If you are in the process or the early stages of setting up a business, turning your big idea in to a profitable and sustainable venture requires focus, dedication and a series of well thought out steps before you can either consider attracting funding from the banks.
There is a lot of talk about having enthusiasm and passion, but it’s important to remember that passion arrives hand in hand with action. You need to be clear that you not only understand the financial implications of starting, growing and sustaining your business but have the skills to manage and grow your profits.
I tell my members all the time, it is all well and good thinking your great idea will sell loads, but alas for many, their business is nothing more than an expensive hobby. That’s why it’s important to realise that incorporating something you love with the desire to become self-employed requires a mature and realistic look at your financial attitude and behavior.
So if you are ready to turn your dream into reality here are five questions you must ask yourself when looking to raise finance.
What is your current financial situation?
We know that for many people it will take a few years for their business to turn over a healthy, fat profit (if you survive the first three years); so will your current earnings or savings see you through until your new business gets off the ground? Is your partner prepared to support you until you become self-sufficient or will you find yourself struggling after a couple of months?
If you have no other source of income you may need to work on your business as a side line to your existing job for a while, until your venture begins to pay for itself. Set yourself a time target when you want to leave your employment so you are making serious financial plans until you can branch out on your own.
Have you set yourself financial goals?
Fast forward five, ten, fifteen years and how much will your business be turning over in profit? Once you work out where you want your business to be in, say, five years’ time; work backwards from this goal, to where you are today. Maintain a realistic financial policy and implement the steps you need to take in order to get ahead of the competition and stay there.
Are you creating a lifestyle business that pays the bills and enables you to take a few holidays per year? Or do you want to earn enough to keep yourself and your family comfortable while you concentrate on your passion? Or are you looking to start and grow a multimillion pound global brand?
When writing your business plan, outline what steps and forecasts you will put in place to ensure that your business grows alongside your financial aspirations. Remember Virgin started out on a beer mat, Marks and Spencer from a market stall and the Body Shop from a kitchen in Brighton. Whatever your business motivations it is essential that you build a good, solid business model that will help you accomplish your long term financial goals.
Is there a market and enough customers for you to make a profit?
Don’t take shortcuts when it comes to researching the value of your market and spending habits of your customers.
It is so important that you know the size of the market you want to break into, who your customers will be and how you will price your product or service. Find out if it is a shrinking, expanding or an over serviced market? Be clear about whether it has high entry costs or requires specialist, expensive materials to produce. What is the impact of fluctuating shipping and currency costs or how much money and time it takes to make or deliver your product/service? The variables are numerous so make sure you know your numbers. Also don’t forget to factor in your own personal outgoings e.g. mortgage, food, children etc. So getting paid what you are worth is very difficult to get right for start-ups and micropreneurs if you haven’t done your financial calculations correctly.
Pricing will have a huge impact on your business depending on who you are selling to. Think about the buying behavior of your customers. For example, are you providing products to a family on a tight budget; living an environmentally friendly, green lifestyle or affluent, high net worth families?
It’s important to remember that whoever you sell to will have an impact on your bottom line. By fully understanding your customers you will make less costly marketing mistakes as you get them to buy and buy and buy again from you.
What impact will your personal goals have on your earning capacity?
Many people say they are leaving the corporate rat race in order to create a working lifestyle that better suits their personality, responsibilities and wellbeing. But more importantly people want the freedom to focus on their families, hobbies and interests outside the traditional working model.
Work life balance has always been difficult but you need to be clear are you going to work a 60 hour self-employed week doing the job you adore? Or is your goal to sit back and enjoy your profit while someone else handles the day to day running of your business.
But be warned. Whatever decision you make, you will be responsible for your taxes, national insurance and pension so talk to your accountant and find out what is realistic for your lifestyle. Your working style will have a major impact on your earning capacity so make sure you take this into consideration when setting your short and longer term financial goals.
Is your business able to adapt and expand?
Successful businesses know how to reinvent themselves. Take Burberry’s and Rolls Royce who were once considered a rather dull, traditional British business staple but have transformed their brand to become the ‘must have’ products of the new uber trendy and hip!
That’s why you have to put some serious thought into the longevity of your business. For the purpose of this section, think Madonna and Lady Gaga! Is your original idea something you will be able to build on or approach in a different way when the time comes? For instance, if you love dogs and want set up a dog walking business, if this turns into a success, could you offer a dog walking service with a twist? Add a grooming service, a dog hotel, babysitting service, etiquette training or an App?
Don’t underestimate the value and importance of staying ahead of the competition by bringing constant, fresh, innovative products or services into your business. That’s why Madonna has stayed ahead in the business. Use some of her thinking in your business and not only will you be taking the first steps to becoming bank ready, but you too might be around for thirty plus years doing what you love and getting paid for it!
If you are interested in finding out more about getting bank ready why not join Sonia Brown MBE and Nick Howe, Enterprise Manager, NatWest for the powerful EVOVLE Business Booster and Networking Sesssion on Monday 1st September 2014 at RBS, 250 Bishopsgate, London EC2M 4AA. This interactive and informative workshop provides unlimited opportunities for individual learning; with laser focused content plus access to profit generating insights and ideas on how to attract and keep your top paying customers! Extra bonus presentation by Julie McArdle, NatWest to raise awareness of the costly dangers of cyber crime, whilst providing inexpensive protection tips and strategies to avoid online fraud, security breaches and virus infections.
Book your free ticket at www.evolveorbust.eventbrite.co.uk