Want to get into business? We look at the options

Business choicesIf you’ve got past the headline then you obviously have a hankering to be your own boss. The arguments for going into business are well rehearsed – you can make your own decisions, choose who you work with, enjoy the fruits of your success and so on – but, arguably, the paths into entrepreneurialism are less well documented.

Mention entrepreneurship and many people will think of starting their own enterprise and base their decision on whether to become an entrepreneur on the merits and risks associated with starting your own business.

But there are, of course, two other ways into business: buying an established business and buying a franchise. Each option has pros and cons and will suit different attributes, skills and circumstances.

To get you thinking about which option is right for you, here’s a rough outline of the three choices, their attractions and drawbacks, potential rewards and risks. There’s also a suggestion of the type of people they might suit – though by no means do we want to be prescriptive about this.

Starting a business

Starting a business from scratch is far from easy, but affords the entrepreneur the freedom to generate a business idea and build it as he or she sees fit. It’s tough in the first couple of years, where the owner acquires and fits out premises, fulfils any regulatory requirements, begins to build a team and starts marketing the new brand to its market.

Advantages

  • Creative: generate the business idea yourself, develop the products and services and your marketing strategy
  • Freedom of choice: choose your premises and location, your own team and build the business as you see fit
  • Satisfying: any success is truly your success

Drawbacks

  • Risk of failure – especially compared to buying a business or franchise
  • Formative period is often stressful and time-consuming, as you establish a foothold in the market with few staff, few customers and little brand-name recognition.
  • Expect to work long hours in the first 1-2 years
  • Difficult to raise finance, especially in competitive markets or for novel ideas, particularly in current climate

Suits

An “ideas person” will enjoy generating new ideas that gain an edge in existing markets or break the mould and forge a new niche. You could argue that starting a business suits people who can afford to fail – the childless, or those wealthy or young enough to move on and try something else if it doesn’t work out.

Buying a business

Businesses are sold for a variety of reasons, including retirement, illness, a desire to change sectors, a perception that the value has peaked. Although the business buyer is skipping the challenging start-up phase, the business buying process itself can be difficult, and must be conducted with care. Failure to research the market and conduct proper due diligence can result in paying over the odds or buying the wrong business.

Advantages

  • Providing you choose wisely, you could be profitable with a strong market presence from the moment you take over
  • Arguably also less demanding than starting a business for the same reason
  • Possibly easier to raise finance; banks keener to lend to businesses with track record of profitability as opposed to an idea that only exists in a business plan

Drawbacks

  • Can be expensive buying ready made profitability or floundering business requiring further investment
  • Buying process can be protracted and deals can collapse at last minute
  • Change of ownership poses problems – staff alienation from new regime, customers deserting you because they liked previous owner, can be difficult to steer business in fresh direction

Suits

If you’re cash-rich the dearth of credit means there are plenty of bargains on the market. If you’re excited by the challenge of turning round a failing business, and like to be in full control but don’t fancy a stressful start-up period – perhaps you’ve been there, done that – then buying an established business will suit you.

Buying a franchise

Buying a franchise is a more formulaic route into business ownership, where you follow tried-and-tested systems and the risk of failure is generally low. In return for an initial franchise fee, and often ongoing monthly management fees or percentage of your revenue/profit, you operate under the name of an established brand, selling its goods or services, with support and training from the franchisor.

Advantages

  • Providing you buy into a successful brand – McDonald’s or WSI being prime examples – the risk of failure is negligible, and failure at the application stage at least entails no financial loss.
  • Following a proven formula, it’s arguably less challenging than the alternatives
  • Also buying brand recognition and training and support – meaning you’re in business for yourself, but not by yourself

Drawbacks

  • Following a rigid formula you rarely have leeway to tinker with product, prices, decor or any other aspect of the business
  • Generally pay monthly management fee or proportion of revenue/profits to franchisor
  • Must pass rigorous application process, particularly for the biggest, most successful brands like Subway

Suits

Someone who wants to be their own boss but doesn’t mind following a rigid formula, and who wishes to keep risk to a minimum. With a number of home-based, part-time franchise opportunities available for a modest investment, franchises are also popular with parents of young children.

This article was contributed by BusinessesForSale.com, the directory of business opportunities from Dynamis, the online media group also behind FranchiseSales.com and PropertySales.com

Start or grow your business now – what’s holding you back?

Start and grow your business

Start and grow your business in 2013

It’s a New Year and the entrepreneurial juices are flowing. It’s time to start the business that you’ve been talking about for years. What’s stopping you?

