Starting and Running a Business All-in-One For Dummies, 3rd UK Edition E-Book

Colin Barrow

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 1109

Veröffentlichungsjahr: 2016

Beschreibung

Written by a team of business and finance experts, Starting & Running a Business All-In-One For Dummies is a complete guide to every aspect of setting up and growing a successful business. Featuring straight-talking advice on everything from business planning and marketing, managing staff and dealing with legal issues, to bookkeeping and taking care of tax obligations, this book is your one-stop guide to turning your business plans into profit. This amazing all-in-one guide brings together specialists in finance, bookkeeping,planning, marketing and sales, staffing, taxation and more, all of them eager to share their hard-won expertise with you. * Discusses ways to identify new business opportunities and how to put together a business plan * Get the scoop on securing the financing you need to get started * Includes tips on finding, managing, and retaining excellent staff * Offers information on marketing and selling your products or services

Leseprobe

Starting & Running a Business All-in-One For Dummies®, 3rd Edition

Published by: John Wiley & Sons, Ltd., The Atrium, Southern Gate, Chichester,www.wiley.com

This edition first published 2017

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Starting & Running a Business All-in-One For Dummies®

To view this book's Cheat Sheet, simply go to www.dummies.com and search for “Starting & Running a Business All-in-One For Dummies Cheat Sheet” in the Search box.

Table of Contents

Cover

Introduction

About This Book

Foolish Assumptions

Icons Used in This Book

Beyond the Book

Where to Go from Here

Book 1: Laying the GroundworkLaying the Groundwork

Chapter 1: Preparing for Business

Getting in Shape to Start Up

Confirming Viability

Going for Growth

Chapter 2: Structuring Your Business

Going into Business

Safeguarding Your Business Assets

Getting Help

Chapter 3: Can You Do the Business?

