STARTING A BUSINESS A FINANCE & MANAGEMENT REPORT BUSINESS WITH CONFIDENCE

STARTING A BUSINESS
A FINANCE & MANAGEMENT REPORT
SR42 | SEPTEMBER 2013
BUSINESS WITH CONFIDENCE
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FOREWORD
Robert Russell
Technical manager
T +44 (0)20 7920 8417
E [email protected]
Many dream about starting their own business, but few have the
courage, perseverance and the appropriate appetite for financial risk to
be able to work for themselves.
There are a large number of reasons that people want to work for
themselves and perhaps the biggest is that it enables you to have more
control over your life. Hopefully, it also includes being able to spend most
of your time working on something that you really like.
It won’t be easy, however, as most entrepreneurs and self-employed
people will tell you, but it will be rewarding and even if you encounter
problems along the way, the experience will be satisfying and it will
enhance your skills and abilities.
We in the ICAEW Finance and Management Faculty are very keen to
assist business growth. We’ve produced this report to highlight the issues
which you might face in the first year of operating a new business so that
you might be in a stronger position to know how to deal with them.
This report is aimed at those seeking to work for themselves, but it
should also be of assistance to those looking to improve their business
performance. We’ve covered areas of concern to both new and
established businesses and to those advising them including marketing,
employment law, funding sources for businesses and the basics of
establishing presence on the web.
We’ve also included comments from four entrepreneurs who have
started their own businesses and who provide by example or advice some
useful tips on priorities and pitfalls on the way to success.
Armed with this report, you should be better prepared to take that
initial step and set up on your own. Please let us know if you do; we’d
love to hear from you about your success!
Rick Payne
Finance direction programme
T +44 (0)20 7920 8451
E [email protected]
Caroline Wigham
Services manager
T +44 (0)20 7920 8508
E [email protected]
This special report is one of a series
produced for faculty members. In each
report we give a review of a topic within
finance and management, offering both
analysis of the relevant theory and a
review of the practical application of
appropriate management techniques.
If you have any comments or suggestions
for future topics, please contact
[email protected]
The information contained in this and
previous issues of this publication is
available (to faculty members only) on the
faculty website at icaew.com/fmfac
F&M SPECIAL REPORTS
... are produced on behalf of the faculty by
Silverdart Publishing
www.silverdart.co.uk
Contact: Alex Murray
[email protected]
© ICAEW 2013. All rights reserved. The
views expressed in this publication are
those of the contributors; ICAEW does not
necessarily share their views. ICAEW and
the author(s) will not be liable for any
reliance you place on information in this
publication. If you want to reproduce or
redistribute any of the material in this
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permission in writing.
STARTING YOUR
OWN BUSINESS
Robert Russell
These reports are produced quarterly and are sent to members of the Finance
and Management Faculty. You can join the faculty at icaew.com/fmjoin or call
+44 (0)1908 248 250. Cost for one year is from £85.
ISBN 978-0-85760-933-5
This report is issued without charge to
members of the Finance and
Management Faculty.
Robert Russell is technical manager of the
Finance and Management Faculty.
[email protected]
icaew.com/fmfac
STARTING A BUSINESS
CONTENTS
02 INTRODUCTION
WELCOME AND CONGRATULATIONS!
Michael Izza, ICAEW
BUSINESS FUNDING
FINDING THE MONEY THAT WILL GET YOUR BUSINESS
GOING
Hugh Parnell, NW Brown Group
05 NETWORKING
WORKING THE NETWORK – MAKING THE MOST OF
YOUR CONTACTS
Alysoun Stewart, Oxygen8 Solutions
06 SALES AND MARKETING
LEARNING THE ART OF SALES AND MARKETING
Kim Tasso, independent consultant
08 RESEARCH AND ANALYSIS
DEVELOP YOUR IDEA BY TESTING IT THOROUGHLY
Dr Stephanie Hussels, Cranfield
10 CASE STUDIES
VOICES OF EXPERIENCE PROVIDE TIPS FOR START-UP
BUSINESSES
Alastair Mitchell, Huddle; Abu Wright, Spabreaks.com;
Clare Murray, CM Murray LLP; and Tom Allason, Shutl.
FINANCE & MANAGEMENT SPECIAL REPORT SEPTEMBER 2013
15 TECHNOLOGY
TECHNOLOGY FOR THE BUSINESS START-UP
Joanne Eccles, Forum of Private Business
17 EMPLOYMENT LAW
NAVIGATING THE HUMAN RESOURCES QUAGMIRE
Jeremy Harris, Brian Harris & Co
19 TAX AND REGULATION
THE TAX IMPLICATIONS OF SETTING UP YOUR OWN
BUSINESS
Anita Monteith, ICAEW
23 THE BUSINESS PLAN
A BLUEPRINT FOR WRITING A SUCCESSFUL
BUSINESS PLAN
The Start Up Donut
26 WEB RESOURCES
FINDING THE BEST SOURCES ON THE INTERNET
28 FURTHER READING ON STARTING A BUSINESS
BOOKS, JOURNAL ARTICLES AND MORE ...
29 PREVIOUS FACULTY SPECIAL REPORTS
REPORTS PUBLISHED IN THE PAST NINE MONTHS
01
WELCOME – AND CONGRATULATIONS!
You are about to embark on a great adventure setting
up your own business.
Small and medium businesses are the backbone of
the UK economy; as one of them you’ll be playing
your part in powering the UK’s growth. As your own
boss you will face new challenges and enjoy new
freedoms as you join the other 4.8m small businesses
in the UK. More than anything, we want you to
succeed.
Reading this report should provide you with a good
start. The 2013 FT Guide to Business Start-ups found
that those new businesses seeking help and guidance
at an early stage were much more likely to succeed.
Our 140,000 ICAEW Chartered Accountants are
available to help.
Our members advise 1.5m businesses in the UK
alone, helping them to make good decisions, become
profitable and comply with the law. Many offer a free
advice session to start-ups through our Business Advice
Service (businessadviceservice.com).
The ICAEW Finance and Management Faculty, one
of our specialist faculties, has compiled this report to
assist you with your new venture. We hope that you
find this useful and wish you the best of luck with your
enterprise.
Michael Izza
Michael Izza is chief executive of
the ICAEW.
[email protected]
BUSINESS FUNDING
FINDING THE MONEY THAT WILL GET
YOUR BUSINESS GOING
All new businesses will require some level of funding. Hugh Parnell discusses SMEs’ (small
and medium-size enterprises’) access to various sources of money against a background of
‘austere’ times and strict lending policies by banks.
Every day, headlines talk about government policies
to encourage British high street banks to get back to
‘the old days of lending’ to ‘get the economy moving
again’. It is true that bank lending to business has
dropped like a stone, from an average of some £7bn
per month in 2007 to net negative in 2012 (ie, gross
lending was exceeded by repayments). The ‘crisis’
(Northern Rock, Lehman and what followed) has left
banks re-building their balance sheets and being
ultra-cautious. The Funding for Lending Scheme,
Enterprise Finance Guarantee, Regional Growth Fund
et al are not yet re-invigorating UK banks into
enthusiastic lending for growing British businesses.
But we wouldn’t of course want them to make any
more ‘risky’ loans now, clearly!
So where can new or growing businesses go to find
the external finance needed to start up or expand?
This is an enormous topic but a few outlines below
might encourage businesses not to despair. At
bottom it requires an objective review of the
characteristics of the business, what the funding is for
and for how long and the level of risk associated to
the funder.
Hugh Parnell is a director at NW Brown
Group
[email protected]
02
Funding
To start, for some businesses, with assets which might
rank for security and with reasonably certain future
cash flows, going to a bank might not be totally
fruitless. The devil is in the detail but:
• if you have a relationship with a bank; and
• if the funding is for working capital or for an asset
purchase; and
• is proportionate to the scale of your cash flows; and
• the business is in a sector perceived as relatively
stable – you should definitely try to talk with your
existing and possibly other high street banks.
It is frustrating that one hears of cases where, despite
all these factors being present, banks are still turning
down lending applications. The advice is then, go to
the bank next door, possibly a European-based bank,
and keep trying. Terms may be harsh, in particular
arrangement fees, but with interest rates at
historically low levels even if the bank margins are
rising you may find this option is available
somewhere.
If you have tried to borrow or are not in the status
above (assets, predictable cash flow to service debt),
what are your next options? Grant funding for certain
activities is another piece of government policy
support, immense in its diversity but clearly attractive if
your business happens to conform to the exact policy
prescript of a particular UK or EU grant. To explore
what grants are available it’s best to go online, look
initially for official advice sites and, if appropriate, seek
icaew.com/fmfac
‘ To explore what grants are available it’s
best to go online, look initially for
official advice sites and seek advice from
a grants expert ’
advice from a grants expert. Your accountant may be
able to help or to point you to someone who can.
Now what? Banks say ‘no’ and the growth you are
planning does not fit into any of the grant bodies
you can find; what should an ambitious, wellplanned, well-managed growing enterprise do to
fund its growth? The answer is likely to involve selling
equity, a stake in your business, in return for capital
to enable you to grow it. As is often said, ‘there is no
shortage of money out there’, given the unattractive
interest rates available to investors in many
mainstream opportunities, so there must surely be
capital looking for good value-creating investment
prospects.
In essence, there are three phases you must go
through:
• analyse your business, the investment case, how
much capital, what for, over what time frame, to
achieve what in terms of value growth, with what
level of certainty and against what potential risks?;
• review the range of alternative types of investors –
scale, patience, risk appetite, experience, structure,
tax incentives, passion; and
• kiss a lot of frogs until you find one or several who
fit your particular growth aspirations.
Business growth
Growing a business is a never-ending task and those
involved, from the inside, may not have the
experience of having to go out to third parties to
access new capital. This is especially true if yours is a
start-up or relatively young enterprise, perhaps with
an innovative technology or market-changing
invention. Your expertise may be in the underlying
inspiration, the science, the ‘clevers’ but unless you
have a rich family, loads of friends with more money
than sense or a fan club willing to back you in your
enthusiasm to become an entrepreneur (if they know
what that means), you are likely to have to face the
journey described above – analysis and planning,
identifying potential investors and frog-kissing. Even
for more established businesses, this process may
need to be adopted too.
The ‘3 ‘f’s’ – family, friends or fans (fools), are the
way many small businesses actually do get their
growth capital. That has been the basis of many,
ultimately huge, success stories, but the journey from
idea to success can be very long and secondly not
everyone succeeds at all. So the risk posed to these
‘f’s’ is disproportionately huge and you should treat
taking their money with enormous respect. Your
dream could lose their accumulated savings and leave
nothing!
Analysing your business sounds immensely dull –
surely there is no time to introspect, you have a
business to grow? Why would you want to be
FINANCE & MANAGEMENT SPECIAL REPORT SEPTEMBER 2013
distracted from conversations with customers in order
to ‘write a plan’ or similar? Well, indeed, if you do
actually have customers, business-to-business or
business-to-consumer who are already paying for
your product or service, then you might want to
think very seriously if they are not the answer to your
growth capital needs. ‘Boot-strapping’ your growth
by selling more goods rather than trying to sell
equity in your business would always seem very
attractive and if you could raise enough capital from
sales why would you ever bother with third party
capital?
Internet-based or software firms, where much of
the product is created by the firm’s staff intellectually
with little input material required and only wages to
pay, have been very successful in getting a product to
market and growing as demand picks up, using
revenues with sensible credit terms to stay ahead of
the cost growth and never needing external funds.
Even if at some point such companies need a ‘capitalboost’ to engineer a new product line or move
overseas, they often by that point fulfil the
characteristics of established, foreseeable revenues etc
and might even find a bank.
Catch 22
Many companies, however, are in the classic cashflow position that, in order to grow, they need
money up-front before a product or growth market is
sufficiently mature to generate revenues – cash out
before cash in! In the past and still in some other
countries this might have been traditional bank
territory but today this ‘growth capital’ catch 22 is
likely to fall into an equity funding route.
