Starting a Small Business Checklist 116

Introduction
Setting up your own business can be very rewarding, but there are pressures involved. Its not enough just to have a good idea; you also need to have the right skills and temperament to make the opportunity succeed. Starting your own business also involves a degree of risk, so you need to be aware of what problems to look out for as early as possible. Self-employment is sometimes seen as an alternative to unemployment, but evidence suggests that many people choose self-employment rather than being forced into it for lack of an alternative. Many people simply prefer it to working for someone else, particularly since the concept of a safe job no longer has a place in this age of mergers, acquisitions and rationalisations. Benefits of starting your own business include: having control over what you do and how you do it achieving self-determination as your own boss gaining independence and freedom from the authority of others enjoying the satisfaction of making a success of your own endeavours using your energy to promote your interests - not those of others.

Challenges to starting your own business include: you will be taking risks with your own, or borrowed, capital you will be working long hours the responsibility of success or failure will rest with you and you alone all the functions of the business, such as Accounts, Marketing, Planning and Personnel are your responsibility you will not enjoy the security of paid employment.

It is important to make an honest and objective assessment of yourself and to find out as much as you can about running a business before you get started/launch your company. Talk to others who have both succeeded and those who have made mistakes, look at what start-up help is available, be sure to consult an accountant and lawyer before committing yourself irrevocably, and prepare a business plan in consultation with your bank.

Definition
There are many definitions of a small business, but these are more relevant to business statisticians than entrepreneurs. The Bolton Committee definition of 1971 is still one of the best descriptions this states that a small firm is an independent business managed by its owner or part-owner and having a small market share. For statistical purposes the UK Department of Trade and Industry uses definitions based on the number of employees rather than turnover or balance sheet total, i.e. 0-9 micro-businesses, 0-49 small firms, 50-249 medium sized businesses and over 250 large firms. Anyone starting a new business will be involved in a small business.
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Action checklist
1. Consider why you want to start your own business

If you intend to become self-employed, ask yourself: 2. why you want to change your status if you should be seeking (alternative) paid employment if you have the right skills to start a business if you want to work long, perhaps lonely, hours if you have the support of your family or partner and if they understand the risks you will be taking if you will be able to work at and from home, if necessary if you have the stamina to keep going in the face of difficulties if friends and associates regard you as resilient if you enjoy good health if you really do have something to offer which people will pay for. List your assets and liabilities

Your business will require capital. Whether you can afford it with or without borrowing will depend on your existing assets. What is the value of your house, life assurance policies, material possessions, shares, savings or any other assets? Similarly, what is the extent of your financial commitments over the next 3-5 years? Have you considered everything? What overheads do you need to cover and what liabilities need to be accounted for? Can your assets be turned into cash? How much cash can you put on the table? Talk it over with your bank manager even at this preliminary stage. If you are considering re-mortgaging your house, think very carefully and obtain as much information as possible prior to making a decision. 3. Ask yourself what you want to get out of your own business

Why do you want to start your own business? What are you really looking for? Freedom? Fortune? A chance to leave the City behind? Opportunities to travel, to meet people, or to develop a fledgling idea'? Less responsibility? Are your motives positive, i.e. to achieve something, or negative, i.e. to get away from something? Set your requirements down on paper, be realistic. Are you really likely to achieve them, or are you pipe-dreaming? Discuss this with a friend. 4. Coming up with a business idea

The clearer your focus, the sooner you will be able to start detailed planning. If you don't have a clear idea, the following pointers may help: What existing skills and knowledge do you have which might be used in your new business? Be cautious about becoming a consultant. Do you have the necessary expertise? Don't be misled by books purporting to tell you how to make a fortune at it. Find out if there are any local opportunities. Monitor the local newspapers - opportunities arise from the most unexpected and unusual situations. Identify what goods and services large companies, local authorities and other public bodies buy in from outside the area. Research the possibility of selling goods made by others. Consider how you could improve on someone else's ideas, or go into partnership with them. If you try this approach alone, beware of the law of patents. Check changes in legislation which might offer business opportunities of which you may be able to take advantage. Consider advertising - anonymously - your availability to invest in, and share in the management of, a small business which is undercapitalised. Investigate the market for your product or service What is your product or service? What unusual goods and services are required locally?
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5.