Or maybe you’ve already got a business but it’s not growing as fast as you had thought, what has to happen to make this year the year it doubles its revenue?

I’ve talked to thousands of prospective entrepreneurs and small businesses over the years and surprisingly it’s not always lack of funding that is the biggest hurdle. It’s fear of the unknown.

Whether you are dreaming of starting a business or hoping that this year your business is going to somehow take off, it is much more comfortable to continue dreaming than to do something about it. The dream is warm and cosy; we can lie in bed and feel comforted that our lives can change for the better at any time. But if we take action, what if it doesn’t work out? There’s no longer a dream just trouble.

When I started Company Partners, one of the key drivers was to allow people to find a business partner with complementary skills and a like-mind. Having a partner will motivate and encourage anyone starting a new business. It’s quite daunting by yourself.

For existing businesses, sometimes it’s not a new (expensive) employee that you need but someone else with ideas and energy that could join as a risk (and reward) taking partner to grow the business.

Yes having the funds to start or grow a business is also important and that’s why we have such a strong Investor community on Company Partners, but the first thing is to stop dreaming and do it.

There are things you can do to get the ball rolling. Write down your ideas for a business, or the way that you would like to grow, think what you need to do in order to make this happen. Dare I say, join Company Partners and search for a business partner, or Investor.

The key is to get started. Don’t wait, have drive, energy builds on energy.

 

Big push to increase the number of Entrepreneurs

Global Entrepreneurship WeekThis is Global Entrepreneurship Week and there is a host of fresh initiatives to get new businesses started and growing businesses to fulfil their potential.

It’s easy to see why the government is keen to do so, with cut backs in the public sector and big businesses stalling, getting people to start their own companies will not only provide employment for the founders but also for many more that get hired as these start-ups grow.

The Government’s economic policy objective is to achieve ‘strong, sustainable and balanced growth that is more evenly shared across the country and between industries’. What this means is less reliance on the financial sector and to spread jobs beyond the South East.

Company Partners is playing its part in this by providing a “dating site” for people who want to start a business find a business partner with complementary skills to join with them. It’s less daunting with a partner.

Of course we also provide access to Mentors and Business Angels that help with their contacts, expertise and investment. This combination of access to Business Partners, Mentors and sources of investment is unique to Company Partners, so if you haven’t already, register and have a look around.

What we do is a practical and successful way of encouraging businesses to grow. There is some criticism that many of the government initiatives are difficult to access and sometimes look better on paper than in reality. This is what’s been announced this week:

  • Two entrepreneurs in residence will be recruited at BIS. They will help advise Government on small business issues, making sure that the needs of entrepreneurs are properly considered by policy makers
  • Warwick and Aston Business Schools have been chosen to host a new £2.9 million enterprise research centre. Its work will help improve understanding of the drivers and barriers to growth that affect our small and medium sized enterprises (SMEs)
  • The launch of a new £1.1 million Entrepreneurs and Education Programme that will work with academics, researchers and students to promote enterprise, self-employment and help commercialise innovations
  • A push to encourage businesses to make better use of the Seed Enterprise Investment Scheme (SEIS) that provides generous tax benefits to SME investors
  • New access to a secure web-based portal for adult prisoners that will provide opportunities for them to learn about how they can start a business when they are released.

Whether these individually make a difference can be debated, but the overall intention is right and the government’s efforts to grow small businesses creates an encouraging climate of enterprise.


Do Non-Executive Directors get paid?

Non Executive DirectorNon Executive Directors (NEDs) are a valuable asset to any growing company, but although they may be very experienced in their market area, for some it’s the first time that they have acted as a Non Executive Director of a business.

The business also may be new to taking on an NED, so between them there is a lot of uncertainty of how the time and efforts of a Non Exec should be rewarded.

In Company Partners we’ve put a resource page on Non Executive Directors that may be helpful. www.companypartners.com/content/resource/Non-execs

In that we give an example of a real business (approx £1M T/O), which gave a 1 or 2 percent share of the business to each of two non-execs (the full-time directors/founders owned the rest), based on this they paid the non-execs a share dividend equating to about £400 a month. This paid for the non-execs time and ensured they had a keen interest in the company.

For complete start-ups however, who may not even be paying the founders a wage, it can be difficult to get a Non Executive Director on-board, since there is no revenue yet to reimburse the NED for their time and expenses.

This is where the young company has to make what they are doing interesting and show that there will be rapid growth, after which the Non-Exec would be able to be compensated. In the mean-time a small percentage of shares could be made available.

