Small companies are a vital part of the UK economy. In 2015 it was estimated that there were nearly 5.4m small businesses in the UK. These in turn provided almost half of all private sector jobs – more than 12m – and produce an annual turnover of £1.2 trillion, 33% of private sector turnover.
People choose to set up a small business for a variety of reasons – independence, the ability to fulfil a market need, the ability to generate wealth and rewards. Small businesses form the engine room of the economy, and play a vital role in creating jobs, delivering innovation and helping to drive economic growth.
Starting a business is a big decision, and running one and surviving is a further and bigger challenge. The stats on small business longevity are sobering also showing that for every 10 new businesses that are created, the life cycle of six existing ones is less than five years.
If you set up in business, you need to understand what you are letting yourself in for, and that the statistics would suggest that your chances of failure are greater than your chances of success. But this does not mean that you should sit back and let chance decide your fate. Some of the reasons behind small business failures are predictable, and by adapting your behaviour you – as the owner – will increase your chances of success.
So what are the key things to bear in mind as a small or new business?
1. Plan, plan, plan
Many small businesses plunge into the competitive arena of setting up without a formal business plan. Sometimes early sales success reinforces the belief that a plan is not required.
However, the benefits of good planning will far outweigh any temporary loss of earnings at the outset of the business. A well-written business plan will help to communicate the unique selling proposition for your business and why people should part with their cash to buy your products or services.
Producing a business plan is only the start of the process. Monitoring progress regularly is essential so that any changes to your business plans, such as cash flow problems or sales and revenues falling short of targets can be picked up quickly and any necessary action taken.
Many businesses fail not because they are unprofitable but because they do not manage their cash resources and are unable to pay their debts. Up to date business information will also prove useful in supporting finance applications, and enable the owner to renegotiate any borrowed finance before an urgent need arises.
2. Cash is King
As we have already mentioned, the need to manage cash is crucial to a small business’s ability to survive and grow.
Ensuring that payment terms are clearly defined in contracts will help to avoid any misunderstandings with customers and help you plan when you receive payment from them.
Customers, especially if they are large companies, can see small suppliers as a source of working capital by paying late as small businesses are often reluctant to take action for fear of jeopardising that relationship.
As a small business you need to build into your financial plans that you may experience later payment as a result.
Having up to date and accurate accounting information is crucial in helping a small business plan its cash flow requirements.
3. Be adaptable
Running your own business is stressful. You will need to withstand long periods of uncertainty while managing a range of business risks. These are vulnerabilities that come with the territory and you will need to cope.
The key is to accept these pressures as inevitable and to develop the ability to respond positively.
As a business owner you need to take time to consider contracts carefully before signing them to ensure that the rights and responsibilities of all parties are clearly set out and understood so that they lead to improved cash flow and profitability.
Many owners are not experienced in evaluating the relative benefits and costs of capital expenditure and other long-term investments. They can take a simplistic view, often based on very roughly estimated payback periods and not taking into account some of the variables that might sensibly be considered in financial decision making such as the cost of finance or the time value of money more generally.
How can Hawsons help?
Small businesses are the biggest beneficiaries of online cloud accounting and there are numerous ways in which moving to the cloud can be of value.
Working in the cloud will give you the opportunity to reduce the amount of time you spend working on tedious, time-consuming tasks, allowing you to concentrate on what you do best: growing your business.
You can also be confident that you will have greater access to real-time data for your business – no matter where you are – as business information is accessible any time, any place, on any device that has internet access (much like internet banking).
This will enable you to be able to base business decisions and plans on reliable accurate information.