Deciding What You Want from a Business

Exploring Different Types of Business

Assessing Yourself

Chapter 4: Preparing the Business Plan

Finding a Reason to Write a Business Plan

Writing Up Your Business Plan

Using Business Planning Software

Presenting Your Plan

Chapter 5: Establishing Your Starting Position

Introducing SWOT Analysis

Identifying Strengths and Weaknesses

Analysing Your Situation in 3-D

Chapter 6: Researching Your Customers and Competitors

Anatomy of a Customer

Determining Which Customers Buy What

Seeing Your Product through Your Customers’ Eyes

Sizing Up Competitors

Calculating Your Market Share

Introducing Market Research

Book 2: Sorting Out Your FinancesSorting Out Your Finances

Chapter 1: Finding the Money

Assessing How Much Money You Need

Reviewing Your Financing Options

Determining the Best Source of Finance for You

Going for Debt

Sharing Out the Spoils

Chapter 2: Seeking (Nearly!) Free Money

Researching and Obtaining Grants

Applying for Awards

Raising Money from the Crowd

Comparing Accelerators and Incubators

Chapter 3: Keeping Track of Finances

Understanding Your Accounts

Balancing the Books

Analysing Performance

Accounting for Pricing

Chapter 4: Budgeting for Beginners

Constructing a Budget

Exploring Budgeting Alternatives

Capital Budgeting

Book 3: Finding and Managing Staff

Chapter 1: Staying on the Right Side of the Law

Cutting Through the Red Tape

Working Out What the Law Expects from You

Going the Extra Distance

Deciding Who Has Rights

Deciding What to Put in the Contract

Drawing Up Other Employment Policies

Managing Without an HR Department

Getting Help and Advice

Chapter 2: Finding Person Friday – Advertising and Interviewing

Filling the Gap

Getting It Right from the Start

Considering Diversity

Sorting the Wheat from the Chaff – CVs and Application Forms

Handling the Practicalities of Interviews

Planning the Interviews

Checking Up on Your Chosen One

Offering a Job to Your Dream Candidate

Chapter 3: Employing People Successfully

Motivating and Rewarding Employees

Managing the Admin

Chapter 4: Disciplining and Dismissing Staff

Resolving Disputes

Dismissing Staff – the Right Way

Dismissing Staff – the Wrong Way

Tying Up the Loose Ends

Facing Tribunals – Something to Be Avoided

Chapter 5: Inspiring Employees to Better Performance

Introducing the Greatest Management Principle in the World

Discovering What Employees Want

Deciding What to Reward

Starting with the Positive

Making a Big Deal about the Little Things

Considering Money and Motivation

Chapter 6: Coaching and Development

Playing a Coach’s Role

Coaching: A Rough Guide

Coaching Metaphors for Success in Business

Tapping into the Coach’s Expertise

Developing and Mentoring Employees

Explaining How Employee Development Helps

Personal Development Plans

Helping Employees to Develop

Chapter 7: Being an Expert at Performance Appraisal and Management

Taking the First Steps

Developing a System for Providing Immediate Performance Feedback

Reducing Shrinkage

Reading the Results

Appraising Performance: Why It Matters

Spelling Out the Performance Appraisal Process

Preparing for the No-Surprises Appraisal

Book 4: Keeping on Top of the Books

Chapter 1: Recording the Financial Facts

Keeping the Books

Keeping the Right Paperwork

Filing Your Accounts

Managing Your Accountant

Protecting Your Business Against Internal Fraud

Insuring Your Cash through Fidelity Bonds

Chapter 2: Managing Your Tax Position

Tackling Taxes for Different Types of Businesses

Paying Taxes

Handling Employment Taxes

Surviving a Tax Investigation

Chapter 3: How Investors Read a Financial Report

Analysing Financial Reports with Ratios

Finding Financial Facts

Introducing the Audit Report

Digging Deeper into the Audit Report

Frolicking through the Footnotes

Book 5: Marketing and Advertising Your Wares

Chapter 1: Taking a Closer Look at Customers

Checking Out Who Your Customers Are

Discovering Why Your Customers Buy

Finding Out How Your Customers Make Choices

Remembering the Big Picture

Dealing with Business Customers

Chapter 2: Considering Your Business Mission, Vision and Objectives

Developing Your Concept

Composing Your Mission Statement

Seeing the Vision Thing

Setting Objectives and Goals

Chapter 3: Marketing and Selling Your Wares

Making Up the Marketing Mix

Defining Your Product or Service Parameters

Using Advertising to Tell Your Story

Getting into the News

Using Blogs and Social Networks

Selling for Business Success

Settling on a Price

Pondering Place and Distribution

Considering the Newer 3Ps

Looking at Legal Issues in Marketing

Chapter 4: Creating and Placing Ads

Deciding on Your Budget

Writing and Designing Your Ads

Making Sense of Print Media Rates

Placing Newspaper and Magazine Ads

Considering Yellow Pages, Directories and Their Digital Alternatives

Broadcasting Your Message on Radio, TV and Online

Snail-Mailing and Emailing Your Customers Directly

Using Billboards and Other Out-of-Home Ads

Chapter 5: Public Relations and Publicity

The Relationship between Public Relations and Publicity

Becoming a News Source

Spreading Your News

Crisis Communications: Dealing with Bad News

Chapter 6: Doing Business Online

Appreciating the Power of the Internet

Reviewing What You Can Do Online

Establishing an Internet Presence with a Website

Selling Goods and Services

Gaining and Monitoring Visibility

Practising Safe Online Business

Chapter 7: Social Media Engagement

Explaining the Why, Who and How of Social Media Engagement

Using Words and Pictures

Leveraging Audio and Video for Engagement

Considering Other Social Media Engagement Tools

Book 6: Growing and Improving Your Business

Chapter 1: Thinking Strategically

Making Strategy Make a Difference

Applying Off-the-Shelf Strategies

Checking Out Strategic Alternatives

Coming Up with Your Own Strategy

Chapter 2: Managing More than One Product

Facing the Product/Service Life Cycle

Finding Ways to Grow

Managing Your Product Portfolio

Extending Your E-Penetration

Buying Out Competitors

Chapter 3: Improving Performance

Checking Your Internal Systems

Retaining Customers

Improving Productivity

Chapter 4: Franchising for Growth

Defining a Franchise

Considering Your Franchise Options

Weighing the Advantages and Disadvantages

Doing the Pilot

Finding Franchisees

Rolling Out the Franchise

Chapter 5: Funding Expansion

Dealing with Financiers Post-Investment

Sharing your business

Investing in Future Rounds

Considering a Public Listing

Looking at reasons for an IPO

Recognising the Rise of Alternative Funding and Online Platform Funders

Looking at Differences in Digital Funding

Chapter 6: Becoming a Great Manager

Building a Team

Coaching and Training

Appraising Performance

Developing a Leadership Style

Measuring Morale

About the Authors

Advertisement Page

Connect with Dummies

End User License Agreement

Guide

Cover

Table of Contents

Begin Reading

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Introduction

Welcome to this latest edition of Starting & Running a Business All-in-One For Dummies, your launch pad to understanding the fundamentals of setting up, establishing, running and growing a successful small business. In today’s challenging environment, with the banking sector still scrambling to find a foothold after the credit crunch and world stock and oil price markets see-sawing with alarming frequency, it has never been more important to be well informed on every aspect of business.

Standing out from the crowd is getting tougher, too. In 2015, a record 600,000 new businesses were started in Britain, bringing the total number of new businesses started since 2010 to 2.6 million, far more than in any other European country.

This book draws together information on the key areas of successful business – planning, funding (including new areas such as crowdfunding), staying on the right side of the law, employing staff, bookkeeping, accounting and tax, marketing promotion, social media, e-commerce and planning for growth – all in one bumper guide.

With help from this book, you can make even better business decisions and transform a simple idea into your very own business empire.

About This Book

This book is the ultimate business adviser, providing expert guidance for businesses at every stage of the start-up process.

