Business Development

Starting a new business is an enormous learning curve.  Virtually every client we work with tells us of all the things they would have done differently with hindsight.  Let us help you avoid the common mistakes that far too many people make and which often cripple their business, slow it's growth, or cause failure.  It is a fact that the majority of small business start ups don't last five years - that is a catastrophe for the people concerned and the economy as a whole.  We can help in a number of ways:-

Niche-ing

Our latest business development guide - read it here.

Financial Awareness

Far too many inexperienced entreprenneurs are "green" when it comes to financial awareness.  Often they don't realise that until they have been trading for a while and mistakes have been made.  It is very common for a person's first business or two to fail, and then go onto great success with subsequent business ideas once they have more experience and knowledge from their earlier failures.  We can help by "mentoring" you to guide you and help you avoid the pitfalls.  You really do need to know and understand the differences between a profit and loss account and a balance sheet, you need to know the fundamental difference between accounting profit (on which tax is paid) and cash in your bank, you need to know how the building up of stocks or equipment affects your profits and tax, you need to know what liabilities you are accepting when you sign any contract, etc.

All this is apparent when watching "Dragon's Den".  How many times do the contestants not know what their margins are, don't know what their profit was, don't know what their forecasts show?  They never get the funding, and quite rightly so.  Financial awareness is as essential as having a good business idea. 

Forecasts and Business Plans

Although lenders often want to see forecasts and business plans, their real use is to the proprietors themselves, yet the majority of small business owners fail to realise their importance.  Of course, forecasts and plans are not real and often little more than "crystal ball glazing" - because they are seen as such, people place little importance on them, which is a great pity.  Where their real significance arises is to illustrate "how" the business will look if current plans are followed - and then to allow for flexing to discover the business' break even point, how much financing it needs and how that can be repaid, whether it is profitable, how fast can it grow, etc.  The true value in forecasts and business plans is to make the proprietor properly think about their business, think about what expenses will be incurred, think about how the loans and finance are to be repaid, think how much profit can be made, etc.  It is this thought process that is vital, not the appearance of the business plans themselves!  All too often, people buy or start a business and havn't any real idea of the expenses they will incur, some don't even know the margins they hope to achieve.  We can do the "number crunching" bits and create the models, but the business owner has to come up with the raw data - then we work together to "flex" the model to give a clear picture of how the business "may look" in years 1, 2 and 3, to make sure it is viable.

Management Accounting

All business owners need to know how much profit their business is really making.  Unfortunately, far too many don't know until long after their year end and their accounts are prepared for tax reasons, making it almost two years before correcting action can be taken.  It is very common for us to be challenged when we produce accounts showing a loss, or showing very high expenses, and the client simply doesn't believe it - just a few minutes analysing the year end accounts with them "reminds" the client of things that happened and suddenly they agree with our figures!

Luckily, most popular accounting software can be easily adapted to produce monthly or quarterly management accounts enabling the proprietors to see more easily whether the business is making a profit or loss and to highlight where attention is needed.  If the proprietors can see this themselves, quickly and painlessly, they can reverse the trend and take action far more quickly.  We can help by either developing your systems and showing you how to interpret the reports, or to prepare your accounts more often than just once a year.

Pricing For Profit

"Turnover is vanity, profit is sanity" - Far too many small business owners concentrate on increasing their sales rather than concentrating on profit.  This is often a fatal mistake.  Anyone can grow a business with a multi million pound turnover - it's easy, you just sell things cheaper than the competition.  There is no skill in that!  If I stood on a street corner selling £5 notes for £4.99, I would soon have a very high turnover, but no profit!  Unfortunately with the advent of the internet and especially Ebay, a lot of people are busy fools - selling loads but making little, if any, profit.  Doing the same as everyone else, but cheaper, is a ridiculous business model in our opinion, and destined to fail as, sooner or later, someone else will do the same to you!

