IMPLEMENT THE BUSINESS OF YOUR CHOICE
If you’ve followed step 4 then can I say welcome – welcome to freedom. You will not regret it. This is where life begins. Now I request from you all your passion and energy within yourself to be channelled into starting your very own business. In summary you need to, loosely in this order, do the following:
- Get the tools
- Get educated
- Inform Authorities
- Control Cash
- Understand your competitors
- Understand your customers
- Build Alliances
- Get The Tools
Get the tools means get whatever you need to do your business from the start. Now this depends on what type of business you are doing but you need the tools to actually provide the service or product! The key word in the last sentence is NEED. Its nice to have a fax machine, computer and attractive personal assistant but is it necessary if your choice of business is becoming a builder? The more cash you can save in the early days the better.
There are certain primary tools that will be needed depending on what type of business you are starting. It is down to you to decide whether they are needed or not. My advice is that if you are in doubt on whether you need it or not then forget it. If you can preserve cash by not buying unnecessary tools then do so. You can always acquire it if you do need it. But how do we decide whether its necessary? Lets look at the possible primary tools needed:
|Office Equipment||This includes telephone, fax, computer, printer and anything else found in an office. Some of this stuff can be very expensive. Where you can, avoid getting the latest technology, as you’ll find the older outdated models do the same thing but just a bit slower. The amount of times I see people buying a £2,000 laptop, justifying the expense because they need it to go in to business, when questioning them further they only have another £1,500 left to invest.If you’re thinking of doing a business that requires minimal paperwork generation then consider whether any office equipment is really necessary. You’ll be surprised how far pen and paper go. Acquiring office equipment may make you feel like you’re in business but their worth may be limited and could drain the cash you have now when its most needed.|
|Office Space||Office space is expensive. You really only need office space if you are going to have clients come to your premises. Otherwise the spare room, a corner in your living room or even your garage or shed will suffice. I still operate from my home and I know of many other self-employed people that do.|
|Stationery||Getting fancy business cards, invoices and compliment slips may make you think you’re in business but its when you make your first sale that you know that you’re really in business. If you are in a market where your letterhead is a key ‘calling card’ of your firm then invest in a good letterhead. If you’re in a business where your image is a key representation of your firm then invest in a good suit. Have the sense to know whether fancy stationery will drum up business or not.|
|Car or Van||I knew a guy who wanted to start a property business around 100 miles from where he lived. The crazy thing is he didn’t know how to drive. I’m not sure how he expected to go from one property to the other but if he had spent it on taxis he would of eroded his profit to nothing!Evaluate whether you need transport. Some businesses it is obvious whether you need a car. Others not so. Running a car is expensive as mentioned above but if it’s necessary then get one. There’s nothing more frustrating when you know you have a customer waiting but you cant get there.|
|Information sources||If your business demands that you have access to certain trade journals, websites or newsletters then subscribe to them. Factor this cost in your plans as this information will be key to you keeping abreast and ahead in the market.I’m not saying subscribe to all of them as some organisations can be a rip-off and not provide a lot. Speak to people in the industry. There will be a few primary information sources that are standard and will be what everyone refer to.|
|Retail Outlet||Depending on what type of your business you may need a shop or high street outlet. This is expensive. Consider direct selling through mail order or the web and then progressing on to a retail outlet.Markets can be a great way to test market your product or service. You can get a stall on a week by week basis and they work out very cheap. If you do need a shop consider approaching a shop and asking them to sell your product or service on a sale or return or commission basis.|
|Website||Websites can be a cheap or an expensive thing to set up – it depends on who you go to or know. Consider whether your type of business demands it. If you’re getting into the computer consultancy business then it would seem reasonable to set one up. If you’re considering setting up a restaurant in a local part of town then the website can probably wait.|
|Registrations||If you need to be a member of a trade organisation to give your firm a certain degree of creditability then join it. If your starting out then you need all the creditability you can get. Make sure that it is a credible organisation and not a mickey mouse one.|
|Employees||If you business idea needs immediate staff then start recruiting early. The right people can make or break you. Don’t fall into the trap of employing the first person that you come along or a family member or friend that has just been made redundant out of duty.|
|Listing||Be sure to contact yellow pages, Thompson and 192 (or 118 118 as it is now called) enquiries to get a listing. You will be surprised how many calls you will get if you are in a niche business. This is FREE! Do not be tempted to pay for an advert in any of these directories as they are hugely expensive. Once you’re established then think about it. Remember – you need all the cash you’ve got, don’t be squandering it!|
This is not an exhaustive list. There are other primary tools depending on what type of business you are considering. Carefully evaluate whether they are necessary now or can they wait until you are more established. Do not make the mistake of ploughing all your capital in all of the primary tools if you have no idea whether you’re going to be in business in the next 6 months as you’ve not even had your first order.
