If you are taking your first steps as an entrepreneur, the entire process of setting up a new business can be very daunting, especially if you are entering a fast-moving and competitive field such as tech.
There is a lot for a new business owner to consider, from how to win new clients and gain access to the funding they need through to the complexities of tax and business structure.
Before launching a business an entrepreneur’s first step should be to undertake thorough market research to ensure their business concept will work and there is a market for their product or services.
By looking at the potential market entrepreneurs should be able to identify customers and competitors, as well as consider some of the costs associated with setting up and running their business.
Having conducted thorough research, businesses should be able to begin looking for suppliers, calculate their pricing strategy and think about the development of their business beyond its initial launch.
Comprehensive market research is also an important step in preparing a business plan and is likely to be essential if the business needs to raise capital at any point.
Finance is often one of the biggest barriers to setting up a business and in the current climate lenders and investors are likely to be more risk-averse, which may make sourcing funding more challenging.
The finance required by each business depends entirely on the unique nature of its operations. Some companies are relatively low-cost to set up and run, while others are resource and cost-intensive but may offer excellent returns.
This is where early research can pay off. If done correctly it should be possible to identify the costs of setting up a company, allowing owners to break the necessary investments up into three distinct categories:
- Essential costs – A business cannot operate without these.
- Useful investments – These make a business more efficient but would not prevent it from operating.
- Additional investments – These offer small benefits to the business but are by no means essential or necessary.
Creating a business plan
The next step for new entrepreneurs is to create a comprehensive business plan that will act as the blueprint for their company. This document should be treated as a working document, evolving with the business as new opportunities arise.
If sufficient market research is conducted and a business can demonstrate its financial position and its future potential, then it should be in a strong place to tailor an initial business plan. Most plans include:
- An executive summary – this is an overview of the business.
- Marketing and sales strategy – provides details on customers, competitors, market trends and tactics.
- Details of the management team and personnel – a founder’s credentials and the people it plans to recruit.
- Operational overview – a summary of premises, production facilities, management information systems and IT.
- Financial forecasts – this section provides details of cash flow forecasts, profit and loss accounts and balance sheets.
A business plan is often a requirement for any form of financing and can help keep an owner on track.
Entrepreneurs need to decide whether they will operate as a sole trader, a partnership or as a limited company – this is known as the business structure.
Depending on which type of business structure is chosen could lead to different tax and governance issues.
Many businesses prefer the protection of operating as a limited company, as the liability is only tied to the amount invested within the business and not directly to its founder(s).
Owners must monitor the performance of the business over its life, but careful forecasting and business intelligence can be an essential part of forming a successful business.
Without careful monitoring of performance, it can difficult to assess how well a business is doing.
This need not be a complicated process and doesn’t have to look into every single aspect of the business. The most important growth metrics for young businesses tend to be:
- Gross Profit Margin – The amount received once the cost of goods or services sold are covered.
- Customer Acquisition Cost – The price paid to acquire a new customer.
- Spend Rate – The speed at which the company spends its capital.
By monitoring data around each of these factors, it may be possible to spot weaknesses quicker and also identify areas of growth in which to invest more resources.
Many start-ups find that investing in cloud accounting technology helps them to monitor and assess their performance, especially if they collaborate closely with their accountant.
New business owners do not have to go it alone. One of the first and most important things they can do is seek help from professional advisers, such as a trusted accountant.
We have worked with lots of innovative new entrepreneurs at Davis Grant, helping them to succeed and grow.