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English Pages 192 Year 2008
Starting a Successful Business
THISPAGEINTENTIONALLY LEFTBLANK ii
Starting a Successful Business 6TH EDITION
Michael Morris
London and Philadelphia
Publisher’snote Everypossibleefforthasbeenmadetoensurethattheinformationcontainedinthisbookisaccurateatthe timeofgoingtopress,andthepublishersandauthorcannotacceptresponsibilityforanyerrorsoromissions, howevercaused.Noresponsibilityforlossordamageoccasionedtoanypersonacting,orrefrainingfromaction, asaresultofthematerialinthispublicationcanbeacceptedbytheeditor,thepublisherortheauthor. FirstpublishedbyKoganPagein1985asStartingaSuccessfulBusiness Secondedition1989 Thirdedition1996 Fourthedition2001asStartingaSuccessfulBusiness Fifthedition2005 Thisedition2008 Apartfromanyfairdealingforthepurposesofresearchorprivatestudy,orcriticismorreview,aspermitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted,inanyformorbyanymeans,withthepriorpermissioninwritingofthepublishers,orinthecaseof reprographicreproductioninaccordancewiththetermsandlicencesissuedbytheCLA.Enquiriesconcerning reproductionoutsidethesetermsshouldbesenttothepublishersattheundermentionedaddresses: 120PentonvilleRoad 525South4thStreet,#241 LondonN19JN PhiladelphiaPA19147 UnitedKingdom USA www.kogan-page.co.uk Theviewsexpressedinthisbookarethoseoftheauthor,andarenotnecessarilythesameasthoseofTimes NewspapersLtd. ©MichaelMorris,1985,1989,1996,2001,2005,2008 TherightofMichaelMorristobeidentifiedastheauthorofthisworkhasbeenassertedbyhiminaccordance withtheCopyright,DesignsandPatentsAct1988. Theviewsexpressedinthisbookarethoseoftheauthor,andarenotnecessarilythesameasthoseofTimes NewspapersLtd. ISBN9780749451059 BritishLibraryCataloguing-in-PublicationData ACIPrecordforthisbookisavailablefromtheBritishLibrary. LibraryofCongressCataloging-in-PublicationData Morris,M.J.(MichaelJohn) Startingasucessfulbusiness:startupandgrowyourowncompany/Michael Morris.––6thed. p.cm. Includesindex. ISBN978-0-7494-5105-9 1.Newbusinessenterprise.2.Entrepreneurship.I.Title. HD62.5.M6772008 658.1'1––dc22 2007044007 TypesetbyJSTypesettingLtd,Porthcawl,MidGlamorgan PrintedandboundinIndiabyReplikaPressPvtLtd
Contents
Preface
viii
1 Firstthoughtsandfoundations What’sitliketorunabusiness?1;Familymatters4;Four typesofentrepreneurs5;Womenentrepreneurs8;Male entrepreneurs9;Personalfinances:springcleanwhileyou can9;Whatsortoffirmtostart?12;Buyingabusiness13; Takingupafranchise14;YourITstrategy15;Webtrading16
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2 Gettingorders,makingprofits Whatareyouselling,exactly?18;Choosingcustomers19; Findingoutwhatyouneedtoknow20;Forecastingyour sales21;Whatexactlyareyouselling,then?23;Whyshould anyonebuyfromyou?25;Gettingitalltotheconsumer26; Dealingdirectwiththepublic28;Shops’anddistributors’ margins30;Attractingthedistributor32;Visitingthe customer34;Pricingformarketability36;Sellingviathe bigcatalogues:bigorders,quickpayment37;Effective advertising38;Publicity:nearlyfreeandbetterthan advertising39;Thewebandyourmarket41;Salesviathe internet42
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3
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Controllingthemoney Costsandcosting47;Calculatinganhourlyrate48;Controls oncosting50;Theimportanceofcash52;Clevercash conservation53;Forecastingthecashsituation53;Why
vi Contents
cash-flowforecastingmatters54;Planningforprofits55;Credit control58;Positivestrategiesforcreditcontrol59;Whencredit controlfails61;Breakingthroughtoprofitability63;Smarter costing64 4 Raisingthemoney Grants:freemoneyisbest68;Beg,stealor...69;Presenting yourcasetothebank71
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5 Yourbusinessnameandlegalstatus Theoptions73;Soletrader74;Partnership74;Limited company74;Yourbusinessname76
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6 Businessandthelaw Civilandcriminallaw:howthedifferenceaffectsyou79; Contractlaw80;Tort81;Goingtolaw82;Contractsto buy83;Contractstosell85;Conditions,warranties,guarantees andexemptions85;Productliability86;Copyright,registered designs,trademarksandpatents87
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7 Premises Canyouworkfromhome?89;Findingsmallpremises90; Planningpermission91;Applyingforplanningpermission92; Appealingagainstaplanningdecision93;Leases94;Ratesand watercharges94
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8 Managingoperations Operations?YouthinkI’masurgeon?96;Planbeforeyou leap97;Beingincontrol99;Safety103;Purchasing103; Quality104
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9 Financialhousekeeping,VATandtax 106 Financialrecords106;Bankaccounts108;VAT–ValueAdded Tax–inoutline108;IncomeandcorporationtaxesandNational Insurance110 10 Employingpeople People:thesmallfirm’spowerhouse113;Thesearchfor goodpeople115;Definethejob117;Definetheperson118;
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Contents vii
Advertising118;Shortlisting119;Interviewing120; Deciding125;Induction126;Thelaw;notasbigaproblemas somethink127 11 Riskmanagementandinsurance Riskmanagementstrategy131;Insurancestrategy133; Insurancesuppliers134
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12 Sourcesofhelp Whatadviserscandoforbusiness135;Findingageneralist consultantoradviser136;Specialistadvisers137
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13 Afterasuccessfullaunch...developingyourfirm Yourexperience138;Keyissues139;Expansionstrategy139; Yournewjob140;Thethreestagesofgrowth140; Organisationalculture142;Yourmanagerialdevelopment142; Yourfirmandconsultants143;Fundingyourgrowth143
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14 ThePLGProgrammeforGrowth 145 ThePLGProgramme:Prepare,Launch,Grow©145;Whatit’s for146;Howitworks146;Businessplanintroduction147; Businessplan:Partone:overviews148;Businessplan: Parttwo:Operatingplans150;Businessplan:Partthree: Appendices153;Businessplan:Presentation153;Business plan:Implementation154;Businessplan:Growth155;Executive summary155;Businessplan:Partone:Overviews156;Business plan:Parttwo:Operatingplans158;Businessplan:Partthree: Appendices161;Businessplan:Presentation161
Appendices 1 Cash-flowforecastingillustration 2 Drafttermsandconditionsofsale 3 Smallbusinesscontactslist 4 Helpforsmallbusinesses
162 166 170 178
Index
181
Preface
Unlikeothertexts,thisisreallythreebooksinone: aconventionaltextbook,tellingyoualltheimportantthingsyouneed toreadandabsorbbeforestartinginbusiness, areference-bookforonceyouareinbusiness,tohelpbrushupyour operations, newforthesixthedition,itincludesamajoraddedextra:thePLG Programme©(Prepare,Launch,Grow). The PLG Programme helps you to create the business plan for your new business,togetitupandrunningsoundlyand,onceitisestablished,tomake itgrow. StartingaSuccessfulBusinessisalreadytheclassicbookofitskind.For morethan20yearsithashelpedawholegenerationofentrepreneurstoget goingwithmaximumeffectiveness.Thenewsixtheditionbringsituptodate andaddsextrafeatures. Goodluck! MichaelMorris
1
Firstthoughtsand foundations
Thischaptercovers:
beingabusinessmanager; familyandsociallife; personality,experienceandsuccess; familyfinances; typesofbusiness; IT.
What’sitliketorunabusiness? Inaword,busy.Thereisalottodoand,intheearlydays,probablyonlyyou todoit. Itcanbemanaged,though,andthekeywordis‘managed’.Mostofthe reallyeffectivemanagersusethreetools: theprioritymatrix; Paretoanalysis; timetargets.
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Allofthesetoolsaimtodoonesimplething:toensurethatyouuseyourtime tobestadvantage.Taketheexampleoftwopeopleofreasonableintelligence andeducationwholivetothesameage.Overtheirlivestheygetexactlythe same allowance of time, yet one may be highly successful, the other not. Whatmakesthedifference?Theansweris:howtheyputtheirtimetouse.
Theprioritymatrix Everythingyoudo,ordon’tdo,canbeputintooneofthefourboxesonthis diagram:
IMPORTANCE High
Low
High
Urgent and important
Urgent but unimportant
Low
Important but not urgent
Neither urgent nor important
URGENCY
Figure1.1 Theprioritymatrix Themessageisclear.Thereisneverenoughtimetodoeverything,sotrain yourselfto: 1. lookateache-mail,letter,phonecallorvisitor; 2. stopforasplitsecondtoplaceitintherightbox; 3. dealwiththemaccordingly. Thiswayyougetalltheimportantthingsdone.Youmayevendonothing atallfromthebottomright-handbox,atleastuntiltheyhavemigratedto anotherbox,butalotwilljustsitthereandfadeaway.Noproblem:dealwith themoncetheymigrate,butnotbefore.Youwillsavealotoftime. Doesitreallywork?Ournexttoolshowshowformidableitcanbe.
Firstthoughtsandfoundations 3
Paretoanalysis TheItalianeconomistVilfredoPareto(1848–1923)foundthat80percent ofthewealthinItalywasownedby20percentofthepopulation.Fromthat findingmuchresearchwasdoneinmanyfields,culminatinginthe‘80/20 rule’,whichstatesthat,inmostsituations,about80percentoftheeffects comefromabout20percentofthecauses.Inashop,thatmeansaround four-fifthsofthesalescomefromone-fifthofthestock;inasalesforce,fourfifthsofthebusinesscomesfromone-fifthofthecustomers;andinafirmlike yours,four-fifthsofyourprofitwillcomefromone-fifthofyoureffort. Itisperfectlyobviouswheretofocusyourtime:onthefewthingsthatwill achievealot.Conversely,youwillavoidorpostponethemajorityofthings thatearnrelativelylittle. Themessagebecomesevenmorestarkifyouapplythe80/20ruletothe ruleitself:80percentof80percentis64percent;20percentof20percent is4percent.Thissuggeststhat64percentofyourresultswillcomefrom amere4percentofyourwork.Justthinkwhatthatmeans:inacoupleof hoursyoucouldearntwo-thirdsofaweek’sincome.
Section 1: Introduction and first steps 20 per cent of activity produces
80 per cent of activity produces
ACTIVITY
RESULTS
only 20 per cent of results
Figure1.2 TheParetoDistributioninaction
80 per cent
of results
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Whatdoyoudowiththerestofthetime? Youcan,ofcourse,takeittoofar.IfTescoofferedlittlemorethanpetfood, washing-powder,cornflakesandwine,somepeoplewitheccentriclifestyles mightstillshopthere,butmostwouldgoaway.
Familymatters Familydoesmatter:businesspeopleneedunderstandingandsupportfrom theirnearestanddearest.Anabsentmother,father,spouseorsweethearttries thepatienceanddumpsresponsibilitiesonothers,yetyouwillstillwanttobe lookedafterfollowingyourdifficultday.Moreover,theremaybetimeswhen moneyistight–thinkwhatthatcoulddotocherishedrelationships.Sokeep theminthepicture,listentotheirviewpointsandkeepthemonboard. You,personally,mayatfirstfindithardtocometogripswithyournew situation.Ifyouareusedtolonghours,hardwork,uncertaintyandstress, youhavesomeideaofwhatisinstore.Youmayneedtopickupallsortsof newskillsquickly.Ideallyyouareapersonwho:
takesresponsibilityforyouractions; hasago,butassessesrisksfirst; isdisciplined; understandsmostofthejobsthatwillbedoneinthenewfirm; picksupinformationquickly; hasreasonableintelligenceandagoodmemory; isimaginative,seeingproblemsbeforetheycropupandgettinground them; looksforbetterwaystodothings; leads,ratherthanbeingled; keepsclearrecords; canmakeyourselfunderstoodeasily; getsyourownway,pleasantly; hasgoodgeneralhealth; really,reallywantstosucceed.
Don’tgetdepressed–itsays‘ideally’.Fewpeopleget100percentonall ofthosemeasuresand,inanycase,thereareshort-cuts.Ifyourmemoryis poor, you have probably found ways of keeping notes and filing them; if
Firstthoughtsandfoundations 5
unimaginative,youcanuseotherpeopletohavebrightideas(thereareall sortsofsourcesofhelp–seelater);ifyoudon’tnaturallykeeprecords,you caneitheremploysomeonewhodoesordisciplineyourselftodoit.Andso on. Ifinclinedtodoubtyourself,thinkofthegenerationsofimmigrantsover thepastcenturywhocametoBritainwithnothing,yetbuiltgreatbusiness empires.Don’tyouhaveaheadstartalready? If worried about failure, reflect on what many tycoons say: that their failurestaughtthemwhattheyneededtoknowinordertosucceed.Failure isapermanentstateonlyifyoumakeitso.
Fourtypesofentrepreneurs Many people who start businesses fall into one of these categories: craft ortechnicalspecialists,managers,salespeopleoradministrators.Eachhas strengthsandweaknesses.
Thecraftortechnicalspecialist Strengths
Practicality; know-how; curiosityabouthowthingswork; creative; highstandards; concernfordetail.
Weaknesses
Moreinterestedinthingsthanpeople; undervaluingtheirwork; missingthebigpicture; makingthingsbetterandmoreexpensivelythanthemarketwants; obsessedwithproductratherthancustomers; spurningsalesskills,believingthatgoodthingsshouldspeakfor themselves.
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Keychallenge Gettingontopofthepeopleskills. Iftheyteamupwithsomeone,thatpersonshouldhaveabigvision,perhaps asalesperson.
Themanager Strengths
Gettingthingsdonetodeadlines; planning; dealingwithandmanagingpeople(somemanagers,thatis); vision; understandingcomplexity; languageandnumeracy(somemanagers).
Weaknesses
Usedtoinstitutionalsettingwherethingsaredonebyothers; unusedtodoingthedetaileddirtywork; sometimesaninflatedsenseofpersonalimportance; beliefthatthesmallfirmisjustamicrocosmofthebigfirm(whereas itisqualitativelydifferent); difficultyinswitchingfrominstitutionaltoentrepreneuriallife.
Keychallenge Makingthetransitionfromnarrowtototalresponsibility.
Thesalesperson Strengths Vision; optimism; drive;
Firstthoughtsandfoundations 7
persistence; peopleskills.
Weaknesses
Misplacedself-confidence; unusedtodoingthedetaileddirtywork; over-optimism; inexperienceofthecomplexityofothercommercialfunctions; makingcommitmentsincautiously; believingpaperworkunnecessary; spendingheavilyon‘front’; overridingcolleaguesthroughforceofpersonality.
Keychallenge Tograspthecomplexityofthewholewhilststillusingsalesskillseffectively. Agoodpartnerwouldbeastrong-mindedadministrator.
Theadministrator Strengths
Gettingthingsdonetodeadlines; planning; understandingcomplexity; numeracy; organisation; meticulousness; keepsrecordsandcanaccessthem; caution.
Weaknesses Over-cautious; indecisive;
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narrowvision; lackssocialconfidence; lackspeopleskills.
Keychallenge Broadeningvision,developingpeopleskills. Anidealpartnerwouldbeasalesperson.
Womenentrepreneurs Comparedtomostmenenteringbusiness,mostwomenare:
harderworking; morecareful; moreaccurate; moreserious; moreenquiring; morelikelytoadmittoinability; morelikelytoseekandlistentoadvice; quieterandlessflamboyant; lessinclinedtopushthemselvesforward; betteratdealingwithpeople; morelikelytoworry; morelikelytounderestimatethemselves; morelikelytoblamethemselveswhenthingsgowrong.
Thislistgeneralises,andpeoplevary,butonthewholeIbelieveittobetrue. Lackingconfidence,womentendtodomoreresearchandseekadvicemore readily.Beingworrierstheywillthinkroundasituationbeforecommitting themselves.Consequentlytheytendtosettheirfirmsupongoodfoundations. Theyalsotendtokeeprecordsandtobegoodatdealingwithcustomers, suppliersandstaff. Myhopeisthatsharingtheseviewsandreflectionswillencouragemore womentodeveloptheconfidencethattheirideasandabilitiesdeserve.Iwrite ithopingIhaveavoidedbeingpatronising.
Firstthoughtsandfoundations 9
Maleentrepreneurs Althoughthegapisclosing,menstillstartmorecompaniesthanwomen.In comparison,theirfirmstendto:
growfaster; getbigger; bemoreambitious; betechnicallybased; befaster-moving; bebetteratself-promotion; havetroublekeepingstaff; gobustmorefrequently; havemorecrisesontheway.
I leave it to anthropologists and social psychologists to explain why.The sheerfactofnumbersmeansthatmale-runfirmscontinue,forthemoment, tobethebackboneofthesmallbusinessmovement.Atatimewhensome aspectsofmasculinityareunderattack,itmayhelptoknowthatwechaps canclaimtobeusefulinonefieldatleast. Moreseriously,anymanstartinginbusinesswoulddowelltopauseinthe headlongrushtogetgoingandponderthecommentsaboveonhisfemale counterpart.Amorethoughtfulapproachcanpayoff,handsomely.
Personalfinances:springclean whileyoucan Asanewentrepreneuryouwillbeclosetoafinancialuntouchable.Until therearethreeyears’accountstoshow,nobodywillwanttolendyoumoney. Whenraisingfinanceforthefirmthisneednotbeaproblem,butasacitizen itcouldbe. Dothefollowingstraightaway: Buildintothebusinessplanareasonableandrisingpersonalincome. Ifyouareinworkandplantobuyahouseatsometime,doitnow orpostponetheideaforfivetosevenyears(whenyouraccountswill showyouhavetheincometopaythemortgage).
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Table1.1 Maindifferences Activity
Bigcompany
Smallbusiness
Collectingmoney fromcustomers
Someoneelse’sjob (unlessyouarethe creditmanager)
Yourjob,andcrucialto survival
Returnoninvestments
Oftenexpectto Hastobemoreorless postponeprofitfora immediate yearortwo,aslongas therewillbeareturn eventually
Overallmanagement ofthefirm
Thejobofsome remotefigure
Yourmainjob
Attentiontoanarrow specialism
Youarepaidtobea specialist
Youareageneral managernow,sokeep thespecialisminits place
Break-evenpoint
Oftenatahighlevel ofsales
Needstobekeptaslow aspossible
Profitmargins
Preferablyfat,but volumemakesupfor thinones
Mustbehigh,because thereislittleopportunity togoforvolume
Raisingmoney
Usuallythejobof someoneelse,on behalfofafirmthat carriesrealweight
Yourjob,backedupby littleornoclout
Attentiontodetail
Itpaystohavethree peopleworkingon somethingaffecting 1percentof£100 millionsales
Dealonlywithimportant things.Onepercentof yoursalesinyearoneis lessthan£1,000,most likely
Spending‘small’ sumsofmoney
£1,000,£2,000or even£10,000
Spendnothing,if possible;ifnot,spend little
Firstthoughtsandfoundations 11
Table1.1 Continued Activity
Bigcompany
Smallbusiness
Usingspecialist advisers
Onthestaff,available freeandmoreorless ondemand
Selectgoodones,be preparedtopay,use wiselyandgetvaluefor money
Prestigeand appearances
Bigofficesandcars, goodfurnitureare vital
Getnothingthatdoesn’t reallyworkhardforyou
Delegationandhelp
Peopleonhandto takeontasks
Youdoitoritdoesn’t getdone
Complete understandingof objectives
Afewpeopleatthe Possibleforevery top,withbigproblems employeetohaveit ofcommunicating themmorewidely
Responsibilityfor goingbroke
Shareholdersand directors
Yours
Thisisonlyaselectionofsomeofthemaindifferencesbetweenrunningasmall firmandworkingforabigone.Notalllargecompanieshavetheslightlymuddled attitudesthatmaybesuggested,byanymeans.But,despitetheshake-outofrecent years,manystilldo.Thetabledoesshowtheconsiderablechangeinattitudethat thebig-firmmanagermustundergotoadjustsuccessfully,buildonstrengths,and survive.
Therearesomementaladjustmentstomakeaswell.Asanemployeeyou areusedtodeductionsforincometax,NationalInsurance(NI)andpension contributions.Inadditionyoumaybegettingsubsidiesthatwillbecutoff whenyouareself-employed,including:
employer’sNIcontribution,aboutatenthofpay; employer’spensioncontribution,uptoaquarterofpay; paidholidaysandbankholidays,anothertenth; privateuseofacompanyvehicle; privatehealthinsurance;
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lifeinsurance; lunchallowances; freeuseofphone,PC,photocopier,unmeteredsupplyofpens,paper, envelopes,Sellotape,Post-Its. Alone, the first three items on the list total up to 45 per cent of pay. Just because you do not see them does not mean they need to be made up in incomefromyourfirm.Toignorethispointistofoolyourself.
Whatsortoffirmtostart? Thisquestionisunderstandable,butisaboutasusefulasaskingwhatsortof childtohave.Whateverthefirmstartsas,itisquitelikelytomutatewiththe passageoftimeasnewopportunitiesariseandareexplored. Successstoriesincludepeoplewhostucktoafieldtheyknew,aswellas those who broke away into something completely novel. The only really soundadvicethatappliestoeveryoneisthis:taketimetoinvestigateevery aspectbeforecommittingyourself.NeveragaindoIwanttomeetpeoplelike thecouplewho,havingtakenearlyretirementbecauseofthewife’shealth, tookoutabigloanandsanktheirsavingsintoahotel.Onlyoncetheyhad starteddidtheyrealiseitrequiredfromeachofthem18hoursaday,seven daysaweek. Even so, it is possible to come to a decision. If you have not already decidedwhattodoyoucanuseasstartingpoints: knowledgeofanindustry,lookingforunsuspectedopportunitiesina fieldyouknow; knowledgeofasport,gameorpastime,seekingwaystosupplyothers withthatinterestprofitably; knowledgeofanoccupationorprofession,supplyingerstwhile colleagueswithsomeservicetheyneed; lookingatthingsforsaleoneBay,seeingwhatstrangeopportunities existtosellalmostanything; ifyouhavecontactsinretailormanufacturing,buyingcheaplyends ofrangesandseconds; gettingajobinanSME(smallormedium-sizedenterprise)andlearning howtheywork.
Firstthoughtsandfoundations 13
Ifyouconcludethatyouhavenousefulknowledgeatall,checkthatbelief withsomeoneusedtothinkingcreativelyandlaterally.Itmightbeafamily member,someoneinthepuborabusinessadviser;theimportantthingisto freethementallogjam. Unlessthereareverygoodreasonstothecontrary,donotjustcopyona smallscaleaformeremployer.Ifthatwasamanufacturer,youmightbeable tosupplythemarketwithoutmakingathing,perhapsbylinkingupwitha subcontractororevenanoverseas,relievingyouofagreatdealoftrouble. AtalktothecommercialattachésofthenewerEUcountriesorevenatrip outtherecouldyieldallkindsofopportunitiestoimportortoactassales agentintheUnitedKingdom. Thesethoughtsleadontoanother,oneofgeneralprinciple.Whichdoyou feelmorecomfortablewith,theideaofdippingatoeinthewateratfirstand buildingthingsupifitseemstowork,orrightfromthestartcommittingto doingthefulljob? Thosearequestionsoftemperamentandyouneedtothinkouttheanswer foryourself,bestofallwithadvicefromsomeonewhoknowsyouwell. Itisworthformingarelationshipwithabusinessadvisersoastohave someonetobounceyourideasoff.Thismustbesomeonewithafinebalance between imagination and realism as well as experience outside a narrow, professionalfield.
Buyingabusiness Justaswithusedcars,thereisareasonforthevendortosell.Itmightbe innocentoritmightnot.TwothousandyearsagotheRomansusedtosay caveatemptor(letthebuyerbeware),stillsoundadvicetoday. Aswithstartingabusiness,buyinganexistingenterprisecallsfordeep andthoroughinvestigation.Ifyouareunfamiliarwiththetypeofbusiness concerned,asktoshadowthevendorforaweek.Thatishowyouwilldiscover thingsyouwouldnothavesuspected.Forexample,runningavillageshop mightlookrestful,buthowwillyourbackstanduptoshiftingseveraltons ofstockaweek?Thatisavan-loadliftedoffthecash-and-carryshelveson toatrolley,offthetrolleytothevan,outofthevanintothestoreandoutof thestoreontotheshelves.Everyweek. Thankstothesupermarketsalargeproportionofsmallshopsareunder threat–notjustthegrocers.Lookatthegrowingrangeofgoodstheysell
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andaskyourself:howcouldIcompetewiththis?Ifyoucanthinkofaway, goahead,butifnot,becareful. Doesthebusinessdependontheinvolvementoftheseller–doesitvirtually ceasetoexistwithoutthem?Whatistostopthemsellingtoyou,thenopening upagaindownthestreet?Yoursolicitorwouldensuretherewasaclausein thesaleagreementtostopthatparticulartrick,butyouarepotentiallyopen toeveryformofhumanknavery. Whenbuyingabusinessyouareexpectedtopayfor: anyfreeholdorunexpiredleasehold,whichisreasonablyeasytovalue independently; anymachines,vehiclesorequipment,againeasilyvaluedindependently; stock,usually‘atvaluation’,amajorsourceoftroublesincethevaluer mightinhastenotnoticethatthestackofboxesisholloworthatthe liquidstocklongagodriedout; ‘goodwill’,whichisapaymentforexpectedfutureprofits:sinceitis basedonassumedfutureearningsitcanbehighlycontentious. Ifyouthinkitappropriate,trytogetaclauseinthesalecontracttocommit thesellertoconsultancyforthreeorsixmonths,sothatyouhavesomeone toturntoforinformationoveranythingpuzzlingyou.
Takingupafranchise Theuncertaintiesofstartingyourownenterpriseandtherisksofbuyingan existingbusinesscancausepeopletothinkoffranchising.Afranchiseisa (usually)provenideathatisalreadyrunning,offeringthereassuranceofan establishedmodel. Inanutshell,youpaythefranchisorasumofanythingfromafewthousand tooveramillionpounds,signanagreementtobuyyoursuppliesfromthem andobservecertainstandards,hiresomepremisesandgettowork.Inreturnthe franchisorusuallyoffersnationalpublicityandadvertisingsupporttogether withplentifulbusinessadvice.Theremayevenbealoanscheme.Asfaras thepublicisconcerned,youarejustthelocalbranchofan(inter)national concern. Manyhighlyrespectablefirmsofferfranchisesandthereisanannualfair atwhichmanyexhibit.
Firstthoughtsandfoundations 15
Youmightask: DoIneedtobuyafranchisetogetintothisbusiness,orcouldIdoit offmyownbat? AmItherightpersonforthis? Whatistheturnoveroffranchiseesandwhyisthisparticularone available? Dotheywantahighfeeupfrontandlowcontinuingpayments?Isthis suspicious? Whatistheirrecord? CanIfinanceit,especiallyifsalesturnoutworsethantheyproject? HaveIevaluatedthisascarefullyasIwouldmyownbusinessidea? Talktothebanks(someemployfranchisingspecialists),advisoryagencies and the British Franchise Association (www.british-franchise.org). Get your solicitor to explain the full range of your responsibilities under the agreement.
YourITstrategy Everyfirmneedstorecorddata,analyseittocreateinformationandcommunicate.Inallbutthesmallest,informationtechnology(IT)isneeded. Theminimumthatmostbusinesseshaveis: accountingsoftware(HMRevenueandCustomsapproved,oryour VATsubmissionsmightbesuspected); aspreadsheetforbudgeting,costingand‘whatif?’exercises; wordprocessing,forcorrespondenceanddocumentation; e-mail; aprinter/copier. They may also have specialised software suitable for a specific type of business.Faxstillhasaplace,butisincreasinglyhandledviaPCsoftware andtheprinter. Gettingequippedoughtnottobehaphazard,butplannedalongorganised lines:
16 Startingasuccessfulbusiness
Specifyyourcurrentandlikelyfuturerequirements(nottheequipment, justwhatyouwantittodo). Selecttheoperatingsystemsandsoftware. DecideifyouwilleverneedaLAN(localareanetwork,tolinkmore thanoneterminal). Specifycostingsandtheprogrammeforimplementation. Considertheimpactofimplementationonthemainbusinessandhave contingencyplansreadyincaseofdelayorfailure. Youmayneedadvicefromanadviserskilledinthisarea.Itisbestifheor sheisindependentofsuppliers. UseofITforwebmarketingapplicationsisdiscussedelsewhere,butit may also have a role in keeping suppliers, staff and associates in touch. Whenpeoplewantedtoupdateassociatestheyusedtosendoutaletter;now, increasingly,theyputitonthewebsite.
Webtrading Thefundamentalsofwebtradingareidenticaltothoseofanyotherformof selling.Theremustbeapropositionrelevanttothecustomer,atasuitable priceandavailableontherighttimescale.Thebusinessmustgeneratecash fasterthanitabsorbsit,andpreferablymakeaprofit. Typingalmostanythingintoasearchengineproducesenormousnumbers of links to websites that want to sell something. Should you follow their example of how to go about it, or not?There are so many that this is an impossiblequestiontoanswer.WhatIcandoistocommendtwocompanies withwhichIhavehaddealingsandforwhichIhavegreatadmiration.Forthe record,Iknownothingofthemapartfromasacustomer,theyarenotpaying meforthisandIhavenotevensoughttheirpermissiontomentionthem: MailOrderBatteries.com:Thehighstreetshopwanted£18fora replacementcamerabattery.Thewebthrewupseveralpromisinglookingcontacts.Allexceptoneneededfurtherinformationbefore committingtosupplyme,soIorderedfromtheonethatsimplygave meaprice,£10.ItcametwodayslaterandMailOrderBatteriesisnow myfirstportofcallforbatteries.Ihopenevertomakethemrich,but Ithinktheyhavetheformularight.
Firstthoughtsandfoundations 17
TheMapShop:IwantedNetherlandsmapsthatshowedcyclepaths. Again,morethanonesupplierturnedupbuttheonlineinformation wasnotquitewhatIneeded.IrangthenameIknew,abigfirm,but theyputmeinaqueue.ThenIdialledTheMapShop.ThewomanI spoketoimmediatelyrecognisedmyproblem,knewtheanswersand toldmewhatIneeded.Themapsevenarrivedthenextday. Inbothcasestheyhavetheweb-tradingfundamentalsright,butbackthemup withauthoritativephonesupport.Theyunderstandthecustomer,knowtheir fieldanddeliversatisfaction.Thewebisnotproppingupafundamentally weakbusinessmodel;rather,itisprojectingasoundmodelwidely. ThelessonsIdraware: Anynicheisworthexploring,evenifitlookscrowdedalready. Addextravalueforthecustomerandyoucanbrushevenlarge competitorsaside. Dissatisfactionwithanexistingservicecansparkoffideasforanew business. Thetotalserviceiswhatmatters,notjustthewebsite.
Keyjobstodo Understandthatthefirm’ssuccesslargelydependsonhowyouuse time. Ensurethatyourfamilyunderstandsandacceptstheimplicationsof yourdecision. Assess your strengths and weaknesses in relation to running a business. Setyourpersonalfinancesstraight. Decideonthetypeoffirmtostart. Recognisethatifyouareevergoingtopullout,nowisthebest time.
2
Gettingorders, makingprofits
Thischaptercovers:
definingyourproductorservice; findingcustomers; researchtasks; forecastingsales; howtosell; howretailerspricewhattheysell; settingyourprices; advertisingandpublicity.
Whatareyouselling,exactly? Yourjobistosellwhatcustomerswant.Ifitisaninnovation,theymaynot knowtheywantit,yet.Butevenwithintherealmofwhattheyknow,different customers want different things. Think of reasons why people might buy clothes: warmth; weather-proofing;
Gettingorders,makingprofits 19
lightness; fashion; allure; longlife; versatility; goodservice; quickdelivery; ...andsoon.