- Get Educated
This is very important. I have fallen foul of this. I entered in to the bar and nightclub business without any real understanding of the liqueur trade. I am learning now and still learning – the hard way! With hindsight I should have found out a lot more – but the place was such a bargain I couldn’t resist! To get educated you can do the following:
|Chat to people in the same industry||Who better to speak to than someone in the industry. Make sure its not a potential competitor as they may mislead you! Ask to shadow them if possible on a typical day.|
|Get a book on it||If there are books on your proposed business then get them. The cost of a book is a tiny fraction of what you could lose if you don’t follow the advice given. Also there are many trade journals out there. If you cant afford to subscribe to them yet see if you can borrow them from your local library.|
|Use the internet||I don’t have to tell you that the internet is a great resource for information on anything – especially business.|
Please, please, please do NOT go on expensive courses held in swanky hotels telling you how you can make a fortune in whatever business. The only businesses that can make you the kind of money they claim is the ‘running of expensive courses in swanky hotels’ type business! Everything you need can be found from the resources mentioned above. You don’t need to spend hundreds or even thousands of pounds to be spoon fed basic information.
Its no good starting a business unless you let people know you’re in business. The way you do this is by promoting this fact.
|You||The best promotional tool you have is YOU! You are the key representative of your business. Your ability to speak, act and deliver/carry out the products/services of the business is paramount. The most effective way to promote your business is to do a good job! If its done well people will tell others. Word & Mouth is everything. If you say you are going to do something then DO IT!|
|Work for nothing||If you believe that you are better than the rest then initially work for nothing. People will soon cotton on to the fact that you’re better. Once you’ve proved yourself then you can watch them come to you. A common trick is to do a job for a well known company for a notional £1 fee. This way this well known company is technically a customer. Then you can add this well known customer to your list of satisfied customers thus giving you creditability.|
|Free advertising||Its important at the start that you make use of all the free advertising you can get. This means telling everyone that you are in business, putting your posters in the right places, targeting emails and getting press attention if you can.|
|Mailshots||One of my businesses was started from a mailshot. My accountancy practice was kick started by a 100 targeted mailshot to mortgage brokers offering my accountancy reference service. I had about 6 responses which resulted in work. Because I did a good job I got referred to other mortgage brokers and now my business grows from recommendations only.If you think your business will get a positive boost from a targeted mailshot then do it. Get a good letterhead, quality paper and quality envelopes and target your mailshot to prospective customers. Make sure your mailshot is well drafted. Run it by your friends and family or someone that would have a valuable opinion.|
|Newspapers||Before spending a small fortune on a regular display advert in the local or national press consider who you are targeting. Many people read through a paper and don’t even glance at the ads. If you’re in quite a niche market then really consider if the mass press is suitable. Carefully selected trade mags, newsletters and journals could be better and cheaper!|
|Leaflet drops||Leaflet drops save on postage. If you look at the cost of postage of 1,000 leaflets at second class rate it would total £200! If your business requires such mass marketing, like a take-away or landscape gardening business, then consider printing up some cheap leaflets and delivering them YOURSELF! Don’t pay a kid or school leaver to do it as you’ll find three quarters of your leaflets in the public bin or scattered all over the local playground.|
|Website||As said earlier, websites can be a cheap thing to set up. If your business demands one then make sure it’s a good one. If you need one just as a calling card then get one and make sure you link it to as many search engines possible.I have a website and I get a call about once every two months from having one. Now I’ve never secured any business from it but I don’t expect to. My business dictates that you must have a presence on the web but its not critical to gain business. It really depends on your type of business. Consider whether your competitors have a website. If they don’t then maybe this could be a way of differentiating yourself from them.|
|Promotional discounts||If you do this right this can be a powerful promotional tool. If you’re willing to supply your product or service at cost for the first few deals on each customer then do it. Once you get them hooked in you may get them for life.|
|Introduction fees||Another great way to build your business is to offer a commission to anyone who brings you in business. If I get an introduction from someone I pay them 10% of what I get. This encourages your contacts to bring business to you as they know they’re going to get paid.|
- Inform Authorities
Not only do you have to let your potential customers know you’re in business you have to inform the authorities. The following authorities will be interested in your new business venture:
|Inland Revenue||Unfortunately we all have to pay it – tax! Write to your local Inland Revenue office, whose address can be found in the yellow pages, and let them know you’ve started in business. They will write to you and send you a tax return to complete. You can decide to fill this form out yourself or you can contact a local accountant and they will deal with it.If you do use an accountant then shop around. You may not need a chartered or certified accountant as they will be expensive and their expertise may not be needed if you are running a small uncomplicated business. A competent bookkeeper may suffice and will be half the cost if not cheaper.Automatically the Inland Revenue will inform the National Insurance Contributions Dept who will then contact you to set up a £2 per week contribution from your bank. The rest of your NI contributions will be paid when you pay your tax.|
|VAT||If you expect your turnover to be greater than £15,000 per quarter then you may have to get registered for VAT depending on whether your product or service is subject to VAT. You will have to contact Customs & Excise to find out. Information about this and their contact details can be found from their website www.hmce.gov.uk|
|Professional Bodies||In certain cases you need to inform the professional bodies that regulate your market. This includes the FSA for the financial industry, The Law Society for Law, Office of Fair Trading for a lending business or ICAEW for chartered accountancy. There are many more so check out that your market is not regulated. Non-registration can result in heavy fines and even imprisonment!|
As I’ve mentioned earlier cash is king. That is why everything to do with the cash that comes in and out is the most important thing – NOT PROFIT! You pay bills with cash not profit. Profit is a notional figure which is an expected figure based on the agreed terms of your purchase and sale. However if your customer defaults then the profit turns quickly to a loss.
Lets look at this in more detail:
|Credit control||This is probably the most important side of the business when it comes to financials. If you can never give credit. This may be impractical depending on what type of business you’re in but where you can do so. My accountancy practice demands payment upfront even though many accountants give credit. I don’t care if I lose the business by demanding payment upfront. If the customer didn’t want to pay upfront then I would have questioned whether they would have paid at all!If you do have to have debtors then makes sure you keep tabs on them. Make it clear on your invoices when you expect payment. i.e. ‘payment is required within 7 days of the date of this invoice’. If payment is not received on time then have a system. So it may be a phone call after one day, a letter after seven days and court action after a month.Have credit limits for customers. Set it at zero for new customers rising to a figure that is no more than 10% of your working capital. Stay abreast of your customer’s financial situation. If you know that one of your customers is struggling then consider reducing their credit limit. You don’t want them going down and taking you with them.|
|Credit periods||In the same breath I’m telling you not to give credit to your customers but to try and get credit from your suppliers! This is simply the way business works. I know it doesn’t seem fair but life’s not fair. Wherever you can get credit then take it. If you can get paid for a job before you’ve paid your supplier then you’ve cracked it – you are generating cash without any cash! Then the only limit on how much cash you can make will be purely the demand from customers.|
|Pricing||Be sure to price your product or service correctly. Be sure to factor in unseen costs such as phone calls, postage, parking or any other cost that is not directly attributable to your product or service. You would be surprised how many people fall foul of this. They make a profit after variable costs (known as gross profit) but make a loss after all the overheads are taken in to account (known as a net loss).The best way to avoid this is to set your price by the technique of skimming. Skimming is going in high and then shaving off a little bit if demand is low. You have to be competitive though. If you are going to charge a higher price than your competitors you need to be offering something else like better aftersales care or a more robust product or service.If your intention is to crush the competition by setting the price low then ensure that you take in to account the losses you may incur and how long you can sustain this for. If you do go in low consider setting the prices higher than the competition for some of your range to compensate for this loss. This strategy is called loss leadership. It’s the kind of strategy that ASDA, Tesco and Sainsburys do to crush the smaller supermarkets.|
|Budgeting||Now I am not saying go out and buy an expensive budgeting software pack and track every expenditure and calculate fancy statistics, what I am saying is have an idea of what things cost. This is a game of money. Know how much EVERYTHING costs and budget for it. You do not need any nasty surprises that catch you out and then put you out of business.Just a calculation on a scrap piece of paper will suffice. Be sure to include every possible expense. Things such as:· Mobile phone calls - They can work out very expensive if you are calling cross network· Postage - you’ll be surprised how much a mailshot can cost if you send out over 500 letters|
· Printing – ink cartridges for printers are set at a scandalous price. I pay £27 for a black ink cartridge which lasts me about 2 months. That’s nearly £200 a year!