This third edition of Starting & Running a Business All-in-One For Dummies draws on advice from several other For Dummies books, which you may wish to check out for more in-depth coverage of certain topics (all published by Wiley):

Business Funding For Dummies

(Helene Panzarino)

Business Plans For Dummies

, 3rd Edition (Paul Tiffany, Steven D. Peterson and Colin Barrow)

Small Business Employment Law For Dummies

(Liz Barclay)

Small Business Marketing For Dummies

(Paul Lancaster and Barbara Findley Schenck)

Social Media Engagement For Dummies

(Aliza Sherman and Danielle Elliott Smith)

Social Media Marketing For Dummies

, 3rd Edition (Shiv Singh and Stephanie Diamond)

Starting a Business For Dummies

, 4th Edition (Colin Barrow)

Understanding Business Accounting For Dummies

, 3rd Edition (John A. Tracy and Colin Barrow)

You can find some interesting (but not essential) info in the sidebars, which are shaded boxes, and with the Technical Stuff icon. Feel free to read these if you want to dig a little deeper and to skip them if you want just the basics for now.

Note that this book is a reference book, so you don’t have to read it in order (unless you want to!); simply use the table of contents and the index to help you find what you’re looking for. You can dip into and out of chapters as you like.

Within this book, you may note that some web addresses break across two lines of text. If you’re reading this book in print and want to visit one of these web pages, simply key in the web address exactly as it’s noted in the text, pretending as though the line break doesn’t exist. If you’re reading this as an e-book, you’ve got it easy — just click the web address to be taken directly to the web page.

Foolish Assumptions

This book brings together the elements of knowledge that are essential for understanding the world of small business. As a consequence, to keep the book down to a reasonable number of pages, we’ve made a few assumptions about you (we hope you don’t mind!). Maybe you’re:

An entrepreneur looking for a start-up bible

A small business owner-manager seeking a comprehensive reference guide

A business owner with aspirations to grow

Icons Used in This Book

When you flick through this book, you’ll notice some snazzy little icons in the margin. These pick out key aspects of starting and running a business, and present you with important nuggets of information:

Want to get ahead in business? Check out the text highlighted by this icon to pick up some sage advice.

They say elephants never forget – and nor should good business owners. This icon focuses on key information you should never be without.

Running a business isn’t without its dangers – be they financial or legal – and the text beside this icon points out common pitfalls to avoid.

Sometimes you’ll be presented with information that’s interesting but not absolutely essential to starting or growing your own business. If you see this icon next to a paragraph, you’re welcome to skip by if it’s not of immediate interest to you – doing so won’t harm your chances in business.

Beyond the Book

In addition to what you’re reading right now, this product also comes with a free access-anywhere Cheat Sheet that provides key considerations for starting a business, factors for business success and more. To get this Cheat Sheet, simply go to www.dummies.com and search for ‘Starting & Running a Business All-in-One For Dummies Cheat Sheet’ in the Search box.

Where to Go from Here

Starting & Running a Business All-in-One For Dummies, 3rd Edition, can help you succeed no matter what kind of business expertise you’re looking for. If you have a great and proven business idea, you may want to plug straight into finding out how to raise finance (head over to Book 2). If you need more than just yourself to get your great business idea off the ground, you may want to know how to find great employees (check out Book 3). If you’re planning to take care of your own bookkeeping and finances, you may want to find out how to successfully balance the books and take care of tax (flick through to Book 4). Or perhaps you’ve already started out and you’re looking for advice on how to take your business to the next level (Book 6 gives some great advice). This book is set up so that you can dip in and out of it in a number of ways depending on your situation.

Book 1

Laying the Groundwork

Contents at a Glance

Chapter 1: Preparing for Business

Getting in Shape to Start Up

Confirming Viability

Going for Growth

Chapter 2: Structuring Your Business

Going into Business

Safeguarding Your Business Assets

Getting Help

Chapter 3: Can You Do the Business?

Deciding What You Want from a Business

Exploring Different Types of Business

Assessing Yourself

Chapter 4: Preparing the Business Plan

Finding a Reason to Write a Business Plan

Writing Up Your Business Plan

Using Business Planning Software

Presenting Your Plan

Chapter 5: Establishing Your Starting Position

Introducing SWOT Analysis

Identifying Strengths and Weaknesses

Analysing Your Situation in 3-D

Chapter 6: Researching Your Customers and Competitors

Anatomy of a Customer

Determining Which Customers Buy What

Seeing Your Product through Your Customers’ Eyes

Sizing Up Competitors

Calculating Your Market Share

Introducing Market Research

Chapter 1

Preparing for Business

IN THIS CHAPTER

Working up to opening up

Measuring your business’s viability

Growing for success

When you’re starting a business, particularly your first business, you need to carry out the same level of preparation as you would for crossing the Gobi Desert or exploring the jungles of South America. You’re entering hostile territory.

Your business idea may be good, it may even be great, but such ideas are two a penny. The patent office is stuffed full of great inventions that have never returned tuppence to the inventors who spent so much time and money filing them. It’s how you plan, how you prepare and how you implement your plan that makes the difference between success and failure. And failure is pretty much a norm for business start-ups. Tens of thousands of small firms fail, some disastrously, every year. Most are perfectly ordinary enterprises – catastrophe isn’t confined to brash Internet whiz kids entering markets a decade or so ahead of the game.

