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Starting & Running a Business All-in-One For Dummies®, 3rd Edition
Published by: John Wiley & Sons, Ltd., The Atrium, Southern Gate, Chichester, www.wiley.com
This edition first published 2017
© 2017 by John Wiley & Sons, Ltd., Chichester, West Sussex
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ISBN 978-1-119-15215-6 (pbk); ISBN 978-1-119-36102-2 (epub); ISBN 978-1-119-36104-6 (epdf)
Welcome to this latest edition of Starting & Running a Business All-in-One For Dummies, your launch pad to understanding the fundamentals of setting up, establishing, running and growing a successful small business. In today’s challenging environment, with the banking sector still scrambling to find a foothold after the credit crunch and world stock and oil price markets see-sawing with alarming frequency, it has never been more important to be well informed on every aspect of business.
Standing out from the crowd is getting tougher, too. In 2015, a record 600,000 new businesses were started in Britain, bringing the total number of new businesses started since 2010 to 2.6 million, far more than in any other European country.
This book draws together information on the key areas of successful business – planning, funding (including new areas such as crowdfunding), staying on the right side of the law, employing staff, bookkeeping, accounting and tax, marketing promotion, social media, e-commerce and planning for growth – all in one bumper guide.
With help from this book, you can make even better business decisions and transform a simple idea into your very own business empire.
This book is the ultimate business adviser, providing expert guidance for businesses at every stage of the start-up process.
This third edition of Starting & Running a Business All-in-One For Dummies draws on advice from several other For Dummies books, which you may wish to check out for more in-depth coverage of certain topics (all published by Wiley):
You can find some interesting (but not essential) info in the sidebars, which are shaded boxes, and with the Technical Stuff icon. Feel free to read these if you want to dig a little deeper and to skip them if you want just the basics for now.
Note that this book is a reference book, so you don’t have to read it in order (unless you want to!); simply use the table of contents and the index to help you find what you’re looking for. You can dip into and out of chapters as you like.
Within this book, you may note that some web addresses break across two lines of text. If you’re reading this book in print and want to visit one of these web pages, simply key in the web address exactly as it’s noted in the text, pretending as though the line break doesn’t exist. If you’re reading this as an e-book, you’ve got it easy — just click the web address to be taken directly to the web page.
This book brings together the elements of knowledge that are essential for understanding the world of small business. As a consequence, to keep the book down to a reasonable number of pages, we’ve made a few assumptions about you (we hope you don’t mind!). Maybe you’re:
When you flick through this book, you’ll notice some snazzy little icons in the margin. These pick out key aspects of starting and running a business, and present you with important nuggets of information:
In addition to what you’re reading right now, this product also comes with a free access-anywhere Cheat Sheet that provides key considerations for starting a business, factors for business success and more. To get this Cheat Sheet, simply go to www.dummies.com
and search for ‘Starting & Running a Business All-in-One For Dummies Cheat Sheet’ in the Search box.
Starting & Running a Business All-in-One For Dummies, 3rd Edition, can help you succeed no matter what kind of business expertise you’re looking for. If you have a great and proven business idea, you may want to plug straight into finding out how to raise finance (head over to Book 2). If you need more than just yourself to get your great business idea off the ground, you may want to know how to find great employees (check out Book 3). If you’re planning to take care of your own bookkeeping and finances, you may want to find out how to successfully balance the books and take care of tax (flick through to Book 4). Or perhaps you’ve already started out and you’re looking for advice on how to take your business to the next level (Book 6 gives some great advice). This book is set up so that you can dip in and out of it in a number of ways depending on your situation.
Book 1
Contents at a Glance
Chapter 1
IN THIS CHAPTER
Working up to opening up
Measuring your business’s viability
Growing for success
When you’re starting a business, particularly your first business, you need to carry out the same level of preparation as you would for crossing the Gobi Desert or exploring the jungles of South America. You’re entering hostile territory.
