How to Set Up Your Own Business - key guidelines

Setting up a business is the dream of many, but there are risks, so we look at the main steps to take to give your business the best chance of succeeding.

Setting up a Business Includes:
How to set up your own business How to write a business plan Advantages & disadvantages of own business How to market your business How to set the right prices for products How to set the right contract / consultancy rates What is professional indemnity insurance

Setting up your own business could be the dream of many people, or it could come out of necessity - lost jobs for one of many reasons; difficulty in getting a new one; a burning desire to do your own things.

There are very many reasons for wanting to set up a business, but it is necessary to have a very close and honest look at setting up your own business before committing to it.

The rewards of having your own business can be very good, in terms of personal satisfaction, being your own boss, having additional freedom and the potential financial gains. However many businesses fail, and before setting out, it is wise to bear this in mind and see whether it is a risk with taking.

The business could be anything from providing consultancy services or working as a freelancer, to providing a service, or even manufacturing a product.

Even though the variety of businesses can be very different, there are some common techniques that can be used to ensure that the business has a good chance of succeeding.

Evaluate yourself

Starting your own business is a big step, and one which many people relish, but others may be considerably more cautious about.

Starting your own business is not for everyone. Some people love the idea, but others may prefer the environment in a company where they are employed and can succeed as an employee. It is necessary to understand that either is fine, but it is necessary to understand which is best for you.

One of the first things to do is to ask yourself a number of questions:

Do you want the challenge of setting up & running a business: To some people the idea of running their own business is very energising, but others can find it a burden. It is worth thinking about how you will feel about running the business, not only at first but over the years.
Having time away from the business: Running your own business can be all-consuming. It is not only worth having an separate area that can be shut off at the end of the working day, but also asking yourself whether you will be able to switch off and give the family, partners, etc the time they deserve.
Not taking on too much: One of the issues with running your own business is that it can be difficult to turn business away, even when you are overloaded. There can be a fear that nothing else may turn up. Are you the sort of person who will be able to regulate the amount or business that is taken on.

These any many other questions should be examined. Things like how you will work under pressure, are you adaptable, organised and so forth all need to be examined and honest answers given.

In addition to this, it is necessary to evaluate your technical skills. This is particularly important for anyone planning to be a consultant or undertaking contract work. Ensure that you have the right skills and training, degrees, certificates, memberships, etc. Being a member of the relevant professional organisation can help.

A clean self evaluation, with input from others is always valuable.

What is the business idea

It is very important to evaluate the business idea in great detail. It is upon this idea that the whole business will succeed or fail.

It is worth writing the idea down on paper and spending some time defining exactly what it is that is being offered.

Preparing for setting up the business in this way will help you think through exactly what you will be doing, and it will help refine the idea.

Market research

One of the key elements of any business is to do the market research. You may have the best idea ever, but if nobody wants it, then you won't be able to make any money from it.

This is one area where complete honesty with yourself is really important. Be realistic, because it is really important to get this stage right. You may think it is the best idea since sliced bread, but if others don't agree then it wont work.

Do some research, check whether others are offering the same type of thing, and check whether it is needed. If it is, find out whether the market is big enough for another entry, and also see what your unique selling point is - what makes you stand out from the others.

This is important even if you are offering yourself as a contract worker or consultant - it is necessary to discover whether people will want to take you on.

In other areas where services are offered or items are to be manufactured, it is even more important to check the market.

Enlist somebody or some people to review the idea to see whether it might be needed.

All this work will help prepare properly for setting up the business.

Business plan

One key element of preparing to set up your own business is to write a business plan. Not only can it be used to apply for a business loan should one be needed, but possibly more importantly, it enables you to set down exactly what the business will do.

The plan enables you to clarify your thoughts, especially looking at the financial aspects of the business. Working out on paper how the business will work financially puts a lot or realism into the picture. This should be written so someone else can examine it and look at the figures.

Looking at realistic figures for the business revenue as well as how much is required for running the business and how much can be taken as earnings will help see if the idea and the plan is viable. Write it as thought it was to be presented to a bank manager, even if you will not be applying for a loan.

The business plan should be written, and preferably reviewed by someone outside the business to perform a reality check.

Read more about . . . . How to Write a Business Plan.

Start to set the business in place

Assuming the business plan has been written and the business plan look viable, then it is possible to move onto the next stage of starting to set the business up.

One of the first issues is to have a business name. Legislation varies from one country to the next, but try to get a name that is not used elsewhere, does not mean something bad in another language (Google translate and Google search helps here), and something that relates to the business, but does not limit the scope of the business as it may change slightly over the years. Also check for the availability of suitable website domain names.

In these early stages of setting up the business, it is often a good idea to proceed with caution, focussing on securing business and ensuring that you are paid once you have done the work.

Cashflow can be a real issue at this stage, especially if you have to spend out money on materials before you can get paid for them. Try to negotiate stage payments if at all possible, and put invoices in as soon as possible. Many small businesses put invoices in immediately a payment stage is reached.

