Starting a new business? Here’s why you should have a game plan
5 years ago I started my own retail business in Sydney, in an industry I had no experience in, with next to no startup cash. It was a huge learning curve.
Last year I sold that business, moved to the UK and I’m now working at Tide as Web Developer.
Here at Tide, we spend a lot of time talking about how we can help our members when they start their business, but this time we’d like to focus on what to do once your business takes off and what to do if and when it’s time to move on.
Here are my tips for setting you up for manageable growth from day one and how to move on from a business when the time is right.
Before you start
Get a really good accountant
Find someone who understands what your business is doing and gives sound advice. That probably isn’t just the first tax agent you find.
Get your financials and bookkeeping in order from day 1, connect your business current account (use Tide, obviously) to a cloud accounting software (I used Xero), ideally before you start a single day trading or incurring any expenses. This way you won’t need to play catch up, digging up paper or PDF invoices and dealing with spreadsheets of your earnings when time comes to do your first tax returns, and if you ever do go to sell your business or need to evaluate its viability, you’ll have an accurate picture of your growth over time.
Learn more about this in our dedicated post: How to choose an accountant for your small business
Plan some measurable, quantifiable milestones
It’s very useful to quantify what success or failure looks like. For example, how much do you need to be earning to be breaking even, and by what date should you reach that point? Once you break even, how much profit do you need to make to continue to survive and keep going in business? You can move the goalposts for yourself if you need to, and reviewing and adjusting things along the way is ok, but you should start with a clear idea in your mind of how you’d like to progress. An ambiguous picture that your business should be “doing well” or “financially successful” is probably not specific enough and makes it harder to be objective when making important fight or flight decisions down the track.
Your milestones don’t all have to be purely financial, you might choose different metrics like reaching a certain number of clients, a certain number of hours spent working, or the size of your email database – as long as it’s something that is indicative of success. Having goals in mind will help keep you on track and motivated, and will inform important decisions.
Have a success (and a failure) plan
It’s not something we like to think about too much but tackling the difficult question of what will happen if the business doesn’t take off, means that you’ll be able to understand that scenario better, plan for it and possibly mitigate some of the risk. It sounds stressful, but in fact should actually give you more confidence in starting your business as you will have planned some contingencies.
Conversely, what’s your plan if you meet or even exceed your goals?
Obviously we’d all hope to exceed our business goals, but even that can be a double edged sword. If you grow faster than anticipated or without preparation, you might find your customer service suffers, causing damage to your reputation that can be long lasting and pushing customers toward your competitors. Plan for successful outcomes too, and have a strategy to cope with them. Imagine finding yourself urgently needing to hire your very first employees right at the start of a seasonal busy period, without having any previous experience in recruitment, payroll, or staff training! If you forecast reaching that point in advance (yay!) you’ll be better prepared when it happens.
Remember that growth needs to be manageable so give some thought to how you will proceed if you are failing to reach, meeting or exceeding your goals.
Once you’re up and running
Don’t put off admin
Neglecting the tasks that you don’t want to do like bookkeeping and filing taxes will hurt you in the long run. The longer you leave it the worse of a job it is. If you keep on top of it, you’ll have more time to actively develop your business as you go, and you’ll have less stress and worry in the back of your mind.
Keep good accounts with creditors
If your business relies on carrying stock from suppliers, you’ll probably need to pay your first few invoices up front, before entering into credit terms. If a business offers you a line of credit (including payment in arrears for services), try to pay your invoices as soon as possible. Your suppliers will treat you better if they don’t have to chase you for money. If you ever have a difficult to fulfill request (for example quick turnaround on an order), a reputation as a good customer will go a long way to getting things done. You will also have a better sense of how much you’re making each week/month if you’re not delaying paying for goods and services.
Practise good inventory management
Again if your business requires stock on hand, try to order it well before you need it and use some inventory management software. Don’t forget other consumables too: for me it was product packaging and shipping labels. Once you realise you’ve run out of something mission critical it’s too late! Put 5 minutes into your calendar every week to check you have everything you need to run your business for a month or more.
If and when it’s time to move on
Have an exit strategy
Again this comes down to both success and failure modes, which you should have planned in advance! Have a picture in mind of what walking away could look like.
This might mean winding down the business if it turns out not to be viable. Would you have any outstanding debt at that point? Will you be liable for any contracts such as a commercial property lease, leased equipment or other service arrangements? Are you able to easily return to other work or will you be disadvantaged? Answer these questions early, and you’ll be glad you did if you reach this time.
Alternatively, maybe there’s a case for selling the business.
Even success can be tricky. You may choose to sell your business once it reaches a certain point. Perhaps you’ll be exhausted from the hard yards getting it to that point, you might have reached retirement age, maybe you’re looking for a new challenge, or maybe you’ll be out of your depth and need to hand over to someone more experienced once your business reaches a certain size.
If you decide to sell a running business it often takes 9-12 months or even more, and walking away (even with a cheque in hand) will be emotionally difficult.
Also consider that if you’re running a service business that relies heavily on your own skills or expertise, you may not be able to sell it, despite turning a profit, or that a sale of your business may require a lengthy handover period.
If you plan to sell your business, typically you can aim for a sale price equal to around 2 years profits after salaries. Keep in mind that this includes your own salary, so if you’re operating as a sole trader or partnership and just taking profits and not actually paying yourself a salary, you’ll need to figure out what a fair salary for your time would be first and deduct that from your net profit.
Finally, find a really good business broker. Shop around! Even more importantly than your accountant, this person should have a thorough understanding of what your business does and how it operates, especially if it’s in a niche market. This is the person representing you in sales pitches and negotiations so choose carefully. Expect to pay an upfront fee and a painful sales commission, but remember that they’re going to be working for you and earning most of their money in the stressful weeks before a business changes hands, not the months beforehand. Don’t be afraid to call them for updates while the business is on the market and advice during the sale process.
At the end of the day, starting, running and even selling a business can all be exhausting, emotional and difficult, but also richly rewarding. If you make some sensible plans in advance of reaching some critical decisions in the life of your business, you’ll be better able to take advantage of opportunities and make smarter decisions. Don’t forget the 6 P’s – proper prior preparation prevents poor performance.
Also: Try to get a healthy amount of sleep, running your own business is stressful (but rewarding) and working on little sleep doesn’t help.