· Travel costs – be sure to include parking costs, potential fines, extra servicing costs due to higher mileage, taxis and congestion charges.
· Bad debts – some customers will not pay you – fact! I always budget 20% bad debt loss for my property business.
6.Understand Your Competitors
Its not just you out there you know. There are others doing exactly what you’re doing – trying to make a living. The key thing is that you know who, what, why & where – and how and when!
|What to do||Description|
|Know who they are||Every business has competitors. if there’s money to be made in a market then there will always be several players fighting over market share. If you are in the fortunate position to have no competitors (I can’t think of a situation where this could occur though) then be sure there will be in the future. So know your competitors AND potential competitors.But why do we need to know who they are? Well we’ve all heard the expression ‘keep your friends close and your enemies closer’ but in business this is even more significant. The competition are your enemies as they threaten your lifestyle. You need to know what they’re up to and what their plans are. If you find that your losing business due to an introduction of an offer by one of your competitors then you are able to react with full information.|
|Copy them!||Okay so you’ve found out who they are what do we do with this information – copy them! If your struggling for inventive ideas then copy them. It’s difficult to re-invent the wheel so why not copy them. Its not illegal! If they’ve got great ideas then guess what – you have to! You can use your competitor’s ideas for inspiration or you can copy their ideas and just make them better.We all see this happen. McDonalds introduced the Value Meal and shortly after Burger King did the same. We had Pop Idol on ITV & Big Brother on Channel 4 and BBC shortly followed with a combination of both with Fame Academy. They all add their little twist but essentially it’s a copy of their competitor’s ideas. There are no rules and regulations that govern the copying of ideas as this is what keeps business progressive.|
|Differentiate||Okay, you’ve found out who they are and what they do. If copying is not the best strategy then why not do something different. This may be offering something additional or offering a completely different product that does the exact same thing. This requires keeping up with the latest developments in your market that have products or practices that are more appealing or more efficient.Branding is also a key way to differentiate. One way Easyjet, the low cost airline, has succeeded was to offer just basic air travel without any frills. Their branding of plain colours (being orange and white) and limited destinations nearly brought down the institution we know as British Airways. They tried fighting back with their copy being ‘Go’ but failed. Easyjet now offer a wider range of destinations and only face a real threat from Ryan Air, another low cost airline.Its this differentiation that will make customers choose you over others. You must stand out. The worst thing for your business is that you blur in to the rest of them. there is no solid reason why someone would choose you over others.Consider differentiation by one of these means:|
· Price – Be at the top end or the bottom end of the market. Either be the cheapest with no frills or the most expensive with all the frills.
· Niche – Be a specialist in one small part of the market thus eliminating most competitors. You can charge premium pricing for your expertise.
· Quality – Offer the best! People will come to you as you are offering the best in the market.
· After Sales – you offer the best back up service for any issues arising after the purchasing of your product or service.
7.Understand Your Customers
|What to do||Description|
|Know who they are||This seems an obvious statement. You’re thinking well of sold to them of course I know them. What I’m saying is really know your customers. Now I’m not saying to get in to bed with them but at least understand where they’re heading and if your products or services will be required in the future. If so, be sure to guarantee supply. If their requirements are going to change then change with them if possible.|
|Avoid being reliant on a few||The classic way businesses go down is a customer going down. If you only have a few customers then your business is very fragile. You are reliant on the success of your few customers for your success.Looking at two extremes Tesco never relies on one customer. It has many being us! Thus their exposure is really the general economy of the UK. Whereas a pig farm supplying meat exclusively to Tesco relies heavily on one customer being Tesco. If Tesco find another pig farm at a cheaper price then the original pig farm will ultimately go out of business.Do what ever you can to minimise your exposure to one or few customers. Re-read the ‘Promote’ section above to gain more customers hence being less reliant on certain customers.|
This is something I need to get stuck into. Its all about teaming up with non-competing businesses and selling each others products and services. We’ve all heard about lastminute.com. The key to their success of being the first internet site based in the UK to make a profit was their aggressive alliance program. If you used the internet or walk through the high street you would see lastminute.com somewhere. The great thing is that even if none of these alliances didn’t work it still got their name out there alongside the ‘big boys’. It just so happened that aligning themselves with household names made them a household name which meant more hits to their site hence more sales.
Now depending on what your business is there are many non-competing businesses that could sell your product or service and theirs! You may find that selling their product or service could be more profitable than your own product or service.