Noclothingsuppliercouldsatisfyallthoseneeds,whichiswhydifferent suppliersaddressdifferentsegmentsofthemarket.Oneofyourfirstjobsis toidentifythesegment(s)youareaimingat,thenselltoitorthem. Sometimes the buyer is buying for himself or herself, sometimes not; sometimes the decision is influenced by others. You may need to reach those others, too. Think about who takes the decision to buy from these suppliers: Buildingcontractor–householderorarchitect? Toymaker–child,parent,grandparent,otherrelativeorfriend? Subcontractprecisionengineer–engineeringdesignerorengineering buyer? Dothosedifferentaudienceswanttohearthesamemessagefromthesupplier? Howisitinyourtrade? Lookcarefullyatyourmarket,askaround,investigate;findouthowpeople buywhereyouplantooperateandgearyourpropositionaccordingly.
Choosingcustomers First,definetheend-userofyourproduct,yourconsumer.Thinkofhowthey gettheproductnow.Arethereanyotherwaysitcouldgettothem?Areany ofthempractical? Whatdoesyourconsumerreallyneed?Itmaybethattheyarenotgetting it,ornotinfull.Couldyousupplythemissingelement? Oftenthosetwopiecesofthinkingspecifyapossiblenewbusiness:the productcanbethesameasothers,butitgetstoconsumersinawaythey preferandwithadd-onsthattheylike.
20 Startingasuccessfulbusiness
ThinkofJohnDRockefeller,whogaveawayoillamps;hesoongothis moneybackthroughtheboosttohissalesofparaffin.OrKodak,whoseearly camerasweresoldatcostinordertoshiftfilm.AndGillette,whodidmuch thesamewithrazors.Theyallbroketherulesthateveryonehadassumed existeduptothen,andnoneofthemdiedpoor. Toaddressconsumerseffectively,theyneedtobegroupedtogetherinto marketsegments.Therearemanybasesforsegmentation,including:
geography; agegroup; howmuchoftheproducttheyuse; incomegroup; socialclass; leisureinterests; ...andsoon.
Forexample,alawnmowerrepairerandretailermightdecidetosegmenthis marketusinganumberofcriteria: within30minutes’drive,toconcentratehiseffort; owner-occupiers,assumingthattenantsmightcarelessabouttheir gardens; 50to1500squaremetresoflawn,assmallerlawnsmaybemownby cheap,throwawaymachinesandlargerbycontractors; insmalltowns,villagesorsuburbs,aslawnsarescarceincities. Bydoingthathehasdonetwokeythings:decidedwhohewillconcentrate on,anddecidedwhohewillignore.Bothhelphimtomaximisethereturn forhisefforts.Dothesameforyourbusinessandyourmarketingwillbe effective.
Findingoutwhatyouneedtoknow Sofarwehaveassumedthatyoueitherknowwhatyouneedtoknoworcan easilylayhandsonit.Evenifyoudo,thetimewillcomewhenyouneedto doresearch.Butwheretolook? Internetsearchesareanobviousstartingpoint.Onegoodplaceiswww. rba.co.uk,whichprovidesanumberoflists,someusefultobusiness.
Gettingorders,makingprofits 21
IfyouareaB2B(business-to-business)seller,youmayatfirstneedlittle morethanwww.yell.com.Itlistsallthe1.6millionYellowPagesentriesand enablessearchesbygeographicalareaaswellasbusinesstype.Soifyouwant toselltoaccidentinvestigators(theyhave90)rightthroughtozoos(46),you canlistyoursalesprospectsinstantlyandforfree. Informationonthewebisnotalwaysreliable,though,andsomethatis, iscostly.Atsomepointyoumaywishtovisityourlocalpubliclibrary.The commercialandreferencesection(allthebiggerlibrarieshaveone)isstaffed by people who know their way around the information scene. They also subscribetotheimportantdirectories,sothatyouhavefreeaccess. Often,thechallengeliesinknowingwheretolook.Askyourselfwhoelse hascontactwiththepeopleyouwanttotalkto.Forexample,tosellB2B locally,tryaskingforlistsfrom:
Localauthorityestatesdepartment–whoaretheirtenants? Localauthoritypromotionunits–whatbusinessesexistinthearea? ChambersofCommerce–membershipdirectory. ChamberofTrade–ditto. Tradeassociations–membershiplists. Businessclubs–membershiplists. Colleges–localemployers.
Notallwillhelp,butsomewill,soask.Morewidely,therearegovernment development agencies, government websites, national trade associations, industrydirectoriesandweb-basedlists. Themorespecialisedyourtargetgroup,themorelikelytherearetobe societies,websitesandmagazinestoserveit.Someevencommissionresearch amongtheirmemberswhichmaytellyouexactlywhatyouwanttoknow.
Forecastingyoursales Attheoutset,therearethreepossibleapproachestosalesforecasting: decideitisimpossibleanddon’tbother; makeaforecastbasedoncautiousrealismarisingfromresearch; forecastsalesatalevelthatyouthinklooksrealisticandwillatleast paythebills.
22 Startingasuccessfulbusiness
Eitherofthesecondtwoisfine,dependingonyourcircumstances.Thefirst isnot.Allthefinancialplanningforafirmstartsfromitssalesforecast,so doone.
Forecastingdemystified Many people refuse to make a forecast on the grounds that it is boundtobewrong.Theyareright:itis.Butthatisnoreasonnot tomakeone. Sowhyspendtimeandtroubleonsomethingthatwillbewrong? Becauseaccuracyisn’tthepoint.Youtrytogetitasrightasyoucan, ofcourse,butbeing5oreven10percentadriftdoesnotmattera jot,aslongasyouspotthedeviationearlyandcorrectforit. Thecaseforforecastingiscompelling.Runningafirmisacomplex game, with many variables impacting on each other. The owner needstokeepontopofthegame,andthebestwaysofardevised istomakeaforecast,thenseehowthingsturnout.Iftheforecastis wrong,youchangeit.Inchangingityoualsochangeallthevariables thatdependonit,whichprovidesanewsetofbenchmarksagainst whichtomeasureprogress. Itisabitlikeridingabicycle:youproceedinaseriesofswerves, never a straight line, but always in the general direction of the objective. Ifyoudidnothavetheforecast,howwouldyouknowwhatthe objectiveis?
Fromthesalesforecastyouwillknow:
howbigtheproductionfacilityneedstobe; theproductioncapacityrequired; howmanystafftotakeon; whattransportcapacityisnecessary; yourcashneeds; howmuchmaterialtoorder; ...andsoon.
Gettingorders,makingprofits 23
Understandably,thenewbusinessfoundercanfeelintimidatedbythistask. Uncertaintyandignorancearetheproblems.Cutdownontheunknownarea byvisitingsomepotentialcustomersandsimplyaskwhatyouneedtoknow. Explainitisaresearchvisitandavoidalltemptationtosell,butlisten,really listen,towhatissaid. Eventhenyoumaylacktheknowledgetohavesufficientconfidenceto taketheplungefulltime.Couldyoustartuppart-time?Couldsomeoneelse makewhatyousupplyuntilyouareconfidentenoughtogoinforthebig investmentyourself? Thisdiscussioniscloselylinkedtothe‘Breakingthroughtoprofitability’ section(inChapter3),whichlooksattheminimumlevelofsalesneededto paythecosts,whichisthepointwhereyoustarttoearnprofits.
Whatexactlyareyouselling,then? Customers do not buy products or services. Customers buy propositions. Thetotalpropositionismuchmorethanthemereproductorservice.Ifthat wereuntrue,Marks&Spencerwouldneversellanothershirt,forshirtsare availablefrommarketstallsatathirdofM&Sprices. Comparedtothemarkettrader,M&Soffers:
aquality-controlledproduct; self-selection; protectivepackaging; authoritativeadviceifneeded; aguaranteeofperformance; instant,no-quibbleexchangeorrefund; paymentbycreditcard; apleasant,clean,indoorenvironment.
Theshirtitself,plusallofthatlist,comprisestheM&Spropositiontoits customers.YetM&Sdonothaveamonopoly.Why? M&Saimsatthemiddle60percent,leaving20percentateitherend forotherstopickup.Theyarethepeoplewhowanteithersomethingmuch fancierormuchcheaper,oreasierparkingout-of-town,ortheconvenience ofaretailerneartheirworkplace,ortobuyathomebymailorderoronthe web.Thoseothersuppliershavetheirplace,providingwhattheircustomers wantataprofit.
24 Startingasuccessfulbusiness
Workupyourproposition,lookingateveryaspectofthewaythecustomer mightviewit.Aboveall,rememberthatnotallthepeoplewhomakeitbig inventabettermousetrap.Manyattachotherbenefitstoperfectlyordinary mousetraps,whichisaloteasierthaninventingimprovementstoadesign thatalreadyworksperfectlywell. Withthatinmind,whetherornotyourproducttrulyisarevolutionaryleap forward,lookatallthevariablesthatyoucanchange:responsetoenquiry, ordersize,deliveryspeed,guarantee,servicing,spares,after-salesfollow-up andothers.Ifyoucanbebetteratanyofthosethatmattertoyourcustomer, youshouldwinthebusiness. Wheneveryouareindoubtaboutacourseofaction,ithelpstodrawup atableshowingtheprosandcons.HereIhavemadeonetohelpyouassess howdifferentpatternsofdeliverycouldaffectyourcompetitivenessagainst theopposition. Makingthissortofexaminationofeveryaspectofyourplansagainstwhat thecompetitorsdohelpsyouto: seehowhighyourcompetitorshavesetthebar; carveoutaspecificationforexactlyhowyourunyourfirm; onceyouhavebeenrunningforatime,reviewwhyyoudoitthat way. Table2.1 Deliverycompetitivenessmatrix Factor
Competitor Whatwe doesit coulddo
Customer benefits
Ourcosts
Deliveries
monthly
monthly
none
weekly
lower stocks,more responsive lowerstocks, muchmore responsive asabove asabove lowerprices
sameas competition higher?
daily weekly
daily two-hourly monthly
higher? higher? muchhigher? lower
Gettingorders,makingprofits 25
Theimportanceofdoingthisisthatmostcustomersassumethatwhatison offernowisallthatwilleverbeonoffer.Youdonotwanttofallintothe sametrap.Youwanttolead,notfollow,ifatallpossible. Probably the most important aspect of your proposition is the benefits which your products and services offer. There are two kinds of benefits: thosearisingfromsomethingbuiltintothethingitself(likeaself-sharpening featureonaknife)orthoseseparatefromitbutstillpartoftheproposition (likeawarranty).Thesearesomeofthepossibilities(thetwosidesofthe tablearenotmeanttocorrespondwitheachother): Built-inbenefit
Outsidebenefit
better-lookingmaterials moreresistantfinish betterperformance needslessmaintenance,more reliable lastslonger
fasterdelivery longerguarantee no-quibblereplacement freereplacementwhileservicing done easy-paymentterms
Youcanringthechangesoncolumn2farmoreeasilythanoncolumn1.Thus thisistheareaonwhichyouconcentratewhenplanningpromotionalsupport togivecustomersreasonsforbuyingnow,notnextmonthornextyear.
Whyshouldanyonebuyfromyou? Customersbuybecause: yourmarketingisbetter,meaningthatyouhaveputtogetherapropositionthatismorerelevanttothemthananythingelseonoffer;and yoursellingiseffective. Andthat’sit. Getthisright,andyoucouldbeonthewaytoafortune.Getitwrong,and thereisnopointingoinganyfurther. Butthejobdoesnotendthere.Competitorscouldcopyyourapproachand neutraliseyouradvantage;iftheydo,youneedtoknow.Sokeepyoureyes andearsopenand,bestofall,haveyournexttwomovesupyoursleeveready forimmediateusewhenneeded.
26 Startingasuccessfulbusiness
Takealookatyourfirmfromthepointofviewofacustomer.Whatsortof imagedoesitpresent?Since,intheearlydays,youandthefirmareone,much oftheanswerwillrevolvearoundyourpersonalappearanceandpresentation. However,thereismoretoitthanthat. Unlessyouareaskilleddesigner,don’ttrytomockupyourlogo,letterheadingandotherdocumentsonthePC.Givethejobtoaprofessionalwho willtakewhatyouaretryingtoputacrosstoyourcustomerandtranslate itintographicdesign.Heorshewillalsoensurethatthedesigniscarried overintoallaspectsofyourcontacts:businesscards,website,letterheads, invoices,quotations,complimentsslips,vehiclelivery,companyuniforms, sales presentation materials, advertising and even the typeface used for correspondence.Itallmatters.Itwillcostafewhundredpounds,butcould liftyouabovethecrowd. Oncewon,customerswillkeeponcomingbackprovidedyoukeepyour promises(somepeopleunder-promisesoastobeabletoover-deliver)foras longasyourpropositionremainsrelevant.Theirneedswillchange,soyou needtochangewiththem.
Gettingitalltotheconsumer Atthetwoextremes,youcandealeitherdirectwiththeconsumer,theenduser,orthroughachainofdistributionthatendswiththeconsumer.Thereare differentroutesfromyoutothem,eachwithitsownbenefitsanddrawbacks. Sellingdirectgetsyouthefullsalespricebuttakestime,costsmoneyand involvesagooddealofadmin.Ontheotherhand,sellingthroughdistributors relievesyouofalotofadminbutatthepriceofgivingyoualowerincome perunit.Whichisbest?Itdependsonyou,yourmarketandthestrategyyou areputtingtogether.Amongtheissuesarethese: Whohasthewhiphand,thesalespersonortheproducer?(Askwho wins:thesalespersonwhowithholdstheorderorthemakerwho withholdsdelivery?) Whowouldbebestatsellingforyou–youorsomeoneelse? Whichmakesmoremoney–sellingormaking? Ifyoudroppedsellingormaking,whatwoulditcosttogetsomeone elsetofillthegap?
Gettingorders,makingprofits 27
Ifyoudropselling,howwillyoumaintainanindependentviewof whatishappeningamongcustomers? Weareassumingthatthereisarealisticoptionoffindingasalesagent,which mightnotbethecase.
Themaintangibledistributionchannels Retailersaretheshopsweareallfamiliarwith,ofcourse. Wholesalersordistributorsbuyfromsuppliersandselltoindependent shops. Occasionally they sell some specialised goods to larger retailers.Theyusuallyspecialiseinaparticularsector,eghardware, petgoods,giftware,etc.Theymayoperatecash-and-carryoutlets ormakedeliveries. Salesrepresentatives(reps)drawsalaryandexpensesandareemployedtoselltocustomers. Salesagentsareindependent,self-employedrepsworkingoncommissiononly,usuallybetween10and20percentofsales.Theymeet theirownexpenses.Trywww.themaa.co.uk. Multiplesorchainsareshopswithseveral,ormore,branches,often withregionalornationalcoverage.Theymayhaveacentralwarehouseortakedeliveriesdirecttobranches. Mail-ordercataloguesarebigcatalogueslikethatofArgos.Other thanArgos,theirmainconsumerpropositionisthatgoodsareavailableoncredit. (Many specialists operate mail-order catalogues to sell their own merchandise.Itisarouteopentoanyfirm,butherewedealsolely with the large, general catalogue operators. Running one’s own catalogueisdealtwithseparately.)
28 Startingasuccessfulbusiness
If you choose to use a channel of distribution the maximum amount of researchpossibleshouldbedonebeforegoingahead. Youmaydecidetodothesellingyourselfafterall.Ifso,makesureyou learnfromeachencounter,whetheryougetanorderornot.Keeprecordsand analysethem,asyouwouldifyouwereemployingsomeone. Ifyougetmorethanaboutoneorderfromeachfourpitchesyourpropositionisbeingreceivedwell,andyoumightbeabletocutbackonsomeexpensiveelementofit,ortoraiseprices.Youcantryoutdifferentpropositions,to seewhateffectithasonthenumberofordersyoutakeaswellasonprofits. Likeagoodscientist,changeonlyonevariableatatime.
Dealingdirectwiththepublic Theusualmethodsofreachingthepublicdirectare: Sellinginthehome:likeAvon.Toreducethecustomer’srighttocancel, makesureyouareinvitedinotherthanonafirstvisit.Dropaleaflet forthemtoringyouandmakeanappointmentfromthat. Mailorder:inresponsetoeitheranadoracataloguethatyousend. Directmail:leafletsthroughletterboxesorlettersthroughthemail. Newsagentswilldeliverleafletsinsmallareas,RoyalMailanywhere youlike(andcheaply). Website:seelatersections. Stalls:inmarkets,atfairs,showsandcarbootsales. Partyplan:asusedbyTupperwareandothers. Showroomorshop. Mobile showroom: a converted trailerorcaravan,takentothe customer. Piggybackleaflets:egaseat-covercatalogueineverynewcar. Therearemore–justlookaroundandeverytimeyouseesomeonetryingto sell,ask:howcouldthatbemadetoworkforme? Ifyouwanttoselldirectaswellasthroughtheshops,beawarethatretailers will resist. Use another trading name and address for your direct sales. If youwanttoadvertisebeforemanyshopshavetakenonstock,sayinthead ‘Availablefromgoodchemists(orwhoever)orfromthemanufacturer’.That givesyoualet-outforsellingdirect.
Gettingorders,makingprofits 29
Awebsiteormailordercatalogueofferscertainadvantagesanddisadvantages: For
Against
directcommunicationwithuser nodealertopay usuallycashwithorder canreachmanyconsumers fast,eveninminority-interest markets canturndemandonoroffby adjustingadvertisingexpend iture reachesconsumersthatother methodsmiss canoperatefromhome overtime,buildsupamailing list
payforadswithnoguaranteeof results atmercyofpresscirculations atmercyofRoyalMailprices atmercyofRoyalMailandpress unions resultssometimesunpredictable
Itappliestoallsectorsofbusinessandworksbestwhereaclearlydefined segmentisaddressed,suchasanglers,plumbersorlocalauthorityplanning officers.Allhavetheirowntradepressandspecialistwebsites.Therearealso insomenationalnewspaperspagesdevotedtoadsformailorder.Thoseads canbefor‘offthepage’sales(wherethecustomerordersfromthead)orcan invitepeopletoringforacatalogue. Ifyouselloffthepage,lookatwww.shops-uk.org.uktoseeifyouhave toconformtoSHOPS,theSafeHomeOrderingProtectionScheme,before youradwillbeaccepted. Displayadsaverageabout1to2percentresponsefromthereadership (readerships are available from newspapers’ and magazines’ websites).A display ad is where you pay for space, rather than a lineage (pronounced line-age)adwhichischargedperline. Equally,awebsiteoradcanaimtodonomorethanstimulateenquiries forcataloguesorbrochures. CheckwhetheryourbusinessfallswithintherequirementsoftheConsumer Protection (Distance Selling) Regulations, 2000. Information on that, and otherregulations,isonwww.oft.gov.uk/Business.
30 Startingasuccessfulbusiness
Directmailisanotherroutedirecttothecustomer.Listsofpeoplewith almostanyinterestunderthesuncanbebought,or,ifyouoperateonlylocally, YellowPagesorwww.yell.commayyieldallyouneed,free.Tobuylists,go tothebigmagazinepublishers’websitesorsearchforMailingListBrokers. TheRoyalMailpublishesalotofadvicetowould-bedirectmailers. Designingdirectmailmaterialsishighlyspecialised.Oneofthemastersis Laithwaite’s,thewinemerchant.Toseewhatgoodmailingslooklike,geton theirmailinglist.Thatshouldpersuademostpeoplethattheywouldbenefit fromusingaspecialistcopywriter. Beforesendinganymailing,checkwiththeMailingPreferenceScheme (www.corporate.mpsonline.org.uk)asitisunlawfultosendunsolicitedmail toanyonewhohasregisterednottoreceiveit.Thesameorganisationcovers theTelephonePreferenceScheme,shouldyouwishtosellbytelephone. Party plan works best for businesses with items to sell at up to £100. You need to recruit hostesses (they usually are women) who invite their friendstotheirhomesusinginvitationsthatyouprovide.Youdemonstrate andsell,payingthehostessacommissiononsales.Peoplealreadyrunning partyplanmaytellyouthenamesofhostesses,astheyarekeentoseegood hostesseskeptfreshbyrunningpartiesforavarietyofgoods.TheDirect SalesAssociation(www.dsa.org)mightbeabletohelp. Everyonewhoattendsgetsafreegiftanditisusualtosupplythehostess withwineforherguests.Guestsorderatthepartyandeitherpaythereand thenforlaterdeliveryorplaceadeposit,payingthebalanceondelivery. Yougetthefullretailprice,incash,withonlyasmallpromotionaloutlay. Youbuildupamailinglistforfuturebusiness(includeatick-boxontheorder formtoallowyoutomailthem)andmayfindthatsomecustomersarehappy tobecomehostesses. Youwillneedtooperateinpairssothatonepersondealswiththecustomers andtheotherwithnecessarytoingandfroing.
Shops’anddistributors’margins Somepeoplebecomeincensedwhentheylearnhowmuchretailersaddto theircostpricestoproducetheirsellingprice.Itisawasteofenergy,akinto complainingabouttheweather.Myadviceisjusttoacceptitandgetonwith theimportantthings. Mosttradeshaveconventionsonwhatmargintheyadd,basedonthespeed ofturnover,perishability(physicalorofstyle),costofpremisesandother
Gettingorders,makingprofits 31
overheadsandrisk.Theyvarywidely.Asmallgrocermighttake7poutof atinofbeansretailingfor69p,or10percent;agreengrocer,30pinevery pound;aBondStreetfashionshop70pineverypound. Whendiscussingtheprofitthedistributortakesoneneedstobeawareof thespecifictermsandhowtheyaresometimesmisunderstoodandmisused. The terms ‘gross margin’, ‘gross profit’, ‘margin’ and ‘mark-up’ are used interchangeably,buttheymeanquitedifferentthings.Table2.2showshow. Table2.2 Howshopscalculatetheirsellingprice1 Costtoshop
£10.00
Shopadds50percentofits cost
£5.00
–––––– Shop’ssellingpriceexcluding £15.00 VAT VATat17½percent Pricetopublic
£2.63 –––––– £17.63 –––––– ––––––
Thisis‘mark-up’of50per centoncost;‘margin’or‘gross margin’of331/3percenton sellingpriceexcludingVAT. Itisalso‘margin’,‘gross amargin’,‘grossprofit’or ‘mark-up’of£5 Usuallyworkedoutseparately asVATdoesn’tgiveprofitto theshop Theprice-taginthewindow
Toavoidthepotentialforconfusion,askeachpersonyoudiscussthiswith totakeyouthroughthesimplecalculationofaselling-price,startingwitha cost-pricetothemof£1,£10or£100.Youwillquicklyseewhateachofthem meansbythetermstheyuse. Onapointofdetail,theproductinthetablewouldprobablybepriced at£17.95,ratherthantheratherodd£17.63.Itmakesarealdifference:if theysell100ayearthedifferenceisworth£32.That,inturn,mayprompt the supplier to start from £17.95 and work back to a higher price for the shopkeeper.TheresultisshowninTable2.3.
32 Startingasuccessfulbusiness
Table2.3 Howshopscalculatetheirsellingprice2 Costtoshop
£10.19
(e)
Shopadds50percentofitscost
£5.09 –––––– £15.28 £2.67 –––––– £17.95 –––––– ––––––
(d)
Shop’ssellingpriceexcludingVAT VATat17½percent Pricetopublic
(c) (b) (a)
Onceyouknowthewaytheretailercalculatesprices,youcanworkoutwhat waspaidforanythingintheshop.UsingtheexampleinTable2.2,thisis howyoudoit: c = a÷1.175(ordivideby1.15ifVATisat15percentandsoon) b = a−c = c×0.175(ormultiplyby0.15ifVATisat15percentandsoon) 50 m d = c×–––(orc×–––––––,wherem=thepercentagemark-upon 150 100+m costprice) e = c−d
Attractingthedistributor Distributors,shopkeepersincluded,wouldlikeeverythingtheystocktobe:
demandedbycustomerswithoutprompting; exclusive,atleastintheimmediatearea; notaffectedbyseasonorfashion; unlikelytospoilinstorage; difficulttosteal; compactandeasytohandle; faultlesslyreliable; cheaperthancompetitivegoods.
Gettingorders,makingprofits 33
Shopkeeperswouldalsolikethecompanysupplyingthemto:
keepplentyofstockofallvarieties,colours,sizes,etc; haveaninstantdeliverysystem; offerhighprofitmargins; giveplentyofsupportthroughfreedisplaymaterial,displaystands, heavyadvertisingthatmentionsbyname,contributiontoadvertising costsandincentivebonusesthatrequirelittleefforttowin; offerunlimitedcredit; beentirelydependableandhonestinallitsdealings; ...andalotmorebesides.
Mostretailersarenotfools.Theyknowthatthereissomethingwrongwith thingsthataretoocheap.So,unlessyouhavearealadvantagethatenablesyou toundercutcompetitors,donottry.Especially,donotstartapricewar,forthe longer-establishedfirmisusuallybetterplacedtowin.Whatthedistributor trulyseeksismerchandisethatiseasytosellandkeepscustomershappy. If your product needs a lot of selling by the distributor, see if you can getpackaginganddisplaymaterialtodothatjob,forshopstaffrarelysell anything.Nonetheless,askthebuyerifyoumighttakeafewmomentsofsales stafftimetoexplaintheproductandansweranyquestions.Takealookround theshops,builders’merchantsandotherdistributorstopickupideasandsee howotherfirmstackletheproblemsofsellingthroughdisplay.Marketing advisersfromadvisoryagenciesmightbeusefulhere,andelsewhere,too. Ifyourdistributorhasasalesforce,asmostwholesalersdo,trytogeta slottopresenttotheirnextsalesforcemeeting.Stickstrictlytothetimethey allowandyoumaystandachanceofbeingnoticedamongtheir4,000orso otherlines.Youmaywanttodiscusswiththebuyeratemporarysalesforce incentiveschemetogettheproductgoing. Somemayaskforsaleorreturn(SOR).Thismeansyouplacingthegoods withthemandbeingpaidonlyiftheysell.Askyourself:whichwillbesold first,goodstheshophaspaidfororthoseithasnot?Whichgoodswillbe keptingoodcondition,thosepaidfororthoseonSOR?Evenifyouagree toSOR,expectdisputesanddamagewhenyoucomebackweeksormonths latertocollecttheunsoldgoods.IfSORismentioned,makeitclearthatyour policiesdonotofferitandgetbacktoselling. Aswithanyothertypeofcustomer,attractingthedistributorisonlypartof thejob–holdingontothemisimportanttoo,accomplishedbygoodservice, neverbeingaproblemandalwayslisteningandlookingfornewwaystohelp themtosellyourproduct.
34 Startingasuccessfulbusiness
Visitingthecustomer Previously you have reviewed the information and illustrations you need totakewithyouandbrowsedtheshelvesofacommercialstationertofind attractivebinderstoholdanddisplayit.Youdonotvisitatthebusiesttimes: Fridayafternoons,marketdaysandweekends. You have done the research, now you are about to walk in and try to makeasale.Youaredressedappropriately,withcleanclothes,handsand fingernails,andsomeattentiontopersonalgrooming,includingavoidingthe use of aftershave and embracing that of antiperspirant-deodorant. (It may seempatronisingtomentionthesematters,butyoumustmeetthebuyer’s expectationsofcleanliness,whichmaybestratospheric,forallyouknow.) Inyourbriefcaseyouhave: anoteoftheabsolutelowestpriceyoucanaffordtosellfor,justin case; price-lists; termsandconditionsofsale(seeAppendix2); orderform(orenquiryformifyoursisthesortofproductthatis speciallymadeandquotedfor); calculator; pencils(two,sharpened–asingleonealwaysbreaks); pens(two–onealwaysrunsout); notepad; visitingcards; diary; workedillustrationsofsellingprices,savings,incentivebonuses, etc; photographs; samples; comparisonswithcompetitors’performance; advertisingplansandlayouts; presscuttings; displaymaterial; asmartbriefcasetocarryitallin. Allthisshouldbecleanandneatlyarranged.Onegoodthingtobuyisalooseleafring-binder-cum-clipboard.Intheringbinderyoucanputclearplastic sleevesinwhichtokeepyourdocumentsandphotographsintherightorder,
Gettingorders,makingprofits 35
andtheclipboardholdsorderformsandanotepad.Theyusuallyhavepockets forspareprice-lists,customerrecordcardsandsoon. If video demonstrations are important, your laptop will be set up with DVD,CDROMoralinktoyourwebsite. Ifasalesrepisalreadywiththebuyer,withdrawunobtrusivelyandwait untiltheirinterviewisover,orleaveandreturnlater. Ifthebuyerisunavailable,makeanoteofyourpropositionontheback ofabusinesscardandaskforittobegiventothebuyer.Somethinglike: ‘MrsEdwards(areyousurethatisthespelling?)–small,low-costswarfcompactor for machine shops. May I demonstrate, please (3 mins)? John Jones.’ Bepleasanttoeveryoneyoumeet;youdonotyetknowwhoisimportant. Smile. Ifyoufindyourselfinawaiting-roomwithothersalespeople,getthem totalk about customers you might call on.Theyaregregariousandoften helpful. PlantheinterviewitselfalongthelinesofAIDA–seethebox. Smile.Usetheperson’sname–Mr,MrsorMsuntilinvitedotherwise.In yourcirclefirstnamesmaybeusual.Inthebuyer’stheymightseemoverfamiliar,soplaysafe.
Thesalesinterview–AIDA AIDAistheinitiallettersofAttention,Interest,Desire,Action.Those arethestagesyoutakethesalesinterviewthrough. Questionswillfeatureheavily. Attentionmaybestbegainedbyaquestion:‘IfIcouldshowyou howtoreducewasteby10percent,wouldyoubeinterested?’That displacesanyotherthoughtsfromtheperson’smind. Interestisbuiltbydemonstrationanddescriptionofbenefits. Desiremaybedifficult.Wecanallthinkofthingsthatseeminteresting but which we do not actually want. It can be developed by
36 Startingasuccessfulbusiness
showinghowmuchbetterthingswouldbeiftheybought.‘From nextweekyoucouldbeenjoyingreducedstaffabsenteeism.How wouldthatfeel?’ Actioninvolvesplacingtheorder.Donotshrinkfromaskingforthe order. Ifyougetarefusal,don’tgiveup.Seekagreementthatyourbasic propositionisattractive,thenaskwhattheproblemis.‘WhatdoI havetodotoearnyourbusiness?’Theanswercouldbeanything fromamisunderstandingaboutthepropositiontotheneedtoget someoneelse’sapproval.Whateveritis,getbackintoselling.And keeponselling.
Partofyourpriorplanningwillbethesalespromotionpackage:thekiller reasonyougiveforbuyingnowratherthanlater.Promisestobuylaterare rarelykept.Changeiteverytimeyoucall,tokeeptheofferfresh. Ideasyoucouldtryinclude:
freeitem(firstaidkit?)thatyoucanbuyatwholesaleprice; 20percentvoucheroffessentialmaintenanceitems; £25rebateforapurchaseoftwo; maintenancecontractathalfprice; freeproductwitheveryfivebought; promotionalmaterialstohelptheirsales; ...andsoon.
Itcostsmoney,ofcourse,butitisallbuiltintoyourpricing,sothereisn’ta problem.
Pricingformarketability Thefirstpointisthatpricehastobeatleastequaltocost,andpreferablyit willbehigher.Chapter3dealswithcosts.
Gettingorders,makingprofits 37
Competitionwilllimittheextrayoucanchargeoverandabovecost.That isnottosayyouhavetobecheaperthanothers.Asdiscussed,whatcustomers buyisthetotalproposition,notjusttheproduct,andifyourpropositionlooks worthmore,youcanchargeforit. Toputthisanotherway,whatcustomerswantisvalue,notlowprices.In somemarkets,commoditymarketsinparticular,lowpricematters.Petrolis acaseinpoint.Mostpeopleassumesupermarketpetroltobegoodenough, andwillshoparoundforthebestoffer,thinkingallpetroltobethesame. However,thoseintheknowbelieveitworthpayingthepremiumforShellor BP.Theythinkthattheextrapriceismorethanworthitintermsofeconomy, performanceandenginelife. Whereyoufeelyouhavetocompeteonprice,trysettingpricesalittle higherthantherest.Thatmakesyourproductlookbetterthantheirs.Spend theextrayoumakeonsalespromotionactivity.Thisisatrickplayedinsome partsofthemotoraccessoriesmarket.Carwaxmighthaveahighlistprice, whichisthenreducedbypromotionaloffers.Theconsumerisinvitedtothink theyaregettingasuperiorproductforthepriceofsomethingordinary.The tradebuystheoffer,knowingthattheircustomerswillbuyit. It is hard to over-emphasise the psychological role of price, in both directions. Something priced higher than the generality must be better. Something priced lower, worse. What people actually pay can be made affordableviapromotionaloffers.