In fact, a quarter of all new businesses close their doors before their first year is over; a further quarter fail by their fourth year (for more on the reasons why, visit www.statisticbrain.com/startup-failure-by-industry). This chapter sets the scene to make sure that you’re well prepared for the journey ahead.

Getting in Shape to Start Up

You need to be in great shape to start a business. You don’t have to diet or exercise, at least not in the conventional sense of those words, but you do have to be sure that you have the skills and knowledge you need for the business you have in mind, or know how to tap into sources of such expertise.

The following sections help you through a pre-opening check-up so that you can be absolutely certain that your abilities and interests are closely aligned to those that the business you have in mind requires. The sections also help you to check that a profitable market exists for your products or services. You can use these sections as a vehicle for sifting through your business ideas to see whether they’re worth the devotion of time and energy that you need to start up a business.

You may well not have all the expertise you need to do everything yourself. In this book you can find information on the zillions of agencies and advisers who can fill in the gaps in your expertise.

Assessing your abilities

Business lore claims that for every ten people who want to start their own business, only one finally does. It follows that an awful lot of dreamers exist who, while liking the idea of starting their own business, never get around to taking action. Chapter 3 of Book 1 looks in detail at how you can assess whether you’re a dreamer or a doer when it comes to entrepreneurship. For now, see whether you fit into one of the following entrepreneurial categories:

Nature:

If one of your parents or siblings runs their own business, successfully or otherwise, you’re highly likely to start up your own business. No big surprise here, as the rules and experiences of business are being discussed every day and some of it’s bound to rub off. It also helps if you’re a risk taker who’s comfortable with uncertainty.

Nurture:

For every entrepreneur whose parents or siblings have a business, there are two who don’t. If you can find a business idea that excites you and has the prospect of providing personal satisfaction and wealth, you can assemble all the skills and resources needed to succeed in your own business. You need to acquire good planning and organisational skills (

Chapter 4

in Book 1 covers all aspects of writing a business plan) and either develop a well-rounded knowledge of basic finance, people management, operational systems, business law, marketing and selling, or get help and advice from people who have that knowledge.

Risk taker:

If you crave certainty in everything you do, running your own business may be something of a culture shock. By the time the demand for a product or service is an absolutely sure-fire thing, there may already be too many other businesses in the market to leave much room for you. Don’t confuse risk taking with a pure gamble. You need to be able to weigh matters up and make your risk a calculated one.

Jack-of-all-trades:

You need to be prepared to do any business task at any time. The buck definitely stops with you when you run your own business. You can’t tell a customer that his delivery is late just because a driver fails to show up. You just have to put in a few more hours and do the job yourself.

Discovering a real need

You may be a great potential entrepreneur, but you still need to spell out exactly what it is you plan to do, who needs it and how it can make money. A good starting point is to look around and see whether anyone is dissatisfied with their present suppliers. Unhappy customers are fertile ground for new businesses to work in.

One dissatisfied customer isn’t enough to start a business for. Find out if unhappiness is reasonably widespread, because that gives you a feel for how many customers may be prepared to defect. After you have an idea of the size of the potential market, you can quickly see whether your business idea is a money-making proposition.

Aside from asking around, one way to get a handle on dissatisfaction levels is to check out websites that allow consumers to register their feelings, such as www.reevoo.com, www.grumbletext.co.uk and www.resolver.co.uk. Then scour blogs where irate people can complain their hearts out. Check out websites such as http://thebloggerhub.com, www.totalblogdirectory.com and www.bloghub.com, which all operate blog-indexing services that can help you filter through the 70 million plus blogs and reach the few dozen that serve the sector you’re interested in.

The easiest way to fill a need that people are going to pay to have satisfied is to tap into one or more of these triggers:

Cost reduction and economy:

Anything that saves customers money is always an attractive proposition. Lastminute.com’s appeal is that it acts as a ‘warehouse’ for unsold hotel rooms and airline tickets that you can have at a heavy discount.

Fear and security:

Products that protect customers from any danger, however obscure, are enduringly appealing. When Long-Term Capital Management (LTCM), one of America’s largest hedge funds, collapsed and had to be rescued by the Federal Reserve at a cost of $2 billion, it nearly brought down the American financial system single-handedly. Two months later Ian and Susan Jenkins launched the first issue of their magazine,

EuroHedge

. At the time 35 hedge funds existed in Europe, but investors knew little about them and were rightly fearful for their investments.

EuroHedge

provided information and protection to a nervous market, and five years after its launch the Jenkinses sold the magazine for £16.5 million.

Greed:

Anything that offers the prospect of making exceptional returns is always a winner.

Competitors Companion

(

www.competitorscompanion.com

), a magazine aimed at helping anyone become a regular competition winner, was an immediate success. The proposition was simple: subscribe and you get your money back if you don’t win a competition prize worth at least your subscription. The magazine provided details of every competition being run that week, details of how to enter, the factual answers to all the questions and pointers on how to answer any tie-breakers. It also provided the inspiration to ensure success with this sentence: ‘You have to enter competitions in order to have a chance of winning them’.