In this position, analysing a business is not so much
to do with what your accountant might usually do, as
it is little to do with historic financial accuracy or
updating an asset register! It is vital that you look at
your business from the perspective of a potential
investor. What an investor will want to know is all
about the future, the prospects, the risks, the
intangible values which should create value over
time, how the team will deliver the growth and what
may be required if a plan, however well conceived,
does not turn out as predicted. Will a second round
of funding be necessary, thereby either requiring him
to put more money in or diluting his position if
others do? What are the risks of your growth plan – is
it dependent on regulatory or competitive factors,
does a technology need to be proven, will you be
creating or entering a new market?
Depending on the different types of investors,
other considerations may include the tax status of
your company (eg, above or below 250 employees),
the nature of your board of directors and shareholder
governance, your existing balance sheet (external
03
‘ It is essential that before you take in
external capital you do disclose fully all
relevant facts including possible risks ’
debt?), any liabilities you have accrued which might
derail progress in future, the need to recruit new staff
to deliver the growth plan and whether you operate
mainly in the EU or not.
Investments
In preparing for an external investment it is usual to
seek professional advice and advisers will probably
help with collecting necessary due diligence and
other material to disclose to interested parties,
probably under confidentiality agreement. Again,
contrary to possible natural inclination, it is essential
that before you take in external capital you do
disclose fully all relevant facts including possible risks.
Failure to do so can lead at worst to prosecution of
directors, so it is best to reveal all, at the appropriate
time, rather than withhold information which might
be relevant to an investor’s decision.
So much for analysing and presenting your
business – what are the alternative types of investor
whom you might approach? There is a wide range
but in broad terms when looking for growth capital
by selling shares in your business there are four broad
categories (see Box 1 – Investor categories, below).
As noted below, these different investor categories
each have different priorities in terms of size, timespan, mode of operation (more or less active) and
other criteria. It is critical that you spend as much
time reviewing the track record and credentials of
any of these external investors before doing a deal as
they are likely to spend on reviewing your business
and growth plans.
And then it’s all about kissing frogs. You can, of
course, engage agents and professionals in corporate
finance to help you with this process of accessing
growth capital; there is a cost but you can decide if
that is worthwhile, depending on your own
experience and requirements. You should also do as
much research into the process as possible – webbased (eg, www.greatbusiness.gov.uk/financing-abusiness) and books. One recently published book I
can propose is Show me the Money by Barrell, Gill and
Rigby which goes through the entire process of
raising growth finance in a thorough and
entertaining way.
Good luck!
BOX 1 – INVESTOR CATEGORIES
• Business angels, high-net-worth individuals or
groups (business angel networks or syndicates)
for amounts up to say £1m. They mostly want to
buy, grow and then sell your shares.
• Venture capital funds for £2-10m, professional
managers of others’ capital also seeking to make
a capital gain, often within five years or less,
incentivised by fees and a share of the fund’s
capital gain.
• Enterprise investment scheme funds or venture
capital trusts – versions of venture capital but
with tax advantages for the investors, who can
invest serially and frequently target growth small
and medium enterprises.
• Other companies, corporates either with formal
corporate venturing teams or more generally
looking for additions to their strategy. Contrary to
many ‘David vs Goliath’ fears this category of
investors is growing and has much to
recommend it, if you can find compatible growth
objectives and agree sensible arrangements to
protect yourself from a bear-hug.
04
icaew.com/fmfac
NETWORKING
WORKING THE NETWORK – MAKING
THE MOST OF YOUR CONTACTS
In order to give your new business the best chance of success it is useful to build a
network of support – on both a personal and professional level. Alysoun Stewart
outlines some of the options available.
There are very few people in life who would pretend
that they did it on their own. I imagine that we all
come across the odd soul who is obstinately
determined to plough a lonely furrow but they are
turning their back on mountains of research which
clearly demonstrate the benefits of a strong support
network. At the very least, there are many times in
our business life when having someone who can
offer an external perspective and a sounding board is
invaluable.
Sources of support are numerous; so numerous, in
fact, that it is not always easy to know which way to
turn for the right advice at the right time. And
different things work for different people and in
different sets of circumstances, so knowing which
route to pursue can seem a bit of a lottery.
Mentor
From the perspective of the individual, having a
mentor from an early stage has been shown, in
research from Harvard Business School amongst
many others, to be the single biggest contributor to
career success. Choosing the right person is
obviously crucial but broadly speaking it needs to be
an individual who is capable of providing arm’s
length support that will afford guidance, enable
growth and development, increase knowledge, and
provide challenges and mental stimulation. There are
organisations that specialise in providing mentoring
services and the number of those providing
executive coaching has grown considerably over
recent years as recognition of the benefit of such
support has become more widely accepted.
Then there are plenty of business courses available,
from MBAs to entrepreneurship. While the debate
rages about whether or not entrepreneurship is a
subject that can be taught, there is no doubt that
there are many for whom the opportunity to spend
some time away from the day-to-day operational
demands, focusing on the more strategic (and
perhaps theoretical) aspects of the business delivers
huge benefits. There are also many courses available
on some of the practical and operational aspects of
business – from selling and negotiation skills to IT –
which can be extremely helpful, particularly in the
early days when the learning curve is steep and it
seems like there is everything to do.
Alysoun Stewart is a director of Oxygen8
Solutions Limited.
[email protected]
www.o8s.co.uk
FINANCE & MANAGEMENT SPECIAL REPORT SEPTEMBER 2013
‘ Networking is a valuable art to be learned
rather than something that you either do
as a natural or should just forget ’
And recognising that life in business can be a
lonely experience, particularly for those accustomed
to the collegiate environment of the professional
world, peer group networks and support have an
important role to play for those who want to find
somewhere to share issues and experiences in a safe
and trusted context. There are a number of general
and sector-specific networks that offer such support
to varying degrees of proactivity and involvement,
but a Google search will provide information about
what is available.
Networking used to be a bit of a buzzword but is
rightly accepted now as a valuable art to be learned
rather than something that you either do as a natural
or should just forget. It is not only about going out
and meeting people – web-based business and
professional networks such as LinkedIn, and the
extension of social networks like Facebook and
Twitter to business usage, now have an established
place as forums in which to do and win business. The
one certain thing is that the ability to establish and
use networks of every sort is crucial as a platform for
the development of any business.
Guidance
For the business itself, the most obvious source of
guidance is the non-executive director. There are
many examples of successful serial entrepreneurs who
have surrounded themselves right from the start with
individuals who bring a variety of skill sets to the
‘non-exec’ role and they attribute a significant
element of their success to this input.
There are also, of course, any number of business
organisations, from the obvious (Chamber of
Commerce, Institute of Directors) to chief executive
groups or local/sector organisations that may provide
very valuable input and/or support.
Do not forget the professional advisers –
accountants and lawyers – and independent business
advisers. Their support is not limited to technical
input but covers a vast array of consulting expertise
and direct commercial experience.
The key is to be very clear about the nature of
support sought. It is possible to waste a huge amount
of time and energy on potential sources of support
that prove to add no value. Careful filtering will
provide benefits that can make the difference
between success and failure.
05
SALES AND MARKETING
LEARNING THE ART OF SALES AND
MARKETING
Starting a business can present many problems but sales of a product or service are
essential if that business is to survive. Kim Tasso offers advice on how to sell successfully.
The idea of selling often sends shivers down the
spines of even the bravest entrepreneurs – with the
triple fears of embarrassment, rejection and failure as
the enemy. Yet when you realise that you have
probably already ’sold’ yourself and your idea in order
to secure business partners, finance, professional
advisers and sometimes even employees it puts things
into perspective.
The two most common mistakes for those
unfamiliar with selling is to avoid it altogether or to
plunge in with little preparation – and then quickly
retreat after a first spectacular defeat. There is no
reason why you should have studied marketing (how
to promote your product or service) so you may be
unaware that it can make selling (closing the deal) a
lot easier.
Who are your customers?
Within your business plan you will have identified your
target market. Do some more research to really develop
an understanding of who your potential customers are,
where they are, what channels they use (high street
shops, intermediaries, the internet etc) and the sort of
people that they are. Start up businesses will often
focus on a particular niche as it is easier and cheaper to
concentrate limited resources this way. The nature of
the marketing and selling tools you will adopt will
depend on whether your customers are primarily
consumers (B2C) or businesses (B2B) and their
particular attributes. In the modern age of content
marketing – where you attract customers to your online
‘ Do research to really
develop an understanding
of who your potential
customers are, where they
are and the sort of people
that they are ’
Kim Tasso is an independent
management consultant – further details
at www.kimtasso.com
[email protected]
06
presence rather than push material out to them – there
is great emphasis on developing detailed ’buyer
personas’ so that you understand the different people
that buy your products and services and how they are
likely to do so.
Buying processes
So you need to understand how customers buy your
type of product. Is there more than one person
involved in the decision? Do they have budget and
procurement procedures? Do they operate a preferred
supplier panel? Part of your initial research – which
involves you talking to and learning about potential
buyers without the pressure of needing to sell – helps
you understand the likely selling cycle. In complex
sales situations – when you are selling to larger
organisations – you will need to create a number of
contacts over a period of months and then may have
to go through a formal tendering process in order to
secure an order.
How marketing helps
With marketing you can create a brand that
differentiates your product (or service) and raises
awareness so that potential buyers are alerted. This
reduces the need for cold contact and will help
attract potential customers to you. Marketing
provides many tools for generating publicity or
placing advertisements in traditional channels and in
new social media.
You might develop a database or purchase lists of
prospects and design direct marketing or
telemarketing campaigns to raise awareness, generate
interest, make offers and establish contact with
potential customers.
If you are selling a product that has a relatively low
price it may be that you can avoid personal selling
altogether (aside, perhaps, from providing a
customer services helpline) – as all business is
transacted through your website. In this case you will
need to be familiar with search engine optimisation
(SEO) techniques to drive the right sort of traffic to
your site. However, if you need to get intermediaries
on side (for example, retailers, distributors,
independent advisers etc) or your customers are
organisations then you need to develop the skills,
systems and appetite for personal selling.
Set targets
You will know what income you need to generate. So
break this down into how many customers you will
need to win, each spending how much – on a monthly
or quarterly basis – in order to achieve this. Bear in
mind that no one achieves a 100% conversion rate and
that some buyers may take a lot longer to buy than
others. Now you should be getting an idea of how
icaew.com/fmfac
‘ Empathy is a key skill – it means seeing
things from your customers’ perspective
and adapting what you say and how you
say it to match their needs and style ’
many people you need to contact, to meet and to
convert to reach your targets. This helps you develop
an idea of your sales pipeline – how many leads you
need to generate at any time to generate the required
income in the future.
Sales training
I recommend that people invest in some form of sales
training. The more complex and expensive your
product – and particularly if you are selling intangible
services and/or to organisations – then the more
important this becomes. You could just buy a couple
of sales technique books or invest in a two-day
intensive course. It will be time and money well spent.
Good sales training will guide you to manage the
various activities and monitor your progress. It will
also help you achieve early success – which builds
confidence – and enable you to select appropriate
specialist sales resources once your business is more
established.
What is the need?
For any sale to take place the buyer must have a
need. Learning about the particular needs of each
buyer – and then matching the relevant features or
benefits of your product/service to those – needs is
the essence of selling. So during the initial stages of
any sale ask relevant questions and listen carefully to
the responses so that you tailor anything you say
about your product accordingly.
Strong proposition
You must be clear about your proposition. Can you
explain – in non-technical terms – what value your
product or service delivers? Too often selling fails
because the focus is on the features – eg, it has 40
gigabytes, 200 staff etc – rather than the benefits –
eg, it makes things faster and therefore cheaper, it
reduces the need for a separate department etc. It
helps if you understand how you alter your
proposition depending on the particular needs of any
buyer.
Sales meeting management
Once you have generated an opportunity, perhaps
through a telephone call or a recommendation, you
should plan how you will proceed. Think about what
you ideally want to achieve at a meeting – what you
need as the outcome – whether this is a signed order
or an agreement to a further meeting or a tender.
