What do you need to know before starting a business?
Before starting your own business, you should carry out some research so you have a much better idea of your market and what your business needs to do if it is to succeed. Here are some questions you should ask and links to information that could help you to find the answers.
What are the opportunities and threats?
Spotting a gap in the market can provide a good reason for starting a business – as long as you can make enough profit. But what about other opportunities? Carrying out a SWOT analysis can help you to create a more successful business. SWOT stands for strengths, weaknesses, opportunities and threats. Identifying your strengths as a business can help you to spot more opportunities. Identifying weaknesses can reveal potential threats, but you may be able to protect your business from these. Carrying out a SWOT analysis is essential when writing a business plan, and the process is simple enough.
Will I make enough sales?
In simple terms, your business model describes how you will make money. For example, a restaurant's business model is cooking and serving food to customers. Other business models are more complex, while some business models are non-starters because they don’t generate enough cash for the business to survive. You need to test whether your business model is likely to generate enough cash profit to sustain your business.
What type of business should I register?
When people register their new business they can choose from various “legal structures” and there are pros and cons to each. The simplest, cheapest and most common option is to become a sole trader (also called self-employed), but this means you must pay the business’s debts if it fails. Setting up a limited company is slightly more expensive and requires more admin, but you won’t be liable for business debts. You can set up a partnership with others or even create a social enterprise to benefit a cause or your community. Your choice of business structure also determines how much tax you pay and how you earn money from the business.
How will I establish and grow my business?
Before starting your business, spend time researching and writing a business plan. It will help you to test your business model and focus your thinking about what your business needs to be and how you will grow it. Business planning means having to describe your business, its products/services, market etc, and showing how it will generate enough sales. Having clear aims means you can decide how to grow your business (your “strategy”) and judge how well your business is performing. Having a business plan can also keep you focused on your long-term business goals.
How will I fund my business?
Aim to start your business with as little money as possible (this is called "bootstrapping"). This will minimise your losses if things don’t work out. Being creative and resourceful is essential. Why not borrow or swap skills with other businesses to reduce your spending? You will probably need to use your own money to start your business, but borrowing from family could be another option. Banks are unlikely to lend you money to start your business, while grants and loans are rare (although you should explore available options). The Prince’s Trust funds young entrepreneurs via its Enterprise Programme, while alternative options include crowdfunding.
How will I manage my business finances?
Not everyone has a head for figures, but if your business is to succeed you'll need to know how to set prices, (if you grant credit) send out invoices and make sure they’re paid, keep financial records that detail your sales and costs (“bookkeeping”) and control your finances so your business doesn’t run out of cash. Our glossary explains some common financial terms. You'll also need to make sure you pay your tax and complete necessary forms and returns, but an accountant can help you (for a fee). Signing up to a basic course to learn about managing your finances is recommended.
Where will I operate my business from?
Premises can be a major monthly cost (called an “overhead”) and much will depend on your type of business, but operating from your home is advised where possible. If not, why not share a workspace or rent from another business? Don’t sign up to a rental agreement without realising the costs and how much profit you’ll need to make to cover them (as well as rates, insurance, etc). Location is crucial to the success of retail businesses – so choose wisely.
If you’d like to explore different business ideas why not get some Big Ideas Wales Factsheets to help turn your dreams into reality.