If you are considering setting up a small business, it can be a scary decision. Whilst the potential profits can be huge in time, there are also a number of things you should consider before going ahead with your venture. The following are ten tips for small businesses which can help you on your way to success.
1. Business Plan
One of the first tasks you should carry out is to prepare a business plan. This is a vital document as it can be used by you and your team to check that you keep on course. It is very easy in the excitement of running your business to get sidetracked. A well prepared business plan is a reference document for you to use now and in the future. If you are looking for finance for your business, the bank manager or other lender will need to see your business plan, so ensure your financial forecasts are realistic and verifiable.
Clearly describe what your business offers in the way of products or services and what it provides to its customers/clients and investors. Include an executive summary and marketing and sales strategy. Include information about your company’s management and staff and your plans for future recruitment. You should also incorporate details of your production equipment (if applicable) and the management information technology and IT equipment used in the business.
Take your time to write your business plan to ensure you leave nothing important out of the document. Ensure it looks professional in both content and layout, and is comprehensive and concise. Make it a positive document and it will be your friend for years.
2. Naming your business
Choosing a name for your business is important. If you are a Sole Trader, it is common to just use your name, sometimes followed by your trade, e.g. J Jones Plumbing Services. However, if you are planning to register as a limited company, you must register with Companies House. A number of restrictions apply – no reference to government departments, the name must be unique and not include any obscene or risqué words. A limited company’s name will end with ‘Public Limited Company’, ‘limited’ or ‘Ltd’. Limited Liability Partnerships will end with ‘limited liability partnership’ or ‘LLP’. Ensure that you complete a company name check before choosing your business’s name.
When naming your business, try and give an impression of what the company offers, e.g. Alice’s Aquatics. The name should be short and memorable but not controversial in any way. Choosing a unique and unforgettable name can really help to define your business image and brand. As well as naming business do ensure that the business location is right for both employment and the product/service you are distributing
3. Product Suppliers
Sourcing suppliers for the products you will sell or manufacture is another vital part of your business. Work out approximately what you are prepared to pay for goods to achieve your desired profit margins. Look in trade magazines, directories or the local Chamber of Commerce to source suppliers of the type of goods you need. Also, ask family, friends or other businesses to recommend suppliers they have used. Shop around and do not accept the first offer you receive.
The market is competitive and you can often be offered a better deal if you play it cool. Visit suppliers and ask to see their warehouses and client lists. Ensure that they will be able to meet deadlines and carry out credit checks. Your relationship with your suppliers should be close and trusting on both sides. You can invite your preferred supplier to your premises to look round and attend relevant business meetings. This will make them feel an integral part of your business.
4. Staff Recruitment
Initially, you may not need many staff, but as the business grows, you will need to add to your workforce. Recruitment is a specialist task and can appear onerous for small business owners. If your business is not large enough to have a dedicated Human Resources (HR) section, you have a couple of options. You can enroll on a recruitment course or hand the job over to a professional recruitment agency. You will obviously want the most talented staff available, so advertise on a number of specialist recruitment websites. Be sure to include a closing date.
When you receive the applications, you must read through them and produce a short list of candidates for interview. Interviewing techniques are important to bring out the skills and personalities of the candidates, and will help you choose the best person whose talents and personality will fit in well in the workplace. A small business will often require their staff to multi-task, so ask the applicants if this is something they are comfortable with. You may be surprised that many interviewees are keen to expand their experience, rather than doing the same thing every day. Recruitment can be a time-consuming job for the small business person, but it can be time well spent if you appoint the right staff.
5. Tax Commitments
As a company owner, you must make yourself aware of all the tax commitments you are legally responsible for.
In the United Kingdom, taxes are as follows:
Corporation Tax – As a small business, you are legally required to pay Corporation Tax. The rate will vary dependent upon the profits the business earns. There are two rates – ‘Upper Rate’ at 24% on profits exceeding £1.5 million, and ‘Lower Rate’ which is charged at 20% on profits less than £300,000. ‘Marginal Relief’ can be claimed on profits which fall between these two figures and an intermediate rate will apply. Companies usually employ an experienced Corporation Tax agent to deal with the calculation and prompt payment of this tax to Her Majesty’s Revenue and Customs (HRMC). Details of the agent used must be supplied to HRMC.