Your business idea may be good, it may even be great, but such ideas are two a penny. The patent office is stuffed full of great inventions that have never returned tuppence to the inventors who spent so much time and money filing them. It’s how you plan, how you prepare and how you implement your plan that makes the difference between success and failure. And failure is pretty much a norm for business start-ups. Tens of thousands of small firms fail, some disastrously, every year. Most are perfectly ordinary enterprises – catastrophe isn’t confined to brash Internet whiz kids entering markets a decade or so ahead of the game.
In fact, a quarter of all new businesses close their doors before their first year is over; a further quarter fail by their fourth year (for more on the reasons why, visit www.statisticbrain.com/startup-failure-by-industry
). This chapter sets the scene to make sure that you’re well prepared for the journey ahead.
You need to be in great shape to start a business. You don’t have to diet or exercise, at least not in the conventional sense of those words, but you do have to be sure that you have the skills and knowledge you need for the business you have in mind, or know how to tap into sources of such expertise.
The following sections help you through a pre-opening check-up so that you can be absolutely certain that your abilities and interests are closely aligned to those that the business you have in mind requires. The sections also help you to check that a profitable market exists for your products or services. You can use these sections as a vehicle for sifting through your business ideas to see whether they’re worth the devotion of time and energy that you need to start up a business.
Business lore claims that for every ten people who want to start their own business, only one finally does. It follows that an awful lot of dreamers exist who, while liking the idea of starting their own business, never get around to taking action. Chapter 3 of Book 1 looks in detail at how you can assess whether you’re a dreamer or a doer when it comes to entrepreneurship. For now, see whether you fit into one of the following entrepreneurial categories:
You may be a great potential entrepreneur, but you still need to spell out exactly what it is you plan to do, who needs it and how it can make money. A good starting point is to look around and see whether anyone is dissatisfied with their present suppliers. Unhappy customers are fertile ground for new businesses to work in.
Aside from asking around, one way to get a handle on dissatisfaction levels is to check out websites that allow consumers to register their feelings, such as www.reevoo.com
, www.grumbletext.co.uk
and www.resolver.co.uk
. Then scour blogs where irate people can complain their hearts out. Check out websites such as http://thebloggerhub.com
, www.totalblogdirectory.com
and www.bloghub.com
, which all operate blog-indexing services that can help you filter through the 70 million plus blogs and reach the few dozen that serve the sector you’re interested in.
www.competitorscompanion.com
), a magazine aimed at helping anyone become a regular competition winner, was an immediate success. The proposition was simple: subscribe and you get your money back if you don’t win a competition prize worth at least your subscription. The magazine provided details of every competition being run that week, details of how to enter, the factual answers to all the questions and pointers on how to answer any tie-breakers. It also provided the inspiration to ensure success with this sentence: ‘You have to enter competitions in order to have a chance of winning them’.Having a great business idea and possessing the attributes and skills you require to start your own business successfully are two vital elements to get right before you launch. The final ingredient is to be sure that the business you plan to start is right for you.
Before you go too far, make an inventory of the key things that you’re looking for in a business. These may include working hours that suit your lifestyle; the opportunity to meet new people; minimal paperwork; a chance to travel. Then match those up with the proposition you’re considering. (Chapter 3 in Book 1 talks more about finding a good business fit.)
An idea, however exciting, unique, revolutionary and necessary, isn’t a business. It’s a great starting point, and an essential one, but you have to do a good deal more work before you can sidle up to your boss and tell him exactly what you think of him.
The following sections explore the steps you need to take so that you don’t have to go back to your boss in six months and plead for your old job back (and possibly eat a large piece of humble pie at the same time).
However passionate you are about your business idea, you’re unlikely already to have the answers to all the important questions concerning your marketplace. Before you can develop a successful business strategy, you have to understand as much as possible about your market and the competitors you’re likely to face.