Sellingviathebigcatalogues:bigorders, quickpayment Inmostrespectsthesecataloguesaremuchthesameasanyothercustomer. Theyareopentosmallersuppliersbutoperateinspecialisedways. Thebuyingprocessrunslikethis: preliminaryselectionbycommitteeninemonthsbeforecatalogue launch; finalselectionthreemonthslater; notificationofsuppliersandordersforfurthersamplesfromthe successful; launchofcatalogue; repeatorderstosuppliers.
38 Startingasuccessfulbusiness
Theydemandcompletionofmanyformsandthepredictionofpricesforthe lifeofthecatalogue.Allsamplesyousubmitfortheselectionstheyexpect toreturnorpayfor.Thequotationexpectstransitpackaging(beadvisedby thebuyerwhetherapaddedbagormailingboxisneeded),butyoucantake outyournormalretailpackaging.Guaranteesofrapidreplenishmentwillbe expected.Theywillusuallypay50percentoftheirretailprice.Inreturnyou getfastpayment,straightdealingandsometimesbigorders. There is a large number of smaller, specialised catalogues offering all kindsofmerchandise,someaimedatthepublic,othersatbusiness.Watch outforthemandseeifyourproductcouldfitin.
Effectiveadvertising Themagazinemarketissohighlysegmentedthatitiseasytofindasuitable advertisingmediumforalmostanyproposition.Thebestsourceofinformation onadvertisingmediaisBRAD(BritishRateandData),£1,230to£1,399a yearplusVATtobuybutsomepubliclibrariesstockit.WillingsPressGuide isnextbestandallpubliclibrariescarryit. Onceyouhaveshortlistedafewtitles,lookatactualcopiesindetail.Check thattheylookliketherightsetting,andthattheydonothideadslikeyours away. Costsofadscanbeverynegotiable,especiallyasthecopydateapproaches andtheyhaveemptyspaceslefttosell.Ifyoucanaffordtotakeitorleave it,tryasillyofferatthelastminuteandseewhathappens. When designing ads, make the benefits the most prominent part of the message. Alwayshaveartworkproducedunderyourowncontrolratherthanbythe helpfulpeopleatthemagazineornewspaper.Whenyougettheproofs,check theminfinedetailandpickupeventhesmallestfault,likeaspotorabroken letter.Onceyouhavesignedthemaspassedthereisnogoingback. Onceyouhavebecomeasubstantialadvertiser(£200,000ayear,say)you shouldlookatsmalllocaladagencies.Youcouldfindthattheyintroducea levelofprofessionalismandgivemuchvaluableadvicetomaketheexpense worthwhile.Inanycase,someoftheircostwillbemetbythediscounton spacegiventoagenciesbutnotavailabletoyou.Asalwayswithimportant suppliers,seemorethanoneandbuyonlyifyoufeelsure. Havingboughtadvertising,youwillwanttoknowhowwellitisworking foryou.Todothatyouneedtoknowwhatyouraimswerebeforeyoutook
Gettingorders,makingprofits 39
thiscourse–exactlywhatobjectivesdidyouhavefortheads?Ifthatisclear, andyourobjectiveswereSMART(specific,measurable,achievable,relevant andtimed),allyouhavetodoisnotedowntheresultsandcompare. Beware,though,ofexpectingtoomuch.Amanufacturerofequipmentfor localauthoritiesoncetoldmethatadvertisingdoesn’tworkinhisindustry. Theevidencewasthathehadplacedoneadbutnoenquirersaidtheyhad seenit.Advertisingdoesnotworklikethat.Whatitcandointhatmarketis delivermessagesaboutyouthatensureawarmerreceptionnexttimeyou call.Whocanrecallwhichadstheyhaveseentoday?Yetbesure,youhave beeninfluencedbysomeofthem.
Someadvertisingterms Ratecard=advertisingprice-list. Rop=runofpaper,ieweputitwherewelike. Facingmatter=oppositeeditorialtext,nototherads. Ifc/irc=insidefrontcover/insiderearcover,plumsites. Scc = single column centimetre, ie one centimetre deep and one columnwide.Adcostsareoftenquotedperscc. Litho=lithography,aprintingmethodwhichmakesprintingplates photographically,requiringtheadvertisertosupply‘camera-ready artwork’,whichmostsmalldesignstudioscanaccomplish. Copydate=deadlineforreceiptofartworkforads. Proofs or pulls = single sheets printed from the plates for final checkingbytheadvertiser.
Publicity:nearlyfreeandbetterthan advertising Itisamyththatthepapersarefullofnewsgarneredbyenergeticjournalists. Muchofthemedia’scontentissuppliedbyorganisationskeentogettheir latestnewsread.Eventhesmallestorganisationcangetinonthisfree(ish) ride. Themechanismisthenewsrelease.Inessenceitisanewsstory,readywritteninjournalisticstyle,whichthemediumhasonlytotidyuptomatch
40 Startingasuccessfulbusiness
itsownpolicies.Ifitistoolong,theycutitbychoppingofftheend,soit paystogetthekeymessageacrossearlyon.Almostanyeventinthefirm’s lifecanformthebasisofanewsrelease;somewillbeprinted,othersnot, butasitinvolvesnomoreexpensethanastampore-mailplusalittletime inwritingit,mostpeopleregardthemasvalueformoney. Publicityisbetterthanadvertisinginoneway:sincereadersthinkithas beenwrittenbyjournaliststheytrustitmore.Ontheotherhand,thestory canbechangedfromtheinterpretationyouwantedtooneyoudislike. Mattersthatmighttriggeranewsreleasecouldinclude:
newfirmformed; newpremisesopened; businessexpanding–morejobs; newtraineetakenon; traineepassesexams,getsaward; bigorder; newproductstakenon/developed; first/hundredth/thousandthorder; workedovertime/weekendstogetjobout; toshowatexhibition; resultsofshowingatexhibition; first/second/etcanniversary; governmentgrant; newexecutive; newmachine; openday.
MediaaddressesappearinBRADandWillingsPressGuide.Don’toverlook localradioandTV,bothBBCandindependent. To write a news release jot down the key points of the story using the journalist’ssixprompts:who,what,why,when,whereandhow.Writethe story,orgetsomeonetodoitforyou,withkeymessagesearlyon.Doublespaceandprintat10wordsperlineononesideonly.HeaditNEWSRELEASE withthedate,thentheheadlineandthestory.Attheend,writeENDSandput acontactaddresstoshowitisgenuineandanumberforfurtherinformation. TheresultmightlooksomethingliketheexampleshowninFigure2.1. Theexamplehastheword‘immediate’againstthedate.Ifyouwantitheld back,forexampleifthereisariskthatthelongcopydatemagazinesmight sendittothedailiesunderthesameroof,blowingyourstoryprematurely,
Gettingorders,makingprofits 41
NEWS RELEASE
Immediate: 27 May New Delicatessen in Midtown
A lifetime’s dream will be fulfilled next week when Tom and Sheila Jones open their new delicatessen and village shop for the first time. ‘It’s a huge step for us,’ said former steelworker Tom, ‘but we know there’s a real demand for quality food in the area. Other places have some of the things a good cook needs, but we’ve tried to put everything under one roof.’ True to their word, Tom and his wife Sheila have stocked the shop with food from all over the world, as well as special aids for the discerning cook. Redundancy pay and a bank loan helped, as did advice from their accountant. The shop, at 38 High Street, Midtown, opens its doors at 8 o’clock sharp on Monday morning. ‘As a working woman myself, I know how annoying it is to find the shops shut when I get out of the office,’ said Sheila, ‘so we decided to open at 8 am and close at 7 pm every weekday.’ The first of many events planned is a tasting of French wines and cheeses, with no obligation to buy. Others planned for the future include special demonstrations for the Townswomen’s Guilds and Women’s Institutes. ENDS Further information from: Tom and Sheila Jones, Midtown 987654, 38 High Street, Midtown.
Figure2.1 Samplenewsrelease
youwouldtypehereEMBARGOEDTO17JUNEorwhateverdateyouwere happywith.
Thewebandyourmarket Itisaclichétosaythatbusinesshasbeentransformedbytheinternet.Clichés areclichésbecausetheyaretrue.
42 Startingasuccessfulbusiness
AsmallguesthouseonaremoteHebrideanislandusedtorelyonreferrals fromtouristinformationcentresandadvertising.Demandwasuncertainand oftenarosefrompeoplestrandedbyferryfailure.Demandwastrappedby consumerassumptionsthattherewouldbenoaccommodationontheisland, soitwasnotworthvisiting. Sincelaunchingitswebsiteitattractsadvancebookingsfromalloverthe world.Theromanticdescriptionoftheisland,itsbird-watchingopportunities, thechanceofrealpeaceandquietplusgoodfoodandaccommodationhave ledtoawealthofenquiriesandbookings.Thereareclick-throughstoferry timetablesandreservations,sothatthevisitorcanplantheentiretripfrom theirkeyboard. A children’s clothing designer produces colourful clothes but her sales werelimitedtotheareashecouldcoverphysically.Theyareexpensiveand soonlyafewcouldaffordthem.Tobecomemorewidelyknownsheneeded colourbrochures,whichwouldhavetoberenewedeveryseason,butwas preventedfromreachingthewidermarketbyherinabilitytoaffordthem. Afterinvestinginherwebsiteanamountthatwouldhavepaidforasingle brochure printing, she updates it now with photographs she takes herself. Click-throughs, on which she earns a royalty, take visitors to websites of associatedproducts.Ordersarecominginfromaroundtheworldandsheis workingonextendingtherangetosellfootwear,accessoriesandtoyssoas toprovideatotal‘look’.Sheseesherbiggestproblemnowasmanagingto retainthepersonaldesignvisionthatinspiredthecompanywhilstexpanding ittoexploittheopportunitiesonoffer.Inonerolesheisadesigner,inthe otheramanager. The web is also a research resource, especiallyintomarketingmatters. Competitorsandcustomershelpfullydisclosewhattheyareuptoandthe chance to look for new ideas, worldwide, is unlimited. Governments and trade bodies publish statistics. Research organisations offer the results of theirworkondifferentmarkets. Thesheerquantityofinformationpresentsitsownchallengesforwhen the monthly trade magazine was the main source of information, keeping uptodatewasnotaproblem.Nowthealertbusinesshastosetuparegular scheduleofsitevisitstostayontheball.
Salesviatheinternet Themainoptionsopentoafirmare:
Gettingorders,makingprofits 43
setupashopwithinanexistingwebbusiness–eBayandAmazon offerthisfacility; runyourownwebsite,confiningittopre-salesinformationandaftersalesqueriesbutofferingnomeansofimmediatecontact; offerafullservicecoveringenquiries,ordersandpayments. Thecheapesttosetupisthefirst:conversely,itisalsotheroutewiththe highestrunningcostspersale.Thereisnobartorunningsimultaneouslyan eBayshop,say,andyourownwebsite,soacautiousstrategywouldbeto startoffinAmazonoreBayandlaterlaunchyourownsite.
Search-engineoptimisation:morehitsfor yoursite Whenawebsearchisperformed,forexamplebyGoogle,thesearch engine examines billions of pages of web content and gives its resultsinasecondortwo.Partlythatisachievedthroughawesome computing power, partly through the cybernetic equivalent of a quickglanceateachpage. Thatquickglancecanbehinderedbythetypeofsoftwareusedto createthepage(easy-to-usepage-creationsoftwareisniceforthe designerbutcreatestonsofcodefortheenginetosearchthrough), bythestructureofthesite(framesslowthingsdownalot)andbythe textused(whichmightgivemeagrecluestothesearchsoftware). Thefirsttwooftheseshouldbecheckedwiththewebdesigner, whoshoulddemonstratefamiliaritywiththeissuesandsayhowhe orsheavoidsthem. Thelastitemisrelatedtothetextthewebsiteownerputsonthe screen.Itshouldnotonlytellthestory,butthestoryshouldcontain akeywordphrase,ofthekindthatsearcherswilltypeintoGoogle, everypageorso. Siteswillneedatleastseveralkeywordphrases.Theyshouldbe generatedbycreativethinkingaswellasreadingcompetitors’websites to identify the keyword phrases they are using. Software is availablethat,aftertheevent,willanalysehitstoseewhichkeyword phrasesareworkingandwhichnot.
44 Startingasuccessfulbusiness
Keywordphraseswillbeoftwotofourwordseachinthevocabulary andstructureusedbythedesiredenquirers.Forexample,aheating engineer may talk of thermal efficiency, where a member of the public speaks of fuel saving. Test the list of keyword phrases for relevance by searching on Google to see what they turn up. Get themrightandtheywillputyoursiteinthetopfewresultsevery time.
Theprocessforstartingawebsiteisstraightforward: 1. Specifyexactlywhatthesiteistodo. 2. Designthesitetomeetthespecification. 3. Check legalities (mainly Data ProtectionAct, electronic contracts rules). 4. Selectadomainname(egwww.yourname.co.uk). 5. Checkonwww.nominet.org.ukthatthenameisavailable. 6. Selectanagenttoregisterthatnametoyou. 7. Selectahostinternetserviceprovider(ISP)ordecidetohostthesite yourself. 8. Createpoliciesanddocumentationbothforinternaluseandtoappear onthesite. 9. Set up arrangements for handling incoming queries and fulfilling orders. 10. Setuppaymenthandling(ifrelevant):ifyoutakecards,bankshave toughrulesonCNP(customernotpresent)transactions. 11. Test. 12. Golive. Lookcarefullyathowyourpreferreddomainnamecouldbereadandavoid theproblemsoftheItalianpowersupplier,thedirectoryoftherapistsand thelistofexpertswhoaresaidtohavecomeupwithpowergenitalia.com, therapistfinder.comandexpertsexchange.com. Designofyourwebsiteisobviouslycritical.Itmustlookright,expressing visuallywhatyouwanttoputacross.Aprofessionalwebdesignerwillcost money, but ought to get you into business quickly and reliably. Not all designersarethesame;someusesoftwarethatactivelyslowsawebsearch, sowhenselectingasupplier,runathree-stagetest:
Gettingorders,makingprofits 45
Trawlanumberofthesitestheyhavealreadydesignedtoseehowfast theyopen. Performawebsearchonthosesitesusingthekeyphrasesyoumight expectanenquirertouse(foraPortsmouthestateagenttry‘houses forsaleinPortsmouth’andseeiftheycomeupinthefirst10). Askwhatthedesignerdoesaboutsearch-engineoptimisation(SEO) andhowtheytakeitintoaccount. Theresultsmightbesurprisingand,ifso,giveyouawarning. Themainfeaturesofthesiteshouldbespeedofloadingandeaseofuse, aspeopleswitchelsewhereafteronlyafewseconds’wait.Speeduploading byavoidingfancygraphics,soundandvideo. Beforeoperationsstartyouwillobviouslyplanforlevelsofe-mailand phone contact that seem reasonable.You should also have a contingency plan.Whatwillyoudoifyougetfivetimesthatlevel?Couldyougetthe necessaryterminals,phonelinesandstaffquickly?Doyouhavethespace andinsurances? When customers contact you, put a tick-box to permit you to e-mail themwithfuturespecialoffers.Spammingthemwithoutpermissionisbad behaviourandwilllosecustomers.Neversellyouraddresslisttootherfirms: itisabreachofthetrustimplicitintherelationship. Gettingthisprocessgoingiseasy.Manywebsitedesignersadvertiselocally andfirmslikeBTofferfixed-pricepackages(£849plusVATforacustombuiltwebsite,lessifyouworkfromtheironlinetemplate,withhostingextra). Someadvisoryagencieswillsetyouup.Costsforareasonablysophisticated custom-builtsiteshouldbenomorethan£2,500tosetupplus£250ayear formaintenancefees. Herewecangiveonlyanoutlineofacomplextopic.Gotowww.business link.gov.uk for a more thorough treatment, and read the book E-business EssentialsbyMHaigh,KoganPage,2001.
Keyjobstodo Researchandunderstandyourmarket. Selectyourmarketingstrategy–exactlywhatwillyousell,towhom, bywhatmeansandinwhatquantities?Howwillyoudifferfrom competitors?Whyshouldpeoplebuyfromyou?
46 Startingasuccessfulbusiness
Developyourpromotionalstrategy–howwillcustomershearabout you? Selectyoursalesstrategy–howwillyougetorders? Selectyourdistributionstrategy–howwillordersbeexecuted? Developyourpricingpolicy–whatdoyoucharge,whatdiscountsare availableandwhy? Buildupforecastsofsalesvolumesthatcanbeusedlatertocalculate thevalueofsalesandthecostofgoodssold. Developnumericalbenchmarksagainstwhichyouwillmeasure performance.
3
Controllingthe money
Thischaptercovers:
financialsurvival; settingupfinancialcontrols; planningforprofits; gettingcustomerstopay,soyoucanpayyourbills; knowingyourcosts; keepingontopofthefinances.
Costsandcosting Tosellataprofit,businessesneedtoknowtheircosts.Totakeareallybasic service, like a window-cleaner: what is the cost of providing his service? Vehicle,ladders,wash-leathersandsooncanbeidentified.Butwhatshare ofhisphonebillshouldgotoeachcustomer?Orhisinsurancepremiums (whichcanbesizeable)orpensioncontributions? Questionslikethosehavepromptedthewritingoflargetextbooks.Here weshalluseasingle,simplemethodthatservesmanyfirmswellintheirearly stages,andformuchlongeriftheydonotgrow.Itistheabsorptionmethod: materialsplusoverheadspluslabourequalscost.Simple,asIsaid.
48 Startingasuccessfulbusiness
Shortly we shall look at how much to charge per hour for labour and overheads.Inessence,afirmneedstochargeenoughtopayrunningcosts plusanincomefortheowner.Forexample,thecostofawidgetmightbe: Materials Overheadsandwages,2hours×£40anhour Totalcost
24 80+ –––––– £104 –––––– ––––––
Ifallthehoursworkedonthatproductarecounted,andthehourlyrateis right,andtheymakethenumberofwidgetstheyforecast,alloftheircosts willbecovered.Simple. Rememberthatthecostofsomethingtoyouisnotnecessarilywhatyou sellitfor.Rather,costisthelowestpriceforwhichyoucanaffordtosellit. Thereisanimportantdistinctionbetweentypesofcost:thosethatgoup anddownwiththelevelofsales(egthecostofmaterialsconsumed)and thosethatdonot(egtherentforpremises).Theyareknownasfixedcosts (whicharemostlyoverheads)andvariablecosts(whicharemostlypartof theproductorserviceyousell). Intheearlydays,atleast,itpaystocommittoasfewfixedcostsaspossible andtokeepasmuchasyoucanvariable.Itmightcostmore,butitgivesmore flexibilityasthebusinessevolves.Asyougainexperience,yourconfidencein fixingsomecostsmaygrow.Examplesincludebuying-inratherthanmaking thingsyourself,rentingortakingoutaloanratherthanbuyingoutright,and usingsubcontractorsratherthanemployedstaff.
Calculatinganhourlyrate First,workoutyourrunningcosts.Include:
rentandrates; fuel,lightandheat; consumables(butnotmaterials); vehiclerunningcosts; staffcosts; thepayyouwilldrawfromthefirm; depreciation.
Controllingthemoney 49
Excludethecostofbuyingthingsyouwillkeepanduse:tools,vehicles,PCs, software,etc.Thesearecapitalcosts,accountedforviadepreciation. Depreciationisachargetoyourcoststhatreflectsthefactthat,littleby little,youarewearingoutcapitalitems.Ifyoubuyamachinefor£1,000 thatwilllastforfouryears,youuseup£250-worthofiteachyearuntil,after four years, it is in your books as valueless.You charge that £250 to each year’saccountsasdepreciation,andyouincludeitinthecurrentcalculation asacost.(Ignorethefactthatintherealworldyoucanprobablysellitfor something,ormayevencontinuetouseit,afterthefouryears.) Nowwemovetocalculatinghowmanyproductivehoursyouwork.In newfirmspeopleoftenwork60or70hoursaweek,buttheirproductive time,thetimewhentheyaredoingsomethingthatacustomerwillpayfor, rarelyexceeds20or25hours.Therestgoesonallsortsofancillaryactivity, necessarybutunpaidfor.Soyouworkoutyourcostsonjusttheproductive hours. Takingoutholidays,Christmasandsickness,48weeks’workayearcreates 48weeks×25hours=1200productivehours. Finally,wecannowcalculatethecostperhour.Supposeyouneed£35,000 gross to feed and clothe the family and the firm incurs running costs of £20,000,ithastoearn£55,000ayear.LookatTable3.1toseehowitcomes out.
Table3.1 Workingoutanhourlypriceforwork1 Productivehours 25hoursaweek×48weeksayear=1,200productivehoursayear Overheadstoberecovered Familyincome(gross) £35,000 Businessoverheads £20,000 ––––––– Total £55,000 ––––––– ––––––– Hourlyratetobecharged £55,000÷1,200hours=£45.83perhour
50 Startingasuccessfulbusiness
Acaution:donotbetemptedtoroundTable3.1’shourlyratedownfrom £45.83to£45,for1200×83pencecomesto£996overtheyear,nearly£19 aweek,alloutofyourpersonalpocket. Ifyourfigurelookshigh,don’trejectit.Findwaystojustifytheprices itresultsin,bybeingreliableanddoinggoodwork.Anyonechargingless, yourself included, will fail. Make sure you minimise the effects on your pricesby: controllinginterruptions,soastoincreaseproductivetime; workintensively,turningoutmoreinanhourthanothers; usemodernequipmentwisely,forthesamereason.
Controlsoncosting To make your predicted costs come about in real life, monitor all the assumptionsyoumadeandgetearlywarningofthingsgoingwrong.Ifyou manageonly20productivehoursandget45weeks’work,thereareonly900 hourstorecovercostsfrom.Eitherthehourlyraterisestoover£61oryour incomehastofallby£13,600.Nasty,andthereforeveryimportantthatyou keeptrackofthekeyfactors: invoicedsales; overheadexpenses; productivehoursworked. Foreachofthem,setupasimpletableshowingyourweeklyplanandrunning total,againstwhichyoucanwritetheactualoutcomeandrunningtotal.Table 3.2showsanexampleforinvoicedsales. Itshowsataglancewhetheryouareontarget,aheadofthegameorfalling behind.Youthenhaveachancetotakecorrectiveactionbeforethewarning becomesacrisis. Takingonanemployeereducesthehourlyrate,whichdoesnotmeanyou reduceyourprice,ofcourse.Table3.3showshow. Ifthesimplicitiesofabsorptioncostingleaveyouuneasy,anothersystem isdiscussedlater.
Controllingthemoney 51
Table3.2 Keepingtrackofperformance Invoicedsales,Year1 TARGET£
ACTUAL£
Month
Weekno
Weekrunning
Weekrunning
Jan
1 2 3 4 5 6 7 8 9 10 11 12 13
– 100 200 200 100 100 150 150 400 400 400 400 400
– 100 300 500 600 700 850 1000 1400 1800 2200 2600 3000
Feb
Mar
Table3.3 Workingoutanhourlypriceforwork Productivehours 17hoursfromowner(lessthanbeforebecausesupervisiontakestime,and sellingtheextraoutputtakeslonger) 33hoursfromemployee(44-hourweek,75%productive) –– 50hoursaweek×48weeksayear=2,400productivehoursayear –– –– Overheadstoberecovered Familyincome £35,000 Businessoverheads £20,000 Employee’scosttoyou £20,000 ––––––– Total £75,000 ––––––– ––––––– Hourlyratetobecharged £75,000÷2,400hours=£31.25perhour
52 Startingasuccessfulbusiness
Theimportanceofcash Cashisloosebanknotesormoneyinacurrentaccount.Itistheonlything thatcanbeusedtopaybills.Ifbillsarenotpaid,creditorsforecloseandthe businessusuallyshuts. Consequentlycashisthesinglemostimportantthinginanybusiness;itis theonethingabusinessownerwatchesconstantly. Runningoutofcashiseasy.Justtry: delayingthesending-outofinvoicesforworkdone; losingnotesofwhatworkhasbeendone,ordeliverynotesforgoods sold; notchasingcustomersforpayment; avoidingopeningcreditaccountswithsuppliers; goingoutofyourwaytopaycashasquicklyaspossible; buyinglargequantitiesofmaterialstogetdiscounts; buyingequipmentandvehiclesforcashinsteadofgettingaloan; takingonstaffwhoareunabletoworkfastenoughortoquality standards; keepingonstaffforwhomthereisnotlikelytobeanywork; nevercheckingthingsthatyousignfor; nevergettingasignatureforgoodsthatyoudeliver; layingyourselfopentotheft; takingonprestigepremiseswhentheyarenotnecessary; buyingfancyinsurancepolicies; notcultivatingthebankmanager; neverplanningaheadtoforeseeyourcashneeds; neverrecordingperformanceandcomparingitwiththeplan; takingareallybigorder,especiallyfromaslow-payingcustomer. Onthelastitem,takingabigorder,theproblemisthatyoupayoutyour cashformaterials,labourandoverheadsbutdon’tgetcashbackfromthe customerformaybeseveralmonths.Toooften,whenthechequearrives,it istheliquidatorwhopaysitintothebank.
Controllingthemoney 53
Clevercashconservation Shrewdbusinesspeoplefollowsomebasicprinciples:
Ordersagreepaymenttermsaswellasprice,delivery,etc. Asaleiscompleteonlywhenpaymenthasbeenmade. Billsarepaidonlywhendue,neverbefore. Creditaccountsareopenedwithsupplierswhereverpossible. Suppliesareboughtonlyforimmediateneeds,evenifthatmeans payingmoreperitem. Borrowforpropertyandequipment,theeasyborrowing;working capitalishardertoborrow,sofinanceitfromownfunds. Keeponlyproductivestaffwhoarecurrentlyneeded:youareresponsible forthebusinessasawhole,notforeachindividualemployee. Whenstaffareatworktheyareworkingallthetime,andforyou. Runthefirmfrugally. Havegoodanti-fraudsystemsinplace.
Forecastingthecashsituation Somepeopleseethisasanuisance,tobeavoidedifpossible.True,justas itisanuisancetolookbothwaysbeforecrossingabusyroad.Remember: cashisthesinglemostimportantthinginanybusiness;itistheonethinga businessownerwatchesconstantly. Watchingcashinvolvespredictinghowmuchtherewillbeandmonitoring thatforecast.Anyseriousdivergenceandyoupounce,notrestinguntilyou cansaywhyithappened.Itistooimportanttoneglect. Youneedtoknowfourthingstocreateacash-flowforecast:
whatpointsintimetheforecastisfor; expectedflowsofcashintothefirm; expectedflowsofcashoutofthefirm; thetimingsofeachinflowandoutflow.
Lookingateachofthoseinturn: Pointsintime:usuallymonth-ends,thoughmoreoftenwhenthings aretight.
54 Startingasuccessfulbusiness
Flowsin:yourinvestment,borrowings,salesofgoodsandservices andoccasionaldisposalsofcapitalitems,oldvehiclesforexample. Flowsout:purchases,overheads,wages,withoccasionalpaymentsof taxes.Depreciationisignored,asnocashmoves. Timings:whenthesalesandpurchaseinvoicesaresettled,notwhen theygooutorarrive.
Whycash-flowforecastingmatters ApracticalexampleisofTom,abusyteacherwithgreatwoodworkingskills, whomakesmahoganyboxeswhicharehighlyprizedasChristmasgifts.It isnowNovemberandheispuzzlingoverhiscash-flowandprofit-and-loss budgets. Lastmonth,October,hepaidcashfor£400-worthoftimber,screwsand othermaterials.Halfoftheboxeswillsellforcashtocolleaguesfromschool, andalocalgiftshopwilltaketherestthismonthbutpayinFebruary.He expectstomake200,andtosellthemat£20each.Fortunatelyhisaccountant sister-in-lawcallsin,andquicklysortsoutthepuzzlebyworkingoutaprofitand-lossbudgetandacash-flowforecast. What Tables 3.4 and 3.5 show is that Tom’s profit does turn into cash eventually,butonlyinFebruary.Thebottomlineofthecash-flowtablegives thepositionmonthbymonth.Beforehegetshismoneybackheisquitebadly outofpocket. Foranyoneoperatingonalargerscalethewarningisclear:forecastonly yourprofitandyoucaneasilyrunoutofcash.Forecastyourcashaswellas yourprofitandyoushouldsurvive(Table3.6).Appendix1showshowto createacash-flowforecast. Table3.4 Tom’sprofit-and-lossbudget Profit-and-lossbudget:endDecember Invoicedsales:200×£20 Materials Valueadded Overheads:trivial Netprofit
£4,000 £ 400 £3,600 –––––– – –––––– £3,600 –––––– ––––––
Controllingthemoney 55
Table3.5 Tom’scash-flowforecast Cash-flowforecast:October–February(£) Oct Nov Income Cashsales Salestoshop Totalincome Outgoings Materials Cashflowformonth Cumulative
Dec
Jan
Feb
– – –
200 – 200
1,800 – 1,800
– –
– 2,000 2,000
400) (400) (400)
– 200 (200)
– 1,800 1,600
– – 1,600
– 2,000 3,600
Note:Bracketssignifyminusquantities.
Table3.6 Whattoincludeinprofit-and-lossbudgetsandcash-flow forecasts
Salesinvoices Materials Overheads Depreciation VAT
Profitandloss
Cashflow
allissued,whetherornot paid thevalueusedtomakethe goodssold thesharefortheperiod, whetherornotinvoicedor paid thesharefortheperiod ignoreitifyouareVATregistered
onlyshownwhenpayment expected showsvalueboughtwhen paymentdue shownwhenpayment expectedtobemade notshown–nocashmoves showit
Planningforprofits Inplanningforprofits,themaintoolistheprofit-and-lossbudget.Inprinciple itisextremelysimple(thenumbersshowninTable3.7arejusttoshowhow itworks).
56 Startingasuccessfulbusiness
Table3.7 Profitandloss Salesinvoiced
100 Costofsales(ie costoftheitems invoiced)
40–Justlabour plusmaterials
Grossmargin Overheads
60 Staff Premises Transport Insurance Depreciation Otheroverheads
9 5 3 1 1 1
Financecosts Tax
1 2
Operatingprofit
Netprofit
20− 40 3− 37
Note:ifitishardtosayhowmuchlabourgoesintoeachitemsold,itisdifficult tospecifythecostofsales.Theeasysolutionistoputlabourintotheoverheads, leavingonlymaterialsinthesecondlinedownandcallingit‘valueadded’.That simplymeanstheamountofvalueaddedtomaterialsbyyourefforts.Thisisquite acceptable.
Profit-and-lossaccounting(knownasP&L)answersthevitalquestion:‘How muchdoIsell,whataremycostsandsohowmuchmoneydoImake?’
Accountingterms Abudgetisaforecastthatyouareworkingto.When(NB,notif) eventsovertakeitanditbecomesoutofdate,youre-budget. Control is the process of recording alongside the budget what actuallyhappened,toalertyoutodangerousdeviations.
Controllingthemoney 57
Anaccountisarecordofwhatactuallyhappenedoveraperiodof time. Soyoustartoffwithabudget,oraseriesofbudgets,thenyoureport whatreallyhappenedinanaccount.Thesetermscanbeappliedto P&L,cashflow,capitalexpenditure,sales,staffcostsoranyother financialmatteryouwanttokeeptrackof.
Bynowyoumayfeeltheneedforasummaryofwhatthethreemainaccounting documentsdo(Table3.8).
Table3.8 Differences between profit-and-loss accounts, balance sheets andcash-flowforecasts Profit-and-loss account
Balancesheet
Cash-flowforecast
Salesinvoicedinthe Howmuchmoney period,whetherornot istiedupinthefirm. thecustomerhaspaid. Whereitistiedup.
Income–showshow much,andwhen,cashis expectedtoarrive.
Expensesincurred intheperiod, irrespectiveof whetherthebillhas beenpaid.
Whatwerethe sourcesofthatmoney.
Expenses–showshow muchcashisexpectedto bepaidout,andwhen.
Depreciationis shown.
Depreciationis shown.
Ignoresanything thatisnotanactual movementofcash–like depreciation.
REFERSTOAPAST PERIOD
REFERSTOA MOMENTINTIME
REFERSTOAPERIOD INTHEFUTURE
58 Startingasuccessfulbusiness
Controlofcreditisanotherimportantmatter.Sellinggoodsoncreditis,in effect,givingoutsomethingvaluabletoastrangerinreturnforapromiseto pay.Putlikethat,itsoundsasdangerousasitis. Indescendingorderofdesirability,thebestapproachestocreditare: (a) (b) (c) (d) (e)
Getpaidinadvance. Getpart-paymentinadvance. Getpaidondelivery. Getpaidassoonaspossibleafterdelivery. Don’tgetpaidatall.