Consider how you will use the time available to:
● introduce yourself;
● get on as people;
● find out about the customer and his/her
organisation;
● identify their needs and concerns;
FINANCE & MANAGEMENT SPECIAL REPORT SEPTEMBER 2013
●
●
●
●
●
describe the product or service you are offering;
explore their use and purchase options;
understand the buying process;
deal with questions and objections; and
gain agreement to the next stage or a commitment
to buy.
It is all about people
Before someone buys your product or service, they
need to ’buy’ you. When you first come to make
contact with potential buyers you need to concentrate
on developing the necessary rapport and trust.
Empathy is a key skill here – it means seeing things
from their perspective and adapting what you say and
how you say it to match their agenda, needs and
style. It needs to be less about you and more about
them. This can be hard when you are excited about
your product or service as you may be tempted to
spend all the time talking about your interests, rather
than listening to what the buyer has to say. It is
especially important when there are numerous
individuals involved in the purchase decision – you
need to work on getting them all on your side, both
on an emotional and a rational basis.
The value of relationships
If your market is served by a small number of
intermediaries, then you must focus on developing
relationships with those people. The sales process is
similar except that you are trying to encourage them
to recommend your product or service to their valued
clients. So creating trust and adding value (perhaps by
introducing people to them that they find useful) and
a regular dialogue is important.
Once you have a customer you need to stay in
touch – find out about their changing needs, seek
referrals, ask for their input on new ideas and offer
further products and services. Many businesses find
that the majority of their income is generated by a
relatively small number of existing customers so
having a database to maintain this data and prompt
regular contact becomes an important marketing and
selling tool.
FURTHER READING
There is lots of introductory material (including
information on courses) on marketing and selling
at websites such as www.cim.co.uk and
www.businesslink.gov.uk
07
RESEARCH AND ANALYSIS
DEVELOP YOUR IDEA BY TESTING IT
THOROUGHLY
Time spent on research and investigation into the business concept will yield results
in the long term. Dr Stephanie Hussels explains the key areas to examine.
Entrepreneurs who want to establish and grow their
businesses need to understand the market in which they
decide to operate. It is virtually impossible to test the
feasibility and value of a business idea, and subsequently
develop a strategy to exploit it, without an in-depth
knowledge of customer needs and the direct and indirect
competition. Intuition and personal expertise provide
limited market information, which is often muddled by
strong personal bias and beliefs.
It is not surprising that entrepreneurs frequently
overestimate customer demands, underestimate
competitor responses and ignore negative market
information. Hence, it is often advisable to conduct
additional market research before starting a new venture.
When conducting market research, people starting a
business should first analyse the key features of the
product or service they want to offer. Subsequently, they
should identify the benefits of this product or service to
potential customers and, thus, define the target customer
group. Thereafter, they should assess whether there is a
market gap or not. Throughout, market research should
focus on the customers’ needs. Therefore, it is, for
example, important to analyse the direct and indirect
competition from the customer’s instead of the business’s
point of view.
To get an indication of the industry demands,
entrepreneurs should ask themselves how big the market
is and how much potential customers will be willing to
pay. Moreover, a realistic assessment of potential entries
into the market is helpful to get an idea on how
competitors will react to a new market entry. Will the
competition, for example, drop prices or introduce new
‘ When assessing the current
state of the industry, you
should start by considering
its key players, customers
and the sector’s future
growth potential ’
Dr Stephanie Hussels is a lecturer in
entrepreneurship at Cranfield’s
Bettany Centre for Entrepreneurial
Performance & Economics.
[email protected]
08
product lines? You should never assume that the market
will remain unchanged. Therefore, answers to the
following questions are also essential.
● How rapidly will a product life cycle evolve and how
will this affect the need for ongoing product
innovation?
● How sensitive is demand to environmental factors such
as legal change, demographics, and the business cycle?
● How will this affect the overall viability of the product
and strategy?
Market research can only contribute to the new venture’s
success if it is based on reliable and relevant market data.
Therefore, the choice of data collection methods is of
particular importance. Subsequently, five approaches are
considered in more detail.
Analysing the market at an aggregate level
When assessing the current state of the industry, you
should start by considering its key players, customers and
the sector’s future growth potential. Industry reports,
industry data sources published by industry federations,
public sector industry sources, as well as social media
sites, deliver a good initial source of information.
Depending on the nature of the business, both national
or local data and reports should be used as appropriate.
Benchmarking competitors
To gain a good understanding of the direct and indirect
competition, it is useful to look at other companies’
accounts (see Companies House,
www.companieshouse.gov.uk), use companies’ websites,
and examine their published reports. In addition, you
should refer to studies of companies in the popular
business press and in academic literature. Examine
industry directories in order to assess the location of
competitors, and track entry and exit rates (this gives a
proxy for survival and, subsequently, risk). Moreover, by
actually visiting firms and inspecting their products, levels
of service, prices, and their volume of business often
delivers very insightful data. Benchmarking competitors
can reveal the extent to which the market is supplied,
and provide an indication of consumer demand for your
product or service by assessing the successful
characteristics of other products and services. It also
highlights acceptable market prices and strategies, and
suggests reasonable volumes of business.
Benchmarking similar firms in other markets
This is a similar approach to benchmarking competitors. If
possible, choose firms that supply the same market gap in
another area. This approach can provide insights into
your own product characteristics, supply logistics, prices,
and volume of business. For example, when Tristram and
Rebecca Mayhew started GoApe!, the UK high-wire forest
adventure company, they used a parallel business in
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‘ Looking outside your own industry
sector can provide innovative ideas on
how to develop your own business ’
France to shape their service offering and to understand
the habits of their customers. Alternatively, you could
compare your business with firms in the same market,
but operating in other industry sectors. Looking outside
your own industry sector can provide innovative ideas on
how to develop your own business.
Direct contact with customers
To define and understand your target customer market,
talk to actual and/or potential customers. In doing so,
you can identify their key characteristics, such as age,
income, and geography, as well as buying patterns. In
addition, within reason, conduct customer surveys,
observe consumers’ buying habits, and/or create a focus
group to gain feedback on the suitability of pricing,
product characteristics, and the business model.
Pilot launch
Although it is not possible to know in advance whether
an idea can turn into a successful business venture, the
best way to determine whether a given idea is a good
opportunity is to go ahead and implement it creatively
with low levels of investment. By initially selling the new
product or service on a pilot basis to a small segment of
the market, you will gain the most reliable feedback on
pricing, potential sales volumes, key product features,
the consumer profile, and the business model. This will
help prove the concept and verify or refine the business
model. For example, Organic Apoteke, a UK
’cosmeceutical’ company based in Bedford, started
selling their products in independent boutiques. The
success of the initial uptake of their products helped
them to refine their product offering and to identify their
target customer group. The pilot required a relatively
low investment, but made it clear that the business was
for real, subsequently enabling them to sell their
products in Whole Foods Market and Macy’s stores
across the US and elsewhere.
In general, it is recommended that you use as many of
the above-mentioned research approaches as rigorously
as possible in order to derive a comprehensive
assessment of the market and subsequently identify a
profit opportunity and develop a strategy to exploit it.
While conducting market research, you need to be openminded and use your findings, where appropriate, to
alter the product or service you are offering so that it
matches the preferences of the target market more
closely.
To be successful, it may be necessary to gradually
change to the most competitive product style through
FINANCE & MANAGEMENT SPECIAL REPORT SEPTEMBER 2013
successive stages of market research, followed by
product alteration. This maximises the firm’s competitive
advantage.
Entrepreneurs conducting market research often face
the challenge of having limited financial and managerial
resources and time. Consequently, it is important to
identify in advance where the most pronounced data
shortcomings are and, hence, which areas need to be
focused on.
A sound market understanding should help you to
decide on whether to start a business or not. Moreover,
market research is essential when putting together a
business plan for the early years as it provides firm
foundations for the operating plans. It will also help you
greatly when trying to raise external finance. The more
robust the market research and hence the company’s
understanding of its external environment, the higher
the confidence of the external investor in the business
plan and, thus, the venture.
Market research alone is, however, no guarantee for
success. You can only know for certain whether the
venture will be a success once you have actually started
it. Entrepreneurs should think about what they are
willing to lose, rather than what profit they are expecting
to make when deciding on whether or not to start a
business. Although a prosperous venture cannot be
guaranteed, solid and well conducted market research
will contribute to its success.
FURTHER READING
● M McDonald, (2007) Marketing Plans – How to
prepare them, how to use them, ButterworthHeinemann.
● S Hussels, (2008) ’Organic Apoteke Case Study:
Being Spoilt for Choice is Not Always Easy’,
International Journal of Entrepreneurship
Education 6 (3).
● Hussels S, Molian D (2010) Live Life Adventurously
Go Ape Case Study Part A: Monkeying
Around?. International Review of
Entrepreneurship, 8 (4) 337-346.
● Hussels S, Molian D (2010) Live Life Adventurously
Go Ape Case Study Part B: Eight Hundred Pound
Gorilla?. International Review of
Entrepreneurship, 8 (4) 347-356.
09
CASE STUDIES
VOICES OF EXPERIENCE PROVIDE
TIPS FOR START-UP BUSINESSES
In these pages, four UK entrepreneurs who have set up businesses in
different sectors of the economy describe their paths to starting up and their advice
to those following their examples.
LIVING THE DREAM –
THE BUSINESS REALITIES
Alastair Mitchell of Huddle, a seven-year-old
technology-based company, sets out his top five tips
for building a new business.
Having set up Huddle, a cloud-based collaboration
and content management software company, back in
2006 with Andy McLoughlin, I am all too aware of
the trials and tribulations of turning your dream into
a reality. And believe me, in the first few years, it
involves working long hours, a terrible diet (pizza is
the staple of entrepreneurs nationwide!) and almost
constant feelings of uncertainty. But, for every down
there are numerous ups and life as an entrepreneur
sends you on an incredible journey.
You can go from feeling like Richard Branson one
minute to Del Boy the next. Huddle has now grown
from a two-person bedroom start-up to a company
with 200 people, offices in San Francisco and New
York, and clients such as SEGA, Kia Motors, Unilever
and the Cabinet Office, so I can assure you that the
roller-coaster ride is worth it!
In the spirit of sharing the entrepreneurial wisdom,
here are the top five tips I’d like to impart to all the
aspiring entrepreneurs out there.
1 Spend every waking hour researching and
developing your idea
When setting up your own company, you need to
spend every free moment working on your idea. Yes,
this may get you into trouble with your other half
and prove a challenge when you’re balancing your
current job with your new venture, but you want to
make sure you get it right. Look at what is out there
already, what’s in the pipeline and see if there really
is a market for your idea. Your friends and family
might not necessarily be the best people to bounce
an idea off – they’ll try and be as nice as possible! –
so try and find a mentor who can give you a steer in
the right direction and some objective advice.
2 Be uncompromising in your vision
Ensure that you don’t add to the endless list of bad
products in the world and trust your gut feeling.
Organisations live and die by their products so you
have to focus on building the very best one you can.
While you can certainly seek and take advice from
trusted advisers and mentors, don’t dilute your
product too much. Andy and I had a very clear and
simple goal when we set up Huddle and that was to
help people get their jobs done and work better
together. This remains the foundation of the business
today.
3 Network, network and network some more
Your network of contacts is vital and will prove
invaluable when you’re looking to expand your team
and gain feedback on your product or service. Take
advantage of every connection you have – help can
come from the most random places. My first boss
was Huddle’s original angel investor and this initial
funding helped us get started. While online
‘ For every down, there are
numerous ups and life as an
entrepreneur sends you on an
incredible journey ’
– Alastair Mitchell
10
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‘ The key to our success is
having everyone’s input – if
people can see that their ideas
are valued then they’ll feel
rewarded ’
– Abi Wright
networking has never been easier thanks to LinkedIn,
Twitter, Facebook and other sites, there really is no
substitute for meeting people in the flesh.
4 Your customers are key – get them involved as soon
as you can
Customers provide invaluable feedback, the comfort
factor for prospects and proof that there is something
tangible to your business for potential investors.
