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” is difficult.
85% of startups fail within 3 years..
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 you ought to think about to increase the probability of success for your business. There are many other fundamentals you will need to be concerned with but these 4 must be taken care of correctly.
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.
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.
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 rely on.
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.
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 four fundamentals will ensure that it will be an enjoyable and profitable journey too.
By Terry Gorry