Niche markets:

Big markets are usually the habitat of big business – encroach on their territory at your peril. New businesses thrive in markets that are too small even to be an appetite whetter to established firms. These market niches are often easy prey to new entrants because businesses have usually neglected, ignored or served them badly in the past.

Checking the fit of the business

Having a great business idea and possessing the attributes and skills you require to start your own business successfully are two vital elements to get right before you launch. The final ingredient is to be sure that the business you plan to start is right for you.

Before you go too far, make an inventory of the key things that you’re looking for in a business. These may include working hours that suit your lifestyle; the opportunity to meet new people; minimal paperwork; a chance to travel. Then match those up with the proposition you’re considering. (Chapter 3 in Book 1 talks more about finding a good business fit.)

Confirming Viability

An idea, however exciting, unique, revolutionary and necessary, isn’t a business. It’s a great starting point, and an essential one, but you have to do a good deal more work before you can sidle up to your boss and tell him exactly what you think of him.

The following sections explore the steps you need to take so that you don’t have to go back to your boss in six months and plead for your old job back (and possibly eat a large piece of humble pie at the same time).

Researching the market

However passionate you are about your business idea, you’re unlikely already to have the answers to all the important questions concerning your marketplace. Before you can develop a successful business strategy, you have to understand as much as possible about your market and the competitors you’re likely to face.

The main way to get to understand new business areas, or areas that are new to you at any rate, is to conduct market research. The purpose of that research is to ensure that you have sufficient information on customers, competitors and markets so that your market entry strategy or expansion plan is at least on target, if not on the bull’s eye itself. In other words, you need to explore whether enough people are attracted to buy what you want to sell at a price that gives you a viable business. If you miss the target altogether, which you may well do without research, you may not have the necessary resources for a second shot.

The areas to research include:

Your customers:

Who may buy more of your existing goods and services and who may buy your new goods and services? How many such customers exist? What particular customer needs do you meet?

Your competitors:

Who are you competing with in your product/market areas? What are those firms’ strengths and weaknesses?

Your product or service:

How can you tailor your product or service to meet customer needs and give you an edge in the market?

The price: What do customers see as giving value for money, so encouraging both loyalty and referral?

Make sure you don’t set your price too low. Undercharging is one of the main reasons for early failure. Raising your price is always harder than lowering it.

The advertising and promotional material:

What blogs, newspapers, journals and so forth do your potential customers read, and what websites do they visit? Unglamorous as it is, analysing data on what messages actually influence people to buy, rather than just to click on a link, holds the key to identifying where and how to promote your products and services.

Channels of distribution:

How can you get to your customers and who do you need to distribute your products or services? You may need to use retailers, wholesalers, mail order or the Internet. All have different costs, and if you use one or more, each wants a slice of your margin.

Your location:

Where do you need to be to reach your customers most easily at minimum cost? Sometimes you don’t actually need to be anywhere near your market, particularly if you anticipate most of your sales coming from the Internet. If this is the case, you need to have a strategy to make sure that potential customers can find your website.

Try to spend your advertising money wisely. Nationwide advertisements or blanketing the market with free CD-ROMs may create huge short-term growth, but little evidence exists that indiscriminate blunderbuss advertising works well in retaining customers. Certainly, few people using such techniques make any money.

Doing the numbers

Your big idea looks as though it has a market. You’ve evaluated your skills and inclinations and you believe that you can run this business. The next crucial question is – can it make you money?

You absolutely must establish the financial viability of your idea before you invest money in it or approach outsiders for backing. You need to carry out a thorough appraisal of the business’s financial requirements. If the numbers come out as unworkable, you can then rethink your business proposition without losing anything. If the figures look good, you can go ahead and prepare cash flow projections, a profit and loss account, and a balance sheet, and put together the all-important business plan. (Chapters 1, 3 and 4 in Book 2 cover these procedures.)

You need to establish for your business:

Day-to-day operating costs

How long it will take to reach break-even

How much start-up capital you need

The likely sales volume

The profit level you require for the business not just to survive, but also to thrive

The selling price of your product or service

Many businesses have difficulty raising start-up capital. To compound this, one of the main reasons small businesses fail in the early stages is that they use too much start-up capital to buy fixed assets. Although some equipment is clearly essential at the start, you can postpone other purchases. You may be better off borrowing or hiring ‘desirable’ and labour-saving devices for a specific period. This obviously isn’t as nice as having them to hand all the time, but remember that you have to maintain and perhaps update every photocopier, printer, computer and delivery van you buy, and they become part of your fixed costs. The higher your fixed costs, the longer it usually takes to reach break-even point and profitability. And time isn’t usually on the side of the small, new business: it has to become profitable relatively quickly or it simply runs out of money and dies.

Raising the money

Two fundamentally different types of money that a business can tap into are debt and equity:

Debt

is money borrowed, often from a bank, and that you have to repay. While you’re making use of borrowed money, you also have to pay interest on the loan.

