Company formations are up by 3% in 2019 at 681,704
Creating a limited company and going into business is a big step. The first step in a long and hard path to create your own company, brand and future. Making sure you have a solid foundation to build upon is crucial.
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1. A Business Plan
Why should you write a business plan… Simple: Imagine you were going to go on a long journey.Would you simply get in car or go to the airport without mapping out a route. Or forward planning places to stop, sleep or eat. Or, would you leave without enough fuel in the tank or money in your pocket. Of course not, you would have even the slightest plan.
All of the above is Planning, now as a company Director you have taken on certain legal obligations. You need to make sure the company is run properly and reports properly.
Don’t think of a Business Plan as single sheet of paper. Any plan you put in place will change over time, it will effectively become a working document, used to plan, forecast, measure and review. All the while changing as the company encounters new unforeseen challenges and opportunities. The Company will change, grow, develop and even transform, so the plan will be continually changing as you try to control and monitor revised plans and targets.
Give your new business the best start possible. The plan should highlight the following areas:
Work on defining your Market and the Unique Selling Proposition. Consider the optimum pricing strategies and outline how you intend to sell and deliver your product or service. Build the picture to determine your Startup and Operating Capital requirements.
Most new businesses need start up funding to get the ball rolling. Any potential investors will be look for a robust business plan with real emphasis on the quality of the plan. The risk of default is a perennial problem and one that new companies are renowned for causing. Any planning in advance to avoid failure is time well spent.
Often the first financing is done privately by personal or family means. This is normally followed up by secured funding or funding with personal guarantees. Unfortunately this does bring the owners and family into a precarious situation if the business fails.
Once established the business can often revert to other sources of finance:
- Short Term Debt Financing -Eg. Overdrafts, Invoice Discounting
- Long Term Debt Financing – Eg. Mortgages
- Equity Financing
The main advantage of debt financing over equity financing is that the lender does not take an equity position in your business. You retain full ownership and the lender has no control over the running of the business. On the other hand, with equity financing the investors become part owners of the company and therefore have a say in how the business is managed.
3. Plan your team
So are you a solo entrepreneur or will you use contractors, or will you go all in and need to hire employees.
All of these have strengths and weaknesses. Predominantly dictated by the company size, type and growth plans.
Solo entrepreneur – no employees, but you will need the support of others. From a Business Coach to keep you on track, a bookkeeper or an admin support function and lastly the IT support.
The overlap of contractors can creep into the company that needs to hire employees. Make sure you outline the positions you need to fill and the specific responsibilities. Employment contracts are required as well as offering the statutory entitlements from holiday pay, sick pay and auto enrolment.
A professional Human Resources contractor, outsourced can save thousands of pounds to avoid getting things wrong and finding yourself in an Industrial Tribunal.
4. Shareholder Agreement
If there is more then 1 Shareholder or “Co Founders” a Shareholder Agreement can protect both the business and the owners. Although you may hope you never need to rely on the agreement it is the most crucial document when things may not go as planned.
The agreement should give all the parties a protection and establish a fair relationship between the shareholders.
- Shareholder rights and obligations
- Outline how important decisions should be made
- Describe how the company will be run
- How to deal with death or incapacity of shareholders/directors
- How the company is valued for the purposes of internal share acquisition between shareholders and family members of deceased or incapacitated shareholder/directors.
- Any other pertinent issues facing the new company and its structure
The main advantage of a Shareholder Agreement is that in addition to enforcing their shareholder rights against the company under its constitution it allows individual shareholders to enforce their rights under the agreement against each other, providing more protection from the possibility of being squeezed out of the management of the company.
Speak to your accountant or solicitor to get the agreement done as early as possible before all the other work pushes it to far down your To Do List.
You can download a Shareholders Agreement here: https://simply-docs.co.uk/Login
5. Choose your Accounting System
Businesses run most effectively when there are systems in place. One of the most important systems for a small business is an accounting system.
Your accounting system is necessary in order to create and manage your budget, set your rates and prices, conduct business with others, and file your VAT and other taxes.
You can set up your accounting system yourself, or hire an accountant to take away some of the guesswork. If you decide to get started on your own, make sure you consider these questions that are vital when choosing accounting software.
- VAT – do you need to register, is it advisable, will it make you more or less successful.
- Make sure you are MTD Compliant.
- Look at Cloud Accounting packages to speed up work and increase efficiency.
- Automated Sales and payment receipts from websites, online and in store.
- Cash accounts versus Credit accounts, do you need to give credit and can you avoid taking cash from customers.
Using accounting software saves hours of time compared to handling the books manually and is usually more efficient than using a spreadsheet. It is because accounting software reduces or eliminates redundant data entry, like entering the customer’s address on the quote, then the work order, and then the invoice.
6. Websites and Social Media
Since you did your business plan and know who your customer will be you can now address the Website and Social Media as you review you marketing
Websites are often the Anchor of the Marketing – Let it centralise and encapsulate your business and its offering.
- Get all your information across:
i. Product / Service
ii. E-Commerce (Always whenever relevant)
iii. Contact Details
Plus everything else you want to shout about !!
Social Media – The new Website equivalent to some… Facebook, Instagram and more.
- Social Activity – you don’t need to be on every social media channel. Companies that sign up for and never use the channels doesn’t mean they know or understand social media.
- Talk about what is important to – THE CUSTOMER (Not the Company)
Images are key – The most commonly shared content is an image. Get the images on the media.
7. Set specific goals and objectives
- Get in the habit of setting goals, both financial and non financial. Ex. Sales of £10,000 per week or 50 phone calls a day. Monitor, review and revise.
- Hold yourself accountable. Write down the goals and objectives. Tell your family, a colleague, your coach.
- Set regulated time interval goals: Each day, each week, each month, each quarter, each year.
8. Remember – Be the solution for the customer (before, during and after)
- Try to be clear at all times that your customer is your ultimate critic. What is it that the customer either Needs or Wants.
- Don’t be afraid to ask your customers what they want or need. They will tell you, listen for the pain points.
- Complaints: In one sense these are the most valuable feedback you will ever get from a customer.
- The will show you what your customer “Expected”, is this really what you were offering? Did the message get mixed up when being sent out.
- How does your company appear to the outside world?
- What are your employees offering, failing to offer, misunderstanding or overselling?
- Can the customer be turned into a convert and an ambassador?
- If you consider the lifecycle of the client what is the cost of acquisition versus the cost of a lost customer?
- How can you turn every complaint into a quality critical assessment designed to improve your business?
9. Keep control
- Even with your business plan costs will come rise unexpectedly. Be prepared to say no if you can do without, find workarounds, or manage the spend.
- Overtrading is often a problem for new companies. Be aware if different parts of the business are struggling due to great sales, reduced margin and heightened costs. Often cashflow can run out and put pressure on the business. Even if most signs look good the effect of overtrading will be felt in the working capital.
- Communication – maintain control by communicating.
- Communicate with your suppliers if you have any supply or quality issues.
- Communicate with your customers, the complaints or even the request for referrals from happy customers.
- Communicate with your team – let them know the plans, the prices, the promotions. Positive and negative feed back to ensure everyone can feel they know what is expected of them and their colleagues.
- External stakeholders – keep the lines of communication open. Especially if you are having problems. They will want to assist and help in multitude of ways, use that asset to come up with ideas, finance or alternatives.
10. Long term strategy – sell out or lifestyle
- Decide as early as possible if you think you would like to build to sell or keep the business and either grow or keep it as a lifestyle business. There is nothing wrong with any of these scenarios but it should form the basis of many of the decision making exercises.
- Sale Scenario – A Limited Company has certain legal responsibilities when being sold. Your accountant can advise you. Certain tax considerations can help you decide how to proceed and incentive a buyer.
- Plan ahead,
- Streamline finances
- Clean up the finances, get valuations done regularly.
- Create clear work processes and documentation systems in the business. Create the systems to allow a new owner a (Handbook) on the business
- Consider time frames for personal and business reasons
- Consult a Wealth Advisor or IFA to set objectives and plans.
- Consider both internal and external buyout scenarios. Employees can often be the most motivated buyers.
- Consider selling over time.
We hope the 10 general points have highlighted areas you may have considered, or more importantly not considered. If you have any questions or would like some help with these or other issues around the new company please feel free to contact Brookwood Accountancy at any time. Best of luck with your new company and to your new future.
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