The answer is to concentrate on profit, not turnover.  You need to make as much money out of as smaller number of customers as possible.  The way to do this is to find an undiscovered niche where you can charge a premium for your goods and services.  This doesn't have to be doing or selling something completely different, it could be just doing it in a different way.  If a certain market is saturated and prices (and margins) are low, rather than just jumping in even cheaper, why not go in at a higher, more realistic price, but offer a better service or an "add on".  It is a myth that price is the most important factor.  Of course, some people will go for the cheapest, but a significant number, if not the majority, also consider value and quality, and will pay premium prices for a better product or service.  If you are the cheapest, you will probably get the type of customer you don't really want and will stuggle to develop your business because you are bogged-down being a busy fool.

Too many small business owners take it personally when they lose a customer because of cheaper competition.  If no customers ever complained about price, we would argue that you are far too cheap.  We would say that customers complaining about price means you are priced about right.  If you give quotes, you should be aiming for a 50-75% success rate in getting the work, but if you are getting over 75% you are too cheap and under 50% too expensive.  Keep track of your quotes and see where you fit in this simple exercise.  Get used to losing sales to your competitors and don't take it personally!

Growth

It may surprise you that most small businesses fail, not because of lack of sales, but because of too many.  Over-trading is the most common reason for business failure and arises where the business grows too fast, it just cannot cope.  It may be a lack of cash that means it can't buy enough product to sell, can't afford the bigger premises it needs, can't afford the additional staff or equipment, etc.  It may be that its customers owe so much money that it runs out of cash to pay its bills.  It may be that it can't afford the repayments on loans and leases it needed to buy to expand.  It may be that the success is too great and the business just can't service its customers.  If the business is "service-orientated" then the owners become too busy doing the work that they never have time to finish things off properly, raise the invoice, and collect the money!  The key is control - you, the business owner have to control your business, no-one else.  If you get too busy, cool it off by reducing advertising and/or increasing prices.  Make sure that you are always resourced to the next level - be ahead of the game with having enough financial headroom (i.e. large overdraft facility or other finance to call on), have premises slightly bigger than you think you'll need, take on staff sooner rather than later, make sure your supply chain is flexible and you can increase or reduce your purchases as necessary. 

This brings us back to the forecasting and business plan area - properly prepared with good raw data from the proprietor, the forecasts can show just what growth is achievable given your resources, and where the "hold ups" will arise if growth is higher than expected, so action can be taken sooner rather than later.

Cost Control

Despite the profession's image, accountants don't want you to cut your costs.  We want you to increase the value you get from your spending.  There is a massive difference, often misunderstood.  Value for money is the key, not cutting back.  It is spending more wisely that matters.  A business cannot grow without spending money.  Lack of funds and penny-pinching is very damaging for a business and could cause ultimate failure.  The answer is to get the goods and services you need at the best possible price, without compromising on quality or service - it is not an impossible task.  Mostly it is down to shopping around and doing deals.  Never go to just one supplier, go to several.  Talk to them about how to get the best deal, i.e. quantity discounts, sale or return, marketing initiatives, payment terms, retrospective quantity discounts, etc - if you pay their asking price on their standard terms, you are paying far too much!  Do this for all significant expenses - you can shop around for just about everything, but don't waste your valuable time on any costs that aren't significant - spending hours to reduce a specific cost by £50 is plain silly when you could spend the same amount of time to reduce another cost by thousands!

Supply Chain

Don't concentrate all your efforts on your customers.  Your suppliers are just as important.  Take time to develop exceptional working relationships with all your important suppliers of goods and services.  Never treat them with disrespect, never take them for granted, never over-estimate your importance as their customer.  When things go wrong, which they inevitably will, you need all your suppliers firmly on your side, so that you can call in favours.  You may want a few days longer to pay a bill, you may want a delivery a little quicker than planned, you may want to cancel some or all of an order - if you have a poor working relationship with your suppliers, they are unlikely to help you out.  We once came upon a situation where a business' purchasing clerk seemed to have done a brilliant job in cutting costs and reducing stocks and was applauded for doing do - unfortunately, tides turned and the business hit a rough time, there was no goodwill between them and their suppliers and so the business ultimately collapsed.  It is quite possible to remain fair and respectful to everyone you do business with, without being taken for a mug - build up as much goodwill as possible, you never know when you need favours.

Margins

Never under-estimate the margins you need to build a thriving business.  The "pile it high, sell it cheap" is best left to the larger businesses who have economies of scale and buying power.  You are unlikely to build a successful business on low margins and small businesses should use a philosophy of charging a premium price for a premium service.  Take, as an example, a typical "non essential" item found in the typical shop:-

Cost to manufacture  £10

Manufacturer's selling price £15, so manufacturer makes £5, or a 33% gross profit on a mark up of 50%

Wholesaler's or agent's selling price £20, so wholesaler makes £5, or a 25% gross profit on a mark up of 33%

Shop selling price £30, so shop makes £10, or a 33% gross profit on a mark up of 50%

So ultimately an item in the shops for £30 has probably cost £10 or less to produce.

This is obviously a rough example, but shows a realistic pricing model.  You really have to look at gross profit margins of around 25% to build a viable business model, which is a mark up of one third on the price you pay, so you pay £7.50 for an item, you must sell for at least £10, if you can't then move onto a different product!

Staffing

Probably the hardest part of any small business is taking on their first employee.  Not only do you have to jump through all the legal hoops (contracts of employment, anti-discrimination, health & safety, insurance, payroll calculations, etc), but you also have to break away from doing everything yourself and empowering other people to do some of your work. 

From the outset, it is best for the business owners to artificially separate their multiple roles.  It may sound silly, but create an organisational chart with positions for each role that you realistically expect to fill within 5-10 years, then if you are on your own, put your own name in each box, but if there are 2 or more joint owners, share the boxes between yourselves.  This "pigeon-holes" you into your separate roles.  When you have your roles, try to think and work separately for each role you fulfil.  Try to allocate and spend fixed amounts of time in each role.  Try to work independently in each role, i.e. different files, maybe different work stations, etc.  By doing this, you can readily see which areas you spend most of time in, and which areas you really want to spend you time in for the future.  You can then fill the first vacancy into the role you would most like to avoid yourself, and so on.  The role for your new employee is then more firmly fixed, perhaps with its own work instructions, files, work-station etc.  Businesses we have worked with who have adopted this approach have been unanimous in their enthusiasm for it and all say it has helped them move from being the owner who does everything, to having a proper organisation, with the right people in the right roles.

It is very common to under-estimate the timescale of recruiting and training staff, so you need to be putting staff in their positions a good 6-12 months before they are really essentially needed, so give plenty of time for them to settle in and become competent in their field, before things get too busy.  If you delay and employ someone long after they are needed, they will spend their time "fire fighting" and may never reach their true potential in your business.

Working "IN" the business instead of working "ON" the business

A common mistake is for business owners to become too involved in the day to day operation of the business that they never have the time to actually do their proper role, which is in management and development of the business.  Of course, in any business' early stages, the owners have to take a very active hands-on role, but ultimately, to be a successful entreprenneur, rather than just being "self employed", they have to stand back and let others run the business.  You really need to make this decision right at the beginning, because if you never intend to "run" a business with others doing the work, your whole business strategy will be different and you need to concentrate on being self employed rather than a business in its true sense.

If you are intent on becoming a successful business, you really do need to "reach for the skies", and have a firm vision of where you want to be in 5-10 years time.  In such cases, you have to consider the interim period where you have to actually "do" the work yourself as a mere temporary issue and move away and upwards as soon as possible.  It is very easy, and common, for businesses to be held back because their owners are still involved in the day to day issues instead of moving up to a managerial and developmental role.

Ultimate Aims

Few business owners will expect to continue running their business for ever.  Most have a vision of developing a business, selling it on, and either starting another, or retirement.  Instead of working forwards from where you are at the start of a business, try working backwards from where you want to end up.  If you want to sell a business for a particular amount of money, work out what that business would look like to achieve that price, and then work backwards to see what decisions have to be made, and when, to achieve that goal.  Unfortunately, far too many businesses don't actually have an end-result in sight, they just plod on, often very successfully, but it is very difficult to make the right decision when you don't know where you're going.  Take a car journey, if you know where you want to go, you can choose the best route, you can take the your options of scenic or fast roads, you can choose when to stop and take a break, etc., compare that with just getting in your car one morning, with no idea where you are going, and just randomly turning off, stopping for breaks, etc., - in the first case you are more likely to have a successful and rewarding journey, whereas in the second, you are likely to find yourself back where you started, perhaps lost, perhaps somewhere you really didn't want to go.