Tim Campbell’s 12 steps to running a business – part 1
In the first of a four part series, the Apprentice winner and Bright Ideas Trust founder shares his essential tips for starting a successful business in 2015
1. What’s your bright idea?
If you’re at the stage where you’re struggling to set up your business, and if you haven’t done it before, it’s worth taking a little step back and thinking about what you want to achieve and if becoming an entrepreneur is right for you.
Business is the conversion of a market opportunity into cash in the bank and it’s your business idea that will make that market opportunity profitable.
Although you may think that everyone in business is trying to achieve the same aim, in reality there are different destinations:
The idea here is that the business is created to support and enhance the owner’s lifestyle. Key objectives revolve around independence, flexibility, being your own boss and turning an interest or a hobby into a career. These type of businesses typically rely on the founders’ skills, personality, energy and network of contacts. Many lifestyle companies are one-person service businesses such as consultants, tradesman or retailers. Success is often measured by an increase in satisfaction and the owner’s overall quality of life rather than simply making money.
Equity or exit-driven business
This is where the owner or owners intentionally set out to create a business as an asset with real value so that it can be sold – either partially or as an entire business – to others in return for a significant gain. Success is defined as the increase in value of the business over time and. when sold, it will yield a return for its owners.
Register your company with a formations agent
Social businesses aim to do good for others in their community or society. The main difference between social businesses and other businesses is that the profits from these type of ventures are intended to be ploughed back into the business rather than going into the pockets of the owners. Social businesses are really like any other form of commercial business except they have a clear social or environmental mission beyond making a return for shareholders.
You can combine different types of businesses but you will need to make sure that your business plan is fundamentally sound. Whatever your business idea, you will need to be very enthusiastic and remember that, in order for it to be a success, it will need to turn a profit.
New businesses launch everyday which provide similar products or services to those already on the market, but their USP is having found a better or more innovative way of doing it than competitors. Similarly, great business ideas can often fail because they’re not thought through properly or the implementation and operation of the business has been poorly managed.
2. Research, research, research
At the Bright Ideas Trust we receive many applications from prospective entrepreneurs who are keen to start their own business. Many of these applicants have fantastic, clever and unique ideas and we really enjoy seeing how we can help turn their dreams into reality. But the main area where our applicants fall short is in their research – not only into the business idea itself but also into the marketplace,competitors, suppliers, set-up costs and pricing.
In today’s world, research is so much easier than it was a few decades ago. The internet is a fantastic resource and by being creative with your search terms, there is a wealth of relevant information available. If the term to ‘Google It’ is not in all leading dictionaries, it should be! (I must Google that later and check it out!).
A surprising number of start-up’s have not even researched the proposed name of their business. A business name is a vitally important part of any new company and can either describe the product or service or have a unique, quirky meaning that will help prospective customers to remember it. Either way, your business name should be original; the chances of your idea succeeding are much reduced if there are other businesses offering the same or a similar product or service with the same name.
Additionally, the name you choose for your business should match the domain or website that you will need to promote the business. It makes sense therefore to research if the name is available and what other similar names are being used – domain registrars and Companies House are two vital resources.
Researching your competitors is also vital too as it will help you to find a point of difference that will help set your business apart and help you to qualify your pricing strategy. Every business has different costs based on structure and operating but analysing competitor prices will help you to understand the average market price for your product or service and therefore help you to arrive at a fair price for your offering.
As a start-up, you can never do enough research and you should use some of your findings to help build your business plan, although it’s worth noting that you should only use research which is highly relevant and backs up your points. One business plan we saw was over 160 pages, much of it research which obscured the important key facts!
3. Know the difference between profit and cash
This is a really important distinction to understand.
In profit terms, we all know that if you make or buy an item for £100 and then sell it for £200 you make £100 gross profit, but what if you asked the buyer of your product or service to pay you in 60 or 90 days’ time, and what if they were late paying your invoice? Your profit and loss account may still be showing a profit but what about the wages, premises rent, electricity and telephone bills that you will have to pay during those two to three months? Unless you can find some other source of funds, you will not have the cash to cover these costs even though you have made a profit, and you could be out of business!
So from an accountant’s point of view, profit is only looking at the revenues coming into your business and expenditure going out over a period of time. It’s important to know this because you will be required to report to the tax authorities in profit and loss terms.
Cash is a much more realistic way of looking at how your business is doing financially as it looks at the actual movement of money going in and out of your business and exactly when this movement occurs. Cashflow gives you an understanding how your business is performing and offers a real-time view of whether your business is prospering, just surviving or in danger of going under. You need cash in your business to pay your bills and you should plan to build up a cash balance so that you are in a positive cash flow situation.
You will often hear the term ‘Cash is King’ and, while a common business cliché, in today’s word the saying has never been more accurate. If you manage your business from a cash perspective and keep it cash positive and build up a reserve you will not go far wrong.
Tim Campbell MBE is founder of the Bright Ideas Trust. He will be sharing nine more steps to help you start and run a successful business later in the month, watch this space…