Whether it’s an in-depth case study, press
announcement or a simple logo and one-line
testimonial for the website, having a customer willing
to say ‘we use this and we love it’ is as powerful a
marketing message as one could wish for. Happy
customers will be an extension of your marketing
team (when you eventually have one) and true
evangelists for your company, so place them at the
heart of your business.
5 Be ruthless from the off
It’s not a problem to give away a chunk of your
business as you get started – but be mindful of how
much it is worth and be ruthless from the very first
day. Even at the beginning, you need to be firm and
strong when negotiating and doing deals. If you let
people walk all over you, you’ll set a precedent from
that point onwards for people to take advantage of
you and get the upper hand in any negotiations.
And most of all – enjoy it!
BIOGRAPHY
Alastair Mitchell graduated from Southampton
University with an MEng in Naval Architecture. After
his first startup, an online media business, Mitchell
moved into online exchanges and he built the first
global soft commodities marketplace. When the
business was bought out by one of its investors, he
moved to Dunnhumby, the customer science
company. Here he led its web-based marketing
intelligence product from zero to $60m sales within
four years. He joined the board in 2005 to head up a
300-person global team, running their shopper
loyalty practice. When Dunnhumby was purchased
by Tesco, Alastair started Huddle in 2006. Since then
the company has raised $40m of venture capital in a
series of rounds, has offices in London, San Francisco
and New York, and names 80% of the Fortune 500
and the UK central government as its clients.
See more at www.huddle.com
This article is based on one previously published by
Startups.co.uk, edited and reproduced with permission.
FINANCE & MANAGEMENT SPECIAL REPORT SEPTEMBER 2013
HARD WORK AND MARKETING
BUILD A LEISURE BUSINESS
In an interview with Hannah Baker of Director
magazine, Abi Wright of Spabreaks.com urges
commitment and inclusiveness.
When Abi Wright co-founded her spa booking
business in 2008 she believed there was a gap in the
market for a dynamic agency that embraced the
concept of wellbeing and body confidence. Five years
on, the company turns over £14m, employs 43 staff,
works with 580 hotels in Britain and 100 overseas,
and sends 2,500 people to spas each week.
‘When we started it was just me and two students
on placement from university, and for the first six
months it was a really hard slog,’ says Wright. ‘My
strategy was simple – pick up the phone and knock
on as many doors as possible.
‘It was difficult because the hotels were having to
trust that we would send bookings to them but we
eased their fears by providing business for them.
Within two years it all changed – we reached a point
where the hotels were coming to us.’
Wright says she knew early on that her business
needed to distinguish itself in a highly competitive
market.
‘It would have been very easy to follow the pound
signs but longevity is important to me. I wanted to
focus on wellness and position the company
differently to other booking agencies.’
11
‘ Social media is the most powerful tool we
have – it is an extremely important part
of our marketing ’
Accessibility for all
Since then Wright has been on a mission to make
spas more accessible to everyone. About 18 months
ago, she set up Recovery Retreats – packages for
people who have cancer or are recovering from the
disease. ‘Traditionally, spas have been nervous about
treating people with health issues, especially cancer,
because certain treatments can stimulate the lymph
glands, which can be dangerous,’ she explains.
‘But it was an issue I felt was extremely important
to address. One in three people are touched by
cancer at some stage in their lives, and as we send
more than 2,500 people a week on spa days and
breaks, that’s a huge number potentially being sent
into an uncomfortable situation. “Recovery retreats”
mean that all of that can be avoided, and customers
affected by cancer can enjoy a spa break just like
anyone else. I think that if someone is going through
something as traumatic as cancer, to be able to go to
a spa, put on a fluffy white robe and feel the same as
everyone else, is incredibly healing.’
The feedback, she said, had been fantastic. It made
her think about other people who might be similarly
affected. ‘Last September, we launched Accessible
Spas – for anyone with a disability. Our website lists
all the facilities for individuals with accessibility issues,
whether that’s a winch into the pool or changing
facilities for the disabled, and we provide a ‘carer
goes free’ option with venues which opt in to the
scheme. It’s not been easy but I’m proud of how far
we’ve come.’
Wright says that she was lucky to be working
alongside like-minded people. ‘We haven’t got the
shiniest offices and we’re not the biggest business in
the world but I can promise my team that if they
share my vision, they’re going to have an incredible
journey. The key to our success is having everyone’s
input – if people can see that their ideas are valued
then they’ll feel rewarded.’
Also, on 16 September 2013, Spabreaks.com will
be launching the first Women’s Wellness Week with
the message #bekindtoyou, to raise awareness and
discussions about women’s health and wellbeing.
This article is based on an interview with Hannah Baker
of Director, edited and reproduced with permission.
12
Business tips
Work ethic
Hard work is essential. Wright says that her mother
was her greatest inspiration. ‘She had three pub jobs
when I was growing up and instilled a great work
ethic in me. She taught me that nothing comes to us
on a plate – we have to work really hard and be
dedicated to what we’re doing.’ One of her mother’s
sayings was ‘Never say never’.
Social media
For Spabreaks.com, social media is vitally important.
‘Social media is the most powerful tool we have – it is
an extremely important part of our marketing,
keeping in touch with customers, and
communicating our ideas and initiatives.’
Reflection
It is important for business managers to make time
for creative reflection, she believes. ‘I have a golden
retriever called Mr Darcy and a cocker spaniel,
Tallulah. I live in beautiful Berkshire countryside and I
walk them for hours. Many of my ideas and initiatives
have been forged while out with my dogs.’
BIOGRAPHY
Abi Wright is co-founder and director at
Spabreaks.com, which is now the largest spa
booking agency in the UK catering to many
individuals and companies. She took up the
director’s role in June 2008. Her previous
experience included working in public relations
(PR) and marketing from January 2003 to June
2006, looking after the Peter Michael Collection of
hotels, spas and golf club, including The Vineyard
at Stockcross, Berkshire. In June 2006, Wright
started her own PR business, Pink Fudge PR,
working with 15 different accounts in the hotel
and travel industry. She was educated at Teign
School, Kingsteignton, and the University of
Glamorgan.
www.spabreaks.com
icaew.com/fmfac
‘ My advice for anyone thinking of
setting up their own business would
be – do it! And do it now while you
are still feeling bold and brave ’
– Clare Murray
STARTING UP A LEGAL
PARTNERSHIP
Clare Murray of CM Murray LLP explains the strategy
and priorities in setting up and building her specialist
law firm in the City of London.
At CM Murray LLP we specialise in partnership and
employment law, with a particular focus on advising
foreign-owned UK companies, as well as senior
executives, firms and partners in the professional and
financial services sectors.
I set up CM Murray LLP in 2006 with my good
friends (and former colleagues) Tobi Sale and Bettina
Bender, following my recovery from breast cancer a
couple of years previously: going through that health
trauma had made me realise that what I really wanted
to do with my career was to set up my own firm.
After a short period as a general partnership, we
converted to a limited liability partnership. We chose
the LLP vehicle rather than a limited company
predominantly because the LLP structure was tax
neutral compared with the general partnership
structure and it also gave us greater flexibility on how
we organised ourselves internally.
Seven years on, we are now 13 people in the firm,
including nine lawyers, having aimed for steady organic
growth rather than rapid expansion. Seven members of
staff work flexibly, part time or remotely and this has
been a success for us because everyone concerned is
committed to making it work. We have an exceptional
team of people, all of whom care about what they are
doing and how well they do it; they work incredibly
hard.
We have invested heavily in our team as the future of
the firm wherever we can – helping our lawyers to
build international reputations, networks and clients,
and our support staff to develop and qualify into areas
of professional expertise that interest them and are
valuable to the business. We are now ranked by the
legal directories as a leading firm for employment law,
and one of the market leaders for partnership law.
Focus
Business development has been a huge area of focus
for us and, given our limited resources, we decided a
few years ago to focus our marketing efforts very
narrowly on certain areas of employment and
partnership law work – namely advising on partner and
senior executive exits, team moves, and discrimination
litigation.
That narrow marketing focus paid off well for us in a
tough market. In terms of our range of services, we
have actually expanded our offering over the last
couple of years by bringing in naturally complementary
FINANCE & MANAGEMENT SPECIAL REPORT SEPTEMBER 2013
BIOGRAPHY
Clare Murray studied law at Queen Mary College,
University of London, and took the Solicitors’ Final
Exams at the Guildford branch of The College of
Law. She trained at the precursor of Eversheds’
London office, Jaques & Lewis, and a couple of
years after qualifying, moved to City firm Fox
Williams where she stayed for nine years and
became an equity partner in 1999. She established
CM Murray LLP in 2006 with the vision of
creating a specialist employment and partnership
law firm that provides its clients with high level
legal strategic advice. www.cm-murray.com
areas of employee benefits, corporate law and high
court litigation expertise.
We have managed to do this by engaging two senior
consultants who are expert in those areas, both of
whom have already had a tremendous, positive impact
on the firm and our business in a short period.
The market and workflows are without doubt more
unpredictable these days than when we first set up in
2006; there are more people competing for less work
and willing to do it for lower rates.
Our high level of specialisation, our market position
and, we understand, the perception of us as being a
firm which genuinely cares about its clients, has helped
13
‘ When you have your own business, you
quickly realise that cash really is king ’
us to a great extent. But no one is immune from these
market pressures.
The key to our survival throughout this period has,
we believe, been the combination of constantly striving
to give excellent service and to get the best results for
clients, maintaining our targeted business development
activities, and operating within the very rigorous
financial controls put in place by our practice director
Tobi Sale.
When you have your own business you quickly realise
that cash really is king.
Business tips
Be brave
My advice for anyone thinking of setting up their own
business would be – do it! And do it now while you are
still feeling bold and brave.
Have a vision
Have a vision for what you want the firm to be and
become and also how you want your life to be while
you’re building it. Realise that it is probably going to be
all-consuming – and more – for the first five years. Build
infrastructure and controls into the business as quickly
as you can without overloading it.
Be prepared
And remember that you are living other people’s
dreams. So for the first couple of years you will most
likely get a big wave of support, goodwill and referrals,
including from competitors, for which you’ll be
enormously grateful; but after that, you are just another
competitor in a tough market, and you’ll need to be
ready by then to stand completely on your own two
feet. In some ways it will be a compliment. Good luck
and enjoy!
PLANNING A REVOLUTION IN COURIER DELIVERY
Courier service Shutl promises a revolution in online
delivery. It’s about time, says founder Tom Allason. His pitch
begins with an anniversary. E-commerce is more or less 16
years old, he says. In that time the internet has evolved
from 30,000 pages to well over a trillion, while e-commerce
has ‘moved light years’.
What’s interesting, he says, is that ‘the one thing that
hasn’t changed at all is delivery. Consumers still wait days
for delivery, which takes place at a time determined by the
courier company.’
Allason is hoping to change all that with Shutl, a web
services start-up that aggregates the same-day courier
market, allowing low-price deliveries to be fulfilled in a
matter of minutes rather than days.
‘ It’s a lot easier
second time
around. With my
first business I
knew nothing
about nothing ’
– Tom Allason
Allason has relevant experience. He started an earlier
company eCourier in 2003 after a frustrating experience with
his local courier firm. He served as CEO of the start-up from
launch until 2008, before leaving to found Shutl. ‘It’s a lot
easier second time around. With my first business I knew
nothing about nothing.’
At eCourier, he says, one of his worst mistakes was
neglecting cash flow, believing that simply sending out
invoices would be enough. ‘Well, no. You pay your couriers
weekly and invoice your client monthly and they pay you
three months later. So the more you grow the more capital
you need, even if the business is profitable.’ Shutl was built
with a negative working capital requirement, he adds.
Allason says building a network of couriers shouldn’t present
too many challenges. ‘We’re giving these couriers access to a
fast-growing market that none of them are big enough to
serve directly themselves, so from our perspective it’s a much
easier sell.’
There’s promise for investors, too, he says. ‘What’s
attractive about this business is that it’s a winner-takes-all
market. The first guys there have got a significant headstart. It probably takes two years to build the technology
platform. Volume gets you the prices with the courier
companies, which gets you the prices with the consumer
and the retailers.’ And with the help of one large customer,
Argos, he adds, ‘we have the ability to get big quick off a
single client.’
This article is taken from an interview with David Woodward of
Director, edited and reproduced with permission.
14
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TECHNOLOGY
TECHNOLOGY FOR THE BUSINESS
START-UP
Whatever business you start, technology will be a vital ingredient in its operations
and you will need to be on top of the issues. Joanne Eccles looks at a number of
options for efficient management of your business.
You only have to look back in history to see that
technology has always been a key driver of business.
From the clattering looms of the industrial revolution,
to the humble email, advances in technology have
made it easier, quicker and more profitable to do
business.
But getting your head around IT when you’re starting
up a business on a budget can be a challenge. The
good news is that technology doesn’t have to be
complicated or expensive when you’re starting out.
Getting the right kit
Essentially all you need for your start up IT kit is a
decent computer – a desktop PC, laptop or Mac
equivalent. You may already have a personal computer
that you can use to keep costs low, but be aware of
issues like how much storage you might need,
processing power for quickly carrying out multiple tasks
at once and security issues. Therefore it’s wise to keep
the two parts of your life separate if you can.
Mobiles and tablets may be necessary if you need to
be contacted and work on the go, helping you become
more efficient, but be honest about whether you really
need top of the range models when you’re starting out.
Also, don’t underestimate the need for add-ons like
tech support, backup and antivirus protection. These
are not the areas to scrimp on when you don’t have an
IT department to fall back on.
Free software for start-ups
As more and more software providers move online – to
‘the cloud’ – where software is delivered as a service,
technology is becoming cheaper to run and upgrade,
‘ As a start-up, you’re in the
best position to get a good
deal on cloud-based software ’
Joanne Eccles is a member of the Forum
of Private Business helpline team,
offering the owners of independent
businesses expert advice across a range
of business issues.
www.fpb.org
FINANCE & MANAGEMENT SPECIAL REPORT SEPTEMBER 2013
and more flexible to the changing needs of your
business. Good news if you’re on a tight budget.
So, what is the cloud? Put simply, instead of buying
software on a CD and running it on your computer or
server, the cloud delivers applications online. Your data
is saved on the web and the provider is responsible for
things like maintenance and backups.
As a start-up, you are in the best position to get a
good deal on a lot of cloud-based software. Tech
businesses want to get you in as a customer early on,
so they offer free limited use that may be suitable for
your needs now in the hope that when you grow and
your needs change, they will be your chosen provider.
This can also benefit your business as online,
subscription-based software can change with your
needs, without a large investment upfront.
Cloud computing does not come without some
warnings though. As the software is web based it will
often require a strong internet connection, while you
also have to assess the impact that possible downtime
at the provider’s end would have on your business.
Fortunately, free options give you an opportunity to try
before you buy and decide for yourself whether it’s
right for your business.
What software do you need?
You will need different software depending on the
business you’re setting up, but here are a few of the
most common types of technology you’ll come across.
Communications
Email is a quick, free way of connecting you with clients
and colleagues, wherever they are in the world. You
can just use a personal email address but, if you want
to look more professional, you can link your account
with the email you get with your website domain
name.
You’ll also need some software for word processing,
spreadsheets and presentations. Microsoft Office is the
obvious choice for this, but Google Apps offers a free
suite of similar software that imports and exports
documents created in Office well.
You can hold meetings without having to travel by
using webinar services like Google Hangout, plus make
phone calls through your broadband line with Skype,
thus saving money on renting a landline. All you need
is a speaker and web cam to get started.
Financial
Unless your finances are very simple and can be
managed on a spreadsheet, you will probably need a
basic accounting package to manage them from the
start. These allow you to easily generate profit and loss
and management accounts for your own purposes. You
may wish to speak to an accountant about filling tax
returns, but you can file these yourself.
15
‘ The two most important things to
remember are keeping your antivirus
software up to date and making sure you
back your data up regularly ’
Most accounting software providers offer trial
versions of their basic online accounting services, which
allow you to manage your money from any computer
or mobile device, wherever you are. Some banks also
offer accounting software free of charge with a business
account.
Another recent innovation in finance technology is einvoicing, which allows trading partners to monitor
invoices, purchase orders, payment terms and other
paperwork, increasing the chances of being paid on time.
Employment
If and when you start employing people, you will need to
use payroll software. This saves time by doing complex
calculations for you, so you don’t need a comprehensive
understanding of payroll legislation or systems.
It’s also important that the payroll software you choose
is real time information (RTI) compliant. All employers in
the UK have to submit information to HMRC every time
they pay their employees, so finding software that links
in with your online HMRC account is a must and HMRC
have a list of PAYE software companies that are RTI
compliant – see hmrc.gov.uk
Marketing
Almost every business can benefit from having a website
with, at the very least, basic company information and
contact details on. Simple DIY sites can be created
online free of charge, or you can engage the services of
a designer for a more professional look. Make sure your
site links to your social media accounts so visitors know
they can follow you.
If you plan to sell online, you will need an ecommerce
site. A bespoke site can cost a lot to develop but if
you’re just testing the water take a look at Big Cartel,
Tictail and Shopify for more cost-effective solutions.
As your number of customers grows, you can stay in
touch and keep them up to date with your latest
business news and offers using an email marketing
service like MailChimp and AWeber.
Or, if you need something more sophisticated to
manage your clients’ details, you may want to manage
them in a database known as a customer relationship
management system, many of which have email
functions too.
Protect your data
So you’ve set up your computer, installed your software,
got a presence on the web and started making sales.
But that’s not where this story ends. IT requires some
ongoing maintenance to make sure your financial,
customer and business data stays safe and secure.
The two most important things to remember are
keeping your antivirus software up to date and making
sure you back your data up regularly. What would you
do if, all of a sudden, you lost all your work, client and
financial data?
Government figures from 2009 showed that 70% of
companies that suffer a major data loss go out of
business, yet more recent figures (Onyx, 2013) indicate
that less than 20% of SMEs regularly back up data –
make sure you’re not one of them!
Data should be backed up and kept secure in at least
one other location. It doesn’t have to take a lot of time,
but it’s a good practice to get into the routine of doing
it from day one.
As a start-up business owner, you’re going to have to
wear a lot of different hats, but by choosing the right
systems for your business and mitigating risks, IT can
help you to save money, become more efficient and get
on with the more important tasks that bring money into
your business.
EMPLOYMENT LAW
NAVIGATING THE HUMAN RESOURCES
QUAGMIRE
Employing people can be hazardous for a new business if care is not taken – yet, in
most small companies, employees are vital assets. Here Jeremy Harris spells out the
main issues.
English employment law can be a minefield for the
small and medium-sized business. It will become
increasingly complex with new regulations coming
into force in the next few years, most of which are
embodied in the government paper ‘Employment
Law 2013: Progress on reform’. Whether these are
the legal demands of human resources or those
affecting the employer’s choice of new employee,
these requirements can be confusing.
In this article, I explore the key employment issues
for the business start-up, for both the home-based
company and the multi-million project, to outline the
legal pitfalls that are best avoided.
What are the key HR issues?
Unfortunately, the growth of human resources (HR)
requirements, particularly over the last decade, has
caused an increased burden on all businesses.
Principally, the newest HR issue for any business to
beware of is discrimination. New European Directive
2000/78/EC brought into UK law by the Equality Act
2010 means that every employer needs to be careful
when advertising and offering employment, as a
stricter criterion of discrimination increases the
possibility of claims. Whether a multinational or a
corner shop, a business should advertise positions
with prudence and maintain written records of
recruitment in order to explain the reasons for any
candidate choice if challenged or, more likely, the
refusal of any applicant.
What workplace legal issues does the small
business face?
Once employment is offered the employer then
needs to navigate the quagmire of statutory
compliance from maximum working hours to
maternity leave and the minimum wage. See the key
legal points (top, right).
‘ Employers can protect
themselves through carefully
drafted employment
contracts ’
Jeremy Harris is a partner at Brian Harris
& Co.
[email protected]
FINANCE & MANAGEMENT SPECIAL REPORT SEPTEMBER 2013
KEY LEGAL POINTS
• Most employees are required to work no more
than 48 hours a week.
• On 1 October 2013 the national minimum wage
will increase to £6.31 an hour for those aged
more than 21 years.
• An employee who is a parent/carer of a child
under 17 or a dependent adult has the right to
make a request for flexible working hours.
• Employees are entitled to maternity leave,
paternity leave, adoption leave, parental leave,
surrogacy leave and leave for family reasons.
Working hours
To increase this timetabling burden, part-time and
fixed-term workers now have the right to be treated
no less favourably than full-timers, so working hours
cannot be perceived as unfavourable to either class of
employee.
Contracts
One of the methods employers can use to protect
themselves is through carefully drafted employment
contracts. Although the laws covering contracts are
extensive, the most important issues for start-up
enterprises are fairly straightforward and new
businesses should not shy away from legal protection.
Every company has a duty to produce a written
statement of employment for every employee. Whilst
failure to comply does not instantly evoke an
automatic right to bring an employment claim, it can
lead to additional payments at any later tribunal case.
Stripped to the bare bones, a contract of
employment records an obligation on the employer
to pay the employee for the work performed. The
Employment Rights Act 1996 sets out the minimum
requirements of the particulars that should be
provided in a contract. A quick search on Google will
provide a basic template for a contract of
employment.
Probationary period
One key contractual issue not to be overlooked is a
probationary period. Typically probationary periods
last between three to six months and they encourage
the employee to give his or her best performance
from the outset, whilst allowing the employer to
judge both the employee’s ability and suitability.
Properly constructed employment contracts with
probation periods allow legal flexibility and prevent
possible disputes. It is a simple truth that it is always
best – so as to avoid confusion, dispute or
17
‘ Every company has a duty to produce a
written statement of employment for
every employee ’
disagreement – to write things down or as Benjamin
Franklin taught, to ‘write injuries in dust, benefits in
marble’.
Tribunals
Employment contracts additionally reduce the threat
of a claim to an employment tribunal, the last thing a
newly started business wants to face. One recent
benefit for the employer in this area is that from 6
April 2012 an employee has to be employed for two
years (replacing just one year previously) before they
are able to bring an action for unfair dismissal. This has
been widely welcomed by nearly every employer.
Indeed many employers had been somewhat cynical
about the government’s continued pledges to lessen
the corporate burdens of employment law. However
this radical change in timescale for unfair dismissals,
reversing the Labour decision back in 1999, left them
with a smile. Another welcomed reform is that from the
end of July, applicants for the tribunal have to pay both
issue and hearing fees.
Few deny that this may deter, perhaps unfairly, a
number of genuinely wronged employees. However
this minority of individual casualties is far outweighed
by the steep decline of greedy litigious employees with
outrageous claims that have collapsed many small
businesses in the past.
Smaller employers had less welcome for other
changes outlined by the business secretary Vince Cable
on the publication of the Beecroft report in May last
year. The reduction of compensatory pay at the higher
end has done little to aid struggling smaller employers
with tribunal payments. A new termination settlement
scheme proposed to allow employment relations to end
in a fair and consensual way has not achieved its
ambition. This, coupled with yet more guides and
codes of practices from the Advisory, Conciliation and
18
Arbitration Service (ACAS) – which are ironically
intended to clarify the requirements of the code for
smaller businesses – will surely serve simply to give
start-ups even more of a headache.
Pensions
One final point for all employers to consider is the new
auto-enrolment pension scheme established this year.
The last thing on many employers’ minds, especially
those newly established, is pensions for its staff. This
government-imposed scheme seems a daunting task for
thousands of small businesses. The scheme is being
phased in over the next five years with the smaller firms
complying last, but, ultimately, by 2018 all employees
aged over 22 and who earn more than £9,440 per
annum, will have to be enrolled. For the first few years
of auto-enrolment, contribution levels are set at 2%,
meaning businesses will be spending an extra 1% on
their employees’ salaries.
The costs and stress of the scheme actually lie in its
administration, with budgeting factors, payroll and HR
costs, communication to employees and advisory
assistance proving both necessary and costly for
compliance. But comply they must. Small businesses
which do not meet their pension obligations in time
can face fines of up to £500 a day. The message for
small businesses is clear: start preparing now to ensure
a smoother transition and prevent penalties.
The secret of success
In summary, there are ever-increasing legal and
administrative employment regulations to pressure the
smaller businessman.
The secret of success is to plan, budget and seek
advice if unsure. Without this, many promising and
potentially profitable enterprises will meet difficulties
that would otherwise have been avoided.
icaew.com/fmfac
TAX AND REGULATION
THE TAX IMPLICATIONS OF SETTING UP
YOUR OWN BUSINESS
One of the first tasks of a new business is to ensure that its tax structure meets the needs of
the operation and the tax regulations. Anita Monteith of the ICAEW offers advice.
All too often, people drift into running a business and
give no consideration at all to the tax aspects until a
deadline is mentioned or they realise they have had
income and really need to pay some tax on it. So if you
are thinking ahead then you are already better placed
than most to manage the tax your business pays and
avoid missing opportunities or making mistakes.
For the purposes of this article I will assume that you
have made a plan, but haven’t started yet. The law is
vague on how the precise commencement date of a new
trade is defined and there have been many tax cases
about this, both for income tax and for corporation tax.
For instance, negotiations to enter into the initial
contracts are part of setting up the new trade, but they
do not mean that trade has started. So, to an extent you
can create your own start date, perhaps for example by
delaying the first year for which you need to pay income
tax on the business profits by starting just after 5 April
rather than just before it.
There are, though, some occasions when tax law
stipulates that a new trade has begun, for example where
the business becomes or ceases to be resident in the UK,
so be careful.
The options for the trading vehicle
So what are the options for your trading vehicle? If you
are going it alone, then it is a simple choice between
being a sole trader or setting up a company in which you
own the shares and are the sole director/employee.
If you will be working with others, then you have
slightly more choice. You could trade as a partnership, a
limited liability partnership (LLP) or through a company.
An LLP is attractive to many because it is taxed like a
partnership, ie, the profits are subject to income tax, but
the limited liability provides a useful safeguard, as this sets
a limit on the amount of personal loss in case the
business fails.
‘ If you are planning to run a
business with more than a few
simple transactions, it is
worthwhile taking tax advice ’
Anita Monteith is technical manager,
SME business tax, of the Tax Faculty.
[email protected]
FINANCE & MANAGEMENT SPECIAL REPORT SEPTEMBER 2013
The things you should consider from a tax perspective,
and which may influence your decision include:
• the taxes, rates and amounts chargeable, which apply
in each case;
• how the business is to be financed and what tax relief
can be secured for this. Do you plan to use third party
investors and will they want tax relief?;
• whether you are likely to make losses in the early years
and how those losses can be used;
• will you be eligible for research and development tax
credits? These are only available to companies;
• do you have an exit plan?; and
• the administrative requirements for filing tax returns for
the different types of entity.
Although most readers of this article are likely to be
accountants and so will have studied tax at some time in
their career, tax rules change frequently. I think it is good
to understand the options here and why they matter, but
if you are planning to run a business with more than a
few simple transactions, it is almost certainly going to be
worthwhile taking tax advice, even just initially. You could
easily spend hours researching the rules of course, but
then I presume the business you want to establish isn’t
selling tax advice, so why waste the time?
Unincorporated businesses
As a sole trader or partnership the business owner must
pay income tax and national insurance contributions
(NIC) on the full amount of taxable profit earned by the
business each tax year. The business prepares its accounts
to the accounting date chosen in a tax year and it is
those profits which are taxed in that year. For example,
Mary started her business on 6 April 2013 and prepares
accounts for the year ended 5 April 2014. These profits
will be taxed as her income for 2013/14.
Trading profits for tax purposes must usually be
calculated in accordance with generally accepted
accounting principles, so taking into account accruals
and prepayments, stock held at the year end and fixed
assets in the usual way. From 2013/14 onwards, an
alternative basis using cash accounting rather than
accruals is available for unincorporated businesses to
use. Cash accounting means income is only taxable
when cash is received and expenses are only deductible
when they are paid. The main aspects of the cash basis
are that:
• it is optional – businesses have to choose to use it;
• it is available to businesses whose annual receipts are
less than the VAT registration threshold (£79,000 with
effect from 1 April 2013), or twice the VAT threshold
(ie, £158,000) for Universal Credit claimants. Businesses
are required to revert to the accruals basis if their
annual receipts exceed twice the VAT threshold;
• receipts comprise all incomings including the sales of
assets;
19
‘ Trading profits for tax purposes must
usually be calculated in accordance with
generally accepted accounting principles ’
• allowable payments are all expenses paid wholly and
exclusively for business purposes, including certain fixed
assets (though not investments or property);
• if the business is VAT registered, income and expenses
are to be recorded net of VAT. If the business is not VAT
registered, expenses will include any input VAT. As with
the accruals basis, entertaining expenses are not
allowable;
• losses may be carried forward against future profits but
not carried back or relieved against general income of
the year of loss. Cash basis losses are considerably less
useful in tax than those calculated using accruals
accounting;
• there will be no capital allowances;
• there are transitional rules for businesses entering or
leaving the cash basis which should mean that income
is only taxed once and expenses are only allowed once;
and
• relief for interest paid is restricted to an annual amount
of £500.
Regardless of whether accruals or cash accounting is
used, a system of fixed rate deductions is also available
from 2013/14. It is hoped that this will simplify tax
computations by permitting allowable expenditure to be
calculated using simple flat rate allowances rather than by
a potentially complex apportionment of actual
expenditure. The three sets of allowances are:
• motor expenses;
• use of home for business; and
• premises used as a home and for business, such as pubs
or small guest houses.
The system of fixed rate deductions is available for use by
persons carrying on an unincorporated business even if
they have not made a cash basis election. The rates for
using a car or motor cycle for business are:
• car or goods vehicle 45p per mile for the first 10,000
miles, and 25p per mile thereafter; and
• motor cycle 24p per mile.
If you run your business from home, then instead of
apportioning the total house expenses between private
and business use, a flat rate deduction can be claimed for
each month or part month it is used, according to the
number of hours worked at the home each month.
The table of rates is:
Number of hours
worked per month
25–50
51–100
Monthly amount
£
10
18
Businesses are free to opt to use the fixed rate basis
from year to year according to which is more
suitable, but it is likely that the simplicity of the
20
deduction will appeal to smaller businesses wishing to
simplify their accounting process.
For more information about the cash basis and fixed
rate expense deductions, do consider joining the
ICAEW’s Tax Faculty and you will receive our
comprehensive guidance to these new rules, TAXline Tax
Practice no 31.
The ICAEW faculties are not just for technical specialists
who work in esoteric fields, but rather they offer help
and guidance on mainstream areas of accounting and
tax for business (see icaew/taxfac and icaew.com/fmjoin
for further information).
Administrative points for a new unincorporated business
When you set up a new business and so have untaxed
income because you are self-employed, or if you set up
or join a partnership, you should register with HMRC as
soon as you start to trade.
The easiest way to do this is online using HMRC’s
online tax registration service. One of the benefits of
doing this online is that you can register for more than
one tax at the same time.
You can also register a new business by completing
form CWF1 which you then post to HMRC, or you can
phone the self-employed helpline on 0300 200 3504
(see the links at the end of this article for more
information).
Having registered the business, HMRC will then send
you an annual self assessment tax return to complete.
The deadlines for filing your tax return for 2013/14
are:
• 31 October 2014 on paper; or
• 31 January 2015 online through the HMRC website.
Unless you have used the online service to register for all
taxes, the owner of a new business must also register for
NIC. Once registered, you can choose to make your NIC
payments either monthly or six monthly by direct debit.
If you are unlikely to make enough profit to exceed the
class two NIC threshold (see ‘Box 1 – Tax rates’,
opposite), you should make a small earnings exemption
claim separately.
Incorporation
If you decide to operate your business through a
company, the company will be subject to corporation
tax on any profits and will receive tax relief for losses
at the company level.
Corporation tax rates are generally much lower than
income tax rates and also there is no NIC charge on a
company’s profits. The lower tax cost is one of the
main reasons why so many small businesses are set up
as companies.
Shareholders are only taxed on income that is
distributed to them by the company (usually in the
form of dividends) as compared with the position for a
icaew.com/fmfac
‘ The Tax Faculty is not just for technical
specialists who work in esoteric fields, but
rather it offers help and guidance on
mainstream areas of tax for business ’
sole trader, who is taxed on all profits whether or not
they have been drawn out of the business.
Many owners of these one-person companies will also
be directors of their companies and may even have a
contract of employment and be paid a salary by the
company for the services they provide to the business.
The normal rules of the personal tax regime apply to
this salary income. Usually the individual will be paid a
salary which is just enough to exceed the employees’
NIC lower earnings limit so that the individual accrues
entitlement to the state pension.
There are also special tax rules which require family
companies whose shareholders take loans from their
companies, including informal loans such as through a
debit balance on a director’s current account, to make
special tax payments to HMRC. These close company
participator loan rules impose a 25% tax charge on the
company for any loan amount still outstanding nine
months after the company’s year end.
Administrative points for a company
One of the main drawbacks of trading through a
company is the additional administration burden.
Unlike other taxes such as income tax or VAT, where
in most cases the filing and payment deadlines are
identical, the deadline to pay your corporation tax is
before the deadline to file your company tax return.
Generally you must:
• pay by nine months and one day after the end of your
company or organisation's corporation tax accounting
period; and
• file by 12 months after the end of your company or
organisation's corporation tax accounting period.
The corporation tax return itself consists of the actual
tax return (CT600), the corporation tax computation
and the company’s accounts. These last two
requirements must be filed using in-line extensible
business reporting language format, and the entire
package must be filed online through the HMRC
website.
If the company pays the owner/manager, or indeed
anyone else, as an employee, it will also need a PAYE
scheme.
Employee vs self employed and IR35
The intention of this article is merely to point out some
of the main tax considerations when starting a new
business and IR35 is a mine-field to watch out for. IR35
is the usual way of describing legislation introduced in
April 2000 and is named after the number of the
Budget note in which it was announced.
Prior to the introduction of this legislation, an
individual could avoid being taxed as an employee and
paying Class 1 NIC on payments for services, by
providing those services through an intermediary such
FINANCE & MANAGEMENT SPECIAL REPORT SEPTEMBER 2013
BOX 1 – TAX RATES
Tax free personal allowance
Tax free allowance
Basic rate: 20%
Higher rate: 40%
Additional rate: 45%
2013-14
£9,440
£0-£32,010
£32,011-£150,000
Over £150,000
Corporation tax – for financial year
Tax rate for profits below £300,000
a year
Tax rate for profits above £1,500,000
Effective marginal rate for profits
between £300,000 and £1.5m
1 April 2013 to 31 March 2014
20%
National insurance
Class 2 flat rate
2013/14
£2.70 per week but can be nil if
you earn less than £5,725 a year
£7,755 per year
£41,450 per year
9%
Class 4 lower profits limit
Class 4 upper profits limit
Class 4 rate between lower profits
and upper profits limit
Class 4 rate above upper profits
limit
Employers’ Class 1
23%
23.75%
2%
13.8% on pay over £148 a
week. Nil below this.
(Employees may also be liable
to make NI contributions)
A full list of rates and allowances is available at:
www.hmrc.gov.uk/rates/taxes-ni.htm
as a company. The worker could take the money out of
the company in the form of dividends instead of salary,
so avoiding NIC and PAYE.
The legislation ensures that, if the relationship between
the worker and the client would have been one of
employment had it not been for the intermediary, the
worker pays broadly the same amount of tax and NICs
as if they were employed directly.
While I am not going to cover the intricacies of IR35,
a word of warning is appropriate. When you decide to
set up in business and begin to negotiate new contracts
with clients, you will need to give careful consideration
to whether each contract is one of self employment or
if it is really something more like employment. If your
relationship with the client is more like the latter, then
that is probably how HMRC will want to see it, even if
you think you are self employed and pay your tax as
such, and even if you are working through a limited
company.
The HMRC website has guidance on this and it is
worth taking specialist advice if you think you might be
affected.
21
VAT
If your place of business is in the UK you may need to
register for VAT. If your turnover of VAT taxable goods
and services supplied within the UK for the previous 12
months is more than the current registration threshold
of £79,000, or if you expect it to go over that figure in
the next 30 days alone, you must register for VAT. You
may also be able to register voluntarily.
To apply for VAT registration, you can either use
HMRC's online services or use form VAT 1 and send it
through the post. Most applications for VAT
registration can be completed online once you have
signed up for HMRC’s Online Services or at the
Government Gateway.
If HMRC approves your application, it will send you
a VAT registration number and certificate. You may
benefit from using one of the schemes available to
help small businesses, such as the cash accounting
scheme for VAT and/or the flat rate scheme. More
information is available from the HMRC website.
Once registered, you will need to account for VAT
and submit your returns – all businesses are now
expected to file their VAT returns online.
22
USEFUL LINKS
● Starting in business
www.hmrc.gov.uk/startingup/
● Form CWF1 Registering a new business by post
www.hmrc.gov.uk/forms/cwf1.pdf
● Register your business online
https://online.hmrc.gov.uk/registration/
newbusiness/introduction
● Start your own business
https://www.gov.uk/starting-up-a-business
● Key deadlines for new businesses starting in
2013/14
www.hmrc.gov.uk/startingup/sme-tax-calendar.pdf
● Intermediaries Legislation (IR35) - Working
through an intermediary, such as a personal
service company
www.hmrc.gov.uk/ir35/
icaew.com/fmfac
THE BUSINESS PLAN
A BLUEPRINT FOR WRITING A
SUCCESSFUL BUSINESS PLAN
This three-page guide to writing a business plan, contributed by Start Up Donut
(www.startupdonut.co.uk) sets out the essential points that need to be addressed as you seek
support from your bank, investors and other vital stakeholders.
Many potential start-up businesses are daunted by the
prospect of writing a business plan. But it is not a
difficult process – and a good business plan focuses the
mind as well as helping to secure finance and support.
The business plan will clarify your business idea and
define your long-term objectives. It provides a blueprint
for running the business and a series of benchmarks to
check your progress against. It is also vital for
convincing your bank – and possibly key customers and
suppliers – to support you.
THE BUSINESS PLAN
The key sections of the business plan, which are
explained in further detail below, are:
1. executive summary
2. the business
3. markets and competitors
4. sales and marketing
5. management
6. operations
7. financial forecasts
8. financial requirements
9. assessing the risks
10. appendices
11. presenting the plan.
Executive summary
The executive summary outlines your business
proposal. Although it is the last section to be written, it
goes on the first page of the plan. It will be read by
people unfamiliar with your business, so avoid jargon.
1
Each start-up will have its different priorities, so
these sections can be adapted at will. We have
provided checkboxes for you to test your own
plan against this blueprint.
executive summary highlights the most
* The
important points and should sum up six areas:
•
•
•
•
•
•
your product or service and its advantages;
your opportunity in the market;
your management team;
your track record to date;
financial projections; and
funding requirements and expected returns.
When deciding whether to back a start-up, bank
managers and investors often make provisional
judgements based on the executive summary.
The main body of the business plan (see sections 2 to
9, below) is then read to confirm the initial decision.
The appendices at the back of the plan (see section 10)
carry detailed information to support the main text.
2
any key features of the industry (eg, special
* Explain
regulations, effective cartels or major changes in
technology).
3
on the segments of the market you plan to
* Focus
target – for example, local customers or a
The business
the background to your business idea,
* Explain
including:
*
• the length of time you have been developing the
business idea in its present form;
• work carried out to date;
• any related experience you have; and
• the proposed ownership structure of the
business.
Explain, in plain English, what your product or
service is. Make it clear how:
• it will stand out as different from other products
or services;
• your customers will gain through buying your
product or service; and
• the business can be developed to meet
customers' changing needs in the future.
It is important to cover any disadvantages or weak
points you feel the business may have. Be frank about
these – it inspires confidence.
FINANCE & MANAGEMENT SPECIAL REPORT SEPTEMBER 2013
Markets and competitors
*
particular age group.
• Indicate how large each market segment is and
whether it is growing or declining.
• Illustrate the important trends – and the reasons
behind them.
• Outline the key characteristics of buyers in each
segment (eg, age, sex or income).
• Mention customers you have already lined up
and any sales you have already achieved.
What are the competing products and who
supplies them?
• List the advantages and disadvantages of all your
competitors and their products.
• Explain why people will desert established
competitors and buy from you instead.
• Show you understand your competitors’ reaction
to losing business and demonstrate how you will
respond to it.
Unless there is a viable market and you know how you
are going to beat the competition, your business will
be vulnerable.
You must show you have done the market research
needed to justify what you say in the plan.
23
‘ People reading the business plan need to
be given an idea of why they should
have faith in the management ’
Sales and marketing
This section is crucial. It often gives a good
indication of the business’ chances of success.
4
will your product or service meet your
* How
customers’ specific needs?
will you position your product?
* •How
This is where you show how your price, quality,
*
*
*
*
response time and after-sales service will compare
with competitors.
• Quote minimum order figures, if appropriate.
How will you sell to customers? For example, by
phone, through your website, face-to-face or
through an agent.
• Show how long you predict each sale will take.
Many new businesses underestimate the time
involved in winning each order. In year one you
may spend up to 80% of your time making
contacts and selling.
• Will you be able to make repeat sales? If not, it will
be hard to build up volume.
Who will your first customers be?
• Show which customers have expressed an interest
or promised to buy from you and the sales they
represent.
• How will you identify potential customers? Unless
you can demonstrate that you have a clearly
defined pool of potential customers, starting your
business is likely to be a struggle.
How will you promote your product? For example,
using advertising, PR, direct mail or via email and a
website.
What contribution to profit will each part of your
business make?
• Most businesses need more than one product,
more than one type of customer and more than
one distribution channel.
• Look at each in turn. Examine your likely sales,
gross profit margins and costs.
• Identify where you expect to make your profits and
where there may be scope to increase either
margins or sales.
Services and intangible products (eg, computer software)
are more difficult to market. Start-ups in these areas must
pay special attention to marketing in their business plans.
*
• describe the background and experience of each
team member;
• clarify how you intend to cover the key areas of
production, sales, marketing, finance and
administration;
• management information systems and procedures
should be outlined, eg, management accounts,
sales, stock control and quality control; and
• show how many ‘mentors’ and other supporters
you will have access to.
How committed are you? Banks and any other
potential investors will want to be sure you are
committed to the business. Show how much time
and money each of the management team will
contribute, and your salaries and benefits.
Operations
Explain what facilities the business will have and
how it will deliver the product or service to the customer.
6
Show the pros and cons of the location.
* Indicate
facilities you will need to start (eg,
* equipmenttheand
machinery). Some start-up
*
*
businesses only need a desk and a phone. Consider
any potential limits to production capacity. If you are
going to manufacture or distribute products, show
how and where you are going to warehouse them
and for how long.
Provide a list of employee roles you need to fill and
the skills required to fill them.
Show how you selected your suppliers.
Keep it real. Sales forecasts produced for start-up
businesses are often over-optimistic. Here are some
important reality checks.
• How soon can you start selling? Will potential customers
hold off for a year before they take you seriously and
place an order?
• How often will you be able to sell? How many days can
you spend selling? How long will each lead take to line
up? What percentage of leads will turn into sales?
• How much will you be able to sell? What will the
average sale value be? Will most people give repeat
orders, or must you find new customers each time?
• How long after a sale will it be before you can collect
payment? How much income can you realistically
expect each month?
Management
People reading the business plan need to be
given an idea of why they should have faith in the
management of your start-up.
Financial forecasts
Your financial forecasts translate what you have
already said about your business into numbers.
the management skills within your team:
* •Outline
define each management role and who will fill it;
realistic sales forecast forms the basis for all your
* Aother
figures. Break the total sales figure down into
5
• show your strengths and outline how you will cope
with any weaknesses;
24
7
its components (eg, different types of products or
sales to different types of buyer).
icaew.com/fmfac
‘ The more solid information you can
gather for your own use, the better the
business plan will be ’
cashflow forecast shows how much money
* Your
you expect to be flowing into and out of your
*
*
bank account and when. You must show that your
business will have access to enough money to
survive.
• Demonstrate that you have considered the key
factors affecting cashflow – eg, level and timing
of sales revenue, wages.
• Show when there will be more money coming in
than going out (‘cash-positive’).
Your profit and loss (P&L) forecast gives a clear
indication of how the business will move forward.
Summarise the annual P&L forecast for each of the
first two or three years of trading.
If you are launching a larger start-up, you will also
need projected balance sheets.
a range of what-if scenarios (eg, what
* Consider
happens to your cashflow if sales are 20% lower or
15% higher than forecast). If there are serious
risks:
• you can arrange contingency funding to cover
the finance you may need; and
• you may decide that the business is too risky and
abandon the whole project.
Assessing risk will help you minimise problems and help
build up your credibility with any investor or bank.
10
financial forecasts (monthly sales, monthly
* Detailed
cash flow, P&L) should usually be put in an
These will show you the financial state of your business
on day one and at year end, perhaps for the first two or
three years.
not get too protective about your forecasts.
* Do
You may need to revise them.
*
For every forecast, list all your key assumptions (eg,
prices, sales volume, timing). Small business advisers at
banks and your local business support organisation will
often help you put together your forecasts free of
charge.
Financial requirements
The cashflow forecast will show how much
finance the business needs. Your assessment of the risks
will determine whether or not you need to arrange
contingency financing.
8
Appendices
appendix. Include a detailed list of assumptions.
For example, the profit margin on each product,
debtor collection period, creditor payment period,
stock turn, interest and exchange rates, equipment
purchases.
You may want to give other relevant information:
• detailed CVs of key personnel (essential if you are
seeking outside funding);
• market research data;
• product literature or technical specs;
• names of target customers; and
• a list of external data sources used in your
research will add credibility to the information.
Presenting the plan
The more solid information you can gather for
your own use, the better the business plan will be. But
a banker or other outsider will not have time to read
through all the details.
11
how much finance you will want, when and in
your business plan short. Most business plans
* Say
* Keep
what forms. For example, you might want a fixedare too long. Focus on what the reader needs to
*
*
9
interest loan and an overdraft facility.
State what the finance will be used for. Show how
much will be for buying equipment and how
much for working capital (financing stock and
debtors).
Confirm that you will be able to afford it.
Assessing the risks
at the business plan and isolate areas where
* Look
something could go wrong (eg, if your main
supplier closes down). What would you do if it
actually happens?
FINANCE & MANAGEMENT SPECIAL REPORT SEPTEMBER 2013
*
*
know.
Make it professional:
• put a cover on the business plan and give it a title;
and
• include a contents page.
Test it:
• re-read it yourself. Would reading your plan give
an outsider a good feel for your business and a
grasp of the key issues? and
• show the plan to friends and expert advisers and
ask them for comments.
Reproduced with permission. For more information, see
www.startupdonut.co.uk
25
WEB RESOURCES
FINDING THE BEST SOURCES
ON THE INTERNET
The websites on these two pages offer the start-up entrepreneur immediate access to key
information and advice, whether on tax, company law, filing requirements, strategy, human
resources or other topics. There is much that can be learned online.
26
COMPANIES HOUSE
www.companieshouse.gov.uk
All limited companies in England, Wales, Northern Ireland and Scotland
are registered at Companies House, an executive agency of the
Department for Business, Innovation and Skills (BIS). There are more
than three million limited companies registered in the UK, and more
than 400,000 new companies are incorporated each year.
The main functions of Companies House are to: incorporate and
dissolve limited companies; examine and store company information
delivered under the Companies Act and related legislation; and make
this information available to the public.
You can also search for company information or check if a name is
available using the WebCheck service.
THE UK GOVERNMENT
www.gov.uk/starting-up-a-business
This is a key UK government site for those looking for official guidance
on starting a business. There are many links and resources, including
The Business Link Helpline, which offers support and advice over the
phone. The site itself is set up to help you turn a business idea into a
product or service that you can sell.
When you have set up your new business, there are useful tips to help
the growth of your company – there is guidance on finding finance,
mentors, increasing sales and developing products and services.
There is also a tool for checking whether there is a market for what
you think people want to buy and also find out how to register your
idea to make sure nobody copies it without your permission.
HM REVENUE & CUSTOMS
www.hmrc.gov.uk/startingup
Here you will find guidance on what you need to do for tax and
National Insurance purposes when you start up a business as a selfemployed person, a partnership or a limited company. There is
information on return filing and paying deadlines and what records you
must keep. You will also find links to additional help and support which
HM Revenue & Customs (HMRC) offers to new businesses.
There are free business advice emails and links to information about
tax returns for partners and partnerships, limited companies, VAT, PAYE
for employers, Construction Industry Scheme record-keeping, and the
importing and exporting of goods and services.
THE START UP DONUT
www.startupdonut.co.uk
The Start Up Donut is one of a group of Donut websites which are
aimed at helping businesses succeed by providing information and
resources to save business owners time and money. With a mix of howto guides, feature articles, checklists, expert Q&As, FAQs, case studies,
video content and blogs, each site provides new and established
businesses with free advice about how to manage a range of key tasks
and issues. The sites also contain a weekly round-up of small business
news and events.
Becoming a registered Donut user is free, but it allows you to access
local versions of the sites (where available). Registered users also receive
a monthly business advice e-newsletter and weekly round-up. Donut
information is updated regularly.
icaew.com/fmfac
‘ Who do you need to notify about the
new business? What legal status best
suits your situation? ’
STARTUP BRITAIN
www.startupbritain.co
StartUp Britain is a national campaign aimed at harnessing the ‘expertise
and passion’ of leading business people to promote enterprise in the
UK. It was founded by eight entrepreneurs and launched by the prime
minister, with full support of the government, although it is privately
funded – sponsors include BT Business, Iris, Intuit and Paypal.
The campaign runs events, such as its annual StartUp Britain Tour,
using a bus to tour the country for a month. There is also a PitchUp
competition for start-ups to pitch their retail products to senior John
Lewis buyers. It offers general advice in various areas including ‘getting
connected’, ‘giving it back’, ‘going global, ‘growing your team’, ‘staying
inspired’, ‘getting funding’ and more.
THE ICAEW LIBRARY SERVICE
www.icaew.com/businessstartup
For those thinking about starting a small business or a high-growth
company, the ICAEW Library & Information Service provides a number
of resources via the website. You can use the selection of books, articles,
links and guides to find more information on all aspects of start-ups.
These include ebooks, a range of start-up briefings providing practical
advice on core business issues, checklists providing a step-by-step
approach to setting up a business, online full-text articles from leading
business and finance and management journals, useful links and a list of
relevant organisations.
On the following two pages of this report, some further Library
resources on starting a business are listed.
ICAEW BUSINESS ADVICE
www.icaew.com/startingyourbusiness
Another part of the ICAEW website offers advice to start-ups, including
practical steps on tax, legal issues, essential accounting records,
insurance and more. It shows you how to find a chartered accountant
participating in the ICAEW Business Advice Service – and receive an
initial consultation at no charge.
Who do you need to notify about the new business? What legal
status best suits your situation? You need to decide early because if you
need stationery it affects letterheads, invoices, etc. What about HMRC?
Do you need to be registered for VAT? What insurances are required?
The answers are here.
STARTUPS
www.startups.co.uk
This site offers a range of tools to help you start a business,
including how to register as a limited company, get affordable
logo design and professional business cards, find office premises,
raise finance from the ‘crowd’ and get your business online.
It also runs a Startups Clinic where a panel of experts offer to
solve a business problem. Your query is sent to someone with
specific expertise in that field. In this section you can also browse
through previous questions to see if somebody else has already
addressed your issue. There are community user forums for
discussion with other users.
FINANCE & MANAGEMENT SPECIAL REPORT SEPTEMBER 2013
27
FURTHER READING ON STARTING A BUSINESS
BOOKS, JOURNAL ARTICLES
AND MORE ...
The ICAEW Library and Information Service offers further resources on starting a
business. The selection below is available to ICAEW members – for further information,
see icaew.com/library
Electronic resources
Available online 24/7 for ICAEW members from the
Library & Information Service –
icaew.com/subjectgateways
Business Management Subject Gateway pages linking
to ebooks, online articles, checklists, briefings and
useful websites on topics including:
● small business start-ups
● high-growth start-ups
● business finance and grants
● company administration
● strategy and planning (including business plans).
Briefings – icaew.com/directorsbriefings
● Start-up briefings – a collection of four-page
briefings from ACM focusing on the key issues every
start-up needs to address like forming a business,
writing a business plan, researching your market,
financing your business, marketing your business,
setting up an office and employment law.
● Directors’ briefings – for concise, practical advice on
core business issues, browse a collection of four-page
briefings covering areas such as directors’
responsibilities, exporting & importing, premises &
insurance and marketing.
● Small business update – timely alerts to
developments that impact on running your business.
Industry guides – icaew.com/industryguides
● Industry guides and market research reports –
linking to articles, statistics, market research reports
and more. If the sector you need is not listed use the
search at the bottom of the page for more market
research reports and articles.
eBooks
Full text ebooks on starting and running a business
including managing people, SME management,
communication & presentation skills, CVs & interviews
and many other topics – icaew.com/ebooks.
Books and Articles
● ‘Business start up, 2012’
by S Williams, Pearson Education, 25th ed., 2011,464p.
Financial Times Guides
ISBN: 9780273761990
● From vision to exit: the entrepreneur’s guide to building
and selling a business
by G Rigby, Harriman House, 2011, 359p.
ISBN: 9780857191472
● The new business road test: what entrepreneurs and
executives should do before writing a business plan
by J W Mullins, Financial Times Prentice Hall, 3rd ed.,
2010, 315p.
ISBN: 9780273732792
28
● Start up and run your own business – the essential
guide to planning, funding and growing your new
enterprise
by J Reuvid, Kogan Page, 8th ed., 2011, 320p.
ISBN: 80749460600
● Starting a successful business
by M J Morris, Kogan Page, 7th ed., 2011, 229p.
Business Success Series
ISBN: 9780749461485
● How to write a business plan: creating success
by B Finch, Kogan Page, 4th ed., 2013, 179p.
ISBN: 9780749467104
● How to write a great business plan
by W A Sahlman, Harvard Business School
Publications, 2008, v,64p
ISBN: 9781422121429
● Small business tax saving tactics
by C Bayley, Taxcafe UK, 2nd ed., 2012
ISBN: 9781907302596
● Taxation of small businesses
by M James, Spiramus Press, 5th ed., 2012, 444p.
ISBN: 9781907444418
● ‘Topical tax planning issues for owner-managed
businesses’
by B Saunders, Tolley, 2012, 34p.
Tolley’s Tax Digest no. 122
ISBN: 9771478465011
● VAT planning tips for SMEs
by N Warren, Wolters Kluwer, 2013,28p.
Tax Digest no. 358
ISSN: 0260-6496
● Business law and Practice
by A Mavrikakis. College of Law Publishing, 2013/14
ed., 2013, 557p
ISBN: 9781909176676
● Company secretarial precedents
by H G M Leighton, Jordans, 7th ed., 2013, 850p.
ISBN: 9781846615535
● Partnership law: the modern law of firms, limited
partnerships and LLPs
by M Blackett-Ord, Tottel, 4th ed., 2011,1106p.
ISBN: 781847665690
● Essential business finance: a complete guide to starting,
expanding and selling your business (eBook)
by P Barrow, Kogan Page, 2nd ed., 2009, 252p.
ISBN: 9780749453985
● Small business cash flow: strategies for making your
business a financial success (eBook)
by D O’Berry, Wiley, 2007, 205p.
ISBN: 9780470040973
● ‘SME finance’
by M Mullen, ICAEW Corporate Finance Faculty,
2012, 15p.
Corporate Finance Guideline; no.58
ISBN: 9780857606341
icaew.com/fmfac
ICAEW members can borrow books and have articles
supplied from the Library collection through the Library
and Information Service. Books can be posted out free
of charge to your work or home address. Journal
articles can be supplied for a small charge. Contact the
Library on +44 (0)20 7920 8620 or [email protected]
● ‘Going it alone’
by A Stocker, Economia, No.10. November 2012.
pp.58-61.
Individuals who have started their own businesses
relate their experiences
● Making it: women entrepreneurs reveal their secrets of
success
by L Gimson, Capstone, 2008, 194p
ISBN: 9781841127002
● ‘[Tolley’s] Employment handbook’
by E A Slade and others, LexisNexis, 26th ed., 2012,
1336p.
● ‘8 ways to use social media’
by R Young, Financial Management, April 2011.
pp.36-37,39.
● The Financial Times guide to business networking: how
to use the power of online and offline networking for
business success
by H Townsend, Pearson Education, 2011
Financial Times Guides
ISBN: 9780273745822
● ‘A networking approach to suit you!’
Finance & Management, No.193. November 2011.
pp.18-19. Explores some alternative approaches to
networking including social media.
● The definitive business pitch: how to make the best
pitches, proposals and presentations
by A Hatton, FT Prentice Hall, 2007, 197p.
ISBN: 0273708260
● The five golden rules of negotiation
by P Korda, Business Expert Press, 2011, 222p.
ISBN: 9781606493069
● Internet marketing bible for accountants
by N Pendrell, Informer Books, 2012, 302p.
ISBN: 9780956144829
● Power stories: the 8 stories you must tell to build an epic
business
by V Khoo, Wiley, 2013, 167p.
ISBN: 9781118387511
● Show me the money: How to Find the Cash to Get
Your Business off the Ground
by A barrell, D Gill and M Rigby, Elliot & Thompson
Limited, 2013, 288p.
ISBN: 9781908739100
● And what do you do? 10 Steps to creating a portfolio
career
by B Hopson and K Ledger, A & C Black Publishers
Ltd, 2009, 272p.
ISBN: 9781408116302
● Be a Free Range Human: Escape the 9-5, Create a Life
You Love and Still Pay the Bills
by M Cantwell, Kogan Page, 2013, 280p.
ISBN: 9780749466107
ICAEW Faculty of Information Technology’s
technology series:
● Making the most of your IT resources: a guide to
virtualisation, 2008
ISBN: 9781841526027
● An introduction to Software as a Service, 2007
ISBN: 9781841525174
● Effective wireless working: usability, security and control,
2007
ISBN: 781841525068
● A business manager’s guide to web site hosting, 2003
ISBN: 01841521620
● Business information systems: technology, development
and management for the e-business
by A Greasley [and others], Financial Times Prentice
Hall, 3rd ed, 2005, 827p.
ISBN: 9780273688143
PREVIOUS FACULTY SPECIAL REPORTS
The faculty special reports summarised here were published over the past nine months and, along with many others, are
available to members at icaew.com/specialreports. They comprise a range of in-depth reports on a single topic, sometimes by
a single author, sometimes by a range of experts. They are a vital source of expertise on a variety of subjects.
Financial Planning
June 2013 (SR41
Financial fraud
Cost management is
something that we all
do every day. This
report on Financial
Planning and Cost
Management looks at
these related subjects
from several angles.
FINANCE & MANAGEMENT SPECIAL REPORT SEPTEMBER 2013
March 2013 (SR40)
This report examines
financial fraud from
several angles. The
authors consider ethics,
controls, human
resources, litigation and
communications
among other topics.
Leadership
December 2012 (SR39)
The factors that lie
behind good business
leadership are
explored in this report.
The articles highlight
academic theory and
practical advice from
business leaders.
29
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