PAYE – The owner or director of the small business must ensure that the correct deduction of income tax is made by all employees using the PAYE system. This also includes National Insurance Contributions (NICs).
Income tax rates are:
- Earnings of between £1 and £34,370 – 20%
- Earnings of between £34,371 and £150,000 – 40%
- Earnings of over £150,000 – 50%
Income tax is payable on all earnings above the tax allowance – currently £5,564.
VAT – A company is required to pay Value Added Tax (VAT) on profits exceeding £77,000. You must notify HMRC as soon as this figure is reached as VAT will be payable from that point onwards. It is therefore vital to identify which goods and services you deal with qualify for VAT.
6. Responsibilities to your employees
Your business will succeed or fail by the performance of your staff. Therefore, it is very important to provide them with a good working environment, work-life balance, training and motivation. It is also vital to understand and meet all your legal obligations. Be aware of all the employment legislation in place, including unfair dismissal and discrimination in the workplace. Provide non-monetary incentives such as frequent communication with management to discuss staff roles and their value to business, flexible working and regular team meetings to give staff a voice and make them feel integral to the company’s success. Update staff regularly with company news and achievements. Performance can be improved significantly using these simple tools.
7. Website and SEO Marketing
You will wish to market your business aggressively to get it off to a great start. You can use traditional advertising in newspapers, flyers and posters, especially if your business is geared to local customers. However, more high tech marketing techniques are preferred by many businesses. A company website is essential from the start. Websites for small businesses should be simple and attractive to potential clients.
Choose a CMS which is search-engine friendly to enable crawlers to catalog and grade pages. Provide a site map to make the site easy to navigate. Use local search optimization to target potential customers to your specific products or services. Keywords are important but use them in moderation as overuse can result in them being ‘labeled’ spam by search engines. Contact Google to see if you can register your business with them. Ensure that your content is relevant and interesting, and set up a review page for customers to comment on their experience with your company. It is important to have consistency on all the marketing media you use, including your logo, company name, address, contact details, listings and social media profiles to enable your brand to be easily recognizable.
Social media such as Facebook and Twitter are used by millions of people daily, and linking your website to these sites can promote your business as customer friendly and with a personal touch. Think about using these sites to advertise promotions or events. Potentially, your business can significantly increase by utilizing social media making it a valuable tool for your new company.
These should be analyzed regularly as expenses can easily and quickly get out of control. This is a duty which is usually performed by your finance director, if you have one. Monitoring the revenue accounts will determine how the business is performing. However, search for hidden expenses which you can reduce, e.g. utility charges. Leaving lights, heaters and office equipment on 24/7 can add a significant amount to your utility bills. Also, the expenses you pay for travel, subsistence, parking etc should be closely monitored. These journeys could be doubled up or dealt with electronically, e.g. meetings can often be arranged using teleconference facilities.
There are also inevitable expenses related to your products, services, salaries etc. These tend to be variable, e.g. salaries usually increase annually, and unit cost of products may rise and fall over time. Monitor regularly to detect trends in your expenses and you can adjust them accordingly.
9. Proposed new state-funded bank
The UK government has recently announced proposals for a billion pound boost for small businesses. The new bank will underwrite around ten billion pounds of lending to small businesses. These proposals are similar to those in operation in the US, Germany and Ireland.
The plan is to fund the new bank with one billion pounds of taxpayers’ money in order to try and break the stranglehold of the big four banks. The bank will offer credit through providers including the Co-op. The original plan was to form a business bank using existing initiatives. The private sector will contribute a similar amount which will allow the new bank to underwrite approximately ten billion pounds worth of lending. Although small businesses can look forward to an easier way to borrow money, the bank will take up to eighteen months to ‘open.’ It is a fact that around one third of business loan applications are currently refused. A bank which will start with a clean balance sheet and authorization to lend to small businesses quickly has been needed for years, and it seems we will finally have one.
10. Young entrepreneurs
A government initiative for loans to young entrepreneurs was also announced recently. This is aimed at 18-24 year olds with business ideas and offers them £2,500 to start up their business. The Start-Up Loans Company is the brainchild of Dragon’s Den judge James Caan and the loans will be given to young business people through providers including The Prince’s Trust and Young Britain. Mentoring is also offered under the scheme.