Once you’ve got your business idea, it can be easy to get carried away with the prospect of being your own boss, but – before you get started – there’s a few logistical issues and plans that need to be tackled if you want your business to succeed in the long-term.
From choosing the right legal structure to cash flow and costs; Startups has summed up her four key steps first-time founders should consider before taking the leap and launching a company.
1. Understand and address any legal issues
Before launching a business you need to consider what legal structure will best suit your proposition, investigate any specialist licences you may need to take out and pre-plan for VAT.
These are crucial elements that start-ups often don’t give enough attention to in the early days – which could mean legal problems later down the line.
Choosing the right legal structure for your business
If you’re launching a business on your own, one of the simplest ways is to set up as a sole trader; this involves the most straightforward tax system and you can work for another employer at the same time. However this may lead to problems later down the line as your company grows, and it leaves you personally responsible if your business is sued or if you go bankrupt.
Most companies choose to set up as a limited company when they launch as it gives you creditability, especially if you are considering exporting. Additionally, you get your business name in the company register – a good way of preventing another business from using it. You can find out more about the pros and cons of registering as a sole trader or limited company here.
If you have a business partner then you can choose to register as a partnership, which means all founders set up as sole traders and you register to the taxman as a partnership – splitting the profits, costs and taxes. However, if you want to keep the firm’s finances together then a limited company is a more suitable choice as it means you are partners but own separate shares of the company, and as directors, you pay yourself a dividend and a salary.
When it comes to choosing a structure for your business, plan for the future, as switching is difficult. Essentially it’s like starting a different company – and will mean all the contracts you signed before are invalid.
Find out if your business needs a licence
Other legal issues you need to think about include whether your company needs a licence. For instance, if you are setting up a food business there are certain licences and qualifications you need to work in the preparation of food.
It may be worth going to a solicitor – something you will also need to do if setting up a partnership.
You can find out more about different types of businesses licences on the gov.uk site here.
Pre-plan for VAT
You should also pre-plan for VAT. If you’re buying in a lot of products for your company, you can claim back VAT on allowable purchases; plus you will have to increase your pricing by 20% when your business reaches the VAT threshold later down the line (more than £81,000).
2. Do your research – know your customer
Market analysis is essential before you start a business as it will tell you if your business idea is viable and much of your other research will be based upon it. It’s fundamentally about establishing who your customers are going to be and what the best way to communicate with them is.
Do both primary and secondary research to understand general trends and your audience’s specific needs. This will mean looking at national statistics and market trends, which can often be accessed through resources at your local business library.
Find a USP
Another important step is to examine the sector that you plan to trade in. Analyse when customers are buying (time and year), what business model they prefer and what they want to buy. You should be able to write a profile of your target audience stating what they spend their money on, who they buy from, what they like and don’t like in competitors – and this will help you to shape your unique selling point (USP) and market strategy.
Get customer feedback
Try small-based testing initially. If you think social media is your best route then track followers on your chosen platforms and send out surveys. Also a market stall or pop up is a great way to interact with your customers – see what they think of your product/service – and this, in turn, can win you, customers, before you’ve officially launched.
Finally take a look at your competitors, what are they doing and who they are targeting? Figure out where their strengths and weaknesses lie – and what you can do better than them. It’s worth doing a SWOT analysis of each potential competitor.
3. Plan your marketing strategy
Once you know who you’re going to target, you have to plan how you’re going to reach them. Social media has taken over the marketing world but if your audience is not especially tech savvy then more traditional routes like print and radio advertising could also work.
Have a strong web presence
The majority of customers are online so a web presence is essential, even if you’re not an e-commerce site or based online, you should have a website and now there are a number of inexpensive platforms you can use such as WordPress or Weebly – which will enable you to build a basic website without having to outsource to a web designer.
Get your social strategy right
In terms of social media, businesses should have a tailored plan in place for the different mediums – as your audience on twitter, for instance, won’t be the same as your followers on Facebook. There are various social media platforms and with that, the danger of spreading yourself too thin, so decide what works best for your company and dedicate sufficient time to making the most of those platforms.
Social media is primarily about building relationships and communicating with your customers – making your brand more personal. It will help you understand your market, your customer’s preferences, where you should be situated and what they are willing to pay. However, although it is a low-cost way of marketing you have to be prepared to put time aside for it and think outside the box to get the real benefits.
Monitor your return on investment (ROI)
Finally, make sure you monitor how many resources you use on each marketing route and track the results you get from them. This will help you when monitoring cash flow and will also identify what mediums do and don’t work.
4. Figure out the figures: Costs, cash flow and pricing
Cashflow forecasting is the most important part of business planning as it helps you know how much it will take to launch your business and how much you’ll need to grow.
Complete a sales forecast
The first step is to do a sales forecast, with a detailed first-year plan and a more general second and third-year estimate. Figure out your pricing, average volume and revenue. When writing this up consider that your product may be seasonable or that it may take some time to gain traction initially. Data from your market research will be vital in predicting this.
Work out your running costs
After a sales forecast, you have to try to predict how much your start-up and running costs will be. There are two types of cost in a business plan: variable and fixed. Ensure you cover everything in your forecast; for example tax, marketing costs and your survival budget (how much money you will need to sustain yourself). After drawing up your sales and cost forecast you can estimate your net profit and breakeven point – making sales targets easier to establish.
Get your pricing right
This will also guide you in pricing your product – helping you understand how much you need to make for your business to survive. Most businesses decide upon price via two paths: cost-based pricing or value-based pricing. Cost-based is decided upon by how much it costs to produce/run your business and make a profit, whereas value-based is your interpretation of what the customer will be willing to pay. Both have pros and cons but when deciding make sure to consider your brand and start-up’s survival costs, don’t undervalue the business and don’t make your USP about price – as there will always be someone who will undercut you.