The main way to get to understand new business areas, or areas that are new to you at any rate, is to conduct market research. The purpose of that research is to ensure that you have sufficient information on customers, competitors and markets so that your market entry strategy or expansion plan is at least on target, if not on the bull’s eye itself. In other words, you need to explore whether enough people are attracted to buy what you want to sell at a price that gives you a viable business. If you miss the target altogether, which you may well do without research, you may not have the necessary resources for a second shot.
The areas to research include:
The price: What do customers see as giving value for money, so encouraging both loyalty and referral?
Make sure you don’t set your price too low. Undercharging is one of the main reasons for early failure. Raising your price is always harder than lowering it.
Your big idea looks as though it has a market. You’ve evaluated your skills and inclinations and you believe that you can run this business. The next crucial question is – can it make you money?
You absolutely must establish the financial viability of your idea before you invest money in it or approach outsiders for backing. You need to carry out a thorough appraisal of the business’s financial requirements. If the numbers come out as unworkable, you can then rethink your business proposition without losing anything. If the figures look good, you can go ahead and prepare cash flow projections, a profit and loss account, and a balance sheet, and put together the all-important business plan. (Chapters 1, 3 and 4 in Book 2 cover these procedures.)
Many businesses have difficulty raising start-up capital. To compound this, one of the main reasons small businesses fail in the early stages is that they use too much start-up capital to buy fixed assets. Although some equipment is clearly essential at the start, you can postpone other purchases. You may be better off borrowing or hiring ‘desirable’ and labour-saving devices for a specific period. This obviously isn’t as nice as having them to hand all the time, but remember that you have to maintain and perhaps update every photocopier, printer, computer and delivery van you buy, and they become part of your fixed costs. The higher your fixed costs, the longer it usually takes to reach break-even point and profitability. And time isn’t usually on the side of the small, new business: it has to become profitable relatively quickly or it simply runs out of money and dies.
Two fundamentally different types of money that a business can tap into are debt and equity:
Equity is the money that shareholders, including the proprietor, put in and money left in the business by way of retained profit. You don’t have to give the shareholders their money back, but shareholders do expect the directors to increase the value of their shares, and if you go public they’ll probably expect a stream of dividends too.
If you don’t meet the shareholders’ expectations, they won’t be there when you need more money – or, if they’re powerful enough, they’ll take steps to change the membership of the board.
Alternative financing methods include raising money from family and friends, applying for grants and awards, crowdfunding, and entering business competitions. Check out Chapters 1 and 2 in Book 2 for a review of all these sources of financing.
A business plan is a selling document that conveys the excitement and promise of your business to potential backers and stakeholders. These potential backers can include bankers, venture capital firms, family, friends and others who may help you launch your business if they only know what you want to do. (Chapters 1 and 2 in Book 2 consider how to find and approach sources of finance.)
Getting money is expensive, time-consuming and hard work, but sometimes you can get a quick decision. One recent start-up succeeded in raising £3 million in eight days, after the founder turned down an earlier offer of £1 million made just 40 minutes after he presented his business plan. Your business plan needs to cover what you expect to achieve over the next three years. (Chapter 4 in Book 1 gives full details on how to write a winning business plan.)
www.ventureip.co.uk
) and First Flight Placement’s non-exec search site (www.nonexecdirector.co.uk
) for information on tracking down the right non-executive director for your business.Growth is as natural a feature of business life as it is of biological life. People, animals and plants all grow to a set size range and then stop. A few very small and very large specimens come to fruition, but the vast majority fit within a fairly narrow size band.
Businesses follow a similar formula: most successful new businesses, those that survive that is, reach a plateau within five to seven years. At that stage the business employs 5 to 20 people and has annual sales of between £250,000 and £1 million. Of the 5.4 million private businesses operating in the United Kingdom, it is estimated that fewer than 130,000 have a turnover in excess of £1 million a year. That doesn’t represent a bad result. Viewed from the position of a one-man-band start-up, having a couple of hundred thousand pounds in sales each year is an admirable (and unusual) success.