Youwilldirectmostofyoureffortstowardseliminating(e)andshortening thetimeunder(d).Afurtherpenaltyofgivingcreditistheadminloadof keepingontopofwhoowesyouwhat. Thiswholetopicissoimportantthatwelookmorecloselyatitinthenext section.
Creditcontrol Onceyoustarttogivecredititisdifficulttowithdraw,soitisworthseeing ifyoucandevelopastrategyforavoidance. Whendealingdirectwiththepublicthingsaresimplest.Peopleexpectto payondelivery,eventoplaceadepositwithorder.InB2B,theassumption isthatcreditmustbeoffered.Isthattrue?Probablynotifyourbusinesshas anyofthesecharacteristics: Smalloutlay.Nobodyreallymindspayingthewindow-cleaner’s£20 fromthepettycash. Emergency.Iftheonlywaythebigproblemcanbesolvedquicklyis topaycash. Scarcity.Theonlypersonprovidingsomethingthateveryoneneeds cangetcashpayment. Uniqueness. If the complete package that you offer really has outstandinglyattractivefeatures,peoplemightswaptheirdesirefor creditfortheirdesireforthosefeatures. Creditcardsremovebaddebtifyoufollowtheirrules.Aswellasthepublic, manyfirmsusethemforsmallpurchases.Theycostyouuptoabout5per centofthesalevalue.
Controllingthemoney 59
Whendealingwithfirmsyoucanarguethatiftheypaycashtheysave yourcosts,whichyoupassontothem.Don’tbetemptedinsteadtomakea chargeforcreditoryoumayfallundertherulesgoverningbanking,agrim prospect.
Positivestrategiesforcreditcontrol Ifyouconcludethatyouhavetogivecredit,thesearethethingstodo: Whenselling,besuspiciousiftheordercomestooeasily–maybethey cannotgetcreditelsewhere. Carryoutcreditchecksandaskyourcustomeraboutanycourtorders thataredisclosed. Forprivatelimitedcompanies,checkonthemandtheirdirectorsvia www.companieshouse.gov.uk. Whennegotiatinganorder,makethepaymenttermsanintegralpart ofthedeal. Whendealingwithanyonebuttheowner,andespeciallyifitisabig firm,askwhattheaccountssettlementpolicyis:youmayfindthat theyalwaystakethreemonths’credit. Dependingonwhattheysayandonyourattitudes,eitherstandyour groundandrisklosingtheorderormodifytheterms,includingprice, accordingly. Alwaysknowexactlywhoyourfirmisdealingwith(seebelow). Getaspecificundertakingaboutwhenyouwillbepaid(egsevendays afterdelivery)andincludeitinyourconfirmationoftheorder. Getasignatureonadeliverynoteplus,ifrelevant,asatisfaction note. Invoiceimmediatelyondelivery. Knowingwhoisplacingtheordermaybecomeveryimportant,especially ifdisputesariselater.Createasimpleformthatyoukeepwithorderforms, andoncetheorderisinthebag,saythatyouneedoneortwodetailstoopen theaccount.Theformrequiresyoutoask: theexactnameoftheorganisationplacingtheorder; thecustomer’sconstitution–soletrader,partnership,limitedcompany, charity,companylimitedbyguarantee,publicbody,etc;
60 Startingasuccessfulbusiness
namesandaddressesofsoletraderorpartners; namesofdirectors,authorisedandissuedcapital,registeredoffice, countryofregistrationandregisterednumberoflimitedcompany (someofthisyoumaybeabletogetfromCompaniesHouse,www. companieshouse.gov.uk,andsomeshouldbeontheirletterhead,which youmayalreadyhave); twotradereferees; banknameandbranchaddress. Itisperfectlynormalforabuyeropeningacreditaccounttobeaskedfor thisinformation. Anotherprecautionmaybetodividealargeorderintoanumberofdeliveries,withagreementthatyouwillbepaidaftereachone. Shouldthebooteventuallybeontheotherfootandyouareaskedtoprovide a reference for one of your customers, be careful. If you give unjustified positiveinformationyoucanbesuedforanydamagesthatmayarise.Ifyou areunjustlynegative,asuitforslander(ifspoken)orlibel(ifwritten)may arise. When you invoice, be sure that your invoices carry the following information: theinformationrequiredbylaw(seeChapter5,Yourbusinessname andlegalstatus,fordisclosurerequirements); thechargeandhowitisarrivedat; thedateofissue,whichisalsothetaxpointforVAT-registered traders; anyinformationthatthecustomerrequires,suchasanordernumber orstocknumber; paymentterms,shownprominently. Statements are required by some customers. They are summaries of the transactionswiththecustomeroveranappropriateperiodoftime,saythree tosixmonths.Theyareusuallysentmonthly,andshow: allinvoicesissuedduringtheperiodthatthestatementcovers,those due(oroverdue)forpaymentbeingmarkedaccordingly; paymentsreceivedduringtheperiod; theoutstandingbalanceontheaccount.
Controllingthemoney 61
Inviewoftherisingcostsofadministrationandpostage,manybusinesses nowsendstatementsonlytothosecustomerswhoinsistonthem.Theycanbe ahelptothecustomerincheckingthathisideaofwhatheowesyoucoincides withyours,andthatyouhaveregisteredthepaymentsthathehasmade.They canhelpyou,bydrawingtohisattentionoverdueinvoices.Butyoucanchase overdueinvoicesjustaseffectivelywithoutissuingstatements,sothatalone isnotsufficientreasonforinstitutingthem.
Whencreditcontrolfails Whatevertheymayhavepromised,somecustomerswillnotpayontime. Thisaffectsyourcashflowandsothreatensyoursurvival.Thusimmediate, robustandeffectiveactioniscalledfor: Keepadailycheckonoutstandingaccounts. Whenaninvoicefallsdueforwhichpaymenthasnotarrived,telephone toseeifthereisaproblem.Ifthereisone,sortitout.Ifnone,extracta promisethatthechequewilleithergooffthatdayorwillbeavailable forcollection. Explainthatnomoredeliverieswillbemadeuntiloutstandingaccounts aresettled. Write,faxore-mailtoconfirm. KnowyourrighttoclaiminterestatBankRateplus8percent,and fees,forlatepaymentfrombusinesscustomers(seewww.payontime. co.uk),butneverclaiminterestfromthepublicunlessyouareregistered undertheConsumerCreditAct. Usuallyafirmbutfriendlyapproachwillensurethatyougetpaidthistime, andthatinfuturetheymightsmartenup,knowingthatyoumeanbusiness. Itis not easy to swap roles from the salespersontotheaccountcollector, butyoursurvivaldependsonit.Putyourselfintheotherperson’sshoesfor amoment:theyknowtheyhavedonewrongandtheyknowyouareinthe right.Thisgivesyoumoralauthority. Ahardenedfewwillstillnotpay.Tryafinalvisit,armedwithacopyofthe invoiceanddeliverynotetoneutralisestoriesthattheyhavegotlost.Explain thatyousoldtothemingoodfaith,theypromisedtopaybuthavenotdoneso andthatitiscausingyoucash-flowproblemsanddifficultieswiththebank. Askforthemoney,thereandthen.Ifitisnotforthcoming,explainthatyou
62 Startingasuccessfulbusiness Starting a successful business 90 This is an invoice. It is simply a bill for goods supplied or services rendered.
ABCD Ltd 700 High Street Anytown AN1 1AN Invoice No: 217/05 Date and Tax Point: 11/3/05 Your Order: 92/2709/pr
Smith & Co 698 Cook St Anytown
Quantity
Description
Each
Value
8 cases × 24
Widgets no. 2050 ½″
£12.50
£100.00
Goods
£100.00
VAT @ 17½%
£17.50
Total payable
£117.50
PAYMENT DUE 30 DAYS FROM INVOICE DATE Registered in England no 123456 VAT no 111.2222.33 Directors: A Allen, B Brooks, C Cliff, D Davis
ABCD Ltd 700 High Street Anytown AN1 1AN Date: 31/3/05
To Smith & Co 698 Cook St Anytown
Date
Invoice
Value
Payment
Brought forward 18/1/05 27/1/05 3/2/05 5/2/05 28/2/05 7/3/05 12/3/05 26/3/05
180.00
103 118 124
55.00 123.00 81.00*
183
97.00*
180.00 55.00 217
Balance carried forward
Balance
117.50
123.00
235.00 358.00 439.00 259.00 356.00 301.00 418.50 295.50
295.50
ITEMS MARKED* ARE OVERDUE – PLEASE PAY NOW Registered in England no 123456 Directors: A Allen, B Brooks, C Cliff, D Davies
Figure3.1 Exampleofinvoiceandstatement
This is a statement. It summarises the activity on this customer’s account. The invoice shown above (no 217 for £117.50) is the last one on it. The information it gives is taken from the firm’s books, and enables the customer to Thisisastatement.It see if his books agree summarisestheactivity with yours. Most people onthiscustomer’s get something similar account.Theinvoice every month – a bank shownabove(no217for statement. £117.50)isthelastone onit.Theinformation itgivesistakenfrom thefirm’sbooks,and enablesthecustomerto seeifhisbooksagree withyours.Mostpeople getsomethingsimilar everymonth–abank statement.
Controllingthemoney 63
willneedtosueforthedebt.Thatshouldproduceresults,foronceyoustart thecourtprocessthecostsclimbsharplyandalosingdefendantusuallyhas topaythem. Ifyoucanshowwrittenorders,conditionsofsaleandyourconfirmation oforder,plusasigneddeliveryand/orsatisfactionnote,aCountyCourtcase shouldbestraightforward.TheSmallClaimsprocedureissimpleandapplies toclaimsofupto£5,000(£2,000inNorthernIreland). Beawarethatajudgmentdoesnotalwaysmeanyougetpaid,butitis thefirststep.Despitethat,alwayspursueroguesviathelaw,notbywayof threats,orthetableswillturnonyou. Should you receive a solicitor’s letter from the defendant, ignore any blusterandlookonlyatthesubstanceofthedefence.Iftheyhaveacasefor notpaying,orgettingareduction,trytosettleoutofcourtand,nexttime, don’tletitgetthisfarbutmakeyourcasewatertightfromthestart. Itmaybeworthtryingadebtcollector;perhapsyoushouldmeetoneand seewhattheycanoffer,aspartofyourpre-startresearch.Theymightbe cheaperandmoreeffectivethanautomaticallysteeringeverythingtowardsa solicitor.
Breakingthroughtoprofitability Once the P&L budget is complete, you are ready for the next stage of understandinghowyourfirmworks.Thequestionweaddresshereisthis: ‘HowmuchdoIhavetosellbeforeImakeaclearprofit?’ Theanswerliesinanothersimplepieceofarithmetic,tocalculateyour break-evenpoint.Thatisthelevelofsaleswhichproducesenoughprofitto meetallthecosts.Onceyouhavepassedit,alltheextraprofitisyours...and thetaxman’s.Equally,ifthingsgowrong,youwillwanttoknowthelevel thatsalescanfalltobeforeyoustarttomakelosses.Table3.9makesthepoint (thebudgetednumbersare,asalways,justexamples). Dividetheannualbreak-evensalesfigureintoweeklynumbersandmake anoteofthemonyourweeklyandmonthlysalesbudgets.Thatwayyouget earlywarningofprofittrends,whethergoodorbad.
64 Startingasuccessfulbusiness
Table3.9 Workingoutabreak-evenpoint
Sales Materials Valueadded Overheads Netprofit
Budget
Break-even (figuresrounded)
£
£
90,000 30,000 –––––– 60,000 46,000 –––––– 14,000 –––––– ––––––
(33%ofsales) (67%ofsales) (remainssame)
69,000 23,000 –––––– 46,000 46,000 –––––– – –––––– ––––––
Calculatingthebreak-evenpoint 1. 2. 3. 4.
Budgetedvalueadded+budgetedsales=zpercent. Overheads÷z×100=break-evensales. Break-evenvalueadded=overheads. Break-even materials = break-even sales − break-even valueadded.
Alternatively,ifyoupreferchartstotables,youcanadoptthebreak-even chartmodelshowninFigure3.2. Onemajorbenefitofusingachartisthatitshowshowimportantitisto keepcostsvariable,ratherthanfixingthem.Thisistruestattimesofgreatest uncertainty,suchaswhenthefirmisnew.Visualisepullingthefixed-costline downwardsandthinkhowsharplythebreak-evenpointwouldmovetothe left,thatis,toalowerlevelofsales.
Smartercosting Onceyouaresellingarangeofproducts,simpleabsorptioncostingmayno longer be adequate.You may wish to movetocontributioncosting.Once
Controllingthemoney 65 97 Section 3: Finances and financial control 120 100 Break-even point (c)
80 £’000 60
Costs
lc Tota
osts
(= F
+ ixed
a Vari
Sa
s le
(a)
(b)
ble)
(d)
Fixed costs
40 iabl Var
20 0
0
20
40
e co
sts
60 80 £’000 Sales
100
120
Profit is the surplus of sales over total costs, so that: (a) there is a profit of £14,000 at £90,000 sales; (b) there is a profit of £34,000 on sales of £120,000; (c) there is neither profit nor loss, since total costs and sales are equal, at £69,000 sales – this is the ‘break-even point’; (d) at sales of £50,000, there is a loss of £12,000.
Figure3.2 Break-evenchart again,itissimpleinconcept,saying:‘Wecan’tallocateeveryitemofcost toeachproduct;it’sjusttoocomplicated.Insteadwe’llallocatejustthose thingsthatclearlybelongtoeachproduct.Therestwe’llputintooverheads, andtheygetpaidfromthegeneralpoolofprofit.’ Table3.10showshowitworksinasituationwhereafirmhasthreeproducts withverydifferentmixesoflabourandmaterials. Table3.10 Exampleshowingcontributioncosting Product: Directmaterials(£) Directlabour(£)
X 10.00 2.00 ––––– Totaldirectcosts(£) 12.00 Averagesalesvalue(£) 30.00 ––––– Contributiontooverhead,andprofit,peritem(£) 18.00 –––––
Y 15.00 18.00 ––––– 33.00 55.00 ––––– 22.00 –––––
Z 25.00 5.00 ––––– 30.00 40.00 ––––– 10.00 –––––
66 Startingasuccessfulbusiness
Directmaterialsandlabourarethoseuseddirectlyintheproduct,egfora firmthatpressesDVDs,thedisk,case,notes,outerboxandlabourformaking andpacking. Indirectcostsarethoseyouareunabletoallocateeasily,suchascleaning materialsandmachinemaintenance,whichgointooverheads. One further calculation reveals the amount of money the firm plans to make.Takingthecontributionthatasingleunitoftheproductyields(from thelastlineofthetableabove),thenmultiplyingitbythenumberyouplan tosell,revealsthetotalcontributiontooverheadsandprofitthatyouexpect. ThisfeedsstraightintoyourP&Lbudget,providingitsfirsttwolines.Table 3.11showshow.
Table3.11 Exampleshowingthetotalcontribution Product: Contributiontooverheadsand profit,peritem(a)(£) Salesforecast(units)(b)(£) Totalcontribution(a)×(b)(£)
X
Y
Z
Total
18.00 22.00 10.00 2,000 3,000 500 36,000 66,000 5,000
£107,000
Lookingattherelativelysmallcontributionthatonly500unitsofZmake, youmightbetemptedtodiscontinueit.Thatmightbetherightdecision,but beawarethatyouwillneedtomakeupits£5,000contributionfromsavings orprice-riseselsewhere. Doingthisonaspreadsheetenables‘what-if’planning(WhatifIraise thepriceofZbyfive5percent?WhatifIcutthepriceofXby£1?etc) toseewhatcombinationofpricingandvolumeproducesthegreatesttotal contribution.
Keyjobstodo Decideonacostingsystem–relatethistopricing(Chapter2). Calculatehourlychargeratesforlabour. Setupasystemtomonitorperformance.
Controllingthemoney 67
Decideyourpolicyongrantingcredit. Forecastyourcashflowsituation. PrepareaP&Lbudget. Calculateyourbreak-evenpoint.
4
Raisingthemoney
Thischaptercovers:
grants; loans; security; banks; interestratesandcharges; makingyourcase.
Grants:freemoneyisbest Thereisnotmuchfreemoneyaround,butgiventhatitisfree,itisworth lookingfor.BusinessLink(www.businesslink.gov.uk)offersafreesearchof itsdatabaseforanymoneyyoumightqualifyfor. Generally speaking, money is available for projects that look likely to increase employment directly, or indirectly by developing a commercial proposition.Themainsourcesare: centralgovernment(someofitoriginatingintheEU); localauthoritiesorbodiestheysupport; regionalbodies,suchastheEnglishregionaldevelopmentagencies,the WelshDevelopmentAgency,ScottishEnterpriseandInvestNorthern Ireland;
Raisingthemoney 69
BusinessLinkslocally; ChambersofCommerce; ThePrince’sTrust. HerewediscussthesituationinEngland;informationonotherpartsofthe UnitedKingdomisavailablefromthewebsitesofbodieslistedabove. NewDealisacentralgovernmentschemedesignedtogetlong-termunemployedpeopleintowork.Itoffersemployersgrantsof£50aweekormore, plustraininggrants.Youhavetopaytheemployeeaconventionalwage. SelectiveFinancialAssistanceaimstoencourageinvestmentindeprived areas,includingbynewfirms.Atleast£10,000mustbeclaimed.Regional DevelopmentAgencieshavedetails. TheDepartmentforBusiness,EnterpriseandRegulatoryReform(DBERR) R&D Fund can help small firms with technological projects via grants to developandprovethem. ThePrince’sTrustoffersloansandgrantstopeopleagedupto30starting abusiness,plusthesupportofavolunteermentor.Irecommendthem;Iused tobeone. Thereareotherschemes,mostlyfromtheDBERRandtheEU,designed toincreasecooperationbetweenresearchersandindustry.Ifyoumightfind thisuseful,usetheBusinessLinksitetofindoutmore.
Beg,stealor... Theprinciplesbehindbankborrowingaresimple.Forthelender,itoffers aprofitbyhiringthemoneyoutforlessthantheyhavetopaytohireitin. Theirback-upisthattheywillrarelylendunlesstheyhavesomesecurityor collateral,usuallybytakingachargeoversomevaluableasset.Then,ifyou don’tpay,theysellyourhouseanddipintotheproceedstoclearthedebt. Ifyoudonothavecollateral,seetheSmallFirms’LoanGuaranteeScheme laterinthissection. Fortheborrower,ifitcosts£10,000ayeartoborrow£100,000andheor shecanmake£30,000bydoingso,themotiveisobvious. Before assuming that borrowing is essential, see if you can devise a businessmodelthatavoidsorminimisesit.Tryseeingifyoucould: buygoodsoncredit,thentakecashwithorder:youpayforthemonly
70 Startingasuccessfulbusiness
afteryouhavebeenpaid; sellanypersonalasset(caravan?boat?)thatyouwillhavenotimeto use; releasecapitalbymovingtoacheaperhouse; stayputinthehousebutre-mortgage(housingloansarecheaperthan businessloans). Ifnoneofthoseispossibleortoyourtaste,thehighstreetbankswillbethe nextportofcall.Theyofferthreetypesofloanfinance: overdrafts,suitabletocovertheday-to-dayfluctuationsinyourcash position; medium-termloansoveruptofiveorsevenyears,forequipment; long-termloansfrom7to20years,forpropertypurchases. Animportantpointisnevertouseoverdraftsforlonger-termfinance.Overdraftscanbecalledinatamoment’snotice,literally,andarequiteunsuitable foranythingbutday-to-dayneeds. Manyotherlendersexist,butextremecautionmustbeexercised.Atleast oneoftheusualbankscanbeexpectedtolendforanyviableproposition. Iftheyturnyoudown,lookatyourselfratherthanblamingthem,andavoid so-calledsecondarybanksandmoneylenders.Assomeoneoncesaid,ifthey aretheansweritwasaverysillyquestion. Itoughtnottobeeasytoborrow.Banksareputtingshareholders’funds at risk when they lend and should conduct searching enquiries into the destinationoftheirmoney.Theyshouldanalyseandcriticiseyourbusiness plan,givingyouahardtime. Thatmayseemperverse,butaskyourselfthis:whowillputyouinthe bestposition,thelenderwhohandsmoneyoutrecklessly,knowingtheycan bankruptyoutogetrepaid,ortheonewhousestheirexperiencetohelpyou foreseepitfallsanddevelopyourbusinessplan,seekingtoberepaidoutofa healthycash-flow? Itfollowsthatyourapproachtothebankmustbewell-preparedandthought through.Astheysay,yougetonechancetomakeafirstimpression. Bankschargeinterestandfees,whichtheymaypresentasinevitablebut which can be negotiable.Ask about their fees as part of every discussion andaskfortheirreductionorremoval.Trytogetthemtoreducetheinterest charged:evenaquarterofonepercentisworthhaving. Localbankofficialsaregivenlendinglimitsabovewhichtheyhavetoseek permissiontolend.Itisworthenquiringwhatyourbusinessmanager’slimit is,ortheirboss’slimit.Ifthelocallimitis£50,000youwillnotwanttoput
Raisingthemoney 71
inaproposalforaloanof£50,200,thusensuringthattherequesthastogo upthelinetosomeonewhohasnevermetyou. ThegovernmentofferstheSmallFirms’LoanGuaranteeScheme,aimed at removing the bar to growth that lack of collateral imposes on a small business.Itsmainfeaturesare:
Seventy-fivepercentoftheloanisguaranteed. Borrowerpays2%extrainterestontheoutstandingbalance. Loansuptoa10-yeartermand£250,000arecovered. Borrowingfirmmustbeunderfiveyearsoldandhaveaturnoverof lessthan£5.6million. Mostofthemainbanksofferit. Mostsectorsandactivitiesareeligible,butsomearenot. ThedetailisontheDBERRwebsite,www.dti.gov.uk. Inadditiontothebanks,financehousesofferloanstobusiness.Thebasis issimilartotheHPagreementthepublicisfamiliarwith,butthetermcan extendupto10years.Securitycoverwillbeaprimaryconcern.Alternatively, theyofferlong-termleasingarrangements. Merchant banks are not interested in the minor league of business, but 3i offers start-ups and young firms from €1 million (around £700,000) of investment,someofwhichmaybealoan,butmostwillbeinshares.Thatis quitedifferentfromaloan,asthesectiononlimitedcompanies(inChapter 5)willshow. Factoringmaybeofmoreuseonceyourfirmisestablished,butifyou startoffwithblue-chipcustomersandsubstantialorders,factorscouldbe interestedimmediately.Afactorbuysyourdebtsfromyouforlessthanface value,thencollectsallofthemoneyduefromyourcustomer.Itisauseful waytominimiseworkingcapitalrequirements. Business angels are rich individuals who may invest in the shares of promisingbusinessesaswellasprovidingmanagerialguidance.Underthe EnterpriseAllowanceSchemetheycangettaxreliefontheirinvestment.HM RevenueandCustoms’website,www.hmrc.gov.uk,givesdetails.
Presentingyourcasetothebank Anexistingbusinessseekingtoborrowcanpresentarecordofachievement buteventhenhastopersuadethebanktolenditthemoney.Thenewbusiness findsthebarsethigherandsomusttryharder.
72 Startingasuccessfulbusiness
Yourpresentationrevolvesaroundawrittenbusinessplan.Donotworry aboutyoursecrets:bankersunderstandconfidentiality.Theplanshouldcover the following headings with no more than two pages, preferably less, on each: theserviceorproductyouplantooffer; markets,competitors,customersandwhycustomersshouldbuyfrom you; experienceandbackgroundofkeyindividuals,withpersonalbank detailsfortheprincipals; premisesandequipment,withcostings; amonthlycash-flowforecastforyear1togetherwithadetailedP&L budget,plusoutlineplansforyears2and3; howmuchyouwanttoborrow,whatfor,forhowlongandhowyou willrepay; security,ifany,thatyoucanoffer. Donotdoctorfigurestomakethemlookgoodbutshowwhatyoucanreasonablyexpecttoachieve,forgettingthemoneyisonlypartofthejob;youwill beexpectedtofulfilyourforecast. Letthebankhaveallthisacoupleofdaysbeforethemeeting.Ifyoudo notfeelconfidentofdoingitallyourself,getadviceandhelpfromeithera businessadviseroryouraccountant. Finally,rememberthatsomebanksstillthinkintermsoflendingapound foreverypoundyouputin.Thisleadstotheaccusationthattheyareprepared tolendonlytothosewhohave.Thebanksreplythatfinancialstandingisnot all;theyarejudgingcompetenceandcharacter.
Keyjobstodo Investigategrants. Decideyourfinancingstrategy–howmuchdoyouputin,howmuch willyouborrowandonwhatterms? Createandpresentyourcasetopotentiallenders.
5
Yourbusinessname andlegalstatus
Thischaptercovers: the differences between sole traders, partnerships and limited companies; theimplicationsofeach; businessnames:marketingandlegalaspects.
Theoptions Themainchoicesavailableare:
soletrader; partnership; limitedcompany; co-operative.
Weshalladdressalloftheseexceptco-operatives.Therearespecialorganisationsdevotedtotheirdevelopment,andthebestwayintothesystemisCooperativeandCommunityFinance,www.icof.co.uk.Thesituationdescribed istrueforEnglandandWalesbuttheremaybevariationselsewhere.
74 Startingasuccessfulbusiness
Soletrader Byfarthemostpopularwayofgettingintobusiness,soletradershipisthe simplest. You simply notify HM Revenue and Customs so that they can changeyourincometaxandNIstatustoself-employed.Youwillnowpay NIcontributionsinClass2andClass4. Legally,youandthebusinessareone.Anythingthebusinessdoesisyour responsibility.Ifthefirmfailsowingmoney,thedebtsareyourspersonally. Itiswisetoreviewallyourinsurances,particularlythoseforthehouse andcar,tobesurethatyouarecoveredforusingthemforbusiness.Cover forthecar,especially,willalmostcertainlyrequirechanges. Apartfromfollowinganyregulationsandacquiringlicencesthatapplyto theactivityyouplantoundertake,youarefreetooperate.
Partnership Inapartnership,twoormoreindividualpeopleareinvolvedasprincipals ofthefirm.Onthewhole,partnershipismuchlikesoletradership,withone importantdifference.Inapartnershipeachpartnerisresponsibleforallof theliabilitiesofthefirm.Commonsensesaysitshouldbeonlyforashare, butthelawsaysotherwise. Itisclearlyimportanttoselectpartnerswithcare;ifonerunsoffwiththe money,thoseleftbehindaresaddledwithallofthedebts. Like a marriage, partnership can be subject to many strains, so just as celebritiesarrangethroughapre-nuptialagreementhowthelootwillbesplit ondivorce,wisebusinesspartnershavetheirsolicitordrawupapartnership agreementbeforegoingintobusinesstogether.Iftheydothenfallout,atleast theseparationcanbeorderly. LimitedLiabilityPartnershipsarearecentinnovation,limitingpartners’ responsibilityforcommercialdebts–seetheCompaniesHousewebsite.
Limitedcompany A limited company is very different from the other forms of constitution. Wherepartnersandsoletradersarelegallyinseparablefromthebusiness,a limitedcompanyisitselfaseparate‘person’inlaw.Ithasitsownliabilitiesand obligations,quiteapartfromthoseofitsowners,directorsandemployees.
Yourbusinessnameandlegalstatus 75
Theprivatelimitedcompanyistheformmostoftenused.Ifyouwishto sellsharesonthestockmarketandhaveasharecapitalof£50,000youcan becomeapubliclimitedcompany(plc),butfewstartersdo. Thecompanyisresponsibleforitsdebts,theshareholders’responsibility beinglimitedtothepaid-upsharecapital.Sincemostsmallcompaniesare authorisedtoissue£100ofshares,yetissueonlytwoorthreesharesof£1 each,theirpaid-upcapitalislimitedtothattwoorthreepounds. Becauseofthis,institutionslendingtolimitedcompaniesalmostalways insistonachargeonthecompany’sassets(meaningtheycansendinthe bailiffsifneedbe)andguaranteesfromsubstantialpeople,usuallytheownerdirectors. Shareholdersownthecompanybutneednotbeinvolvedinrunningit. Directorsareappointedbyshareholdersandareresponsibletotheowners andthelawforthewaythecompanyisrun.Theycanalsobeemployeesof thefirm. Although this situation has the potential for all kinds of arrangements betweenpeople,almostalwaysthesmalllimitedcompany’sshareholdersare itsdirectors,owningjustoneortwoshareseach. Once the company expands and needs extra capital, it might attract an investor.If,forexample,theinvestorrequiresaone-thirdshareofthefirm, moreshareswillbeissuedwithintheauthorisedlimitof£100tomakethat possible.Theexistingdirectorscouldissuetothemselvesafurthertwoshares each,bringingthetotalbetweenthemtosix,thenissueanotherthreeshares totheinvestor.Nineshareswouldthenhavebeenissued,givingeachofthe threeathirdoftheissuedsharesandhenceathirdofthecompany. Underthisarrangementthedirectorscouldissuethesharestothemselves atfacevalue,£1each,whilstsellingtheinvestor’sportionatthevalueofthe investmentmade.Moreoften,thefirmwillhavemademoneythathasbeen allocatedtothedirectorsasincome,whichtheyhavenotwithdrawnbuthave leftinthefirm,appearingonthebalancesheetas‘directors’loans’.Those loanswillbeconvertedintoshareholdings,theirsharesbeingsoldtothemat amorerealisticpricethan£1. Althoughthatisthesituationinprinciple,inreallifeaninvestorwould wantmorethanthreeshares,soastogiveflexibilityifhewantedtosellon partofhisholdingtosomeoneelse.Owningthreeshares,hecouldsellonly one-third,two-thirdsorallofhisholding;owning300,hecouldsellmuch morefinely-tunedproportions.Forthattobepossible,theauthorisedcapital wouldhavetobeincreasedandtheothershareholders’holdingsincreased accordingly,butwhilethenumberofsharesheldbyeachshareholderwould
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changefromthesimplermodel,theproportionheldbyeachofthemwould stillbeone-third.Eachwouldstillownone-thirdofthefirm. Ifthefirmshouldgobroke,thedirectorshavenopersonalresponsibility unlesstheyhavebeennegligentorareguiltyoftheoffenceofwrongfultrading. Theliquidatortakesover,collectingthefirm’sdebtsandsellingitsassets. Firsttobepaidarethegovernment(wouldn’tyouknowit),nextemployees, afterthemthesecuredcreditorsandfinallytheunsecuredcreditors,usually otherbusinesseswhohavesoldtothefirmoncredit.Ifanythingisleftitis splitbetweenshareholders,butusuallythereisnothing. Thereisnoobligationtorecordtheexistenceofthebusinessifyouarea partnerorsoletrader,butalimitedcompanymustberegisteredatCompanies House.Asolicitor,charteredaccountantorcompanyformationagentwillset oneupfromscratchforyou,butapopularoptionistobuyafirmthathas alreadybeensetupandisreadytotrade.Thiscostsupto£300orso. Theaccountsoflimitedcompaniesmustbeauditedprofessionallyonce theyreachacertainsizeorunderparticularconditions.Formostsmallfirms auditingisnotrequired.Themainexceptionsareonceturnoverreaches£5.6 million or assets £2.8 million, or if the firm is regulated by the Financial ServicesAuthority(FSA). Theaccounts,intheformofabalancesheetandotherdocuments,mustbe filedatCompaniesHousebyacertaindeadline,withafee(£30atthetime ofwriting),andalsobesenttomembers(thatis,shareholders).
Yourbusinessname The choice of business name is a marketing decision, but there are legal ramifications.Ideally,abusinessnameisexpressive,attractive,memorable andhasaleadinginitialnearthestartofthealphabetsothatitappearshigh inlistings.Aswithallmarketingactivity,lookcarefullyatthenamefromthe pointofviewofyourcustomer.Askotherpeoplefortheiropinions. Therulesgoverningthenamesthatlimitedcompaniesmayuseareoperated byCompaniesHouse.Generally,theyexcludenamesthat:
arecriminal; areoffensive; arealreadyregistered; suggestgovernmentapproval; aremisleading.