 6.

Who will buy your product or service? Why should they buy yours and not someone else's? How many people will buy your product or service? Is it unique or are there many like it? Is the market stable, growing or shrinking? How many competitors would you have? How price-sensitive are products and services like yours? Decide the ideal status of the business you wish to start

There are three main types of legal status available to consider when starting a business. These are the sole trader, partnership and limited company. Several considerations will need to be taken into account, for example, tax and administration implications, the image of the business, legal requirements, financial issues, etc. You may wish to become a Sole Trader operating alone and responsible for all aspects of the business, including all taxes, debts, and day-to-day running of the business. It is possible to employ other people, but ultimately the business is the individual. An alternative is to enter into a Partnership, combining the skills and experience of two or more people. Work loads can be shared and operations can be managed more flexibly. Beware of inviting friends to join you in a proposed partnership, for friendship's sake. Would they make good business partners? Do you respect their judgement? What could they add to your business? Look for a partner whose strengths complement yours. Business relationships depend upon a balance of skills. Satisfy yourself - and your proposed partner - that you are compatible. Establishing a Limited Company will restrict your liability but you are strongly advised to consult a solicitor or an accountant before taking this step. The main advantage of limited company status is that the owners (shareholders) have limited liability for the debts of the business up to the value of their shareholding. The status of a limited company tends to raise the credibility of the business in the eyes of customers and suppliers, since it suggest the business is fairly well established. Satisfy yourself that the advantages outweigh the disadvantages. Franchising is an increasingly popular and easy way of getting into your own business. You invest in a new branch of a business already established. You will get considerable support from the franchisor with all the advantages of a proven product or service, but the rewards are limited by the franchise agreement. Franchisors exert a fairly high degree of control over the franchise operation, although the franchisee is legally independent. Franchises can be fairly expensive operations which involve ongoing fees for continuing support provided by the franchisor. Make thorough enquiries about any franchise before committing yourself to a contract. Networking with business associates is an informal approach to leveraging advantage. Your business remains under your control but you build relationships with others in the same kind of business to share the costs of marketing and perhaps of delivery. This approach has no legal foundation, unless you enter into specific contracts with associates. It depends upon the trust you build up with your associates. Networking can lead to a wider range of customers and to the growth of your business. You must be prepared, however, to give, as well as to take. Dont underestimate your liability. Sole traders and partnerships have unlimited liability for the debts of the business, therefore personal assets could be at risk. Limited companies must comply with a wide range of complex and detailed legislation which can add to the administrative and financial burden. Periodically review your choice as you can usually change to another legal entity later, as your business develops. Your choice will affect the tax you pay, so gain advice from an accountant. 7. Check your own ability to cope with the pressure of running a business

To run your own business, of whatever kind, you need not only capital and capability, but also flair, toughness and good fortune. Managing a business is not an easy option, with many start-up businesses failing in the first few years, often due to poor preparation. Many other businesses do not see a profit until
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the third or fourth year of trading and it can take many long hours of work to get to that stage. Do you have what it takes to succeed? Measure yourself against the following criteria (preferably on a scale of 1-5, 1 being low and 5 being high): I am self-disciplined I do not let things drift I have the full support of my family I can cope under pressure I am ready to work seven days a week if necessary I am self-motivated I get on well with people and I can motivate them I can make quick decisions when they are needed I persist when the going gets tough I can learn from mistakes and I can take advice I am patient and I don't expect quick results I am in good health, enthusiastic and aware of the risks I am focused and have clear aims, including the need to look after myself and my family.

If you do not score well on these criteria (a score of at least 3 on every item), take another look at your reasons for wanting to set up your own business. 8. Draw up a business plan

Whatever kind of business you are planning to start, it is important to undertake a disciplined planning process. This should be done even if you are funding the start-up from your own resources, and certainly if you aim to raise capital externally. The first step is to prove that the business idea is sound and that the start-up you are contemplating is financially viable. The major banks provide advice on drawing up business plans. Consult more than one local branch to see what they can offer. Whether or not you need bank funding, you need a business plan and you can only benefit from a banker's views on the plan which you produce.

Managers should avoid

making any important decisions until they have been talked through with family, friends, advisers, and those who have been there already trying to set up a business just because it looks like a good idea overstretching financial resources - borrowed money has to be repaid, usually with interest assuming that being your own boss is easy starting a business for the wrong reasons failing to admit to mistakes. Do not simply brush them under the carpet learn from them underestimating the competition.

National Occupational Standards for Management and Leadership

This checklist has relevance to the following standards: B: Providing direction, units 1, 2, 3, 4, 8, 10 F: Using resources, units 3, 4, 9, 10

Additional resources
Books Good small business guide: how to start and grow your own business, 3rd ed London: A and C Black, 2008
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Start up and run your own business: the first steps funding and going for growth, 4th ed, Jonathan Reuvid London: Kogan Page, 2006 The small business handbook: the complete guide to running and growing your own business, Steve Parks Harlow: Pearson Prentice Hall Business, 2006 Starting your own business: the bestselling guide to planning and building a successful enterprise, 4th ed, Jim Green Oxford: How to Books, 2005 The entrepreneurs book of checklists: 1000 tips to help you start and grow your business, Robert Ashton London: Prentice Hall Business, 2004 The beermat entrepreneur: turn your good idea into a great business, Mike Southon and Chris West London: Pearson Prentice Hall Business, 2003 The which guide to starting your own business, Anthony Bailey London: Consumers Association, 2003 This is a selection of books available for loan to members from the Institutes library. More information at: www.managers.org.uk/library

Related checklists
Cash flow for the small business (120) Choosing a second career (125) Marketing for the small business (117) Running a small business from home (119) Writing a business plan (021)

Internet resources
Business Link: www.businesslink.gov.uk Provides a wide range of information for businesses. Homeworking: www.homeworking.com/library/business/index.htm Offers advice and encouragement on starting a business and working from home. Small Business Guide: www.smallbusiness.co.uk Offers information on starting a business including small business advice. This is Money: www.thisismoney.co.uk/smallbusiness Has a series of small business guides including starting a business and guidance on business plans.

Organisations
British Franchise Association A2 Danebrook Court, Oxford Office Village, Langford Lane, Oxford, OX5 1LQ Tel: 01865 379892 www.british-franchise.org/

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Companies House Crown way, Maindy, Cardiff, CF14 3UZ. Tel: 0303 1234 500 www.companies-house.gov.uk/ Department for business, enterprise and regulatory reform (BERR) Ministerial Correspondence Unit, Department for Business, Enterprise & Regulatory Reform, 1 Victoria Street, London SW1H 0ET. Tel: 020 7215 5000 www.berr.gov.uk/ Institute of Chartered Accountants in England & Wales (ICAEW) Chartered Accountants' Hall, PO Box 433, London EC2P 2BJ. Tel: 020 7920 8100 www.icaew.co.uk/ Institute for Independent Business Clarendon House, Bridle Path, Watford, Hertfordshire WD17 1UB. Tel: 01923 239543 www.iib.org.uk/uk/index.html The British Chambers of Commerce 4 Westwood House, Westwood Business Park, Coventry CV4 8HS. Tel: 024 7669 4484 www.britishchambers.org.uk/

This is one of many checklists available to all CMI members. For more information please contact t: 01536 204222 e: [email protected] www.managers.org.uk

Chartered Management Institute Management House, Cottingham Road, Corby NN17 1TT.

Revised October 2008 All rights reserved. No part of this publication may be reproduced in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher.