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Paving the way

Written by Clive Lewis on Monday, 03 June 2013. Posted in Finance

There are six questions entrepreneurs need to have in the front of their minds when starting a business, says Clive Lewis, head of enterprise at the ICAEW

Paving the way

We’ve all heard of the so-called five Ps of success – proper preparation prevents poor performance. But how can entrepreneurs ensure they have prepared properly for the start-up journey?  A good place to start would be for them to ask themselves these six questions.  

1. Where do you expect the business to be after the critical first two years?

More than a quarter of all new businesses  don’t live to see their second birthday. Setting  up a business is a bit like windsurfing. The hardest bit is the start. Getting balanced and holding the sail up is so hard it puts most people off. Then there’s the direction. Because staying upright is so tough, the under-prepared will  just cling on and go wherever the wind takes them. Often, that will be out to choppy waters where larger vessels dominate. The petrified surfer often falls or jumps off before danger, or runs right into it and gets hurt. It’s crucial that you know where you want to go. The wind will always blow, but being in control with a clear destination in mind will  help a great deal in getting there.   

2. What are your business’s unique selling points (USPs) that will deliver the required business growth?

There are literally millions of businesses out there. Be very clear on what distinguishes  you from all the others.   

3. Who are your business competitors?

Good old market research. While in this  global age it isn’t just a case of walking down your high street any more, taking the time  to establish what’s out there is well worth it.  Find out where your competitors are located – your location may be a USP for some customers. Ask how competitors’ prices compare to yours. Most start-ups try to undercut the competition but sometimes your product  or service has plus points for which customers would be willing to pay more.   

4. What do the numbers look like for the first two years?

Plan ahead and try to identify any tough times  or seasonal variations. Cashflow may be great  for ice-cream sellers in the summer, but profitability for the whole year is what tells  the true picture of the business. I am often astounded by entrepreneurs who fail to consider both cashflow and profitability, but it’s easily done if you’re new to running a business.  If you need others to invest in your business ensure you get them to invest the right amount. That means not just enough to buy the fixed assets required (premises, vehicles or stock)  but also to ensure you have enough working capital. Projecting £100,000 profit in year ten  is of no value if you don’t plan to handle the £10,000 loss in the first year. You’ll be out of business before you get there.  

5. What finance will you require in  this period and where is it planned  to come from?

Seed capital or any other start-up finance may  be necessary not only to get you moving but  also to fund future growth or to replace plant  or machinery. You should be clear what your forecasts say is the total amount of finance  you require. Flag up from the outset all the milestones for expansion and how much and when each new capital injection will need to be.   

6. What preparation have you done and what in your business plan will give confidence to key stakeholders – finance providers, customers, suppliers and so on?

The ‘About us’ section of your website needs  to say more than “er, well, um, you see…”  And so should you when asked about this in person. People buy people and you need to  instil confidence in your stakeholders by being able to articulate what you have done, and will  be doing, to ensure your business will not just survive but flourish.   

For more information, visit businessadviceservice.com

About the Author

Clive Lewis

Clive Lewis

Aside from sharing his name with Narnia author CS Lewis, our talking head and regular columnist is the ICAEW’s head of enterprise, as well as being a lead contributor to publications such as the Daily Telegraph Business Club.

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