Yourbusinessnameandlegalstatus 77
PARTICULARS OF OWNERSHIP OF (insert trading name) AS REQUIRED BY SECTION 29 OF THE COMPANIES ACT 1981 FULL NAMES OF PROPRIETORS: (insert names) ADDRESSES WITHIN GREAT BRITAIN AT WHICH DOCUMENTS CAN BE SERVED ON THE BUSINESS: (insert addresses)
Figure5.1 Noticetobedisplayedbybusinessesusingatradingname
Thereismoretoit,allexplainedontheCompaniesHousewebsite,www. companieshouse.gov.uk. Anyone,limitedcompany,soletraderorpartnership,mayuseatrading nameotherthantheirown.Iftheydoso,theirtruenameandaddressmustbe disclosedonallbusinessdocumentsforsuppliers,employeesorcustomers. In addition, a notice must be displayed ‘prominently’ in parts of business premisesaccessedbycustomers.Thenoticemusttakeaspecificform,as showninFigure5.1: Finally, this information must be disclosed in writing immediately it is requestedbyanyonewithwhomanythingisdiscussedordoneinthecourse ofbusiness.Itisimportanttocomplyoryoucouldcommitacriminaloffence andmoreovermightnotbeabletomakeyourcontractsstick. Therearerulesaboutwhatqualifiesassomeone’sownname.Takesomeone whosegivennameisJohnSmith: JohnSmith; JSmith; MrJSmith.
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Johngoesintopartnershipwithhismother,Jane.Their‘ownnames’are:
J&JSmith; JaneandJohnSmith; JohnandJaneSmith; Smith’s.
MotherpullsoutandJohnformsapartnershipwithTomBrown.Theirown namesare: TBrownandJSmith(andviceversa); ThomasBrownandJohnSmith(andviceversa); MessrsJSmithandTBrown(andviceversa). In due course Jane Smith buys a limited company off the shelf, called TetrablankLtd.Shetradesinthatname,thecompany’sownname. Inalloftheaboveexamples,usinganyofthese‘ownnames’meansthere isnoseparatebusinessnametodisclose. However,anyoftheseindividualsorcombinationsofpeoplemightsense thatmarketingreasonsdictatetheuseofanamethatsayswhattheydo,rather thanwhotheyare.TheymightchooseanamelikeJohnSmithEngineering SuppliesorVictorianWoodworkers. Noneofthosenamesisthenameofapersonorcompanyinvolved.They may use the names, but only if they disclose the ownership, as described earlier.Ineverydaydealingstheywilldescribethemselvesas‘TBrownandJ SmithtradingasJohnSmithEngineeringSupplies’or‘TetrablankLtdtrading asVictorianWoodworkers’.‘Tradingas’isoftenabbreviatedto‘t/a’. Inthoselastexamplestheletterheadwouldfeaturethetradingnameprominentlyacrossthetop.Thedeclarationofownershipwillbeinsmall,but clearlylegible,printalongthebottom,alongwiththeotherdetailssuchas VATregistration,registeredofficeaddressforalimitedcompanyandsoon.
Keyjobstodo Seekadviceonthebestconstitutionforyou. Understandtheimplicationsforcosts,NI,taxationandraising money. Observerequirementsfordisclosureofownership.
6
Businessandthelaw
Thischaptercovers:
businessliabilitiesundercivillaw; themainrequirementsofthecriminallaw; suingandbeingsued; termsandconditionsofsale; copyright,registereddesignsandtrademarks,patents.
EmploymentlawappearsinChapter10,Employingpeople.
Civilandcriminallaw:howthedifference affectsyou Thetwosystemsoflawhavegrownfromcompletelydifferentroots.Civil lawcameaboutfromoldstatutes,interpretedbyinnumerabledecisionsby judges down the ages, resulting in a generally agreed set of rules for the way people should behave.An award in a civil case results in one party compensatingtheother.Theburdenofproofisa‘balanceofprobabilities’. The state is not interested in civil quarrels, so the police and the Crown ProsecutionService(CPS)stayaway. CriminallawarisesfromlawspassedinParliamentandthesanctionsare fines,imprisonmentorcommunityservice.Itisenforcedbythepoliceand theCPS,aswellasmanyotherpublicservantsincludingHMCoastguard, TradingStandardsofficersandothers.
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Asiswellknown,thetruepenaltyforlosingacivilcasemaynotbethe courtawardbutthelegalcostswhich,foranythingcomplicated,quicklyrun upintothetensorhundredsofthousandsofpounds. Therearetwogoldenrules:foracivilcase,keeptheactionshortandsettle wellbeforeitcomestocourt;forthecriminallaw,stayontherightsideof it. The civil law affects business owners mainly through two of its many branches:contractlawandtort.
Contractlaw Thecivillawofcontractisextensive.Knowingsomeaspectsofithelpsthe smallbusinesstoformcontractsthatarevalidandtorecogniseinfringements ofitsrights. Inlaw,acontractisformedwhenthreeconditionsarepresent: offer:anoffertobuy,whichmaybesubjecttoconditions; acceptance:anacceptanceoftheoffer; consideration:somesortofexchange,inbusinessusuallymoney. ThusifIoffertowashyourcarforapoundandyouaccept,wehaveacontract. Imustdotheworkandyoumustpayme.Butwhenmustitbefinished?To whatstandardsofcleanliness?Whenwillyoupayme?Thosethreequestions illustratewhywisepartiesconfirmcontractsinwriting.Exceptforlandsales inEngland,WalesandNorthernIreland,anoralagreementisstillacontract –itisjustdifficulttoproveitsexactnatureunlessitiswrittendown. If I had offered to do it for a bag of plums from your tree, or for you tobabysitmychildren,itwouldstillbeacontract.IfIsaidIwoulddoit fornothing,nocontractwouldexistasthethirdcondition,‘consideration’, wouldbeabsent. Ingeneral,thebestguideisto:
tellthetruth; keepyourpromises; knowyourobligationsandkeeptothem; knowandrespectyourcustomer’srights; neverpromisewhatyoucannotormaynotbeabletodeliver; alwaysexpressclearlyanydoubtsoruncertainties;
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beabletoprovewhatyousayistrue; behavefairlyandreasonably; makeconditionsclear; readandunderstandbeforesigning; confirmyourunderstandingofanyagreementinwriting; makeproperuseofprofessionalandofficialadvice.
Whenbuying,checkcarefullythatyourunderstandingoftheofferisthesame astheseller’sandgetawrittenstatementofexactlywhattheproposalis. Mostdisputesarisenotfromdeliberatemisbehaviourbutsimplemisunderstanding.Socutdowntheareaopentomisinterpretationandyoureducethe riskofdispute.
Tort Tortisdefinedasacivilwrong.Thewordis,appropriately,modernFrench for‘wrong’andcameintoEnglishlawviatheNormanConquest.Thecivil wrongsare,withabriefandinadequateexplanationofeach:
nuisance:smells,noise,obstruction,etc; defamation:damagingreputations; conversion:sellingstolengoods,evenifacquiredinnocently; trespass:enteringpropertyuninvited; passingoff:pretendingthatgoodscamefromsomeoneotherthantheir truesource; falseimprisonment:unreasonablydetainingsomeone; negligence:generally,carelessnessorrecklessness. Ofthatlist,negligenceisthetortmostlikelytobecommittedbysmallfirms. Havingaloosestaircarpetattheofficeiscareless.Toignoresomeone’swarningaboutitisreckless.Ifsomeonethentrips,fallsandsuffersinjurythey maysueyoufornegligence.Inpractice,youwouldhandthewholethingto yourinsurancecompany,butashockmaybeinstoreifthepolicyrequires younottoactnegligently. Notonlymightyouhavedamagesandlegalcoststopay,buttheHealthand SafetyExecutive(HSE)mightdecidetoprosecuteyou.Sincethelegislation theyinvokeispartofthecriminallaw,youmightgetafineorprisonsentence ontop.
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Goingtolaw Ideally,thisisbestavoided.Ifitcannotbeavoided,keepyourinvolvement short.Inmostcasessmallbusinesseshavemoretolosebylossofmanagement timeandconcentrationthanbysettlingthecasequickly.Asafamousjudge, commenting on the cost of lawsuits, once remarked: ‘The law is open to anyone,justliketheRitzHotel.’ There is one exception, where you are owed £5,000 or less. The case willgototheCountyCourt,butyoumayelecttohaveitdealtwithbythe Small Claims Procedure. This is a simple arbitration procedure designed for straightforward cases, conducted in private by the arbitrator with just yourself,thedefendantandanywitnessorrepresentativethatmaybeneeded. The procedure was designed to encourage DIY lawsuits so you may not needarepresentativeunlessthecaseisatallcomplex.Ifyouwin,youwill getbackthecourtfeesplusyourcostsinadditiontoanyaward.Ifyoulose youforfeitthefeesandmeettheotherside’scosts.Aphonecalltothelocal CountyCourtwillproducetheforms. Thecostofsolicitorsdeterspeoplefromusingthem,butthereareoccasions whentheycanactuallysavemoneybygettingquicklytothenubofanissue. TheworstwaytousethemistotryDIY,getintoatangleandthenaskthem tosortthingsout. Contingencyfeesareamixedblessing.Thisisthearrangementwherea solicitortakesonacase,notforafeebutforashareoftheaward,perhapsa quarterorathird.Itdoesensurethatpoorpeoplehaveaccesstothelaw,but nolawyertakesonacontingencyfeecaseunlesstheyaresureofvictory.So theplaintiffcouldhavewon,paidafeeaftertheawardandbeenbetteroff. Feesmightevenhavebeenawardedagainstthedefendant. Ifentanglementwiththelawisinevitable,askaroundforasolicitorwith a reputation for success in the kind of case concerned and pay whatever is necessary, giving clear instructions that you want the action concluded quicklyandcheaply. Theriskofanadverseresultissmall,butifithappenstoyouthecostwill behigh.Youmaywishtoconsiderlegalexpensescoveraspartofthefirm’s insurance.Itwillnotpayawardsorfines,butitdoesmeetthelegalcosts.
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Contractstobuy Popintothenewsagent’s,putacoininthecounterandsay‘Sun,please’; when the newsagent hands it over the contract to purchase is complete. Leavingasideyourpoortasteinnewspapers(inmyopinion),asyoucollect yourchangeyoucanreflectthatmostcontractstopurchaseareformedjust asunthinkinglyastheoneyoulatelyconcluded. Whenbuyingforbusinessyouneedtoadoptamorerigorousapproach. Examinationofthesignatureboxonanorderformwilldisclosethatasignaturemeansyouaccepttheirtermsandconditionsofsale,whichnomember ofstaffisauthorisedtovary.Thesetermsmaybeonthebackoftheform, inatinytypeface,inatastefulshadeoflightgrey.Fewpeopleexcepttheir creatorhaveeverreadthem.Yetthepointofthemistoabsolvethesellerof responsibilityforprettywellanything. In1977theUnfairContractTermsActcameintolawtolimittheexclusions allowed.Specifically,excludingliabilityfordeathwasdisallowed.Excluding liabilityforlossesduetonegligence,orforpoor-qualityanddefectivegoods, ispermissibleonlyifreasonable.‘Reasonable’isawonderfulwordthatcrops upallovertheplaceinlaw.Thecourtsusuallyjudgeiton: whatinformationwasavailabletoeachsidebeforethedeal; whetheritwasastandard-formpurchaseorthedealwasnegotiated; whetherthepurchaserhadthepowertogetbetterterms. Essentialcheckstoperformarethatthewrittencontractgivesaccurate:
prices; quantities; deliverydates; paymentterms.
Duringthenegotiationphaseyoumaybeabletoimproveyourpositionby askingfor: unfavourabletermstobedeletedfromthestandardconditions; deletionoftheseller’sprotectionfromtheconsequencesofnegligence orthesupplyofdefectiveequipment; bettertermsthanareonofferasstandard,suchasfreetrainingoraftersalessupport.
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Donotjustaskbuttreatitlikeasalestask.Youhavetoshowwhytheoffending conditioniswrongforyouandfortherelationshipwiththeseller. Thefewmajorpurchasesarelikelytobegoneovercarefully.Itisinthe activities,thebusinessequivalentofpoppingintothenewsagent’s,wherethe riskslie.Seethecasestudyinthebox.
Purchasingcasestudy
Youneed200three-footlengthsoftimber.Theproductissold
intwo-metrelengths. Youallowforfivepercentwastageandcalculatethatyouwill stillgettwothree-footersoutofalength,soyouorder100of thetwo-metrelengths. Whentheloadarrivesalotofthelengthsareunder2m,too shortonceyourwastageistakenintoaccount. Youphonetocomplainandtheytellyouthereisaconditionon thebackoftheorderyousigned,whichalsoappearsintheback oftheirbrochure,tosaytheycanvarylengthbyupto10per cent.That10percentplusyour5percentmakestheoffending piecesunder-length. Youconcludethereisnothingtobedone.Youdeliverlateand too few to your customer and have the substandard lengths clutteringyourstorefortheforeseeablefuture. Youresolvetospecifymorecarefullynexttime.
Whenthepurchasesarrive,donotacceptthemifunacceptablydamaged.If thecartonisbrokenandtheremighthavebeentheft,eitherrefusethedelivery orsignforit‘damagedandunexamined’. Alwaysexaminedeliveriesonthedayofarrival.Therewillberulesinthe smallprintabouthowsoonafterdeliverycomplaintswillbeentertained,and thesellerwillretainpaperworkonlyinlinewiththattimetable.Ifthereisa complaint,makeitimmediatelyandalwaysconfirminwritingthesameday, keepingacopy.
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Contractstosell Herethetablesareturned;youarenowtheoneseekingmaximumadvantage, oraleastnottobedisadvantaged. Myviewisthatwhilsttermsandconditionsofsalearenecessarylegally, theycanalsoserveamarketingfunctionbycommunicatingyourreasonable expectationsandrequirementsofyourcustomer.Thatmeanswritinginclear languageandlegibletype. Seeingitasamarketingissue,Ibelievethatfirmsshouldconstructtheir own,handingthemovertothesolicitortomakethemlegallyeffective. Becausethiscanbeadauntingprospect,aprototypeisofferedinAppendix 2ofasetoftermsandconditionsofsale.Itspurposeistoprovideadraftthat youcancustomisetoyourpersonalcircumstances.Hackitaboutfreely:that iswhatitisfor.Butdogetyoursolicitortochecktheresult.
Conditions,warranties,guaranteesand exemptions Anycontract,whetherbuyingorselling,incorporatesconditionsandwarranties.Conditionsarereallyimportantmatters,thebreachofwhichentitlesthe otherpartytoitsmoneybackplusdamages.Therearealsoimpliedconditions whichneednotbespelledoutbutareautomaticallypresentinallcontracts: Sellerhastherighttosell–eggoodsnotstolenoronHP. Goodscomplywiththedescription–egifreconditioned,notsoldas new. Samplecorrespondswithbulk. Goodsareofsuitablequalityandfitforuse. Thefinalitemneedsexpansion.‘Suitable’qualityisthatwhichis‘fit’forthe usetowhichthecustomercanbeexpectedtoputthepurchase. Exceptionsareallowed,wherethesellerpointsoutafaultorthebuyer givesthearticlethesortofinspectionthatmightreasonablybeexpectedto revealthefault. Warrantiesarelessimportant,entitlingtheinjuredpartytodamagesonly. Theyincludemanyofthetopicscoveredinthedrafttermsandconditionsin theappendixreferredtoabove.
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Guaranteesmaybegivenwithitemsyoubuyinascomponents.Thatis helpful,butdoesnotdeflectyourliabilityforwhatyousell.Thecustomer’s redressistothepersonwhosuppliedthem,soyouhavetoputthingsright atyourexpenseandthenchaseyoursupplierforsatisfaction.Ifyouissue guarantees,besurethattheysaythattheydonotaffectcustomers’statutory rights.Remember,too,thatwhateverthewrittenguaranteemaysay,inlaw thereisnotimelimittothecustomer’srights,onlywhatis‘reasonable’in thecircumstances. Exemptionscanbecriminaloffences,wherethetradeorpublicaredeprived oftheirlegalrights–hencethedisappearancefromtheshopsofsignssuch as‘Norefundsonsalegoods’.Thelawismorerelaxedabouthiredgoods andsalestobusinesscustomers,wheretheremaybe‘reasonable’exclusion clauses.Ifitaffectsyou,takelegaladviceforitisacomplexfield.
Productliability UntilrecentlytheUnitedKingdomdidnothavethelevelofproductliability thatexistsintheUnitedStates,butwearemovingrapidlyintheirdirection. Asupplier’sresponsibilitiesareto: warnaboutpotentialrisks–‘maycontainnuts’; informconsumersaboutrisksandprecautions–‘oncecooked,itwill behot:handlewithcare’; monitorproductsafetybyrecordingandinvestigatingcomplaints; testproducts; actifaproblemisfound; nottosellsomethingyouknow,oroughttoknow,isunsafe; notifytheauthoritiesofunsafeproducts. There are obviously special risks in certain categories: food and drink, toys,medicinesandmechanicalorelectricalitemscometomind.Specific regulationsapplytomanysuchcategories:theTradingStandardswebsite givesinformation,www.tradingstandards.gov.uk.Ingeneral,TradingStandardsOfficers,basedatcounty,unitaryandcitycouncils,arewillingtogive adviceonhowtoavoidbreakingthelawinthisandotherways,including thelabellingofpackaging. Atthebackofallthisisthethreatthattheauthoritiesmaytakeenforcement action if you do not comply, resulting in fines or imprisonment, and that
Businessandthelaw 87
injuredparties–notjustdirectcustomers–couldsue.Onceagain,insurance coverisadvised.
Copyright,registereddesigns,trademarks andpatents Undertheseheadingsthelawgivesvaryingdegreesofprotectiontointellectual property. Copyrightistheweakest.Itgivesautomaticprotectiontoanythingoriginal onpaper–text,music,names,drawings,etc.Acopyistneednotchangemuch toclaimthathisisalsoanoriginalwork.Tomakepotentialcopyistsaware thatyouknowyourrights,inserta©,yournameandthedateatthestart.If itcouldbeimportantlatertoprovethedate,sendacopytoyourselfthrough thepost,conspicuouslysealed;checkthatthepostmarkislegibleandkeep itsafely. Copyrightinartisticproductslastsforthelifeoftheauthorplus50years. Therearemovestochangethis,promptingSirCliffRichardtovoicefears ofhisimpendingimpoverishment.Forindustrialdesignsprotectionisfor15 yearsfromthetimetheproductgoesonsale. AtrademarkcanberegisteredattheTradeMarksRegistry(www.patent. gov.uk) and you can search their database to ensure that yours really is novel.Trademarkagentswilldothisforyouifyouprefer.Incaseyourfirst preferencehasbeentaken,thinkupastockoffiveorsixnamesyouwould behappytouseandworkthroughuntilyoufindavacantone. Registering your own mark gives unequivocal protection to you as its owner,oritshould.Unfortunatelyitisnotfoolproofasthereisnorequirement foramarktoberegistered,soyoucouldunwittinglyuseonenotregistered, butinwidespreadusefordecadesandthereforeentitledtoprotection. Registereddesignsgivebetterprotectionthancopyright.Forbothtrade marksandregistereddesignstheservicesofanagentarenecessary.Protection is for 15 years from registration, provided it is renewed every five years. Budget£500to£1,000. Patents give the highest level of protection. When applying it is vital tobeabletodeclarethatyouhavenever‘disclosed’theitem,thatis,told anyoneaboutitexceptforapatentprofessional.Afullpatentgives20years’ protectionfromthedateoffilingthefirstapplication. Anagentwillprobablyadviseaninitialapplication,cheaperandsimpler than a full application, to establish your place at the head of any queue
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andgiveyouayearinwhichtotestthemarket,studyfeasibility,workout manufacturingmethodsorevenfindabuyeranddecidewhetherornotto proceed.Youwillneedapatentagentanddeeppockets,asthecostofan initialapplicationcouldbe£1,500andafullapplication£20,000to£30,000 overthreeorfouryears. Aswithanyotherprotectionscheme,therealtestcomeswhenyouhaveto repelacopyist.Patentlawyersareevenmoreexpensivethantheircommon orgardencounterparts,soinsuringyourregistrationsiswise.
Keyjobstodo Identifyandunderstandthewaysinwhichcriminallawandofficial regulationsaffectyourbusiness. Understandhowthecivillawaffectsyourbusiness. Createtermsandconditionsofsaleandhaveasolicitorapprovethem. Incorporatetheminyoursalesstationery. Putupappropriatenotices. Reviewyourneedforprotectionofintellectualproperty.
7
Premises
Thischaptercovers:
workingfromhome; findingpremises; planningpermission; leases; ratesandwatercharges.
Canyouworkfromhome? Manyfirmsstartthiswayandsomeneverleave.Fewneighbourswouldlike theirresidentialareaturnedintoanindustrialestate,sothemainissuesare:
theamountofnoise,smellsandothernuisancegenerated; thenumberandtypeofvisitors; thevisibleevidenceofbusinessactivity; quantityandtypeoftrafficcreated.
Theultimatesanctionisaletterfromthelocalauthorityinvitingyoutocease operations or apply for planning consent (which will almost certainly be withheld).Failuretocomplywillleadtocourtactionandheftyfines. Inaddition,yourfamilymayhaveviewsaboutlosingabedroom,garageor study.Thehousemaybesubjecttocovenantsthatprohibitbusinessactivity,
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butitisdifficultforevenneighbourstohavethemenforced.Covenantsare inthedeedsfortheproperty. On the other hand, many small firms operate from home in complete harmonywithneighbours,sometimessounobtrusivelythatpeopledonot realisewhatisgoingon.Thereinliestheanswer:theoperationneedstobe solowkeyastobevirtuallyinvisible,creatingnonuisanceandrunwith totalconsiderationfortheinterestsofneighbours.Evenifsomecurmudgeon shouldreportsuchabusinesstotheplanningauthority,thereisaplanning category‘C3,smallbusinessesathome’. Tobeblunt,thevastmajorityofthosehome-basedfirmsthatareclosed downbyofficialdomdeservealltheyget.Workinprogressparkedonthe verge,oldenginesinthefrontgarden,thesmellofpaintandthenoiseof hammering:nobodyshouldhavetolivenexttoit.Contrastthatbehaviour withmyneighbour’s.Everyoneknowsherunshisbusinessfromthegarage, andthoseofuswhoarecustomershavebeeninsideit.Occasionallyabig lorry delivers materials, but it presents no problems. His customers are fewerthanadozenaweekandallarrivebycar,alevelofactivityexceeded byprivateindividualswithabusysociallife.Itisdifficulttoimaginewhy anyoneshouldcomplain. Working from home does present a temptation that should be resisted, to do costings that assume accommodation is free. Better to cost in what commercialpremiseswouldcostsothatwhenexpansionorsomeotherforce pushes you out into the market your prices do not suddenly jump. Other peoplemanagetopayproperrent,sowhynotatleastpretendyoudo? Insuranceisabigissue.Runningyourbusinesswillautomaticallyvoid yourdomesticcover,sodiscloseyourplanstoyourinsurersandgetthings straight. Ifyouhaveamortgage,thelenderhasarighttoknow.Thisoughttobe nomorethanaformality. Ifyourpropertyisrented,thelandlordneedstoknowyourplanssoasto notifyhisorherinsurers.Youmaybeaskedtopayanyextrapremium.
Findingsmallpremises Theanti-businessattitudesofthepublicsectorinthe1960sand1970shave takenalongtimetochange.Theydidmuchdamageinlimitingtheamount ofaccommodationprovidedforsmallfirms.Itisonlyinthefirstdecadeof the21stcenturythatareasonablyfreemarketinsmallbusinesspremisesis emerging.
Premises 91
Thepremisesnowbeingprovidedareafarcryfromtheretiredchicken shedsinwhichearliergenerationsofentrepreneursbeganwork,miserable placeswiththehugebenefitthattheycostalmostnothing.Newerpremises arebuilttomodernstandardsofheating,insulationandfinish,takehealth andsafetyintoaccountandconsequentlyarenotcheap. Incountryareastheremaybethechancetorentadisusedbuildingfroma farmerorlandowner.Thesystemrequiresyoutogetplanningconsentandto convertittomodernstandards.Manynewfirmsoverlookthispoint,running inthewaytheirforefathersdid,onthelowestoverheadspossibleandwithno securityoftenure.Thislastpointmaynotmatterunlessyouneedtoborrow: lenderswanttoknowifyouhavetherighttooperatefromyourpremisesat leastuntiltheirloanispaidoff. Ifyoushouldgoalongtheconversionroute,allowforthecostlyextrasof mainswater,drains,lavatories,electricity,gasifavailable,security,vehicle parking spaces and turning areas, plus possibly acceleration/deceleration lanesintotheentrance,dependingonthecharacteroftheroadoutside.The authoritieswillinsistthateverythingisdonetothehigheststandards.Once youareintheofficialsystemtherearenoshortcuts.
Planningpermission Using any land for industrial or commercial purposes requires planning consent.Formeroccupantsmayhavegotawaywithnotapplying,butyou maynotbesolucky.Whereyouarerentingorbuyingformally,thisisunlikely tobeanissue,buttheinformalmarketisdifferent. If you can trace back continuous usage to 1964, you may apply to the planningauthorityforaLawfulDevelopmentCertificate,adocumentthat says,ineffect,thatyouhaveconsenttocontinuesomethingthathasgone onforsolongthatitispartofthescenery.Theonlyproblemwiththisis thatiswilltieyoudownverytightlytospecificactivities,constrainingyour flexibilityinthefuture. Ifyouwanttomovefromtheexistingplanningconsent,thegovernmentimposedfeewillbeintheregionof£300,withnoguaranteeofsuccess.Ifthe planningofficerseemshelpfulyoumightfeelconfidentenoughtoDIY,but otherwiseaplanningspecialist(architect,townplanner,surveyororsolicitor) maybeneeded. Sixtoeightweeksaftertheapplicationthedecisionwillarrive,underone offourheadings:
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fullplanningconsent,givingtherightforanyonetoputthelandtothe permitteduseinperpetuity; temporaryplanningconsent,allowinganyonetherighttoperform thespecifiedactivitiesfortheperiodstated,usuallyfromonetofive years; personalplanningconsent,permittingonlytheapplicanttousethe premisesasspecified; refusal. Ifthesiteissensitiveortheactivitypotentiallycontentious,acombination oftemporaryandpersonalconsentmaybegiven.Applicationcanbemade torenewtemporaryconsent. Temporaryconsentisbetterthanrefusal,butmayconstraintheenthusiasm oflenders,whowanttoknowyoucanearnsoastopaythemback.Itmayalso constrainyourenthusiasmtorenovateabuildingwhichyoumightoccupy foronlyabriefperiodoftime. Itisunwisetorelyonawinkandanodfromaplanningofficer,stillless fromacouncillor.Inthisfield,believenothinguntilitisofficiallyconfirmed inwriting. Any consent may have conditions attached.These may range from the innocuous,suchasnotstoringintheopenairorworkingafter7pm,but others might be obstructive. If the latter, talk to the planning officer and explainthedifficulty;heorshemightbeabletohavetheconditionvaried, oryoucouldappealtotheSecretaryofState.
Applyingforplanningpermission Theformalsystemrequiresyoutocompleteandsubmitforms,plansanda fee.Thentheplanningcommitteehearsyourcaseanddecides,thedecision cominginwritingsixoreightweeksaftertheapplication. Allthatneedstobedone,butlongbeforehandyoubeginthecampaign. Planning officers (the full-time officials) and councillors (the part-time electedrepresentatives)arebusypeopleandcapableofgettingthewrong endofyourstick.Youneedtoinfluencethemfavourably. Toseewhy,startwiththearrivalofyourformsatthelocalauthorityoffice. Theyarecheckedforaccuracyandcopiesgotowater,gas,electricityand highwaysauthoritiesforcomment,aswellastotheparishcouncil.Immediate neighboursarenotified.Thusmanypeoplegettohearofyourplansandto protestbeforethecommitteehearsyourcase.
Premises 93
Mostresistanceisusuallybasedonignorance,misunderstandingofthe truenatureofyourplansandconsequenthostility.Ifthatisallthecommittee hears, it would be natural for it to incline towards refusal.To redress the balance,youshouldadoptaparticularcourseofaction. Contacttheplanningofficerandinvitehimorhertothesite.Explainyour plansandanswerquestions.Describeyouractivitiesandshowhowsmallscaleyouwillbe.Withanyluck,theresultwillbethatofficialworkingfor youratherthanagainstyou. Next,theparishortowncouncil.Dothesamewiththem.Invitetheborough councillorfortheareaandthecouncillorwhositsontheplanningcommittee forthatareatoo.Callpersonallyonanyneighbourlikelytobeaffectedand explainyourself.Rememberhowimportanttoalltheseconstituenciesthe prospectoflocaljobsis,especiallyjobsforyoungpeople. Thenyouarereadytofillintheforms.Immediatelyafterwardsgetevery businessorganisationyoucanthinkoftowritetothecouncilinsupportof yourapplication.Nowyoucansitbackandletmatterstaketheircourse. Youmayattendtheplanningcommitteemeetingbutusuallyarenotallowed tospeak.Nonethelessitisworthtellingthechairthatyouarepresentshould theyfeeltheneedtocallonyouforclarificationofanypoint.Youwillhear thedecisionthateveningandwillgetitinwriting(probablywithanumber ofconditionsattachedthatwerenotdiscussed)inwritingafewdayslater.
Appealingagainstaplanningdecision Anappealmaybelaunchedagainstanyofthetypesofdecisionsdiscussed here.Therearetwoapproaches:thewrittenappealandthepublichearing. Foryourpurposesthewrittenappealisstronglypreferable,beingquicker andcheaper.Theappealmustbemadewithinsixmonthsoryoumusthave specialpermissionfordelay. Completetheappealformsandreturnthem.Thecouncilgetscopiesof what you write and responds in turn, a copy of which comes to you.An inspectorfromthePlanningInspectoratevisitsthesitebyappointmentand mayaskquestions.Youmaynotquestionhimorherbutmayonlyanswer questions.Withinsixmonthsyouwillgetthedecision,whichisusuallya commonsenseone. Toappeal,itisimportanttohaveadvicefromaplanningspecialist.Ask abouttheirrecordofsuccessonappealsandgetquotesforthework.
94 Startingasuccessfulbusiness
Leases Noleaseshouldeverbesignedwithoutprofessionaladvice.Somenegotiation may be required before a lease is in a condition that you are prepared to sign. Inadditiontotherent,furthercostsareusuallyincurred:
landlord’slegalfees; yourlegalfees; landlord’sbuildingsinsurancepremium; repairsduringyourtenancy; redecorationperiodicallyandattheendofthelease; yoursurveyor’sfees.
Thelastitemisadvisableinanolderbuildingtoensurethattheconditionis recordedbeforethestartofyourtenancy.Otherwiseyoucouldberequired attheendoftheleasetomakegoodallsortsofdilapidationthattookplace beforeyourtime.Forthesamereason,takelargenumbersofphotographs withthedaterecordedonthem.Acharteredsurveyorwillproduceaschedule ofconditionforthelandlordtoagreeto. TheleasemaybeFRI(fullrepairingandinsuring),meaningthatyouhave toinsureandmaintainthebuildingtothestandardinwhichyoufoundit.
Ratesandwatercharges Uniform business rates (UBR) are charged on business premises by local authoritiesandwatersuppliersinawaysimilartotheimpostsonhouses. UBRarenotcheap,andfurthermorecouncilsareforbiddentocollectwaste frommanybusinesspremisesunlesstheychargeextra. Ratingassessmentsarenottobeappealedagainstlightly,asappealscan resultinariseintheassessment.Aswithrent,accepttheinevitable,recognise thatcompetitorsstruggleunderthesameyokeandgetonwithdoingthings betterthanthem.
Premises 95
Keyjobstodo Identifythesortofpremisesyouneed. Investigateavailabilityearly. UnderstandtheimplicationsoftheTownandCountryPlanning system.
8
Managingoperations
Thischaptercovers:
day-to-daycontrolofthefirm; planning; safety; purchasing; quality.
Operations?YouthinkI’masurgeon? ‘Operations’isthecatch-alltermforeverythingthatgoesoninthebusiness,all theday-to-daythingsdonetomakeitoperate.Managingoperationstherefore hastwoaspects:dealingwiththecomplexitycreatedbyateemingnumberof smallthingsthatareofteninterdependent;anddevelopingastrategicvision ofhowitisalltobehandled. Oncetheoverallvisionisinplace,yousetupsystemstodealwiththe detail.Theaimshereare:tostandardiseeverythingasmuchaspossible;and tominimisethenumberofindividualdecisionstobemade. The latter is usually accomplished by creating routines, with rules and conventions for how things are done. Thus perhaps 95 per cent runs like clockworkwithonly5percentofexceptionspoppingupforspecialtreatment, a much lighter load on the people than if everything was dealt with as if unique.
