Deciding to start your own business is easy.
However, ensuring that your start up does not become an insignificant statistic in the “graveyard of broken dreams” along with the 85% of startups that fail within 3 years is more problematic.
Despite the massive changes in technology in the last few years the fundamentals of starting and running a successful business haven’t changed much.
Let’s take a look at 4 critical areas to increase the probability of success for your business.
1. Legal structure of your business
The legal structure that you choose for your new business will have far reaching consequences and you should be crystal clear as to what structure is best for you and why.
There are three common ways to structure your business:
a) Sole trader
c) Limited company.
As a sole trader you will be solely responsible for the debts of your business. Clearly this is something that requires serious consideration on your behalf as failure could leave you saddled with the debts of the business, even after you cease trading.
Setting up your new business with a partner and forming a partnership to conduct your business means that each of you will be liable for the debts of the partnership.
It is important to understand that this does not mean the debts are shared or split between you-each of the partners will be jointly and severally liable for all debts of the business.
Learn more about partnership law.
Limited Liability Company
A limited liability company has a separate legal identity from it’s promoters, shareholders or directors and the company’s liability, if things go wrong, will be limited to it’s paid up share capital.
While this may seem to offer significant protection to you from exposure to creditors and/or banks if things go wrong, in practice the protection is illusory to a great extent as many suppliers and all banks will look for personal guarantees or bonds from you to cover the debts of the company.
Read more about setting up a limited company and company law, shareholders agreements and many other topics of business law in Ireland.
2. Professional advisors
Having professional advisors that you can rely on and whose judgement you respect can provide a great sounding board for many of the significant decisions you will need to make on your own.
So get yourself a good accountant and solicitor to whom you can turn and who will ensure that all of your legal requirements are met-things like registration for vat and as an employer, business name registration or company set up are necessary details that will need to be executed properly and which will allow you to spend more time on the overall development of your business.
3. Cash flow budgeting
A prime reason for the failure of startups is a shortage of cash. Cash is king, especially in the early days and you need to be clear about the difference between profitability and cash flow and the ability of new businesses to suck considerably more cash than anticipated in the early days.
Business Financing-9 Options For Your Small Business
Without the sufficient finances you cannot run your business properly no matter how well planned it is. In other words, business financing plays a huge role in the survival of your business.
Many owners and would-be entrepreneurs face difficulties as to where they can find a source to finance their business. Here is a list of ways that you might want to consider:
Establish a partnership with company or investors who are willing to put their money in your business. There a two types of partners, the industrial partner and the capital partner. Industrial partners are those who invest their time, skill and effort in the business in exchange for a portion of the income while capital partners invest through contributing cash or property such as machinery to the partnership.
In establishing a partnership, your partner may impose a degree of control over your business besides having a portion of your income so make sure to choose a capital partner who has less demands and conditions and who you are comfortable working with.
Entice investors into your business. Approach possible investors and present a well formed plan that will convince them to invest. This is somewhat similar to partners. The only difference is that investors can only demand minimum control over the business compared to partners although that will depend on the level of investment.
Approach suppliers and make propositions. Convince them to give you supplies in a form of loan payable periodically. That way you will have your raw materials without releasing cash before you gain income.
Avail of loans. Inquire from banks and financial institutions for possible business loans. However, not all banks support newly opened businesses. They are more inclined to extend loans to businesses that are already operating. For starting businesses you might want to choose other ways of business financing.
3.5 Credit Cards
Get cash advances from credit cards. This is normally used for a quick fix of your troubles but this is not advisable for a long term solution because interest rates on credit cards, can be very punitive. Try to get the introductory rates for lower interests.
3.6 Lease equipment
Lease your equipment. Rather than spending your money to buy new and expensive equipment you might think of leasing them. Leasing generally reduces the amount of money you have to raise. Within the lease period make sure to save enough income to buy your own because leasing is more costly in the long run.
3.7 Government Help/State Assistance
Avail of government programs. Check with the IDA, FAS and the Department of Enterprise, local county enterprise boards etc. to see what is available.
Utilize your savings. It is time to use your long time savings for greater purpose. You might be a little hesitant but do not worry because if your business will succeed it will come back to you with twice its value.
Mortgage your property. Mortgage must be the last resort that you should consider because of the risk it can bring. If you fail to pay you might lose more than what you bargained for.
You can combine any of these nine choices to come up with a best business financing suitable for you and your business.
4. Human Resources
A vital part of the success or failure of your new business will be your people.
Choosing the right staff is one thing; managing them is another.
There are a number of key areas you need to be careful about as an employer. I have learned these things the hard way.
But the potential for costly employment related claims is fairly extensive.
In conclusion, starting a new business can be an exhilarating white knuckle ride-taking care of these three fundamentals will ensure that it will be an enjoyable and profitable journey too.
About the author
Terry Gorry has extensive experience in starting, running and selling small businesses in Ireland since 1986 in a number of diverse industries.