The following sections demonstrate the great benefits of growth. (Books 5 and 6 contain more advice on how to make your business grow.)
After a business starts to grow, you can spread overhead costs over a wider base. You can buy materials and services in larger quantities, which usually means better terms and lower costs. These factors generally lead to a higher profit margin, which in turn provides funds to improve the business, which in turn can lead to even lower costs. This virtuous circle can make a growing firm more cost-competitive than one that’s cautiously marking time.
A new business can steal a march on its competitors by doing something vital that established businesses can’t easily imitate. For example, a new hairdressing shop can locate where customers are, but an existing shop has to content itself with its current location, at least until its lease expires.
A growing firm can gain advantages over its slower competitors. For example, launching new products or services gives a firm more goods to sell to its existing customer base. This puts smaller competitors at a disadvantage, because they’re perceived as having less to offer than the existing supplier. This type of growth strategy can, if coupled with high quality standards, lead to improved customer retention and this too can lead to higher profits – a further push on the momentum of the virtuous circle.
The surest way to ensure that a business fails is to have a continual churn of employees coming and going. You have to invest valuable time and money in every new employee before he becomes productive, so the more staff you lose the more growth you sacrifice. Most employers believe that their staff work for money and their key staff work for more money. The facts don’t really support this hypothesis. All the evidence is that employees want to have an interesting job and recognition and praise for their achievements. Chapters 5 and 6 in Book 3 explain how to get the best out of your staff.
By growing the business, you can allow key managers to realise their potential. In a bigger business you can train and promote your staff, moving them up the ladder into more challenging jobs where they can earn higher salaries on merit, so they stay with you rather than leaving for pastures new. And if employees are good at their jobs, they become more valuable the longer they stay with you. You save time and money on recruitment and you don’t have to finance new managers’ mistakes while they learn how to work in your business.
Bigger isn’t always better, but a growing business has a greater presence in its market and that’s rarely a bad strategy. Large businesses are also more stable, tending to survive better in turbulent times. Bigger businesses do sometimes go bust, but smaller, ‘doing nicely’ businesses are far more likely to hit a bump in the road.
A small company often relies on a handful of customers and just one or two products or services for most or all of its profits. If its main product or service comes under competitive pressure or if a principal customer goes bust, changes suppliers or spreads orders around more thinly, the small company is in trouble. Expanding the number of customers so that you break out of the 80/20 cycle, in which 80 per cent of the business comes from 20 per cent of customers, is a sensible way to make the business safer and more predictable.
One-product businesses are the natural medium of the inventor, but they’re very vulnerable to competition, changes in fashion and technological obsolescence. Having only one product can limit the growth potential of the enterprise. A question mark hangs over such ventures until they can broaden their product base. Adding successful new products or services helps a business to grow and become a safer and more secure venture. This process is much like buying a unit trust rather than investing in a couple of shares. The individual shares are inevitably more volatile, but the spread over dozens of shares smoothes the growth path and reduces the chances of disaster significantly.
Chapter 2
IN THIS CHAPTER
Finding the right business form
Protecting the crown jewels
Exploring options for help (and there are plenty of them)
When you start your business, you have to make a decision more or less from the outset on the legal structure you’re going to use to trade. Although that’s an important decision, luckily, it’s not an irrevocable one. You can change structures as your business grows – though not without some cost and paperwork.
The simplest structure is to make all the business decisions yourself and take all the risk personally. You don’t have to shoulder all the responsibilities when you start a business, though most people initially do so. It may be great doing everything your way, at last, after the frustrations of working for someone else. But it can be lonely or even scary with no one with whom you can talk over the day-to-day problems and share the responsibility of decision making.
If your business requires substantial investment, or involves other people who have a more or less equal hand in the venture alongside you, then your decision about the legal structure of the business is a little more complicated.
In this chapter, you can find all the important factors to consider when deciding on the legal structure for your business. You also look at other areas of interest, from intellectual property to finding practical sources of help.