Equity is the money that shareholders, including the proprietor, put in and money left in the business by way of retained profit. You don’t have to give the shareholders their money back, but shareholders do expect the directors to increase the value of their shares, and if you go public they’ll probably expect a stream of dividends too.

If you don’t meet the shareholders’ expectations, they won’t be there when you need more money – or, if they’re powerful enough, they’ll take steps to change the membership of the board.

Alternative financing methods include raising money from family and friends, applying for grants and awards, crowdfunding, and entering business competitions. Check out Chapters 1 and 2 in Book 2 for a review of all these sources of financing.

The Financial Conduct Authority, a City watchdog, ordered all banks to publish statistics on complaints on their website from 31 August 2010. Throughout 2015, Lloyds received 85,505 complaints, Santander received 80,566, Barclays received 140,584 and HSBC received just 72,356. If your bank is high on this name-and-shame list (visit www.the-fca.org.uk/firms/complaints-data/firm-level, then click the link ‘Downloadable table: Firm level complaints data’), get straight on to Chapters 1 and 2 in Book 2, where all aspects of raising money are covered.

Writing up the business plan

A business plan is a selling document that conveys the excitement and promise of your business to potential backers and stakeholders. These potential backers can include bankers, venture capital firms, family, friends and others who may help you launch your business if they only know what you want to do. (Chapters 1 and 2 in Book 2 consider how to find and approach sources of finance.)

Getting money is expensive, time-consuming and hard work, but sometimes you can get a quick decision. One recent start-up succeeded in raising £3 million in eight days, after the founder turned down an earlier offer of £1 million made just 40 minutes after he presented his business plan. Your business plan needs to cover what you expect to achieve over the next three years. (Chapter 4 in Book 1 gives full details on how to write a winning business plan.)

Most business plans are dull, badly written and frequently read only by the most junior of people in the financing organisations they’re presented to. One venture capital firm in the United States went on record to say that in one year it received 25,000 business plans asking for finance and invested in only 40. Follow these tips to make your business plan stand out from the crowd:

Hit them with the benefits.

You need to spell out exactly what you do, for whom and why that matters. One such statement that has the ring of practical authority is: ‘Our website makes ordering gardening products simple. It saves the average customer two hours a week browsing catalogues and £250 a year through discounts not otherwise available from garden centres. We have surveyed 200 home gardeners, who rate efficient purchasing as a key priority’.

Make your projections believable.

Sales projections always look like a hockey stick – a straight line curving rapidly upwards towards the end. You have to explain what drives growth, how you capture sales and what the link between activity and results is. The profit margins are key numbers in your projections, alongside sales forecasts. Financiers tend to probe these figures in depth, so show the build-up in detail.

Say how big the market is.

Financiers feel safer backing people in big markets. Capturing a fraction of a percentage of a massive market may be hard to achieve – but if you get it, at least the effort is worth it. Going for 10 per cent of a market measured in millions rather than billions may come to the same number, but the result isn’t as interesting.

Introduce yourself and your team.

You need to sound like winners with a track record of great accomplishments.

Include non-executive directors.

Sometimes a heavyweight outsider can lend extra credibility to a business proposition. If you know or have access to someone with a successful track record in your area of business who has time on his hands, you can invite him to help. If you plan to trade as a limited company (

Chapter 2

in Book 1 has details on legal structures) you can ask him to be a director, without specific executive responsibilities beyond being on hand to offer advice. But non-executive directors do need to have relevant experience or be able to open doors and do deals. Check out organisations such as Venture Investment Partners (

www.ventureip.co.uk

) and First Flight Placement’s non-exec search site (

www.nonexecdirector.co.uk

) for information on tracking down the right non-executive director for your business.

Provide financial forecasts.

You need projected cash flows, profit and loss accounts, and balance sheets for at least three years ahead. No one believes them after Year 1, but the thinking behind them is important.

Demonstrate the product or service.

Financiers need to see what the customer is going to get. A mock-up is okay or, failing that, a picture or diagram. For a service, show how customers can gain from using it – that it can help with improved production scheduling and so reduce stock holding, for example.

Spell out the benefits to your potential investors.

Tell them that you can repay their money within

x

years, even on your most cautious projections. Or, if you’re speaking to an equity investor, tell him what return he may get on his investment when you sell the business in three or five years’ time.

Going for Growth

Growth is as natural a feature of business life as it is of biological life. People, animals and plants all grow to a set size range and then stop. A few very small and very large specimens come to fruition, but the vast majority fit within a fairly narrow size band.

Businesses follow a similar formula: most successful new businesses, those that survive that is, reach a plateau within five to seven years. At that stage the business employs 5 to 20 people and has annual sales of between £250,000 and £1 million. Of the 5.4 million private businesses operating in the United Kingdom, it is estimated that fewer than 130,000 have a turnover in excess of £1 million a year. That doesn’t represent a bad result. Viewed from the position of a one-man-band start-up, having a couple of hundred thousand pounds in sales each year is an admirable (and unusual) success.