Managingoperations 97
Theareascoveredincludeforeveryfirm:
sales; purchasing; orderprocessing; customerrecords; production; delivery; invoicing; paymentsinandout; stockcontrol; payroll; staffrecords; financialrecordsandreporting.
Inparticularfirmstherewillbeadditionalareasspecifictotheindustryor activity. At the strategic level a decision needs to be made about the place of technology.Ourabilitytoautomateactivityacceleratesallthetime,sothe temptationtoputineverybitoftechnologytodothingscheaperisrising. Butbewarned: Dellmadetheclassicnerd’smistakeofunderestimatingthehumanfactor–the firstandlastlinkinthesupplychain–andtryingtofillitwithIT.Asmost companiesdo,itputcomputersinchargeofthethinghumansdobestandvice versa,thusmakingeveryoneunhappy.(SimonCaulkin,ManagementEditor, TheObserver,18February2007)
TheargumentisnotthatIThasnoplace,justthatitisunsuitableforthe‘soft’ areaswherehumaninteractionisneeded.AsCaulkinargues,thesearethose thatinteractdirectlywithcustomers,bothwhensellingandwhendelivering tothem.Iwouldaddtwomoregroups:suppliersandstaff.
Planbeforeyouleap Planningtheoperationsofyourbusinessisvital,yetsomepeopleresistit. Reasons include an emotional resistance to paperwork, a conviction that plans always go wrong and a preference for going and doing something
98 Startingasuccessfulbusiness
useful instead. None of these justifies neglect of one of the owner’s key responsibilities. Someargumentsforplanningappearinthepanelbelow.Ifyouarenotyet convinced,pleaseconsiderthemverycarefully.Ifyouremainunconvinced, talkthesepointsoverwithanadvisertogetadifferentview. Ifyousharemyview,youwillplanforeachoftheareasinthebulletedlist above.Ifyouroperationistobesmall,easilyhandledbyafewhours’work aweekbyyourselfandapart-timeclerk,youdonothavebigvolumesto consider.However,ifyoucouldfindyourselfhandlingalotofactivity,you willneedtoplanstaffnumbers. Foreachareaofactivityfromthelistabove,createaspreadsheettablethat allowsyoutoinsertthetimeeachactivitytakes,multiplyitbythenumber of them in a day, then multiply them out by 350 days to arrive at annual volumes.
Whyplan?
Makingmistakesonpaperischeaper. When starting up you know least. Without knowledge, you
needtothink. Plans are always wrong, but preparing them makes you see importantlinkages. Eventhesimplestbusinessismorecomplicatedthanitlooks.No businesscanbeplannedandcontrolledinyourhead. Afterrunningforatimeyouputtheplanrightandsetouton thenewcourse.Thisteachesyouwhyitwaswrong.Withoutthe planyouwouldnothavelearnt. Ifyoudon’thaveaplan,youdon’tknowwhereyouaregoing. Ifyoudon’tknowwhereyouaregoing,anyroadwilldo.Some roadsgotostrangeplaces. Thinkingfirstmeansyoumakeorsavemoremoney.
Onceyouknowthevolumes,youcandividebytheoutputofeachmemberof staff,allowingforeachfull-timer220daysatfiveproductivehoursaday.The figureof220mayseempessimistic,butitallowsforholidaysandsickness.
Managingoperations 99
Fromtheresultingplanwillcometherequirementforofficespace,equipment,furniture,parkingspaces,restroomspaceandsoon,forthatparticular activity.Repeattheexerciseforeachelementofoperationstoarriveatthe overalltotal.
Beingincontrol Tocontrolbusinessoperationsyoumustknow:whatoughttobehappening (fromthebudgetandotherplans);andwhatisactuallyhappening(fromyour managementinformationsystem). Tobeofanyuse,theinformationyougetneedstobetimelyandsufficiently accurateforitspurpose.Thiscansometimesmeanatrade-off.Ifyouhadto waitformonthstoknowlastweek’ssalesfigure,theinformationwouldbe uselessbythetimeitreachedyou.Ifyoucouldhaveitat4pmonFriday,but toonly60percentaccuracy,itwouldbeequallyuseless. Accuracyisdesirable,buttakestime.Speedisdesirable,butcancompromiseaccuracy.Thinkout,foreachofyouroperationalareas:
whatmanagementinformationyouneedfrequently; howoftenyouneedit; whenyouneedit; anacceptablelevelofaccuracy.
Theinformationneedstobepresentedinaformthateasilyallowscomparison withbudget.Thequalityofpresentationofinformationwillalmostcertainly varyindifferentareasoftheoperation.Accountsarelikelytobecomputerised andsoshouldprovidemanagementwithcomparisonsofperformanceagainst budgetimmediatelyandaccurately(assumingeverythingthatoughttohave beenkeyed-inhasbeen).Ontheotherhand,rawmaterialsstocksmaybe keptonpaperandstaffmightbelaxinrecordingwhattheywithdraw,so thataphysicalcountisneededtoseeifthefirmisabouttogrindtoahalt. Thearmedforcessaynothingmoveswithoutapieceofpaper,amaximthat canbecarriedtoofar,butitdoesmakesurethatnotmanythingsgetlostor forgotten. Controlsshouldstartfromthesmallestunitandworkoutwards.Inproduction,forexample,thekeydocumentisthejobcard.Itcouldlooklike Table8.1.
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Table8.1 Jobcard RefNo:
Description:
OrderNo:
CustomerRef:
Plans:
OrderDate:
Special Instructions:
Special Components:
Packing:
Delivery:
PRODUCTION RECORD:
Dept:
Dept:
Dept:
Operation:
Operation:
Operation:
Operative:
Operative:
Operative:
COMPLETION:
Start:
Start:
Start:
Target:
Finish:
Finish:
Finish:
Actual:
TimeElapsed:
TimeElapsed:
TimeElapsed:
JOBCARD Customer:
NB:CARDSTAYSWITHJOB!
DispatchDate:
Thejobcardtravelswiththejobthroughtheproductionprocess.Thus,atany time,anyonecancheckonwhereeverysinglejobisinrelationtoplan,who didwhattoitandwhetherthereiscatching-uptodo.Itshouldbekeptina clearenvelopeandattachedfirmlytoarelevantpartofthework. Itsusefulnessisgovernedbytheextenttowhichpeoplecompleteit,soyou mayneedtokeepaneyeonthat.Staffwillbeencouragedtodothepaperwork whentheyseethattheirproductivetimeisbeingcalculatedfromthetotals shownonthecards.Incompleterecordsmeantheyseemtobeslacking.The remedyisintheirhands. When the week starts, summing up the cards will show what output is neededduringtheweek,enablingdetailedplanning,movingstaffaround,
Managingoperations 101
askingforovertimeandsoon.Attheendoftheweek,revieweachjobcard toseewherethedelayswereandconsideraction. Thesecheckswillleadyoutothinkabout:
extentofforwardcommitmentsandwhatshouldbedone; sparecapacities; schedulingofthenextworktocomealong; holidayschedules; maintenancetimetables; whetherbudgetedcapacityisexcessiveorinadequate; scrapandreworkrates; stocklevels.
Bythissimplemeansyouareontopoftheproductionactivity.Ifyouapply the same sort of discipline to each of the other areas, your control of the operationwillbeascompleteasitneedstobe.Itwillneverbe100percent, butitwillbeenoughtoreducesurprisestoamanageableminimumatthe sametimeasleavingyoufreeforotherwork. Inplanningcapacityitisimportanttolookatpeopleaswellasmachines. Peopleneed: training; supervision; therighttoolsandequipment,intherightplaceandinworking order; safetyequipmentandanunderstandingofitsuseandimportance; understandingoftheirworkandhowitfitsintothewhole; restandrefreshment; securestorageforbelongings; understandingoftherules,whytheyexistandthepenaltiesfor infraction; decenttreatment. Therealexpertonajobissomeonewhohasbeendoingitforatime.Learn fromyourstaff:goroundandspeaktoeachofthemtwiceaday,inviting commentsonproblemsandhowthingscouldbedonebetter. Staffwhohavesomediscretionoverhowtheyspendtheirtimecanchoose to chase the wrong target. Meet each of them for five minutes at Friday lunchtime.Theyshouldbringalistwhichshows:
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thingstheyplantoworkonduringthefollowingweek; wheretheyarenow; wheretheyplantobeinaweek’stime. Youcanaskhowtheyplantotacklethethingstheylist,usingtheopportunity formentoringandguidance.Ifthelistseemsunambitiousyoucansuggest additions,orifover-full,counselareduction.Aboveall,youcanguidetheir senseofpriorities. ThemeetingisrepeatedeveryFriday,withareviewofhowthingswent against the plan as well as a projection for the coming week. You gain impressionsoftheireffectivenessandtheygetadvicetheyneed.Youarein controlatacostofnomorethan15minutesaweekforeachkeyemployee. Assignalledinthediscussionofcharge-outrates,itisunrealistictoexpect employeestoworkproductivelyforeveryminuteoftheday.Youwillimpress onthemtheexpectationthattheywill,exhortingtheirsupervisorstomake sureithappens,butinyourplanningyouassumeoutputfor70percentof thetimeyoupayfor.Ifyouarelaxitcouldfalllower,evendisastrouslyso, butstrongmanagementshouldfind70percentagoodguideforplanning purposes. Timeyouhavepaidforcanevaporateeasily,especiallysofrom:
poorpunctuality,arrivinglateandgettingreadytoleaveearly; teaandmealbreaksextendinginlength; timespentgossipingafterabusinessmatterhasbeendiscussed; smoking,poppingoutfor10minuteseveryhour; puttingbusinessPCs,copiersandphonestopersonaluse; poorplanning,requiringtripsouttocollectsupplies.
Controlofthesematterscanbringusefulrewards:youmightneedtoemploy oneortwopeoplemoreineverytenifyouletthemslip. Spring-cleaningoughtnottobeanannualevent.Cleanandtidyworkplaces tendtobesafe,andarecertainlymoreefficient.Makecleaningataskdone attheendofeachday,witheverythingputawayandcleaneddown.Neglect itforaweekandyou,andvisitors,willknowthedifference.Keepontopof itandmessneverbecomesaproblem.
Managingoperations 103
Safety TheHealthandSafetyatWorkAct(HASAWA)requireseveryonetowork safely.Itisworthrememberingthatitispartofthecriminalcodeandthatits penaltiesextendbeyondfinestoimprisonment. Whilstyouwillbedulycarefulforyourstaffandvisitors,itisvitalthat youareevenmorecarefulforyourself,sinceifyouwereunabletoworkfor amonthormore,orlostsomekeyfacultysuchasyoursight,thefirmwould probablyfold.Evenifyourinjurywerelessonerous,lifecouldbemiserable. Askanyonewithabadback. Ifyouemploypeople,evenifonlyoccasionallyorpart-time,youneed togivethemaninitialsafetybriefingandfurtherbriefingsasnewhazards arise,forexamplewhennewequipmentcomesin.Recorditscontents,get theemployeetoinitialitandfiletherecord.Beespeciallysuretorequirethe accidentbooktobecompletedforanyhurt,howevertrivial,andmakesure theyknowwherethefirst-aidboxisandhowtousethecontents.Thereare companieswhowillvisitperiodicallytocheckthatyourfirst-aidboxhasthe contentsrequiredbyregulationandtopupanyshortages. Before starting up, contact the Health and Safety Executive and check everythingyouarerequiredtodo(www.hse.gov.uk).
Purchasing Purchasingcanteachyoualotaboutselling,especiallyhownottodoso.In additiontothisfreetrainingyouwilldiscoverjusthowmanypeoplemakeit theirbusinesstocallonabusinessinthecourseofaday,apparentlybelieving thatbuyingfromthemwillleadyoutoabrightnewfuture. Buyingonimpulseisasbadanideainbusinessasitisinprivatelife.All ofyouruninvitedvisitorswantyourattentionuntiltheypersuadeyoutoplace anorder.Youwillbeunabletosparethatamountoftimeandsomustdecide onapolicy.Doyouseeeveryone,butbriefly,orseenobody?Therightstance willdependonfactorsparticulartoyoursituation,butitisadecisionyouwill needtomake.Rememberthatanoralorderisstillacontract,andnevergive anyoneanordertomakethemgoaway. For planned purchases in your firm the decision as to which supplier tochoose falls automatically out of the processofspecifyingyourneeds. Whoevercomesclosesttomatchingwhatyouwantgetstheorder.
104 Startingasuccessfulbusiness
Thatpresupposesyouhavedrawnupaspecification.Thereareofcourse two approaches to buying: thinking about what you want, defining it and searching for it; or looking to see what is available and buying the most attractiveproposition. Bothhavetheirplace,butforseriousinvestmentsthatyouwanttowork hard for you, the former line makes sense. It does not preclude taking a lookatwhatisonthemarketfirst,toseewhatitisrealistictoincludeinthe specification,butthegeneralprincipleofundertakingthoughtbeforeaction hastoberight. Whenbuying,makesurethatpotentialsuppliersknowaboutanyspecial requirements.Forexample,ifyouhaveanorderforajobrequiringdelivery ofmaterialsfromthesuppliernolaterthanthe23rd,tellthem.Makeanote ontheorderform,orincludeinyourletterofconfirmation,asentencetothat effect.Notonlydoesthatemphasisetheurgency,butiftheydeliverlateand thewholetransactiongoeswrongandendsupincourt,itmayenableyouto getjudgementagainstthemforthedamagesawardedagainstyou. Whenasalesrepcompletesanorderformandasksyoutosign,always checkwhathasbeenwrittenfirst.Askforacopybeforeanythingelsecan bewrittenonit.Fewsalespeoplearedishonest,butitisprudenttoprotect yourself.Keepthatcopyandcheckitagainstthedeliverynoteandinvoice. Also,askifthepriceshownontheorderreflectsthetotalcost.Usually thereisVATtoadd,butsometimesaheftydeliverychargeorsomeotherfee candiluteasavingyouthoughtyouweremaking.Askfordeliverydates, evenapproximate,tobewrittenontheorder,tocommitthemmoretokeep tothesalesperson’spromises. Whenbuyingthroughtheinternetthechanceexiststoprintoffahardcopy ofthecheckoutscreen.Doitandfileasbefore.Telephoneordersshouldbe confirmedinwritingeitherbythesellerortothesellerbyyou. Allthismaysoundbureaucratic,anditis.Buttheadviceistherefora reason; that many firms lose money, sometimes in quite large quantities, throughlaxity. Vigilance is needed when the delivery and invoice come. It is wise to checkimmediatelythatwhathasarrivediswhatyouorderedandthatthe priceiscorrect,andtotakeupdiscrepanciesstraightaway.Again,confirm inwriting.
Quality There used to be a view that people working on production could not be trustedtoactresponsiblyandproducegoodwork.Toanextentitwastrue,
Managingoperations 105
notleastbecausepeoplewerepaidforquantity,notquality.Poorqualitywas weededoutattheendoftheprocessbyinspectorsandcreatedexpensive scrap. Mercifullyamoreenlightenedviewnowprevailsinmostquarters.Quality isnotanextra,butisbuiltintotheproductorservicefromthedesignstage on.Everyoneintheprocesshasaresponsibilitytoseethattheirownworkis uptostandardandtodrawattentiontoanythingfaulty.
Whatismeantby‘quality’? Thereareasmanydefinitionsastherearepundits,butmostagreethatithas todowithmeetingthecustomer’sneedsandcompliancewithregulations. Ibelongtothatwingwhichseekstounder-promiseandover-deliverandso over-satisfythecustomer,butthatviewisopentocriticismongroundsof cost.Italldependsonthefieldyouarein. Themanagementofqualityisanothermatterbesides.Thereisevenaset ofBritish(andinternational)Standardstocoverit.Managingquality,brutally paraphrased,seemsamatterofspecifyingtherequirement,eliminatingerror andrecordingactionssothattheprocessofproductioncanbetracedbackif needbe.Andveryusefulitcanbe,too.IfaturbinebladefailsinanArgentinian airliner,alltheenginesofthatkindworldwidecanbetracedimmediatelyand thosewithbladesfromthesamebatchisolatedforchecks. InsomeindustriesitisexpectedthatsupplierswillbeBSENISO9000 registered(detailsfromwww.bsi-global.com),butformostitisanoption. Whenadeliveryislateitistemptingtoskipthefinalcheckandgetthe deliveryontoavehicle.Considertheimplications:whichwillberemembered and punished more in the circumstance in question, a few hours’ lateness orafaultyinstallation?Theanswerwillvarywithcircumstancesbutitis importanttoknowwhatitis.
Keyjobstodo
Calculatevolumesforeachactivityandhenceresourceneeds. Setupcontrols. Undertakedetailedplanning. Setupsafetypolicies. Createpurchasingspecifications. Addresstheissueofquality.
9
Financial housekeeping, VATandtax
Thischaptercovers:
financialrecordingandreporting; banking; VAT; Incometax,corporationtaxandNationalInsurance.
Financialrecords Managingfinanceisofcrucialimportance,andisconductedwithfiguresthat resultfromaggregationofmanydetailedrecords.Thereforeitisvitalthat thoserecordsaresetupproperlyandmaintainedfrequently. Thehierarchyofrecord-keepingrunslikethis: norecordskept,butallpaperworkgiventoanaccountantattheend oftheyeartosortoutincometaxetc;
Financialhousekeeping,VATandtax 107
simpleDIYrecords,onpaperorPC,enablingday-to-daymanagement offinance; abought-inpapersystemsuchasSafeguardorKalamazoo; conventionaldouble-entrybooks; afullycomputerisedaccountingandfinancialinformationsystem. Thefirstonthelistisfarmoreexpensivethanarecord-systemneedbe,but itcanworkforthesimplestbusinessesdealingentirelyincash. Atleastthesecondapproachisneededifthefactsofthefirmcannotall becarriedintheowner’shead.Itisoftencoupledwiththe‘twoshoe-box’ system, where invoices payable are kept in a shoe-box on the left of the deskandthosereceivableinanothershoe-boxontheright.Incaseofcash shortage,ahandfulofdebtorinvoicesarepulledoutandphonecallsorvisits made.Avariationisthe‘four-drawer’systemunderwhichunpaidinvoices arekeptasinshoeboxes,butoncepaidtheymovetolowerdrawersinthe desk. Theadvantagewiththesesystemsisthatnoinvoiceevergetslost.Understandingthecashsituationissimple;youknowwhatisduetocomeinandgo outbytotallingthedrawersorboxes.Combiningthiswithrecordsoforders placed(whichwillhavetobepaidfor),thebankstatement(sayingwhereyou startedfrom)andchequebook(showingwhathasbeenpaidbutnotyetgone throughthebank)revealsthecurrentandimmediatefuturecashsituation. Thebought-insystems,thirdonthelist,canhandlemoresophisticated operations.Double-entrybooksusedtoservemightycommercialempires until the advent of mechanical, and, later, electronic systems. However, insteadofemployingoneoftheseyoushouldconsiderjumpingstraightto thefinalstage,giventhat: youwillalmostcertainlyhaveaPCinthefirmanyway; theconveniencewillprobablyoutweighthecost(Amazonandothers discountthelistprices); oncethechoreofinputtinginvoicesiscomplete,allrecordingand analysisisinstantaneousandaccurate. Totakealookatthekindofthingonoffer,trywww.shop.sage.co.uk.Thisis notarecommendationofproducts,simplyauser-friendlysitelistingsmallbusinesssoftware.Whenshopping,ensurethatthesoftwareconformstothe requirementsofHMRevenueandCustoms(HMRC;www.hmrc.gov.uk).
108 Startingasuccessfulbusiness
Afirmunsureifitwillexpandrapidlycouldlookatoneoftheintegrated small-businesspackages.Theynotonlydotheaccountsbutalsomaintain recordsofcustomersandsuppliers. Whicheverrouteyouchoose,discussitwithyouraccountantbeforeacting, andbuildintoyourtimetableaspecifictimedailyorweeklywhenyoudothe accounts.
Bankaccounts Manysoletradersoperateonlyasinglebankaccount.Presumablyitsuitsthem, buttherearedangersinconfusingthestateofbusinessandpersonalfinances. Iftheaccountrunsdown,howdotheyknowifitisbecausetheyarespending toomuchasaprivateindividualorearningtoolittleasabusiness? Startingfromtheviewthattheowneroughttoknowwhattheposition ofthebusinessisatanytime,thereisonlyoneconclusion:thatthereneed to be separate personal and business accounts. Each account can have its ownchequebookandcreditcard.Somebanksofferchargecardsforissue toemployeesforalimitedrangeofpurchasesforwork,suchasfuelfora companyvehicle,forexample. Everyweekormonththerecanbeeitherastandingorderforthebusiness accounttopayovertheowner’sdrawingstothepersonalaccount,orifcashflowisunpredictableatransfercanbemadewhensuitable. Althoughinternet-onlybankingischeap,itisunwisetouseitasthesole wayofpayingbillsandreceivingmoney.APCcrashcouldsoeasilyfreeze thewholefirm.However,somebanksofferinternetaccesstoconventional accounts,whichisagreatconvenience.
VAT–ValueAddedTax–inoutline IfyouarealreadyfamiliarwithhowVATworks,skipthissection. VATischargedeverytimemostgoodsaresoldcommercially.Thereare exceptions,including:salesbyverysmallfirms;salesofcertain‘exempt’ products. TherearethreeratesofVATatthetimeofwriting: zerorate,ineffect0percent,onsomefood,books,newspapersand someotheritems;
Financialhousekeeping,VATandtax 109
5percent,onfuelandpower,children’scarseatsandsomeconstruction supplies; 17.5percentoneverythingelse. The zero rate exists so that, should the government decide, VAT can be imposedeasily. Registrationcanbecompulsoryorvoluntary.Thefactorsinvolvedare: acquisitions:businesssuppliesboughtfromaVAT-registeredtraderin anotherEUcountry; taxablesupplies:goodsandservicesratedforVAT; distancesales:whensomeoneregisteredforVATintheUKsellsto someoneunregisteredinanotherEUcountry. AbusinessmustregisterforVATif: itssalesinthenext12monthsarelikelytoexceed£61,000;or ittakesoveraVAT-registeredbusiness;or itstaxablesupplies,acquisitionsordistancesaleswillexceed£61,000 inthenext30days. (ThesenumbersareusuallychangedintheBudget.)Anunregisteredfirmwill bepayingVATonitssuppliesbutmaynotchargeVATonsales.Thisisfine ifyouselltothepublicorotherunregisteredfirms.Ontheotherhand,your pricestoB2B(business-to-business)customerswillbeabithigher,oryour profitsonthosesaleslower,sinceyouwillhavetopayoutVATonpurchases butcannotrecoveritonsales. Voluntary registration was mentioned. This can be really useful to the smallfirmineitherorbothoftwocircumstances:itbuysinalotofequipment onwhichitpaysVAT,inwhichcaseitcanclaimtheVATback;itsellsmainly B2B,sothatthecosttothecustomerisex-VAT. However,youdohavetohaveproperVATaccountingandtokeepthe systemgoing.Thereareprovisionsforde-registration,whichcanbefound ontheVATwebsite,www.hmrc.gov.uk. It is extremely unwise to try to cheat the VAT system as the penalties includeseizureofbusinessassets,effectivelyclosingthefirm. As well as sanctions and punishments for misbehaviour, HMRC has a rangeofschemesforsmallerbusinessaimedatsimplifyingVATaccounting andsmoothing-outpayments.Thewebsitehasdetails.
110 Startingasuccessfulbusiness
ThewayVATworksforaVAT-registeredfirmrunningthestandardsystem isthis: Buying – Yoursupplierinvoicesyouforthecost,plusVAT,say£100+£17.50 =£117.50. – Yourecordtheinvoiceinyoursystemas£100ofpurchasesand £17.50of‘input’VAT. Selling – Youinvoiceyourcustomerforthecost,plusVAT,say£300+ £52.50=£352.50. – Yourecordtheinvoiceinyoursystemas£300ofsalesand£52.50 of‘output’VAT.
TheVATreturn
Attheendoftheaccountingperiod(whichcanvary,dependingonthe schemeyouareon,butinthestandardschemeisthreemonths)you totalallinputsandoutputsandenterthemonthereturn. Subtractonefromtheotherandsendachequeforthedifferenceto HMRCor,ifthefigureisnegative,requestarefund.
ThatmakesVATlooksimple,whichitisinprinciple,buttheactualoperation anddetailedrulesrepresentcomplexityraisedtothelevelofhighart.
IncomeandcorporationtaxesandNational Insurance TheInspectorsofTaxpublishausefulleaflet,‘PSE1:Thinkingofworking foryourself?’,availablefromtaxofficesoronline.Itoutlinesyourposition clearlyandtheyalsorunahelplinefornewlyself-employedpeopleon08459 154515. Inessence,assoonasyoubecomeself-employedyoushouldnotifythe incometaxauthorities.Youwillthenberequiredtocompleteanannualtax return.YourtaxliabilitywillbeassessedunderScheduleD,whichconfers theabilitytooffsetcertainbusinessexpensesagainstyourincomebeforetax iscalculated.
Financialhousekeeping,VATandtax 111
Notaxispaidonthe‘personalallowance’,whichvarieswithcircumstances. Until6April2008,thatissetforasinglepersonunder65at£5,225.After thatandanyothertaxreliefs,taxischargedasfollows: upto£2,230,10%; £2,231to£34,600,22%; £34,600upwards,40%. Notethatthesearetheratesapplyingtoearnedincome;differentratescan applytointerestanddividends(suchasthosepaidtoyouasashareholder byyourlimitedcompany). Inaddition,youwillpayNationalInsurance(NI)contributionsinClass 2,afixedweeklyamount,andClass4,aproportionofincome.Intheyear ending6April2008Class2is£2.20aweekandClass4is8percentofprofits between£5,225and£34,840.Above£34,840youpay1percent. SinceClass4contributionsandincometaxarebilledaftertheevent,unless your personal cash-flow is excellent something should be put by weekly. Afterthefirstyeartheauthoritieswill,tosomeextent,saveyouthetrouble. Under the self-assessment scheme for income tax they will estimate your incomeinthenextyeartobethesameandbillyouinadvanceforhalfofthe taxdue.This,again,needstobesavedupfor. Corporationtaxisquiteseparate.Itislikeanincometax,exceptthatitis paidbylimitedcompaniesontheirprofits,notbyindividuals.Fortheyear ended6April2008,therateforsmallcompanies(upto£300,000profit)is 20percent.Afterthatitclimbsuntilitisat30percentonprofitsof£1.5 million. Likeindividuals,companiesareallowedtocalculatetheirprofitsfortax purposesaftertakingaccountoflegitimatebusinessexpenses.Thewebsites hmrc.gov.uk and businesslink.gov.uk give further details on a complex topic. Taxreliefisworthabriefmention.Beforestartingup,checkwithyour accountanthowyoushouldsetthingsuptominimisethetaxbill.Especially checkwithhimorherifyouplantoworkfromhome,claimingashareof domesticexpensesagainsttax.Whenyoucometosellthehouseyouwillnot wantabillforCapitalGainsTaxwhichtheaccountantcouldhaveensured youavoid. Whenstartingasasoletraderorpartner,youmaybeabletoreclaimtax paidinearlieryears.Theconceptisthe‘taxloss’,whichisnotatallthesame asactuallylosingmoney.Forexample,inataxyearyouraccountsmight show:
112 Startingasuccessfulbusiness
Netprofitbeforetax Taxallowance(egfrombuyingequipment) Taxloss
£5,000 £15,000− ––––––– £10,000 ––––––– –––––––
You have not lost money; you made £5,000, but offsetting the £15,000 allowancehasmeantthatfortaxpurposesyoucanlegitimatelyclaimaloss. Youdonothavetopaytaxonthe£5,000profitasithasbeenwipedoutby the‘loss’.Moreover,ifyouhavepaidtaxinpreviousyearsyoucanclaim backtax-reliefonthe£10,000againstit.Alternatively,the£10,000canbe carriedforwardtorelieveyourtaxliabilityinthefuture. Thisarrangementissubjecttoconditions.Ifyoumightwanttousethe facility, careful timing of your start date is advisable, as is the advice of youraccountant.Taxlossesmayseemfar-fetchedbut,giventhegenerous allowancesforanyinvestmentmadeinthefirstyear,manynewfirmscan makethem.
Keyjobstodo
Establishappropriatefinancialrecordingandreportingsystems. Setupsuitablebankingarrangements. UnderstandtheVATsystem. UnderstandthetaxandNIsystems.
10
Employingpeople
Thischaptercovers:
peopleasaresourceforgrowth; findingandkeepinggoodpeople; recruitment; employmentlaw.
People:thesmallfirm’spowerhouse Whendiscussingcostingwenotedthattherearetwomajorbenefitsfrom employing people: a reduction in the cost of a product and the ability to turnoutmore.Thusafirmthattakesonstaffcanaffordtoreducepricesor promotemoreheavily,thusraisingdemand,andsatisfythatdemandthrough thehigheroutputthattheworkforcecanproduce. To take advantage of this effect the owner must recognise some key facts: Peopleneedspecialtreatment. There are many similarities between individuals, and many differences. Managingpeopleisdifferentfromothermanagerialtasks.
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Anyone who has prior experience of working with people will recognise thosetruths(orclichés),butmanyentrepreneursonlystumbletowardsthem throughbitterexperience. Beforetakingonstaff,undertakesomeself-examination.Askyourself: AmIalonerwhogetsonbetterbyhimself? AmIgregariousorinsecureanddoIwantstafflargelyformyown psychologicalreasons? DoIthinktheonlywaytoexploittheopportunitiesavailableistoemploy people,andrecogniseImayhavetochangetomakeitwork? Theonly‘yes’youshouldscoreis,ofcourse,tothethirdquestion.Formany businessowners,evolvingfromentrepreneurtoeffectivemanagerofpeople canmeanquitebigchangesofattitudeandbehaviour. Most entrepreneurs are driven people, always pressing for higher performanceandbetterresults.Thatiswhatentrepreneursdo,anditisright thattheyshould.Toooftentheirflawistoassumethatotherpeople: areasdrivenastheyarethemselves; willrespondfavourablytopressure; arefundamentallylazyandneedconstantlytobepushed. Insomecasesthatwillbetrue,atleastinpart,butinthemajorityofinstances itisnotonlyfalse,butbehavingasifitweretruedemotivatespeopleand makes them resentful.A resentful employee still gets paid but, instead of directingenergytowardsthejob,thinksofgettingbackatyou.Thisisclearly notwhatyouwant. Sowhatattitudetowardsstaffgetsresults?Thereisnosinglerecipe,but acombinationoffactorsthatareclearlypresentwhenpeopleworkwell,and areabsentwhentheydonot.Forsomereason,ingeneral,theBritisharenot goodatgettingthebestperformanceoutoftheirpeople. Alargecar-assemblyplantrunbyBritishmanagementhadseverequality problems and was crippled by strikes and poor productivity. That plant wastakenoverbyaJapanesefirmandinaveryshorttimewasperforming excellently.Astonishingly,theworkforceremainedthesame:onlytheplant managementchanged. The new management took a very different view from the typical ‘top down’styleofmanagement.Theysawtheirshop-floorstaffaspartnersin theenterpriseofmakinggoodcars.Theyaskedfor,andlistenedto,ideasfor
Employingpeople 115
doingthingsbetter,manyofwhichwereimplemented.Insteadofisolating themselvesinremote,wood-panelledofficesfarfromtheshopfloor,they visitedtheproductionareaseveraltimesadaytoseehowthingsweregoing and taking an interest. They wore the same overalls issued to production workersandateinthesamecanteen. Thedifferenceinattitude?Inafewwords,respectinplaceofcontempt, springingfromconvictionsthat: thepeopleclosesttotheproblemarethosebestplacedtosolveit; management’smotivationaljobistosetthecourse,communicateit, providethenecessaryequipmentandstandback,allowingpeopleto dowhattheyreallywanttodo,whichistoworkeffectively; managementalsohasaresponsibilitytomonitorandcorrectthecourse, interveningtoclearobstructionssothatworkcontinuesunhindered. Thatisanapproachthatworkedinaparticularsetting.Everybusinessowner needstothinkthroughhisorherphilosophyofmanagementtosuitthetask, thecontextandthepeople.Onceyouhavedecidedexactlyhowyouandyour firmrelatetothestaff,youarereadytomovetowardstakingsomeon.
Thesearchforgoodpeople Themilitarybelievesthattherearenobadsoldiers,onlybadofficers.Some mightfeelthistakestoorosyaviewoftheperfectabilityofhumanbeings, butitdoesservetheusefulpurposeoffocusingattentionontheroleofthe manageringettingresultsfrompeople. Takentoextremes,itwouldmeananyonecouldberecruitedandturned intoeffectivestaff,irrespectiveoftheirpastrecord,presentabilityorfuture aims.Todismissthatbelief,asmostpeoplewould,istoaccepttheneedfor discrimination.Sohowcanwediscriminate? ‘Discrimination’isawordthathasacquiredundesirableovertones.Choosingorrefusingpeopleongroundsofgender,colour,nationalityorrace,religion or philosophical belief, marital status, sexual orientation, disability, pregnancyand(undercertainconditions)ageisillegal.Theburdenofproof fallsontheaggrievedapplicant,butquiteapartfrommattersofprinciple,the timeandtroubleabsorbedbyevenanunsuccessfulclaimmakeitunwiseto placethefirmatrisk.Thewaytoavoidtheriskistobeclearlyfairinevery wayyouconducttherecruitmentprocess,andtobeinapositiontoproveyou
116 Startingasuccessfulbusiness
werefair.Thisimplieswrittenpoliciesandrecordsandmeansthateveryone isputthroughthesamehoopstotesttheirsuitability. Put out of your mind any idea that it is your firm and you can please yourselfwhomyouemploy.Youmaynot.Butyouarestill,tosomeextent, theboss. Youmaydiscriminatelegallyongroundsofmostofthethingsthatreally matterinstaff:
education; qualifications; ability; personality; skills; articulacy; numeracy; motivation; intelligence; likelihoodoffittinginwiththeteam.
Beawarethatsomeofthesecouldbeinterpretedassurrogatesforimpermissible discrimination.Forexample,‘notlikelytofitinwiththeteam’isrisky,where theteamisallblackandtheapplicantwhite.Orviceversa.Peoplemight questionyourtruemotives. The traditional method of discriminating is the interview, but research showsthatitisamostunreliablepredictorofperformanceinthejob.Many experiencedinterviewerssaytheymaketheirmindupinthefirstfewseconds, oneevenstatingthathechoosespeopleonthewaytheywalkacrosstheroom togreethim.Somerelyonreferences,butnotallapplicantshavethem,some positiveonesarewritteninthehopethattheywillhelpanuisancetomove onandsomenegativeonesarerevengefromanunworthyemployer. There is hope, in the form of the assessment centre, which attempts to mimic some of the situations the successful applicant will be faced with, observesperformanceanddrawsconclusions. Thesematterswillbeexploredshortly,butthereisonemoreareatodeal withunderthisheading:theprocessoffindinggoodpeople. Itfallsintoalogicalsequence: 1. Definethejobinwriting. 2. Defineinwritingthecharacteristicsofapersonwhocoulddothejob well.
Employingpeople 117
3. Createadvertisingcopy,choosetherightmediaandadvertise(orgo toarecruitmentagency). 4. Receiveandshortlistapplicationsagainstthecriteriainthefirsttwo itemsabove. 5. Interviewandassessmentcentre. 6. Selecttherecruit,offerthejobandreceiveacceptance. 7. Declineunsuccessfulcandidates. 8. Induct. The following sections address these issues one by one. Nowadays it is prudenttomakesurethatapapertrailexiststoshowthatthingshavebeen done‘fairly’,sowhilesomeofwhatfollowsmayseemexcessive,itismerely apartofwisemanagement.
Definethejob There is more to this than simply writing ‘SQL Programmer’, ‘driver’ or ‘clerk’.Thejobspecificationshouldincludethefollowingheadings:
jobtitle; purposeofthejob; posttowhichthepost-holderreports; poststhatreporttothepost-holder; location; dutiesandresponsibilities; hoursofwork; specialconditions,ifany.
Jobtitleisself-explanatory. Purposeofjobbrieflysummariseswhatthejobisfor. Reportingrelationships:afamily-treetypeoforganisationchartcanbe usedtoexpressmorecomplexrelationshipsandresponsibilities. Locationshouldincludeanymobilityrequired,suchasweeklyvisitsto othersites,workoncustomers’premises,etc. Dutiesandresponsibilitiesareitemisedandnumbered,startingwiththe mostimportantormosttimeconsumingandalwaysfinishingwiththeitem: ‘Anyotherdutiesthatmayberequiredfromtimetotime’. Hoursofworkincludesanyrequirementforovertime,shifts,etc.
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Specialconditionscouldincludeanyotherimportantaspects,suchasthe needtoprovideaserviceablevehicle,foreigntravel,changesofscheduleat shortnotice,etc. Some firms include pay on job descriptions, but usually that is more convenientlyandflexiblydealtwithbyothermeans. Writingaportfolioofjobdescriptionshasausefulpurposeinexposing anyclashesofdutiesbetweendifferentjobs.
Definetheperson Thepersonspecificationliststhequalifications,skills,abilitiesandexperience ofthepersonabletodothejobtoanacceptablelevelofperformance.To createone: takethejobdescriptionandclustertogetheranysetsofdutiesthat requiresimilarcharacteristicsinthepost-holder; identifyandlisttheworkandlifeskillsneededtocarryouteachcluster ofduties; considerandrecordtheeducationalorskillsqualificationsneeded; considerandrecordthepreviousexperienceneeded.
Advertising Advertisingcostsmoney,butnotgettingtherightapplicantcouldcostmore. Itisimportantto: 1. produceanattractivead; 2. placeitintherightmedia; 3. havetime,stationeryandproceduresinplacetodealwithaninflux ofenquiriesandapplicationsbiggerthanyouexpect,soastolook professional. Youmaybetemptedtocutcornerswiththesortofadsuitableforthelocal paper;rememberitwillbeseenbynotonlypotentialemployeesbutalso customersandcompetitors.Atminimumcostyourdesignershouldbeableto createanappearancefortheadthatstandscomparisonwithadsfrommajor organisations.Youwantthebeststaff,solooklikethebestemployer.
Employingpeople 119
Ifwritingcopyisnotyourstrength,doyourbestbutthengetanadviser toreviewitandcomment.Itisimportantthatthefirstattemptcomesfrom you,ratherthanhandingthetaskoverentirelytosomeoneelse,sothatyou establishinyourownmindwhattheadistryingtosayandcantherefore considercriticallywhattheadvisersays. The media to choose are dictated by the nature of the post. For a civil engineer you would advertise more widely than the local press, possibly findingyouhadtogonofurtherthantheInstitutionofCivilEngineers(which, likemanyprofessionalinstitutions,advertisejobsontheirwebsite).Onthe otherhand,advertisingnationallyforareceptionistwouldbewasteful. Advertisingonthewebisuncertain.OnGoogle,variousphrasestodo withseekingworkintheUKproducedaround10millionresponseseach. Yetnoneofthefirstthreewebsitescameupwithreasonableresultsforthe searchesItried.BeingspecificwithGoogleforaparticularjobcuttheresult downtoaboutamillion,stilltoobigtobeuseful.Thereseemedtobetoo fewjobsfortoomanysites.Forthemediumtobecomereallyuseful,there mustbeconsolidation,withafew,reliable,large-saleoperators,oralarge numberofspecialists,eachwiththeirownniche.Insomefields,suchniches mayalreadyexist,butyouwillknowonlyifyoulookspecificallyforwhat youwant. Theclosingdateforapplicationsoughttobeaboutafortnightahead.You willbeaskedaboutthedateofinterviews,sofixthattoo. Respondingtotheeffectsoftheadcanbedifficulttoplanfor.Youmayget noapplicantsoryoumaybeflooded.Knowwhatyouwilldointhelattercase, especiallyifitwouldtieupallthephonelinesforadayortwo.Nonetheless, response ought to be same-day, first-class post, with an application form andthejobdescription,andanyfurtherinformationyouwantthemtohave aboutthefirm.Insistonwrittenapplicationssothat,shouldtherebeanylater dispute,youhaveclear,writtenevidenceoftheapplicant’sclaims. ExamplesofapplicationformscanbefoundbyGoogling‘jobapplication form’.Theseshouldgiveyouideasforconstructingyourown.
Shortlisting Hereapplicationsarecomparedwiththepersonspecification.Thosethatdo notshowevidenceofmeetingmajorrequirementsareimmediatelydiscarded. Theremainderarerankedinorderofdesirabilityagainstthecriteriainthe personspecification.
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Decidehowmanyyouwanttointerviewandallowbetween20and40 minutesperinterview,dependingonthenatureofthepost.Afurtherfive minuteseachwillbeneededtowriteupyournoteswhilethememoryisstill fresh.Thusinadayofinterviewsfrom8am,withthelastonestartingat6pm, with30minutesforlunch,youcanplanforbetween10and20interviews. Oryoumaywishtospreaditovertwohalf-daysinstead. Oncethedesirednumberhasbeenselectedtheyareimmediatelyinvited forinterviewwithaletterwithamap,anofferofreasonabletravelexpenses andatear-offconfirmationslipwithstamped,addressedenvelope.
Interviewing Beforetheinterviewyouneedtopreparesixitems:
atimetablefortheinterviewingday; astandardsetofquestionstobeputtoeachcandidate; aninterviewrecordandevaluationsheetforeachcandidate; anassessmentcentre; arecordandevaluationsheetforeachcandidate’sperformanceatthe assessmentcentre; agridonwhichtoplottheresultsfrominterviewsandassessment centres. Preparing the timetable helps to highlight and address any scheduling difficultiesinacomplicatedexercise. Thestandardquestionsformthecoreoftheinterviewforeverycandidate. Theyrelatedirectlytothepersondescriptionandtheresponsesarenotedon theinterviewrecord. Therecordsareneededbothtoaidafinalselectiondecisionandtocreatea defensiverecordincaseofchallenge.Theinterviewrecord-formmightlook likeTable10.1. Youwillneedasimilarrecordfortheassessmentcentre. Theassessmentcentreitselfrepresentsanattempttoreproducethejobs thatthesuccessfulcandidatewillbeexpectedtodo,thenobservinghowwell theytacklethem.Alltherequirementsrelatebacktothejobdescription. Carryingonwiththeexampleofthesalesexecutive,therequirementsmight includecomposingawell-presentedsalesletter,makingasalespresentation toasmallgroupofpeopleanddealingwithacomplaint.Therewouldalso beotherdemands,butexamplesaregivenforthese.
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Table10.1 Interviewrecord
CANDIDATE
POST
JSmith
SalesExec
*CRITERIA:
SCORE1–5 (1LOW)
The SupremacyCompany
DATE
INTERVIEWER
INTERVIEW RECORD
3.9.07
JennyBird
EVIDENCE
COMMENTS
1SOCIAL MANNER 2 PERSUASIVENESS 3ETC 4ETC 5 6 7 OVERALL SUITABILITY:
DECISION:
ACTION: *Takenfrompersondescription
Thepresentationshouldrelatetoastandardbriefthatyousendeachcandidate withtheinvitationtointerview.Thebriefshouldobviouslyrequireatask thatisnottoofarinnaturefromthekindofthingthesuccessfulcandidate willbecalledontodo.Toshowthesortofthingyoucando,a(completely imaginary) example follows relating to recruiting a sales executive for a specialistindustrialadhesivesfirm.
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Injudgingperformanceagainstthisparticularbrief,youmightlookout for: astraightforwardsalesstory;therearenowhizz-bangitemsinthe brief; abilitytoaddresssensiblyaknowledgeableaudience(egtheyalready knowthatvolatileorganiccompounds(VOCs)arenasty); playingtostrengths,likethejointMD’sexpertise,whilstacknowledging weaknesseswithapositivespin; socialpointslikeknowingtopronounceMcLeanas‘Mc-Lane’; astandardstructureof‘tellthemwhatyou’regoingtotellthem;tell them;tellthemwhatyou’vetoldthem’. Asuperiorperformerwouldrecognisesubtlytheimprobabilityofgettingthe contractandGalactiCo’sprobablemotiveofseekingatripartitearrangement betweenthemselves,thecompanyandoneoftheinternationalgiants. Thereisnoobvioususeforvisualaids,butmarksshouldbeawardedforany instinctiveattempttousethem.Itisagoodcharacteristicinasalesperson. Ifthisseemslikealotofextratrouble,considerthatinnootherwaywould youhaveaclueabouthowanyintervieweeislikelytodothejob–untilyou havetakenthemon.Itisalittlelatetostartlearningthen. Tobuttressthepresentation,oursalesexecutiveshouldalsoconductan ‘in-tray’exercise,takingvarioussimulateddocumentsandrecordingonthem theimplicationsseen,prioritytobegivenandtheactionheorshewould take.Inpracticeyouwouldloadthein-traywithmanyexamples;inFigure 10.1weshowjustasalesletterandacomplaint.Notethattoday’sdateis3 September.
From: MD
To: Sales Exec
Date: 25 August
I shall next be in on 2nd September for a couple of days. Could you draw up a letter from yourself to Janet Jones at GalactiCo, telling her of the new superpolymer and how preliminary tests show it meets their heat resistance standards? You and I need to meet them to talk it through. Thanks. MD. (Note to candidate: please draft this letter and hand in.)
Figure10.1 SampleelementofActivityCentre1
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Assessorswillbeabletotellifthedraftlettermeetstheneedsofthemoment. Itmustbedoneasap,giventhefactthattheMDisawaytomorrowandhas alreadyallowedaweekforit.
From: Switchboard
To: Sales Exec
Date: 29 Aug
Sorry I forgot to tell you I had a call from Mr Durrant of Sierra Construction a few days ago. He was not happy with the latest stuff we delivered and wants to send it back. He shouted a bit. He says there are three lorry-loads of it blocking the site and said something rude about not paying for it. That’s all I can remember. Sorry. I’ve been off sick and only just remembered.
Figure10.2 SampleelementofActivityCentre2
In Figure 10.2 this one is both urgent and important. Three lorry-loads representsalargeandexpensiveshipment.Itisprobablyoutofdoorsand atriskofbeingdamagedbypassingdiggers,etc.Candidatesshouldstress theneedforimmediateaction,startingwithsomeinternalfact-finding:was thecorrectstocksent?Wasitattheendofitsshelf-life?Thenovertothe customer to establish the facts of the problem, probably involving a site visitat8am,andalertingatechnicianthatheorshemightbecalledtodrop everythingandrushover. All of these points should be noted by the candidate on the document (continuingoverleafifnecessary). Anassessmentcentreneedstobeplannedforandstaffed.Onepersonor groupcanwitnessandevaluateitforonecandidatewhileanotherisbeing interviewed:candidatesthenchangeplaces. Although the illustrations are of paper-based activities, other skills canalsobetestedinthispracticalway.Ifyouwishtodothis,insurances shouldbecheckedtoensurethatcoverextendstonon-employeesoperating equipment.
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The Supremacy Company PRESENTATION TASK BRIEFING As part of the recruitment process for the post of Sales Executive, we ask each candidate to prepare a sales presentation of no more than five minutes’ duration. Each candidate will deliver their presentation to a small audience of Supremacy Company staff and associates on the day of the interview. The aim is for us to be able to assess each candidate’s ability to construct and deliver a sales presentation to a small group. We ask you not to use PowerPoint. If you wish to use visual aids, a flip-chart on an easel and an overhead projector will be in place on the day. If you wish to use them, you will have to create your flipcharts or OHP slides in advance. The brief to which candidates are required to work is as follows. Please do not introduce further product or market information. ***** You are about to call on GalactiCo plc, a large manufacturer of domestic appliances. Their response to the threat from the Far East has been to automate production fully, almost eliminating human beings from the production process. This is a preliminary meeting, following an invitation you had from one of their engineers at a trade fair. You expect there to be present representatives from their design engineers, production engineers, management accountants and buyers and the chair to be a senior figure from R&D. The engineer you met, Jim McLean, will be present. You have five minutes in which to persuade them that your company should be involved in a new development involving the use of revolutionary new adhesives in place of the mechanical fixings (nuts, bolts, etc) to hold their products together. The cost of metallic products, especially stainless ones incorporating nickel, has rocketed over the last few years, whereas chemicals have not. The environmental impact of a switch might be equivocal; there would be global savings in energy use, but an increase in emission of VOCs (volatile organic compounds). Use of adhesives would simplify end-of-life recycling. The supply of chemicals is less politically vulnerable than that of metals. You think your case has significant strengths and weaknesses: STRENGTHS Energetic company Good technical expertise in adhesives applications to hostile environments inc heat and wet Used to problem-solving on joint ventures Joint MD is technical leader in the field, having part-time chair in materials science at a major university WEAKNESSES Low output but could gear up Narrow field of specialism Neither MD is a good salesman Up against major international firms Firm only four years old
Figure10.3 Presentationtaskbriefing
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Deciding Interviewsandassessmentcentrescomplete,youcannowpulltogetherall theresultsontoasinglesheet.Anexamplethatfollowsonfromtheprevious illustrationsappearsinTable10.2. Table10.2 Assessmentsummary
ASSESSMENT SUMMARY
Browning Tennyson Eliot Hopkins Gray Milton Thomas
Score1–5(1low) INTERVIEW Criterion1 2 3 4 5 6 7 ASSESSMENT CENTRE Criterion1 2 3 4 5
OVERALL
DECISION
126 Startingasuccessfulbusiness
Youhavenowdecidedonwhomtorecruitinawaythat: relatestolaid-downcriteriabasedonlegalwaysofdiscriminating betweencandidates; isrecorded; willappear‘fair’ifchallenged. Keeptherecordsfortwoyears,justincase.Thendestroytheminconfidential waste. Youtelephonethesuccessfulcandidatethateveningtomakethejoboffer. Youwritetoconfirm,sendingtwocopies,oneforthecandidatetoretain,the otherforsignatureandreturn. Takeupreferencesimmediately.Atleastonerefereeshouldbeacurrentor recentemployer.Theyshouldconfirmthepostanditsresponsibilities,dates ofemployment,precisely,andatleastnotindicatethattheyarepleasedtosee thebackoftheperson.Expectsomeguardedness,forconscientiouspeople arecarefulhowtheyspeakofotherstopeopletheyhavenevermet.Onthis matter,whenaskedforareferencebecarefulnottoover-praiseanemployee. Iftheyareapoorperformer,andsomeoneemploysthemonthestrengthof yourreferenceandtheythenfail,youcouldbesued.Besttoconfineyourself todatesandhaveapolicyofmakingnofurthercomment.Manycompanies dothat. Oncesatisfactoryreferencesarein,writetounsuccessfulcandidatesthankingthemfortheirinterestandregrettingthattheyhavenotbeensuccessful.
Induction Workoutaprogrammeforthenewmember’sfirstdaysinthenewjob.Hand responsibilityoverimmediatelytheyarrive,butshadowandmentorthem untiltheyareabletohandleitwithjustifiedconfidence.Expecttheretobea heavyloadofquestionsandsupervision,butbepatient;everybitofhelpyou giveenablesthenewpersontogrow.Onedaytheywillbeabletooperate independently,butitwillnotbeinthefirstweek. Beforetheyjoin,sendmattertoenablethemtoreadthemselvesintothejob andthecompany.Ifthereareimportantmeetings,considerinvitingthemas anobserver.Thispersonisfamily,now,andneedstofeellikeit.Remember thatheorshewillbeanxiousabouttheirdegreeofignoranceandkeento
Employingpeople 127
perform.Thatmayleadthemintoearlyfoolishness:ifso,calmthemand forgive.
Thelaw;notasbigaproblemassomethink Thelawonemploymentcanoccasionallybe,asonothermatters,anass.But formostemployersitneverpresentsaproblemprovidedthey:
behavewell; communicateclearlyandthoroughly; knowtherules; createandobserveappropriateprocedures; keeprecords; donotactinhaste.
Sofarithasbeenassumedthatthestaffareconventionalemployeesonthe firm’spayroll.However,hybridarrangementsexistandyouneedtobesure ofthestatusofyourstaffforawidevarietyofreasons.AnexcerptfromHM RevenueandCustomswebsiteappearsinFigure10.4tohelpyoudecide. Employmentrightsaremany,thoughmostarecommonsenseandwell known. The website www.thepersonneldepartment.co.uk lists 32 separate headings,eachofwhichisspeltoutinbullet-pointform.Itgivesauseful presentationofapotentiallyconfusingsituation. Oneimportantrightisthattoawrittenstatementofthecontractofemployment.Itmustbeprovidedwithintwomonthsofthestartofemployment. The DBERR gives a blank form that you can complete, on www.dti.gov. uk/employment/employment-legislation/employment-guidance/page16332. html. Ifanemployeebelievestheyhavebeenunfairlydismissedtheycanlodge acasewithanEmploymentTribunal(IndustrialTribunalinNorthernIreland) withinthreemonths.Theperiodcanbeextendedundercertainconditions. Toexercisethatrighttheyhavetohavebeenemployedforayear–though therearesomeoffencesforwhichentitlementbeginsatthetimeemployment starts(dismissalonracialorgendergrounds,forexample). Ifanawardisgranteditmaycomprisetwocomponents,abasicawardand acompensatoryaward,upto£9,300and£60,600respectively.Beforethe mattercomestotheTribunal,theAdvisoryandConciliationService(ACAS) willoffertomediateviatheirArbitrationScheme(LRAArbitrationScheme
128 Startingasuccessfulbusiness
inNorthernIreland).Forthestraightforwardcasesitispreferableonboth sidestoafullTribunalhearing. Entire books have been written about employment law, so here we do nomorethansummarisesomeofthekeyissues.Itisanareathatbusiness ownersneedatleasttobeawareof,andpreferablytohavesomefamiliarity with. EMPLOYED OR SELF-EMPLOYED? GOVERNMENT GUIDANCE As a general guide as to whether a worker is an employee or self-employed, if the answer is ‘Yes’ to all of the following questions, then the worker is probably an employee: �� �� �� �� �� ��
Do they have to do the work themselves? Can someone tell them at any time what to do, where to carry out the work or when and how to do it? Can they work a set amount of hours? Can someone move them from task to task? Are they paid by the hour, week, or month? Can they get overtime pay or bonus payment?
If the answer is ‘Yes’ to all of the following questions, it will usually mean that the worker is self-employed: �� Can they hire someone to do the work or engage helpers at their own expense? �� Do they risk their own money? �� Do they provide the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves? �� Do they agree to do a job for a fixed price regardless of how long the job may take? �� Can they decide what work to do, how and when to do the work and where to provide the services? �� Do they regularly work for a number of different people? �� Do they have to correct unsatisfactory work in their own time and at their own expense? Source www.hmrc.gov.uk
Figure10.4 Employedorself-employed?
Employingpeople 129
Disciplinaryandgrievanceproceduresaretwosidesofthesamecoin:one, wheretheemployerwishestotakeactionoveranemployee’sbehaviour;the other,wheretheemployeewishestoactovertheemployer’sbehaviour.Itis arequirementthatallemployershaveboth,toaprescribedminimum. Written disciplinary and grievance procedures are required by law for everyemployer.Eachisthemirror-imageoftheother;disciplineiswhen an employer is dissatisfied with an employee’s conduct or performance; grievanceiswhentheemployeeobjectstoactionsbytheemployer. Theproceduresmusthavethreefeaturesasalegalminimum: thewrittenstatement:astatementoftheallegedmisconduct; themeeting:ameetingtotrytoresolvematters;theemployeehas arighttobeaccompaniedbya‘friend’(inunionisedorganisations, probablyaunionofficial); theappealmeeting:followingwrittennoticethatthedecisionisthought unfair. If you wish only to warn an employee, the disciplinary procedure is not invoked, nor is it for suspension on full pay. If you want to punish by deductionfromwages,demotion,dismissalorinotherways,theprocedures apply.Theseproceduresmustbenotifiedtotheemployeeinwritingwithin twomonthsofthestartoftheemployment. Conversely,theemployeehastherighttoinvokethegrievanceprocedure aboutanysuspensionorwarning. Ifanemployeeisguiltyofgrossmisconductitmaybeunwisetodismiss instantly.Instead,suspendonfullpayandwritetonotifyyourintentionto dismissandthereasonswhy.Offertheemployeethechancetoappeal.Use thetimetocollectevidence,informationandwitnessstatementstoinform yourcase.Sometimesemployersfindthattheemployeewas,afterall,inthe right,inspiteofapparentmisbehaviour. Despiteallthis,therearegroundsforfairdismissal.Youmaydismissan employeebecause:
theycannotdothejob; theirconductisunacceptable; ofredundancy; thelawforbidsthejobtocontinue; someothersubstantialreasonjustifiesit.
Nonetheless,itisvitaltofollowtheprocedures.
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Redundancyiswhenajobceasestoexist:thejobisredundant,notthe person.TheDBERRwebsite(www.dti.gov.uk)lists28waysinwhichselectionforredundancycanbeunfair,thuslayingtheemployeropentoaction forunfairdismissal. ForfurtherreferencetheCitizens’AdviceBureauwebsite,www.advice guide.org.uk, explains situations of employment difficulty from the point ofviewoftheemployee.ThewebsitesfortheDBERRandBusinessLink, www.dti.gov.uk and www.businesslink.gov.uk, address business concerns andresponsibilities.
Keyjobstodo Thinkthroughyourstaffphilosophy. Ifyouplantorecruit,setupthecorrectrecruitment,recordingand employmentprocedures. Recognisethatyourmainjobismanagingpeople,andlearnhowto doit. Understandthemainfeaturesofemploymentlawandsetuparrangements withbusinessadviserstohelpyoutodealwiththem.
11
Riskmanagementand insurance
Thischaptercovers: managementofrisk; strategyforinsuring; insurancesuppliers.
Riskmanagementstrategy Tobealiveistobeexposedtorisk.Theproblemliesinknowingwhichrisks areworthplanningforandhowtodealwiththem. Thebusinessownerapproachesrisksystematicallyby: identifyingthoserisksthatcouldpresentproblems; assessingthemforimportance,fromqualitativeandquantitative viewpoints; selectingandconcentratingontheonesthatwouldseriouslydamage costsorabilitytooperate; reducingthechancethattheriskswillmaterialise; reducingtheimpact,shouldtherisksmaterialise; havingcontingencyplansforrecovery.
132 Startingasuccessfulbusiness
Suchassessmentscanonlybeindividualtothefirm,butallwillincludethe issuesofwhathappensif:
akeycustomerorsupplierdropsout; keystaff(ownerincluded)fallsick,leaveordie; thefirmceasestofunctionthroughanITfailure,fire,flood,etc; vitalequipmentisstolen; keystafflosetheirdrivinglicences; amajorcustomerfailstopay; theauthoritiescloseyourpremisesortheaccesstothem; thereisaregionalornationalemergency.
Manyfirmswillfindtheirlistencouraginglyshort,butthatshouldnotbeused asareasonfornotspendingsometimethinkingabouttheissue.Moreover, riskshouldbereviewedfromtimetotimeasthefirmevolves,formsnew relationshipsand,perhaps,grows. Aswithcoronarypatients,sowithsmallfirms:thefirsthouraftertheevent isthemostimportant.Aspartofcontingencyplanning,makesurethatstaff programmeintotheirphonesthenumbersfor:
insurers; thelocalcouncil; keycustomers; keysuppliers; yoursecurityalarmcompany; utilities; thelandlord; theneighbours,domesticaswellasbusiness; plumbers,locksmiths,glaziers,ITspecialists,carpentersandelectricians.
Keepanemergenciesfileathome,includingbuildingplansofthebusiness premisesthatcanbegiventoemergencyservices. Involvestaffinassessingwhattodoundervariousconditionsandtrain themtoreactappropriately. Preparetodealwithinterestfromthemedia. BusinessLink,onwww.businesslink.gov.uk,hasanadvisorythreadthat followstheprocessofplanningforrisk.Itincludesacasehistorythatshould convinceeventhemostscepticalthatthisissuematters.
Riskmanagementandinsurance 133
Insurancestrategy Onetoolforreducingtheimpactofdisasterisinsurance.Peopleoftenregard insuranceasanecessaryevil,buyingtheleastnecessaryatlowestcost.That isnotthewisestapproach. Thenewfirmneedsonlyasinglecategoryofinsurance:thatwhichthelaw requiresandisthereforecompulsory.Itisstronglyadvisabletoaddinsurance againstcatastrophe,aspartoftheriskmanagementstrategy.Theseinsurances arediscretionary. Statutory insurances for business include employer’s liability, motor vehicle,liftingtackleandpressurevessels.Inaddition,someprofessional organisationsrequirememberstotakeoutprofessionalliabilitypoliciesasa conditionofpractising.Someindustries,liketravel,requirebondingtoprotectclients’money. Some say that catastrophe is not worth insuring for, as it is unlikely to happen. If so, insurance will be cheap. Since a catastrophe would, by definition,threatenthefirm’sexistence,thesmallpremiummustbeworth paying. Manyinsurersofferbundledpackagesofpoliciesforsmallfirms,which canoffergoodvalue.Theyvaryincoverandcost,aswellasinthewaythey treatclaimants,soshoppingaroundisadvised.Alltangiblepropertyshould becoveredforfullreplacementcost(notcurrentmarketvalue)andthesums insuredshouldbekeptuptodate.Otherwisethereisachancethattheinsurer will pay out only a proportion of a claim. Make a mental note always to telltheinsurersofachangeofcircumstances,evenatthelevelofhaving unexpectedlytousethefamilycartotakesamplestoacustomer.Without coverforcommercialtravelling,youwouldbedrivinguninsured. The infallible guide to which discretionary cover to buy, and which to avoid,istheanalysisundertakentoarriveattheriskmanagementstrategy. Itsqualitywillbegreatlyimprovedifyouinvolveacommercialinsurance brokerintheprocess. Needlesstosay,insurancecoverdocumentsshouldbereadwithgreatcare toensurethatyouhavethecoveryouexpect.Itisatediousbusiness,butvery important.
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Insurancesuppliers Noinsurancefirmpaysoutclaimsjoyfullywithagenerousheart,butthere aresomewhoarelessobstructivethanothers.Itpaystoshoparound,notjust forprice,butfortheclaims-handlingreputation. Thebestadviceofallforthesmallbusinessisnottobuydirectfromthe insurer.Instead,buyfromaregisteredbroker. Aregisteredbrokerisquitedifferentfromanagent,consultantorother classofseller.Everyoneelseisoutforthemselves,orworksfortheinsurer, butaregisteredbrokerisresponsibletotheclient.Inotherwords,suchafirm hastoputyourinterestsfirst,ineveryway. Notallbrokersarethesame;youneedonewhospecialisesinbusiness insurance.Talktoafew,briefthemonyourplansandassesstheresponses. Asktobeputintouchwithsmallclientswhohaverecentlysettledclaimsas awayoftakingupreferences.
Keyjobstodo Undertakeariskassessment. Developrisk-managementstrategies. Selectinsurancecoverandsuppliers.
12
Sourcesofhelp
Thischaptercovers:
theplaceofadvisers; findingadvisers; locatingadvisers; publicsectorsupport.
Whatadviserscandoforbusiness Goodbusinessadviserscanofferoneormoreofthefollowing: astrategicreviewofyourplans,withcommentsandadvice; areviewofandadviceonfunctionalspecialisms(egmarketing,finance, IT); technicalguidance(egemploymentlawadvice); one-offsupport(eghelpingnegotiateabankloan). Runningyourownfirmcanbelonelyandexposed.Evenwhenyouhavestaff youwillbeunabletoknowforcertainwhetheragreementsignifiesanattempt toingratiateoragenuineopinion.Nobodyisabovehumanmotivation,but advisersofintegritywhoaregenuinelyindependentcanofferaperspective ofimmensevalue.
136 Startingasuccessfulbusiness
There can be an issue of horses for courses as some specialists come to believe that they are competent beyond their own area. Equally, some generalistsdeveloptheconvictionthattheyknowanumberofareasindepth. Theonlyansweristomakeyourownassessmentoftheindividualsand,as ever,tofollowyourinstinctsandtakeupreferenceswhenyoucan.
