The disruption caused by COVID-19 may be a technology turning point for many businesses and specifically an acceleration in the adoption of Artificial Intelligence (AI). Business owners and leaders are seeking fast, accurate insights and analytics to help them make better decisions in the rapidly evolving business landscape. Leaders have been forecasting scenarios such as: Read More…
So, you’ve left your job to start a business… now what? What to know about the first year
Mon 6 November 2017 - 7:11 amExpert | Featured
The first year of a new business is critical, with repeated evidence that around one third of businesses fail during this phase. However, equipped with the right knowledge and education, you can get off to a strong start.
Whilst the focal point for the early months should ideally be on rapid income generation, new business owners are often preoccupied with basic establishment challenges – such as the name and legal structure of the business, the office set-up and partner or staffing arrangements.
Not everything can be perfectly in place before you launch your business. However, many of these operational factors can be explored well before your official start-date to give you the maximum runway to focus on getting money in the door.
Beyond these operational areas, the things that are most likely to derail a new business are emotional in nature. Running your own business for the first time is a leap of faith few people understand until they have lived it.
Resigning from your day job can create a high – as can the rush of bravado and passion you experience when you fully commit to your new path.But you need to brace yourself for the fact that high can drop quite rapidly because you are on your own and things are very different. How do you contend with suddenly spending much of your day working alone or in a tiny team after being in a large corporate environment surrounded by staff? In this early stage it is common to start questioning “can I pull it off?”
Forewarned is forearmed. Here’s some perspective on the challenging areas that are likely to come up in the first few months:
- Should I work from home? Consider your immediate goals before committing. Whilst it is great to be able to keep your costs lean in the early stage, working from home can be a false economy when it comes to maximising performance. This set-up works best if you don’t need customers or staff coming to your office. Home life can be very distracting, especially if we have young children we are sharing the space with. Getting up on time and dressed for the office can also be an important ritual that gets us into the right work frame of mind. An office space conveys an air of legitimacy that can be important for our own self-confidence and for our suppliers, customers and staff. Virtual offices and collaborative workspaces are increasingly popular as a means of having the best of both worlds – a lean set-up, with the added benefit of social contact and networking. However, as the business scales we will be likely to require our own space. Timing is very important when it comes to the when and how of negotiating a lease – or the economics of buying a property versus leasing – and is something you should talk to your accountant about.
- What do I call my business? People can get lost in this area – but it is important to get it right from the outset, particularly as many businesses are now largely digital and online naming real estate can be in scarce supply. Using your own name in the business can be limiting down the track if you intend to sell or expand the business taking in other partners. It can also make the business sound small. Even the name of the entity behind the business needs to be considered as this is what potential suppliers, investors and other important financial stakeholders will see. This needs to be equally appropriate and inspire confidence. One lady I worked with had a trading entity called “Mumma needs new shoes” which didn’t exactly inspire confidence in the substantial nature of the business.
- What legal structure should I choose? In the rush to get a business off and running quickly and inexpensively, new business owners often simply open a bank account and go – thinking they can work out the details later. The challenge here is that when you grow, you may need to restructure and that can be an expensive headache. It pays to get the right advice early including the best legal structure for your business. This will depend on who owns the business and how big your growth plans are. Shareholders and partnership agreement are also critically important – these are like a pre-nup and they consider what could go wrong in the worst possible scenario. It is much better to agree on these points in a calm, high trust situation, than be trying to negotiate these points in the midst of a relationship crisis with your shareholders or business partners.
- When should I hire my first employee? You must pay yourself first and if you can’t, don’t employ others. New business owners often hire employees in the wrong order (I learned this the hard way). Make sure you don’t bring on an expensive hire and end up relegating your own time to the back of house tasks or admin – whilst the other person is out building the face of the business and doing the work you would be best placed to handle in this early period. Write a list of everything you are doing and work out the lowest level tasks that you can delegate. Your first recruit should free you up to do the highest value work. In early stage, many business owners can afford an admin person.
- Should I worry about trademarks, patents and IP? Gaining a trademark or a patent can be important if you are dealing with ground-breaking technology or innovations. However, it is a very expensive process to go through upfront. It’s important to be very clear about what it is you want to protect and whether that is likely to evolve or change. Remember: trademarks are only as good as the money you have to fight any legal challenges. If you think your business name has a value and you want to work on building that brand then go ahead – but make sure a name change is not on the cards in the near future. Fundamentally, the fact that you can prove you have used a name is most important and is a form of protection in itself
- How do I write a business plan? I am not a big fan of the classic 5-year business plan that sits on a shelf and nobody sees. These days everyone is working to a much shorter runway, and a 12 month, highly visual short sharp document will serve you well in the early stages. This does not need to be a huge academic exercise – it should mostly encapsulate the purpose of the business and what the end goals are. Be clear on the targets and KPI’s you want to achieve – this keeps things real. Solid financial data with realistic 12 month forecasts are important – but don’t be afraid to adjust these as you progress and test the market. The four areas you need to fully understand and articulate in the plan are the financial strategy, the operations strategy, the HR strategy and your Sales and Marketing. If in doubt, ask a friend for a copy of their plan so you can see how it is laid out.
- How do I work out my financial strategy? Of course, projecting further ahead than 12 months is an important part of determining whether to pursue a business. You need to know your business can be sustainable and will deliver the financial returns you are seeking in the longer-term. Have a Plan A and Plan B when it comes to revenue generation. Some people try to maintain a part-time income from another source in the first few months of a business as a fall-back option. My experience is this juggling of two hats can give you a split personality and my preference is for owner to be 100% in it and focused on building that business. However, some people have a lower risk profile and prefer to build the business slowly as a side-hustle whilst maintaining a part-time role elsewhere. This can work, but it is a slower build.
- Who should manage my books? It’s important to keep your financial future under your own control, and I counsel business owners to take an active interest in the numbers and to get as much experience as possible running their own books before they outsource to a book-keeper. This way you are not only well informed, you also can keep your team accountable. There are many fantastic tech products which can make this process simple and quick. As a minimum, make sure you know how to log into your own financial files and can read your business P&L statements. Your Balance Sheet is a critical financial statement which many people ignore. If the information in your Balance Sheet is wrong the information in your P&L will be as well.
- Are there any financial safety nets I can set up? Income protection insurance is important to consider when you have a business which is solely reliant on you and your time to generate income.
- How can I keep my stress levels under control? When you start having doubts (which is common for all business owners) you are often confronted by the need to keep a brave face for customers, staff and the outside world. Projecting any doubts onto these stakeholders can jeopardise their support. Likewise, you don’t always want to burden your close friends or family with your doubts or emotional reactions to going out on your own – and often they don’t understand or give you inappropriate advice. Try to create a safe place where you can talk openly about your feelings and experiences. This can be an entrepreneur’s group, or simply getting together in a café once a week with some other SME owners. Down the track, there are five more formal sources of support you can consider including a business coach, a mentor, educators or trainers, facilitators and consultants. I will talk more about that in a future post.
[Editor’s note: This is the third in a 12-part series on the secrets to building and scaling a successful SME by serial entrepreneur Tanya Titman]
About the author
Tanya Titman is the founder of SME focused accountancy practice Consolid8 and Female SME growth program Acceler8. She was recently interviewed by Dynamic Business for the feature article Financial literacy, not gut feelings, key to female founders scaling past the $1m mark.