The following sections demonstrate the great benefits of growth. (Books 5 and 6 contain more advice on how to make your business grow.)

Gaining economies of scale

After a business starts to grow, you can spread overhead costs over a wider base. You can buy materials and services in larger quantities, which usually means better terms and lower costs. These factors generally lead to a higher profit margin, which in turn provides funds to improve the business, which in turn can lead to even lower costs. This virtuous circle can make a growing firm more cost-competitive than one that’s cautiously marking time.

Securing a competitive advantage

A new business can steal a march on its competitors by doing something vital that established businesses can’t easily imitate. For example, a new hairdressing shop can locate where customers are, but an existing shop has to content itself with its current location, at least until its lease expires.

A growing firm can gain advantages over its slower competitors. For example, launching new products or services gives a firm more goods to sell to its existing customer base. This puts smaller competitors at a disadvantage, because they’re perceived as having less to offer than the existing supplier. This type of growth strategy can, if coupled with high quality standards, lead to improved customer retention and this too can lead to higher profits – a further push on the momentum of the virtuous circle.

Retaining key staff

The surest way to ensure that a business fails is to have a continual churn of employees coming and going. You have to invest valuable time and money in every new employee before he becomes productive, so the more staff you lose the more growth you sacrifice. Most employers believe that their staff work for money and their key staff work for more money. The facts don’t really support this hypothesis. All the evidence is that employees want to have an interesting job and recognition and praise for their achievements. Chapters 5 and 6 in Book 3 explain how to get the best out of your staff.

By growing the business, you can allow key managers to realise their potential. In a bigger business you can train and promote your staff, moving them up the ladder into more challenging jobs where they can earn higher salaries on merit, so they stay with you rather than leaving for pastures new. And if employees are good at their jobs, they become more valuable the longer they stay with you. You save time and money on recruitment and you don’t have to finance new managers’ mistakes while they learn how to work in your business.

Gaining critical business mass

Bigger isn’t always better, but a growing business has a greater presence in its market and that’s rarely a bad strategy. Large businesses are also more stable, tending to survive better in turbulent times. Bigger businesses do sometimes go bust, but smaller, ‘doing nicely’ businesses are far more likely to hit a bump in the road.

A small company often relies on a handful of customers and just one or two products or services for most or all of its profits. If its main product or service comes under competitive pressure or if a principal customer goes bust, changes suppliers or spreads orders around more thinly, the small company is in trouble. Expanding the number of customers so that you break out of the 80/20 cycle, in which 80 per cent of the business comes from 20 per cent of customers, is a sensible way to make the business safer and more predictable.

One-product businesses are the natural medium of the inventor, but they’re very vulnerable to competition, changes in fashion and technological obsolescence. Having only one product can limit the growth potential of the enterprise. A question mark hangs over such ventures until they can broaden their product base. Adding successful new products or services helps a business to grow and become a safer and more secure venture. This process is much like buying a unit trust rather than investing in a couple of shares. The individual shares are inevitably more volatile, but the spread over dozens of shares smoothes the growth path and reduces the chances of disaster significantly.

Chapter 2

Structuring Your Business

IN THIS CHAPTER

Finding the right business form

Protecting the crown jewels

Exploring options for help (and there are plenty of them)

When you start your business, you have to make a decision more or less from the outset on the legal structure you’re going to use to trade. Although that’s an important decision, luckily, it’s not an irrevocable one. You can change structures as your business grows – though not without some cost and paperwork.

The simplest structure is to make all the business decisions yourself and take all the risk personally. You don’t have to shoulder all the responsibilities when you start a business, though most people initially do so. It may be great doing everything your way, at last, after the frustrations of working for someone else. But it can be lonely or even scary with no one with whom you can talk over the day-to-day problems and share the responsibility of decision making.

If your business requires substantial investment, or involves other people who have a more or less equal hand in the venture alongside you, then your decision about the legal structure of the business is a little more complicated.

In this chapter, you can find all the important factors to consider when deciding on the legal structure for your business. You also look at other areas of interest, from intellectual property to finding practical sources of help.

Going into Business

Different legal frameworks exist for going into business and not all are equally appropriate for everyone.

Most small businesses in the UK start out as sole proprietorships; however, by the time they register for VAT (value added tax) – in other words, after they’re up and running – their owners tend to seek the shelter of limited liability (see Table 2-1.)

TABLE 2-1 Popular Business Structures (%)

2009

2015

Limited companies

24.4

30.0

Sole proprietorships

58.2

62.0

Partnerships

13.5

8.0

One of the many factors you have to consider when deciding on the legal structure of your business is tax, including VAT and its implications, and you find out how to manage your tax position in Chapter 2 of Book 4.

But even more compelling reasons than tax may exist to choose one structure over another. Not all sources of finance are open to every type of business. When you know how much money you need to start up or to grow a business and what you need that money for, you’re in a better position to make an informed choice about the best way to structure your business. If you need to raise large sums of money from the outset for research and development, for example, a limited company may be your only realistic option, with its access to risk capital. And if you’re nervous about embroiling your finances with other people’s, a partnership isn’t an attractive option.

