has all your customer contact information?
3. Not Enough Attention to Money
Don’t mix your personal finances with your business – use separate bank accounts. When the business can afford it, take out a modest income. Until then, don’t dip into the business money for your own needs.
Don’t assume today’s bank balance is what you have available to spend – don’t overlook the bills you are committed to pay ahead of time. Use a good cashflow planner, and update it all the time.
Never assume instant profitability. It rarely happens.
Plan for the worst, not the best. Go through a list of ‘what if’ scenarios – what are the worst things that can happen and what will you do to be prepared?
Ensure you have a budget. Not necessarily just one budget, but maybe several for different elements: advertising, travel, postage, etc
Don’t give credit facilities to everyone because they expect it – can you afford it? Avoid giving credit facilities to your customers unless it’s essential in your business sector. If you must give credit, use credit checking services to make sure your customer is financially sound. Refuse credit if the credit reference checks are not perfect. Make sure your credit terms are enforceable. Bigger companies may insist on their own terms and, in tight financial periods, they may change overnight to longer periods, or demand extra discounts.
Never take too long to send out your invoice. Send your invoice out on the day you supply your goods or service. The sooner your customer sees it, the sooner you will be paid.
Make sure your invoice has payment details clearly shown. Encourage BACS or online payment by giving your bank details. It’s also easy to accept payment by credit or debit card, or by Direct Debit. The money will be in your bank account far quicker than payment by cheque. These days it’s not uncommon for businesses to refuse cash or cheques, so make your payment terms clear from the outset.
Don’t assume all clients will pay immediately. Allow for slow payers in your cash flow projections. Never overlook chasing slow payers. Do it firmly, but politely. Keep accurate records of all calls, letters, emails to chase payment.
Never ignore cash flow problems and monitor your position continually. Plan ahead if you can see that problems may arise and have a solution on standby. Talk to your bank early if you think you may need an overdraft or loan. Never wait to the last moment!
Always have enough reserve to live on until the business makes enough profit to pay you. Make sure you keep up with paying the rent or mortgage on your home, and all the other essential expenses.
4. Charging Too Little
Ensure you work out what you really need to charge to cover your business expenses as well as your personal income (including your Tax and NI liability).
Never overlook the cost of delivery to a customer, or postage and packing.
Don’t underestimate the time it takes you to make something or perform the service you are charging for. Keep accurate time records so that you know you are earning a realistic income on an hourly basis.
Never try to beat competition with lower prices – unless it’s the basis of your business model and your costs allow it. Being ‘cheap’ and undercutting the competition is not always a winning strategy.
Try to beat the competition with higher quality, excellent customer service and added value.
5. Poor Marketing Strategy
Ensure you thoroughly research your marketing plan and have a clear idea of who your target customer is. Get someone else to look at your marketing plan and challenge you with questions like ‘why do you think that will happen?’
Never waste money on poorly directed advertising. Make sure your advertising will be seen by your target market.
Don’t overlook low cost and zero cost marketing – social media, attending events, being a speaker at events to promote your business.
Ensure you finalise your product or service – don’t rush it into market before it’s ready.
Never ignore bad word-of-mouth. Bad news spread faster than good news.
Never assume that marketing will take care of itself and will not need structure, consistency and regular input. It’s an ongoing process.
6. Trying to Do Too Much By Yourself
Never assume you can do everything better than others because only you know your business.
Don’t overlook the value of using specialists with skills and knowledge – solicitors, accountants and other key outsourced professional services. They can add value to your business with a level of expertise that you could not afford to employ.
When you employ people, take care to hire the right employees. Insist on references and checking qualifications. Consider hiring through a recruitment agency that can pre-screen and interview candidates. Consider taking on someone just as a temp, but offering a permanent job if they do well.
Consider using final year graduates to assist with marketing or finances, or projects in areas like production or logistics. Talk with the local college or university to find out what resources are available for businesses.
Join relevant business groups to find out how other business owners cope.
Avoid working excessive hours and missing holiday breaks – work hard, but work smart.
7. Choosing a Bad Business Location
Don’t assume you need expensive office space – can you start up from home?
If you do need premises, take the time to research the right location, the right size, the facilities you need. Do the premises you are considering have the right planning use approval (i.e. shops cannot always be used for offices, or for restaurants and bars). Is the location easy for deliveries of goods? Will your employees be able to get there?
Research the footfall in the retail area – don’t open a shop in a dead location because the rent is cheap. In retail, location is everything. Not just the right town, not just the right road, but it can be down to being on the right side of the road, and right in the ‘hot zone’ where people move. Measure the footfall, and look at who’s there – age groups, dress style, which other shops catch their attention. Find out which days are busy and which are not and is the area seasonal. A holiday resort can be packed in the summer, but bleak in the winter. The more detective work you do at this stage to understand the local market the more you will safeguard your future.
If you have read this far, we hope that these ‘Seven Sins’ will give some food for thought in planning your new business. Of course, these are not the only seven sins – there are many more. But these should get you thinking.
Let’s have a chat..
Here at Accounting Services for Business we can say we have ‘worn the T shirt and written the book’. As a team, we’ve been through start ups ourselves and worked with others, so we have some good experience and enthusiasm you can draw on if you’d like to talk to us about your new venture.
Call our friendly team on 01202 755600 or drop an email to email@example.com.