It is best to first have a trial run of a couple months with each other to ensure a good fit. Also phase any share holding in over a period of time, making sure that the shares are recoverable should the NED leave. There are specialists who can help with drawing up share investing agreements.

For the Non-Exec, working with a young company can be a fantastic experience, seeing it grow and feeling that you have helped to create something of real value. Being flexible in how you are rewarded will enable the growing company to afford your time.

But to answer the original question, do Non Executive Directors get paid, yes mostly they do, how you arrange that can be agreed between you.

 

How to find more customers – the top 5

How to find customers1. Get free PR

If there was an unlimited amount of money to spend, advertising would be easy, but normally there isn’t. So what can you do? Well this is where free PR comes in. PR is of course short for Public Relations and was the remit of large corporations, but has now become a valuable tool for gaining public recognition of your business and products as well as building your image.

In many ways it’s the best form of advertising, because it doesn’t use sales techniques that customers are suspicious of, instead it promotes a positive message about your business that can develop customer loyalty and encourage new customers to find out more about your services or products.

You can hire a PR company to do all this for you, but that’s not cheap, so why not do it yourself. The media have to fill their papers and their broadcasts with content every day. The key is to make it interesting and have a human interest angle, not just the history of your company or latest product.

For our full members we have a comprehensive write-up on getting free PR (btw if you are a full member you also get access to business partners, mentors and business angels investors) – How to get free PR

2. Make marketing work

Marketing is the overall term for PR, advertising, branding, pricing and identifying the products that your customers want. It therefore looks at the big picture. Each business should have a marketing plan, which pulls all this together and makes sure that you have not missed an important step that will grow your business.

The main key though in making marketing work is to segment your market into bite size pieces. That way you can get your messages tailored exactly right for your potential customer. I wrote a blog on that which may help – How to market smarter

If you’re thinking of writing a marketing plan for your business, you may be interested in a deal we put together with Palo Alto to get a free copy of Marketing Plan Pro software with each copy of Business Plan Pro bought from them, you can see more here – Sales and marketing plan

3. Using a web site to generate new business

Nearly every business has a web site nowadays and if you haven’t you really must get one, it isn’t expensive and I can’t think of any business that can do without it. The first thing will be finding a domain name that meets your business needs.

Ideally the domain name would contain the key words that people will search to find your product or service, such as “bestsheds” or “berkshireaccountants”. It doesn’t have to be your company name.

Using your company name is also okay and allows you to keep your products and services unrestricted by the web site name, but the site will be harder to find on search engines for your products, so you will need to do more work on its visibility. If someone already knows your business name it will come up, but you want to be found by people who don’t know you and are searching for what you can provide.

There are plenty of very inexpensive web site packages around. Choose one that allows you to easily make changes to it, because the worst thing is seeing a site that hasn’t been updated for 2 years. Have several new items, testimonials or articles that show that it is up-to-date.

If possible get a local web designer to produce the site, again not too expensive an option. Pick one whose work is attractive to you. He can help you optimise it so it can be found on search engines like Google.

Don’t get sucked in though by all those emails from companies wanting to provide SEO (search engine optimisation). If you can afford it pick a well trusted digital marketing business, but it won’t be cheap. You can do it yourself, have a look at Perfecting a business web site .

4. Don’t use a free email address

Using gmail, hotmail or any of the free email addresses looks amateur if you are running a business. It’s okay for private use, but when you are trying to show that your business is worth buying from or investing in, then it looks shoddy.

If you already have a domain name, adding email on to it is cheap. If you haven’t a domain name for your business, get one. Then use that for email.

Put your name, contact details and a sentence saying what your business does at the bottom of your mails (as a “signature”).

5. Communicate and Network

If you have a website, offer a free incentive (such as a downloadable useful information sheet) and keep in touch with those people (make sure they have ticked a box to allow you to keep in touch).

Regularly contact existing and old customers, with special deals or just helpful information. It’s easier & cheaper than finding brand new customers.

Not everyone is comfortable with the concept of networking. It’s been over used as a term, but has been around for hundreds of years. It needn’t be hard or daunting. Just as computers talk to one another over a network and spread messages, so can us humans. The idea is that your message will pass from one person to another. A network should be more than just a list of people you talk to. It should work for you.

Thought of that way, find rememberable messages and sound-bites that you can give people you meet about your business that may cause them to mention it to someone else. On Company Partners for instance, I talk about it being like a “dating site”.