In general, the more money you require and the riskier the venture, the more likely it is that a limited company is the appropriate structure.

The good news is that you can change your legal structure at more or less any time. Even if you go the full distance and form a company and get it listed on the stock exchange, you can delist and go private. Richard Branson (Virgin) and Alan Sugar (Amstrad) have both gone down this route. That’s not to say you’ll find it easy to dissolve partnerships or shut down companies, but you can do it.

Both your accountant and your lawyer can help you with choosing your legal form. The types of business structures and some of their advantages and disadvantages are shown in Table 2-2.

TABLE 2-2 Pros and Cons of Various Organisational Structures

Type of Entity

Main Advantages

Main Drawbacks

Sole proprietorship

Simple and inexpensive to create and operate.

Owner is personally liable for business debts.

Profit or loss is reported on owner’s personal tax return.

No access to outside capital.

Life of business is restricted to life of owner.

Limited potential for value creation.

General partnership

Simple and inexpensive to create and operate.

Partners are personally liable for business debts.

Partners’ share of profit or loss is reported on personal tax returns.

The business is dissolved when a partner dies.

Potential for some value creation.

Only partners can raise outside capital.

Limited partnership

Non-managing partners have limited personal liability for business debts.

General partners are personally liable for business debts.

General partners can raise cash without involving outside investors in the management of the business.

More expensive to create than a general partnership.

Wider access to outside capital than for a sole proprietor.

Life of business is restricted to life of first partner to die.

Potential for some value creation.

Limited company

Owners have limited personal liability for business debts.

More expensive to create and run than partnership or sole proprietorship.

Some benefits (such as pensions) can be deducted as a business expense.

Owners must meet legal requirements for stock registration, account filing and paperwork.

Owners can share out the profit and can end up paying less tax overall.

Access to full range of outside capital.

Business can live on after founder’s death.

Potential for value creation.

Separate taxable entity.

Co-operative

Owners have limited personal liability for business debts.

More expensive to create than a sole proprietorship.

Owners’ share of corporate profit or loss reported on personal tax returns.

Owners must meet legal requirements for account filing, registration and paperwork.

Owners can use corporate loss to offset income from other sources.

Restricted access to outside capital.

Limited potential for value creation.

Settling on sole trader status

The vast majority of new businesses are essentially one-man (or one-woman) bands. As such, they’re free to choose the simplest legal structure, known by terms such as sole trader or sole proprietor. This structure has the merit of being relatively formality free and having few rules about the records you have to keep. As a sole proprietor, you don’t have to have your accounts audited or file financial information on your business.

If you’re a sole trader, no legal distinction exists between you and your business. Your business is one of your personal assets, just as your house or car is. It follows that, if your business should fail, your creditors have a right not only to the assets of the business but also to your personal assets, subject only to the provisions of local bankruptcy rules (these rules often allow you to keep only a few absolutely basic essentials for yourself and family). You may be able to avoid the worst of these consequences by distancing your assets.

The capital to start and run the business must come from you, or from loans. In return for these drawbacks you can have the pleasure of being your own boss immediately, subject only to declaring your profits on your tax return and if necessary applying for a trade licence. (In practice, you’d be wise to take professional advice before starting up.)

Often people who start up on their own don’t have enough money to buy into an existing operation, so the do-it-yourself approach is the only alternative.

Forming a partnership

Unless you’re the self-contained type who prefers going it alone, you have to work alongside other people to get your business going. Not just suppliers or employees or bankers and the like – everyone in business has to do that to a greater or lesser extent.

The upside of going into business with others is that you’ve got someone on your side to talk to when the going gets tough, and it will do from time to time. Two heads are often better than one. Also, you’ve got the advantage of extra physical and mental resources when they matter most, from the outset.

However, the equation isn’t one-sided, unfortunately. With other people come other points of view, other agendas and the opportunity to disagree, argue and misunderstand.

Defining the advantages and drawbacks of a partnership

A partnership is effectively a collection of sole traders or proprietors. Few restrictions apply to setting up in business with another person (or persons) in partnership, and several definite advantages exist:

Pooling your resources means that you’ve more capital.

You bring several sets of skills to the business, hopefully, instead of just one.

If one of you is unable to work, the business can still carry on.

Partnerships are a common structure that people who started out on their own use when they want to expand.

The legal regulations governing partnerships in essence assume that competent businesspeople should know what they’re doing. The law merely provides a framework of agreement, which applies ‘in the absence of agreement to the contrary’.

In the absence of an agreement to the contrary, these rules apply to partnerships:

All partners contribute capital equally.

All partners share profits and losses equally.

No partner shall have interest paid on her capital.

No partner shall be paid a salary.

All partners have an equal say in the management of the business.

All these provisions probably won’t suit you, so you’re well advised to get a partnership agreement drawn up in writing before opening for business.

Partnerships have three serious financial drawbacks that merit particular attention: