If so you're not alone - a large number of New Zealanders take the plunge each year. The chance to manage and determine your own destiny can be pretty exciting, but the stakes are high - over 50% of small businesses (less than six staff) fail to celebrate their second birthday. So what can you do to increase the likelihood of seeing that second birthday cake?
As with any important decision, you need to think carefully about what you want to do, why you want to do it, your skills and what you hope to achieve. What you need is a business plan to ensure you have your best chance of in starting a business.
Starting a business
Take a blank writing pad and list the reasons why you want to start a business. Do you want...
- to be your own boss?
- financial independence?
- creative freedom?
- to fully use your skills and knowledge?
Then look at "skill matching". It is important that you ask questions like:
- What do I like to do with my time?
- What technical skills do I have?
- What do others say I am good at?
- Do I have hobbies or interests that are marketable?
The Homework
Having worked this out, you need to identify the niche your business will fill. If you are looking at an existing business opportunity, your niche is clear - just make sure that the opportunity matches your skills and goals. Business brokers can often help here, they match buyers and sellers, have their ear to the ground, and know the market. Contacting a broker early in the planning phase will enable you to find out about a range of businesses for sale locally and nationally. Also search the Internet, newspapers, and ask around, to find a business that best suits your needs.
If you are starting a business from scratch, identify the products or services that you want to sell. Then research, research, research! Use the Internet, Small Business Enterprise Centres, trade associations - anything and everything that you can think of to research:
- The products or services you want to sell
- Market demand
- The competition
With the Internet your competition may be worldwide - but so too is your potential market!
The Professionals
By this stage you know what you want to do and you've done your "starting a business" research: your business plan is starting to look a bit thicker than the single page you started with... and hopefully you're still feeling positive about the venture.
You also need to think about how much it is all going to cost - you might need business finance. What monetary resources do you have? Will you require loan finance? What security can you offer? You need to have enough money for the initial set up and working capital.
Back to the professionals. Grab your business plan and go see a Chartered Accountant, preferably one that has been recommended by someone you know. Chartered Accountants deal with a wide range of people in a variety of businesses. They are expert in understanding the different business structures that exist and the advantages and disadvantages of each.
A solicitor should always review any legal documentation involved including company documentation, leases, franchise agreements or contracts to buy a business. A little advice up front can save a lot of trouble later.
Depending on the nature of your business you may want to consider approaching other professionals including experts in marketing and interior design - but don't just accept the first person you meet with. You have a lot riding on this venture - make sure that you feel comfortable with and confident in the person you are dealing with.
And the Forecast is...
If the light is still green at this stage then it is time to crunch some numbers. A financial forecast is vital before committing to start a business. Working closely with you, your accountant will be able to prepare a detailed profit and cash flow forecast. A forecast balance sheet should also be prepared so that you can get a snap shot of how your business should look in 12 or 24 months time. Sensitivity analysis will also be important to gauge the effect of sales being 10% less than expected or your margin falling by 3% - is the business still profitable at that stage? This is where expert professional advice can be worth its weight in gold.
...Smooth sailing ahead
The completed business plan including your goals, research, marketing plans and financial forecasts can then act as a blue print for bringing your dream to reality. If loan finance is required your business plan and financial forecasts can be presented to the bank in support of your loan application.
Now the really exciting bit starts as you see your venture take shape, and work hard to make it a success. Keep referring back to your business plan to make sure you are going where you want to go and stay in contact with your professional advisers, their advice will save you money in the long run... and increase your chances of seeing that second birthday cake.
This article has been provided by Dave McCone - partner Staples Rodway Chartered Accountants.
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