It also helps to build up a business relationship with the people in the finance department of companies you are working for. This way, they may help ease your invoice through the system on time.

Marketing

One of the key areas for any new business is to get the word out that the business is there. It is no use having a wonderful service or product if nobody knows about it.

There are many ways of doing this - the methods involved will depend on what is being offered, and they don't need to cost a fortune.

Networking: Networking is key to any business and particularly for consultants. Network, network, network was the message at one talk on marketing for consultants. There are many ways of networking, and each has its advantages - the main aim is to get to know people so that they will remember you.
Business cards: Get some business cards printed. It may seem old hat in these days of electronic databases, etc, but a card will help people remember you.
Advertising literature: Although we live in an era where everything, well almost everything is done electronically, it is sometimes good to have some paper literature that can be given away at suitable times.
Website: A website is almost a necessity for any business these days. Even for consultants a small website can act as an extension to a business card and establish the credibility of the business.

There are naturally many ways in which the new business can be marketed and people made aware of the services and products on offer. Think creatively, as there are many free ways that can be employed.

Read more about . . . . Marketing Your Business.

Seeking finance and loans

When setting up, many businesses will want to seek a financial loan to buy the equipment and materials that may be needed to get the business going.

Seeking a loan should not be taken lightly as often the business owner's properly and possibly including the house may be used as security, so before taking a loan look at every angle. Many business like consultancies and the like will not need a load, so it is best to avoid them if possible.

It may be better to try to build the business without a loan, and although the business may expand more slowly. As many new businesses fail, often after about two years when the loan money has all been spent, it can be considerably more reassuring not to have a loan.

If a loan is needed, the business plan will need to be presented to the bank or other institution. The plan will be reviewed and scrutinised as the bank will not want to loan for an idea that may fail.

Make sure that the business plan is well written and does not have any holes in it. make sure it looks professional - spend some time reviewing it and making it look good.

Once secured, spend the money very wisely, making sure that every penny or cent works for itself and returns money to pay the wages and other costs as well as the repayments on the loan.

Premises to start the new business

Many new businesses will be able to work from home, especially those offering consultancy services, developing blogs, developing software, or providing contract services by the owner. Using a home office can be an ideal way as it saves on considerable costs.

For many businesses it will be necessary to have some premises. Investigate issues like cost, restriction on hours, practices, etc, space available, connectivity for phones and broadband, possibility for expansion, payment options, etc.

Make sure the space and location are right, and that there are no hidden clauses that may restrict change later or any business activities you may wish to undertake.

Hiring staff

Many businesses are set up for an individual person to work: consultancy, websites, software design and many more can be done by an individual, or by husband and wife etc, but others may require the use of additional personnel.

For some businesses it is right to stay small, but for others, there will be the need to take on people.

Like taking on premises, hiring staff adds a significant burden to the company, and an ongoing commitment. Make sure you get the sort of people you want and at first, no more than you need.

Make sure they are the right people, because once they have been taken on, morally and contractually they cannot be let go so easily if things do not work out. The actual legal position will vary from country to country, so it is always best to have a good understanding of the commitments and preparations you need to make.

However be aware of the fact they will never be as committed to the business as you are: they will not have the same involvement and they have not started the business up - it is not their business. Even very good people will not be as involved as it is not their "baby" in the same was as it is yours.

Another approach is to use contract staff who can be hired more easily for short term work as the business builds and the future is not so certain.

Review the business

Once the business has been set up and is running, it is very important to review how it is working out. Some things will work very well, others will be mediocre and others will not work at all.

It is key to the success of the business that your review progress and see what is working. It is also necessary to use metrics, i.e. figures that define the progress of the business. Some of the key metrics or key performance indicators, KPIs will be sales, profit and the like.

Using figures like these it is possible to define the progress. As Deming once said: "A man without metrics is just another man with an opinion."

It can be helpful to review the business, say, once a year, or possibly more frequently, by having a cut down version of the business plan. This can be used to set down in words what has worked and what has failed and then detailing a number of actions to be accomplished to improve the business and increase its performance.

Develop an exit plan

One of the points that surprised me shortly after I set up my business was that my accountant asked what my exit plan was. I was naturally very surprised. Only later did I realise the value of the comment.

If the business is a single person consultancy, there is possibly little intrinsic value that can be sold on when you leave the business or want to close it. However if there is value, and you ultimately think you could sell the business on, then this should be part of the early thinking.

People will not want to buy a business if it only revolves around the founder. Start to think about how you would make it easier for someone else to take over. Let any staff you may have take on more responsibility and start to ease yourself out of the day to day running.

This is a huge topic in its own right, but one worth thinking about.

Setting up a new business is a huge step in any one's life. Proceeding with care and caution are two key factors. As so many businesses fail, it is best to look carefully at all the money being spent and to try not to overstretch the business. However, a successful business can be a real joy. It can be very rewarding both in terms of satisfaction and financially, and can be the opportunity of a lifetime.