Depending on your industry and market, there will be opportunities to pass these messages on to either customers themselves, or to people who meet and influence your customers. There are thousands of organised events, choose one that best fits your market and give it a go.

Networking can also find you partners to collaborate with and ideas to try.

The old adage of invent a better mousetrap and the world will beat a path to your door, doesn’t work any more. You’ve got to tell the world about your mousetrap and show them how to get to your door.

 

Can Olympics inspire new start-ups?

Business revolutionI was lucky enough to go to the dress rehearsal of the Olympic Games opening ceremony and was hugely impressed by the hard work, energy and enthusiasm of the volunteer dancers and actors.

When the full version of the opening ceremony was shown on Friday the overall story became clearer. Much of the ceremony was celebrating the industry and innovation that Britain has displayed over the years. From the Industrial Revolution to Tim Berners-Lee and the world-wide web.

I was left wondering how many of the passionate volunteers and cheering audience would take up the mantle of our industrious and inventive predecessors?

There is no lack of enthusiasm for the use of social networking and technology, but the effort of developing the tools that make it work and starting the businesses that employ workers to drive the economy seems restricted to a few small pockets of activity.

There must be a way of capturing the vigour that was displayed on Friday night. It showed that if someone is enthused then they will put their soul into making what they are doing a success. Danny Boyle and the Olympics provided that inspiration, what can we do to inspire a generation to create products, services and businesses that generates wealth and full employment once again?

To a certain extent, youth is jaded by business, the banks and ever revealing scandals of top director’s greed. Yet there are thousands of small, well run and ethical companies out there, giving their founders a satisfying and decent living.

We need more publicity on these owner run businesses and the fulfilling life that can be had, than the continued bleak exposure of banks and big business wrongs.

 

Business Angel or Venture Capital – which to use

Venture Capital or Business AngelJust back from giving a business plan workshop to a group of MBA students, many of whom were keen to start their own business. So naturally the subject of how to fund a business came up.

One of the areas that regularly seems to cause confusion with the students is the difference between Private Equity, Business Angels and Venture Capital.

At first glance they may all look the same. But there are differences and which you use varies with situation.

Firstly let’s clear up the term Private Equity. Although it’s a generic name for having a company owned by a person or group of people where the shares are not in the public domain (ie not on the stock market). Private Equity in investment terms tends to mean those large investment companies that buy up the majority of shares in a significant sized established business.

Most entrepreneurs will be more interested in Business Angels and Venture Capital companies where they both invest in younger businesses and don’t generally take the majority of shares.

The main difference between these is that Venture Capital firms are investing money gathered from other people who have bought into a Venture Capital fund. Whereas Business Angels are investing their own money.

This is an important difference because it means that Venture Capital firms have to invest in less risky opportunities. Hardly ever do they invest in start-ups, preferring to be involved after the business has proved itself and is ready for high growth. To cover their overheads these also tend to be larger opportunities.

Since Business Angel investors are using their own money, they will be prepared to take slightly more risk, start-ups and early stage companies are more suited to these individual investors. Occasionally in order to share risk or to be involved in larger deals Business Angels will form a consortium, generally headed by a lead investor.

Business Angel Investor’s names and contacts are not in a “yellow pages” of investors, otherwise they would have people camping on their doorsteps, never mind the security issues, they tend to use intermediaries to act as gatekeepers and screens.

Some of these intermediaries are expensive to use, which is why Company Partners set itself up as a “members site”. For a small monthly membership you have access to a full database of Business Angels.

 

SEIS Seed Enterprise Investment Scheme

2012 Budget SEISAs promised the chancellor has confirmed in his March budget documents that there will be a Seed Enterprise Investment Scheme (SEIS) starting from 6th April 2012, although it didn’t get a mention in his actual speech.

Just to clarify for anyone confused by the similarity of SEIS with an existing scheme, there is already an Enterprise Investment Scheme (EIS) which targets larger businesses rather than start-ups.

This big brother to the SEIS also received good news in the budget, with the qualifying size of a company moving from a maximum gross asset size of £7 million with 50 employees, to £15 million with 250 employees. This means later stage investment prospects will now qualify for EIS (see EIS for more information).

The basic information that I covered on my last blog on the SEIS remains unchanged, so I won’t go over that again. Suffice to say it is worth ensuring that your new business qualifies (not all industries do – eg. Property development and financial services) and publicise to potential Investors that they can get tax relief by investing in your business.

Clearly for Investors it’s a no-brainer that you should utilise this new scheme for your investments.

So how do you make use of it?

Luckily those nice people at HMRC have put together a fairly comprehensive web-page that explains the SEIS and how to apply for it. See http://www.hmrc.gov.uk/seedeis/index.htm

They are careful to say that although the scheme starts on the 6th April, until the budget gets Royal Assent (around July) it isn’t set in stone, but it’s unlikely to alter in my view.

The HMRC web-pages have a section on how to get advance assurance that your business and the shares that you are going to issue to an Investor will qualify. It can be useful to do this in making your opportunity attractive.

 

SEIS Start-up Investment

Business InvestmentSEIS (Seed Enterprise Investment Scheme) is a new government incentive to help UK start-ups and young companies.

It starts in just a few weeks on April 6th, so now is a good time to start building this into your funding plan for your start-up. Or if you are an Investor, have a look to see if this will be applicable to the businesses into which you are investing.

There has been a similar incentive around for some time now (see EIS) but the SEIS is specifically targeting new companies.

The details will come out in the Chancellors budget speech next week (21st March), but these are the basic points:

  • The business must be new, or 2 years old or less, with fewer than 25 employees. It must have less than £200,000 of gross assets and not quoted on a stock market.
  • Directors or executives cannot use the scheme to invest in their own companies.
  • You can raise up to £150,000 of funding through the SEIS, but mustn’t have already raised any money under EIS or venture capital trust (VCT) schemes. This is in total not per year.

An Investor can have up to 30% of a share in the business under this scheme. The SEIS makes it attractive for an Investor to fund a start-up because of the number of tax reliefs that they would receive:

  1. Investors can claim back income-tax of 50% of the amount invested.
  2. An Investor can have a ‘capital gains tax holiday’. Capital gains tax (CGT) can be avoided on any asset sold during the financial year 2012-2013 as long as they reinvest the proceeds in a SEIS eligible start-up in the same year.
  3. The combined effect of the CGT holiday and the income tax break gives relief of up to 78% in the first year.

There is as you can imagine, a number of detail points that would need to be investigated but this should whet your appetite. It’s well worth while finding out more about the scheme either to make your new business attractive, or to maximise your investment returns.

After the chancellor has given final details next week, I’ll do a summary here and point you towards the required forms that the revenue will need to be completed.

 

Government Support for Small Business

Small Business supportAm I the only one that is getting confused by the increasing number of initiatives that the government is rolling out to encourage entrepreneurship? Or frustrated because they don’t actually seem to make a difference?

 

We had Business Link, then we didn’t, except it still exists as a “business advice and guidance service portal”.

The Small Firms Loan Guarantee scheme (SFLG) has been around for decades and continues to help companies that need a bank loan. Or it would if the banks fulfilled their part of the deal by releasing the funds.

To encourage them to do so the government set up Project Merlin last year whereby the banks agreed to lend £76B specifically to small firms. However it has been a failure and banks are still holding on to their money. Now Merlin looks like being dumped along with any credibility that the banks could have gained by making good on their promises.

For some time now we’ve had the Enterprise Investment Scheme (EIS) to encourage Investors, by giving them various tax breaks if they help to fund growing businesses.

In addition last year the Chancellor announced the Seed Enterprise Investment Scheme (SEIS) due to come into effect on the 6th April 2012. This is aimed at small start-ups and gives a 50% tax relief to Investors. I’ll do a write up of that shortly, but it looks promising in motivating Investors.

Enterprise Zones were introduced to mixed response and the jury is out on their long-term effectiveness.

The Government has pushed StartupBritain which they call “a national campaign by entrepreneurs for entrepreneurs, harnessing the expertise and passion of Britain’s leading businesspeople to celebrate, inspire and accelerate enterprise in the UK”. Fine words – but never-the-less just words.

Talking about fine words, recently the latest campaign is “There’s a business in you”, which provides inspiring stories and highlights support available. However most of the highlighted support simply takes you to the Business Link website.

Then there’s talk about cutting Red Tape. There is a “Red Tape Challenge”, where members of the public can suggest red tape to be cut and a “1 in, 1 out” idea that says if a department wants to bring in a piece of legislation, they must first remove one. Latest government news is that there have been 19 in and 33 out, saving small businesses £3.2 B a year. What shall we spend it on?

How about making tax simpler and easier to understand I hear you say. Well there’s a government office called “The office for Tax Simplification”. Yes there really is, let’s hope they are successful.

So is it all spin and gimmicks as some business experts have commented, or a well co-ordinated and ambitious campaign to release the entrepreneurial spirit in us all and make Britain great again?