Findingageneralistconsultantoradviser The government launched inApril 2007 the latest version of its business adviceandsupportarrangements.CalledtheSmallBusinessService,itoffers avarietyoftypesofhelp,allaccessedthroughBusinessLink.BusinessLink itselfisnoworganisedinRegionalDevelopmentAgencyareas.Predecessor organisationsemployedmainlyretiredbusinesspeopletogiveadvice;some ofthemwereofthehighestquality. Moreconsistently,thereisawiderangeoflocalinitiativeswhich,bytheir nature,cannotbecoveredinabooklikethis.Checkwith: localauthorities(county,cityandboroughcouncils),someofwhich employorfundbusinesssupportactivities; nationalgovernmentsinNorthernIreland,WalesandScotland; ChambersofCommerce,whoareofteninvolveddirectlywithBusiness Links,butalsooffertheirownservices(theyarestronginhelpfor exporting); BusinessLinkitself:askaboutalltheservicesavailabletoyou,not justtheonestheyprovide; thelocalreferencelibrary:theirstaffknow,orknowwheretolookfor, everything. TheBusinessLinkequivalentsinScotlandareBusinessGatewayinScotland (www.bgateway.com) and Scottish Enterprise (www.scottish-enterprise. com). Highlands and Islands Enterprise (www.hie.co.uk) operates through a numberofLocalEnterpriseCompanies.InWales,BusinessEyeonWales (wwwbusinesseye.org.uk)issimilar. InvestNorthernIreland(www.investni.com)appearstooperateunderthe full-servicemodel,withadvisersandconsultantsaswellasawebsite. ThetwonationalorganisationsthathaveneverwaveredarethePrince’s TrustandShellLiveWIRE.Bothforentrepreneursagedupto30,theTrust
Sourcesofhelp 137
gives advice, loans and grants (www.princes-trust.org.uk) and LiveWIRE runstrainingandanationalcompetition(www.shell-livewire.org).
Specialistadvisers Themainadvisersanewbusinessneedsareacharteredaccountantanda solicitor(bothinprivatepractice)andaninsurancebroker.Inallcasesthey shouldspecialisein,oratleastbewellversedin,smallbusiness.Thebest sourcesarefromyourlocalcontacts,especiallyothersmallfirms,whocan recommendpeople. Collegesanduniversitiescanyieldsurprisingtypesofhelp,butitdepends onlocalcommitment,oftenonparticularindividualswithaninterestinsmall firms.Technicalandscientificadviceisanobviousfield,buttherearealso academicswhostudymanagement,somespecialisinginsmallbusiness.For thepriceofaphonecalltheyareworthinvestigating.
Keyjobstodo Identifythetypesofadvisersyoumightneed. Locatespecificadvisers. Investigatepublicsectorsupport.
13
Afterasuccessful launch...developing yourfirm
Thischaptercovers:
isgrowthwhatyoureallywant? motivesforgrowingyourfirm; goingaboutgrowth; yourchangingrole; consultants; fundinggrowth.
Yourexperience Oncethefirmisestablished,maybeafteritsfirstcoupleofyears,thoughtswill turntowardsthefuture.Youwillhavebeenonaskyrocketingexperienceof learning.Newopportunitiespresentthemselvesconstantly,manydisguisedas difficulties;therealproblemischoosingwhichopportunitytotake.Although everyone’sexperienceisdifferent,therearecommonthreads,whichwillbe exploredhere.
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Keyissues Ifyougrowthefirmitwill:createhassle;involvefurtherrisk.Areyoureally readyforthem?Itisjustasrespectabletoemployyourselfasitistobethe nextSirRichardBranson. Thisisthetimetodecidewhatthefirmisreallyfor.Atoneextreme,itis theretogiveyouajob;attheother,tomakeyouveryrich. Willitmakeyourichbyfoundingafamilydynasty,orbybuildingitup toselltoaknownbuyerinmaybe10or15years’time?Whateveryouwant, decideonitandgoforit. Beinginundatedwithworkdoesnotmeanyoumustexpandproduction. Youcouldsubcontracttheextratosomeoneelse.Orputuppricestochoke offexcessdemand. Doing the latter might change you into a specialist, high-quality, highprice niche operator, which might impose new demands on all aspects of thefirm.Itmightalsomakeyoumoderatelyrichforrelativelylittleextra effort. If you go for growth, recognise the key truth that growing a firm is a differentjobfromfoundingone. Atastrategiclevelyouneedtoconsider: yourexpansionstrategy–howyouwillactuallygoaboutit; developingyourselfasamanager–acquiringthenewskillsneeded tooperatedifferently; consultantsandhowtousethem–goodonescanhavewonderful effects; yourmissionstatement–youneedone,anditmustn’tbewaffle.
Expansionstrategy Ifyoudoalltheextraworkin-houseyoumayhaveto:
takeonstaff; expandpremises; increaseequipment; fundcapitalandrevenueaspectsoftheexpansion.
140 Startingasuccessfulbusiness
Ifyousubcontractyoumust:
managethesubcontractor(s); ensurequalityandtimeliness; ensureconfidentiality(ifrelevant); fundrevenueaspects.
Perhapsyoudonothavetochoose.Youmightbeabletobeginwithsubcontracting sales or production, thus freeing your attention for whichever aspectoftheexpansionexposesyoutogreatestrisk.The80/20rulemight help. Itisadecisionthatwillbeimprovedbyapplyingexpertinvolvement.Call inaconsultant.
Yournewjob Youmayhavegotusedtobeingthesoledecision-makeroneverything.You mayalsohavedoneanumberofmanualtasksyourself.Thatmustallchange. Yourjobinabiggerfirmistomanageprocesses,overseeperformanceand encouragepeople.Otherpeopledothe‘work’. Mostentrepreneursfindthistransitionhardtomake.Someevenforcetheir firmsintofailurebynoteventryingtomakeit. A key element in success is structure.Allocate clear responsibilities to peopleandmakesureeveryoneknowswhodoeswhat. You then delegate work to this structure, which then reports back on progress.Youhardlyliftafinger,excepttoinspire,monitorandmentor.Ina perfectworlditwouldrunitself.Setitupasclosetoperfectionascanbe.
Thethreestagesofgrowth Stage1:Foundation(youhavecomefromhere,butremind yourselfofwhatitislike)
Stafforcontractors:fewornone. Otherpeople’stasks:minimalandmenial,entirelyunderyourdirection. Yourtasks:everythingthatinvolvesimportanceandresponsibility.
Afterasuccessfullaunch...developingyourfirm 141
Yourknowledgeofotherpeople’stasks:total. Yourfocus:gettingtheworkin,gettingthejobsout,collecting payment. Structure:wheel-shaped,withyouasthehubandeveryoneelselooking toyou.
Stage2:Development(whereyoumaybe,ormaybe headed,atpresent)
Stafforcontractors:5to50(approximately). Otherpeople’stasks:specialisedbutstillunderyourdirection,either directlyorviaasupervisor. Yourtasks:stillcarryingoverallresponsibilityandrequiringothersto dothingsyourway. Yourknowledgeofotherpeople’stasks:variable–limitedinsome casestoageneralview,totalinothers. Yourfocus:gettingtheworkin,gettingthejobsout,gettingpayment, staffmanagement. Structure:apyramid,withyoufirmlyatthetop.
Stage3:Delegation(whereyouwanttobe)
Stafforcontractors:50(approximately)upwardstothousands. Otherpeople’stasks:specialised,deliveringtheirsmallpartofthebig jigsaw. Yourtasks:stillcarryingoverallresponsibilitybutunabletoexercise directleadershipoftheworkforce.Nowoperatingentirelythrough intermediarymanagersorsupervisors. Yourknowledgeofotherpeople’stasks:highlyvariableandconstantly fallingasfarasthemundaneisconcerned,growinginthecaseofthe challengesfacingyoursubordinatemanagers. Yourfocus:thebusinessenvironment,keycustomerandsupplier relationships,companyculture,managinganddevelopingyour managers. Structure:thetraditionalorganisationchartor,insomecases,asoft systemsdiagram(there’snospaceheretogointowhatthatis,butifyou knowthejargonyou’llrecogniseit;ifyoudon’t,it’snotimportant).
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ItisobviousthatStage3isdifferentfromitspredecessors.Ifthefirmisto groweffectivelyyoumustcompletethejourneytoStage3. YoumighthavetheskillsalreadytoworkeffectivelyatStage3;yourskills mightevolvethroughexperienceoryoumightwanttotaketraining.There isanenormousvarietyoftrainingavailable;timeisprecious;sothereisno reasontobuyanythatisnotexactlywhatyouwant.
Organisationalculture Thismatterwastuckedawayunder‘yourfocus’inthedescriptionofStage 3above.Itisnotdealtwithelsewhereinthisbook.Sowhatisitandwhyis itimportant? ‘Culture’ishardtodefine,buteasytospotwhenyouseeit.Itis‘theway wedothingsroundhere’.Itisintheatmosphereoftheplace.Itshowsin thewaypeopledealwitheachother.Itshowsinattitudestocustomersand suppliers.Itisprobablythemainfactorinretaininggoodpeople–which, alongwithcustomers,willbecomeyourmainpreoccupation. Yousetthemostimportantexampleinthefirm.Youshowthestandardof behaviour,thelevelifintegrity,thewayofaddressingpeoplethatbecomes thenorm.Staffwillwatchandcopyyouso,ifyouwantthemtobethesort ofpeopleyourcustomers,suppliersandcolleagueswouldbehappytodeal with,bethatsortofpersonyourself.Thereisnoroomfordoublestandards, noplacefor‘doasIsay,notasIdo’.
Yourmanagerialdevelopment Managementiscomplex.Expansioncomplicatesitfurther.Todealeffectively withitrequireslearning.NotallofwhatyouneedtolearnistaughtatBusiness School. Learninginvolveschangeandhumansdonotlikechange,soitisnoteasy. Readwhenyougetthechance(thelibraryshelfnumberformanagementis 658),andyouwillfindextraordinaryinsightsfromsomegreatminds(present authorexcepted).Theinternetisanotherobvioussource,butrecognisethat amajorelementinlearningisdirectinteractionface-to-facewithothers.
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Yourfirmandconsultants Consultants,theysay,borrowyourwatchtotellyouthetime,thenkeepthe watch.Whateverthetruthofthat,thegoodonesareworthalotofRolexes. Theonlywayaconsultantcanstayinbusinessis:eithertofleeceaconstant procession of single-use clients, or deliver real satisfaction and value, remaininginconstantdemand. Itoftencomesasasurprisetoentrepreneurshowmuchagoodconsultant knows about the firm before setting a foot in the door.That comes about through study and thought.As a result, they ought to be up to date with everythingintheirfield,sotheysaveyourprecioustime.Further,youmay betooclosetothesituationtoseeitclearly. How do you tell a good consultant from the others? Common sense dictatesaskingforseveralexamplesofpastworkandpermissiontocontact thoseclients.Theobviousexpedientofgoingtooneofthebigfirmsmay notbeyourbestplan.Fewofthemhaveseenasmallfirmandunderstand thepressuresonyou,andsomemayworktoaformuladesignedasmuchto minimisetheriskofsuccessfullawsuitsastohelptheclient.Nevertheless, theydoemploysomebrightpeople,sodonotautomaticallydismissthem.
Fundingyourgrowth Manygrowingfirmsfindthatexpansionplansarethwartedbyexhausting theircapacitytoraisemoreloancapital.Thisneednotbethebankacting difficult;forperfectlyproperreasons,itiswrongtogetthebalancebetween loanandequity(theowners’fixedcapital)toofaroutofkilter.Conventional wisdomsaysapoundofloanshouldbematchedbyapoundofequity. Mostsmallfirmsarefinancedbyarrangementstoputthatformulainthe shade.Thatisusuallybecausethereishiddenequity,intheformofabank lienontheowner’shouse,behindtheloans. Whenthedaycomesthatmorefundingisrequiredthancanbesupported, assuming that the owners have no personal source of funds they want to invest,thefirmwillneedtobecomealimitedcompanyandsellshares.The highstreetbanksdonotbuysharesinsmallfirms.Thatisdonebyprivate individualsormerchantbanks. Mostmerchantbanksarenotinterestedininvestingtheoddmillionortwo, buttherearespecialistfirmswhoarekeentoconsidersuchopportunities.
144 Startingasuccessfulbusiness
Theirmotivesaresimpleandclear.Theywanttobeabletoselltheirshares withinonlyafewyearsforagreatlyinflatedprice. Themerchantbankwillpressyouhardforperformance.Itdoesnotmind whoitsellstoaslongastheirmoneyisgood.You,ontheotherhand,might mindagreatdeal.
Keyjobstodo
Decideifexpansionreallyisforyou. Decidethestrategyforcarryingitout. Understandthenatureofyournewjob. Decideonwhatcultureyoushouldencouragewithinthefirm. Createaprogrammefordevelopingyourselfasamanager. Selectastrategyforusingconsultants. Recognisetheimplicationsofsellingsharestofundgrowth.
14
ThePLGProgramme forGrowth
ThePLGProgrammePrepare,Launch,Grow© NewforthesixtheditionanduniquetoStartingaSuccessfulBusiness,the PLGProgrammeleadsyoustepbystepthroughtheprocessof: preparation...forsetting-upyourbusinessonfirmfoundations; launch...ofthefirmontherightlines; growth...tofulfilyourpotential. Morethanhalfofnewfirmsfailintheirfirstfewyears.Morefailwhenthey trytogrow.Usuallyitisbecauseofpoorplanning,whichcanbeavoided. ThePLGProgrammehelpsyoubuildarobustbusinessplan,methodically directingyoutotherightpartsofStartingaSuccessfulBusinessaswellas tooutsideresources. Startyourbusinesshere...
146 Startingasuccessfulbusiness
The PLG Programme: Prepare, Launch, Grow
Whatit’sfor Theoverallaimistoendupwithacompletebusinessplanforyournew firm. Preparingabusinessplanhelpsyoubymakingyourmistakesthecheap way–onpaper.Ithelpsbankstoseewhyyouwanttoborrowandwhy.It givesyouastandardagainstwhichtomeasureprogress. Youwillneedaccessto:
acopyofStartingaSuccessfulBusiness,6thedition; aPCwithinternetconnection; atelephone; eitheraPCwithspreadsheetandwordprocessor,oracalculator,plenty ofpaperandpens.
Itmightlookdauntingatfirst,butjustdoonethingafteranotherandyou willgettotheend.
Howitworks TheinstructionsaredividedintothethreePLGsections,reflectingthestages ofyourbusiness:Prepare,Launch,Grow. Within each section are subheadings. Undereachsubheadingis,where appropriate,adirectiontothechapterofStartingaSuccessfulBusinesswhich isrelevant.Thesubheadingtellsyouwhatyouhavetowriteforthatpartof yourbusinessplanandthebookgivesthenecessarybackground. Afteratimeyouwillfindyouaremakingrealprogresstowardsthegoal and,eventually,youwillendupwithacompletebusinessplan.Thatplanis mainlyforyou,tomakesureyouhavethoughtabouttyingallthecomponents ofyourfirmtogether,butitwillalsobereadyforthebank,tosupportyour caseforborrowing. Next...
ThePLGProgrammeforGrowth 147 The PLG Programme Section 1: Prepare
The PLG Programme Section 2: Launch
The PLG Programme Section 3: Grow
Businessplanintroduction Executivesummary Thisiswhereyousummarisetheplanbriefly.Theideaistogivethereadera pictureofthecompleteproposalbeforetheylaunchintothedetail. Asitisasummaryoftheplan,youhavetowritetheplanfirst! Oncetheplanisfinished,returnhereandwritetheexecutivesummary. Itshouldbenolongerthanthreeparagraphsandshouldgivejustthemain features of the business. It should be sober and sensible, not shouting or screamingwithenthusiasm.Thepeoplewhowillreadithaveseenbusiness planscomeandgo.Theywouldnotbeimpressed. Nowthatwehavestartedtothinkaboutwriting,considerwhatstyleis best.Mysuggestionisthatyou:
useadirect,cleartypeofEnglish(whichIamaimingforhere); useshortwordsandsimplelanguage; keepsentencesshort,onethoughtpersentence; keepparagraphsshort,oneargumentperparagraph; usebullet-pointlistswhenappropriate; makethemainpointswell,butdon’ttrytoanswereverypotential question; numberthepages; putanylargemassofdetailintoanappendix,attheend. Wherepeoplemightwanttoreferindiscussiontospecificpoints,ithelpsif younumbertherelevantparagraphsoritemsinlists. Andwhenyouhavefinishedtheplan,getsomeonewhodoesnotknow theindustrytoreadit,toseeifitmakessensetothem.Mostofficialreaders willnotunderstandtheindustryeither. Next...
148 Startingasuccessfulbusiness The PLG Programme Section 1: Prepare
The PLG Programme Section 2: Launch
The PLG Programme Section 3: Grow
Businessplan:Partone:Overviews Businessoverview Hereyoudescribewhatthebusinessasawholeistodo,yourvisionforit.It shouldtakeaparagraph,maybethreetofivesentences. Ifit’snotclearwhatisneeded,imaginebumpingintoafriendinthestreet. Bothofyouareinahurrybutwanttobepolite.Theysay:‘Thisbusinessof yours.What’stheideabehindit?Wheredoesitfitin?’ Youmightanswer:‘It’stheonlyPolishrestaurantfor30miles;thecooks and staff will all be Polish and we’ll offer families an affordable homecookingalternativetotheusualcurryorchowmein.Whenthefirstone’sgot goingI’llopenanotherinthenexttown,andsoon.Polishex-patswilllove itandtheBritswilltoo.’ Inthreesentencesthevisionforthebusinessisdescribed.Worditabit moreformally,anditissuitableforthebank,oranyone.Thebankwouldput thequestionmorebluntly:‘Whatmakesyouthinkthisideawillwork?’So answerthem.Youalreadyhave,almost. Expect to come back here to make changes as the plan evolves. The headingsoftheplanitselffollow.Undereachheading,whereitapplies,is giventherelevantchapterofStartingaSuccessfulBusiness.
Businessbackground Summariseonly,givingnotesonthemainpoints.Bullet-pointsarefine.
Principals Whoyouare–qualifications,background,experience.
Startdate Whenyouplantostart.
ThePLGProgrammeforGrowth 149
Presentposition Howfaryouhavegot.
Businessidentity Legalconstitution,businessname,tradingname.See:Chapter5,Yourbusinessnameandlegalstatus.
Marketbackground See:Chapter2,Gettingorders,makingprofits.
Theindustry The industry at present – structure, customers, suppliers, distribution system.
Uniqueproposition Whycustomerswillwanttocometoyou–thebenefitsyouoffer.
Marketinformation Marketsize,historyandimportantissues.
Presentsuppliers Howcustomerneedsaremetatpresent,whocompetitorsare,theirmethods andtheshareeachholds(thesecanbeestimated,inwhichcasesayso).
Marketdevelopments Whatyouexpecttohappenandhowsuppliersarelikelytorespond.
150 Startingasuccessfulbusiness The PLG Programme Section 1: Prepare
The PLG Programme Section 2: Launch
The PLG Programme Section 3: Grow
Businessplan:Parttwo:Operatingplans Marketingplans Hereyoudescribethingsinmoredetail.Abalanceneedstobestruckbetween keepingitbriefyetgivingenoughinformation.Iftemptedtowritetoomuch, rememberyouusuallyhaveachancetoanswerquestionsfacetoface.See: 2.Gettingorders,makingprofits.
Positioning Howyourserviceorproductwillbepositionedagainstcompetition.
Salesproposition Whythecustomershouldbuyfromyou.
Targetcustomers Analysethemarket,specifythegroupyouwillaimat,sayhowmanyofthem thereareandwhere.
Pricing Defineyourapproachtopricingandrelateittoyoursalesproposition.
Salesoperations Howyouwillcontactandselltocustomers,whowilldoit,howmanyorders aweekthisshouldproduceandtheirvalue.
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Promotion Howyouwillsupportthesaleseffortandattractenquiries.
Distribution Bywhichchannel(s)theproductwillreachthecustomer.
After-sales Anyspecialfollow-uporopportunitiestosellmaintenance,etc.
Operatingplans See:Chapter1,Firstthoughtsandfoundations;Chapter2,Gettingorders, making profits; Chapter 7, Premises; Chapter 8, Managing operations; Chapter9,Financialhousekeeping,VATandtax;Chapter10,Employing people;Chapter11,Riskmanagementandinsurance.
Production Howwhatyousellistobeproduced,maximumoutputcapacityandhowit compareswithsalesforecasts,longer-termplans.
Premises Plansforaccommodation,howsatisfactoryitis,tenure,longer-termplans.
Administration Howyouwillhandletheadminofenquiries,orders,sales,invoices,accounts, stock,personnel.
Informationsystems Howstockwillbecontrolled,howaccountinginformationformanagement willbeproducedandwhen,howtheywillcopewithgrowth.
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IT WhatITyouplantoacquire,how,why,whowilloperateit,maintenance andsupport.
Salesforecast Monthlyforthefirsttwoyears,annuallyforthenextthree.
Financialplans This is part commentary, part tables.Your accountant should check your workfirst. See:Chapter3,Controllingthemoney;Chapter4,Raisingthemoney.
Capitalrequirements The money needed to get the business going on a sound financial basis, dividedintofixedcapital(forlong-termpurchases)andworkingcapital(to coverday-to-dayfluctuationsincashflow).
Financingstrategy Wherethemoneywillcomefrom,securityoffered,repaymentperiod.Ifa limitedcompany,howmuchinsharesandhowmuchonloan.
Cash-flowprojection Monthly,coveringthefirsttwoyears.
Profit-and-lossprojection Annually,coveringthefirstfiveyears.
ThePLGProgrammeforGrowth 153 The PLG Programme Section 1: Prepare
The PLG Programme Section 2: Launch
The PLG Programme Section 3: Grow
Businessplan:Partthree:Appendices Anappendixiswhereyouputtheindigestiblelumpsofinformationthathave tobepresent,butaretoodetailedorfussyforthemaindocument.Itisupto youtojudgewhattoincludeorexcludehere.Themaindocumentmayrefer totheappendixwherenecessary. Acurriculumvitae(CV)foreachoftheprincipalsinthefirmisessential, andisbestplacedasanappendix.Detailedproductcostingsmightappear here,too.Eachappendixshouldbenumbered. That’sit!Youhavenowcompletedyourbusinessplan...exceptforone smallpoint.Youneedtogobackandwritetheexecutivesummaryatthe beginning.
Businessplan:Presentation Tomakethebestimpression: Useaninkjetorlaserprinterandwhitepaper,selectingafontof12pt (certainlynolessthan10pt)forthemaintext. Don’tusecolourorfancyeffects:theydonotimpressandtheycan delayorobstructdownloadifyousenditasane-mailattachment. Startwithatitlepage,givingnames,contactnumbersande-mail addresses. Next,haveacontentspage. Checkcarefullyforspellingandgrammar;besurethatthedifferent piecesareconsistentwitheachother;haveothersreadittomakesure itisquiteclear. Putitinacoverthatcaneasilyberemovedbytherecipientfor copying. Onceyouareready,youcanmovetoSection2,thelaunchphaseofyour business...
154 Startingasuccessfulbusiness The PLG Programme Section 1: Prepare
The PLG Programme Section 2: Launch
The PLG Programme Section 3: Grow
Businessplan:Implementation InSection2oftheProgrammeyouputyourplansintopractice. Draw up a programme for implementing your plans, based on the written business plan you completed earlier, in Section one of the PLG Programme. Startfirstonwhateverwilltakelongesttocomplete.Sinceeverybody’s programmesvary,thereisnogeneralpatterntoofferyou.Youwillneedto puttheitemsinyourbusinessplanintotheorderthatmakesmostsensein youruniquesituation. Operateyourprogramme,keepingastricteyeoneverything.Remember that,eventhoughyouputalotintoit,yourbusinessplanisonlyaplan.Itis guaranteedtobewrong.Solookoutfordeviationsandcorrectthemassoon astheyhappen.Thatwayyoushouldstayoncourse. Ifyourplanisbadlyout,tellanyonewhoneedstoknowandrewriteit. Oncethefirmisupandrunning,keepontopofthingsbywatchingthe measuresyouhaveputinplace. Reportregularlyhowthingsaregoingtothosewhoneedtoknow. Involveadvisersandlistentotheirviews.Iftheygiveyoubadnews,that iswhatyoumostneedtohear. See:allofStartingaSuccessfulBusiness. Once the company is running well, you may want to plan for further growth.ThatisaddressedinthefinalpartofthePLGProgramme... The PLG Programme Section 1: Prepare
The PLG Programme Section 2: Launch
The PLG Programme Section 3: Grow
ThePLGProgrammeforGrowth 155
Businessplan:Growth Youhavedecidedtogrow,oratleasttoplanforgrowthandseewhatthe implicationsare. Ifitsoundsstrangetodoallthatwork,thendecidenottogrow.Remember thatitisperfectlypossibletofindthatgrowthatthismomentwillmean,for example,takingonunacceptablylargeloans,orrequireskillsthatstaffdo nothave.Onlyplanningwillrevealthosefacts. Themethodfollowedistorepeatthebusinessplanheadingsusedearlier forthenewfirm,butwithchangestoreflectthefactthatyounowhavea history.Forthatreasonsomeofwhatfollowsmayseemfamiliar. Thegrowthplanstartshere... The PLG Programme Section 1: Prepare
The PLG Programme Section 2: Launch
The PLG Programme Section 3: Grow
Executivesummary Thisiswhereyousummarisetheplanbriefly.Theideaistogivethereadera pictureofthecompleteproposalbeforetheylaunchintothedetail. Asbefore,youhavetowritetheplanfirst. Oncetheplanisfinished,returnhereandwritetheexecutivesummary. Itshouldbenolongerthanthreeparagraphsandshouldgivejustthemain features of the business. It should be sober and sensible, not shouting or screamingwithenthusiasm.Thepeoplewhowillreadithaveseenbusiness planscomeandgo.Theywouldnotbeimpressed. Nowthatwehavestartedtothinkaboutwriting,considerwhatstyleis best.Mysuggestionisthatyou:
useadirect,cleartypeofEnglish(whichIamaimingforhere); useshortwordsandsimplelanguage; keepsentencesshort,onethoughtpersentence; keepparagraphsshort,oneargumentperparagraph; usebullet-pointlistswhenappropriate; makethemainpointswell,butdon’ttrytoanswereverypotential question;
156 Startingasuccessfulbusiness
numberthepages; putanylargemassofdetailintoanappendix,attheend. Wherepeoplemightwanttoreferindiscussiontospecificpoints,ithelpsif younumbertherelevantparagraphsoritemsinlists. Andwhenyouhavefinishedtheplan,getsomeonewhodoesnotknow theindustrytoreadit,toseeifitmakessensetothem.Mostofficialreaders willnotunderstandtheindustryeither. The PLG Programme Section 1: Prepare
The PLG Programme Section 2: Launch
The PLG Programme Section 3: Grow
BusinessPlan:Partone:Overviews See:Chapter13,Afterasuccessfullaunch...developingyourfirm.
Businessoverview Hereyoudescribewhatthebusinessasawholedoesandyourvisionforit. Imagine you are answering a bank manager who has asked: ‘What is so specialaboutthisfirmandwhatmakesyouthinkthisideawillwork?’ Yourfirstbitofwritingwillsayhowitlookstoyounow,butastheplan evolvesyouwillcomehereandchangeit.Theheadingsoftheplanfollow:
Businessbackground:summariseonly,givingnotesonthe mainpoints.Bullet-pointsarefine. Principals Whoyouare–qualifications,background,experience.
Businesshistory Howlongyouhavebeeninbusiness,financialandotherperformanceinthat time.
ThePLGProgrammeforGrowth 157
Presentposition Whatisholdingyouback,howyouwanttodevelop.
Businessidentity Legal constitution, business name, trading name. See: Chapter 5, Your businessnameandlegalstatus.
Marketbackground See:Chapter2,Gettingorders,makingprofits.
Theindustry Theindustryatpresent–structure,customers,suppliers,distributionsystem.
Uniqueproposition Whycustomerscometoyou–thebenefitsyouoffer.
Marketinformation Marketsize,historyandimportantissues.
Presentsuppliers Howcustomerneedsaremetbyyouandcompetitors,competitorsandtheir methodsandtheshareeachholds(thesecanbeestimated,inwhichcasesay so).
Marketdevelopments Whatyouexpecttohappeninfutureandhowsuppliersarelikelytorespond toyourplannedinitiative.
158 Startingasuccessfulbusiness The PLG Programme Section 1: Prepare
The PLG Programme Section 2: Launch
The PLG Programme Section 3: Grow
BusinessPlan:Parttwo:Operatingplans Marketingplans Hereyoudescribethingsinmoredetail.Abalanceneedstobestruckbetween keepingitbriefyetgivingenoughinformation.Iftemptedtowritetoomuch, rememberyouusuallyhaveachancetoanswerquestionsfacetoface.Inmost casesyouareaskedtodescribethecurrentsituation.See:Chapter2,Getting orders,makingprofits.
Positioning Howyourserviceorproductispositionedagainstcompetition.
Salesproposition Whythecustomerbuysfromyou.
Targetcustomers Analysethemarket,specifythegroupyouaimat,sayhowmanyofthem thereareandwhere.
Pricing Defineyourapproachtopricingandrelateittoyoursalesproposition.
Salesoperations Howyoucontactandselltocustomers,whodoesit,howmanyordersaweek thisproducesandtheirvalue.
ThePLGProgrammeforGrowth 159
Promotion Howyousupportthesaleseffortandattractenquiries.
Distribution Bywhichchannel(s)theproductreachesthecustomer.
After-sales Follow-uporopportunitiestosellmaintenance,etc.
Operatingplans See:Chapter1,Firstthoughtsandfoundations;Chapter2,Gettingorders, making profits; Chapter 7, Premises; Chapter 8, Managing operations; Chapter 9, Financial housekeeping,VAT and tax; Chapter 10, Employing people;Chapter11,Riskmanagementandinsurance.
Production Howwhatyouplantosellistobeproduced,maximumoutputcapacityand howitcompareswithsalesforecasts,longer-termplans.
Premises Plansforaccommodation,howsatisfactoryitis,tenure,longer-termplans.
Administration Howyouhandletheadminofenquiries,orders,sales,invoices,accounts, stock,personnel.
Informationsystems How stock is controlled, how accounting information for management is producedandwhen,howtheywillcopewithgrowth.
160 Startingasuccessfulbusiness
IT ITequipmentandarrangements,whooperatesit,maintenanceandsupport.
Salesforecast Monthlyforthefirsttwoyears,annuallyforthenextthree.
Financialplans This is part commentary, part tables.Tables for cash-flow forecasts, P&L forecastsandproductcostingsarebestsetuponspreadsheets.Thatenables youtomaketheinevitablechangeswiththeminimumofextrawork.Your accountantshouldcheckyourworkfirst. See:Chapter3,Controllingthemoney;Chapter4,Raisingthemoney.
Capitalrequirements Themoneyneededtoexpandthebusinessonasoundfinancialbasis,divided into fixed capital (for long-term purchases) and working capital (to cover day-to-dayfluctuationsincashflow).
Financingstrategy Wherethemoneywillcomefrom,securityoffered,repaymentperiod.Ifa limitedcompany,howmuchinsharesandhowmuchonloan.
Cash-flowprojection Monthly,coveringthefirsttwoyears.
Profit-and-lossprojection Annually,coveringthefirstfiveyears.
ThePLGProgrammeforGrowth 161 The PLG Programme Section 1: Prepare
The PLG Programme Section 2: Launch
The PLG Programme Section 3: Grow
BusinessPlan:Partthree:Appendices Anappendixiswhereyouputtheindigestiblelumpsofinformationthathave tobepresent,butaretoodetailedorfussyforthemaindocument,suchas quotesforequipment.Itisuptoyoutojudgewhattoincludeorexcludehere. Themaindocumentmayrefertotheappendixwherenecessary. ACVforeachoftheprincipalsinthefirmisessential,andisbestplaced asanappendix.Detailedcostings,historicalaccounts,copiesofbrochures andquotationsforproposedpurchaseswouldallfitheretoo.Eachappendix shouldbenumbered. Pastaccountsforthefirmshouldalsoappearasappendices.
BusinessPlan:Presentation Tomakethebestimpression: Useaninkjetorlaserprinterandwhitepaper,selectingafontof12pt (certainlynolessthan10pt)forthemaintext. Don’tusecolourorfancyeffects:theydonotimpressandtheycan delayorobstructdownloadifyousenditasane-mailattachment. Startwithatitlepage,givingnames,contactnumbersande-mail addresses. Next,haveacontentspage. Checkcarefullyforspellingandgrammar;besurethatthedifferent piecesareconsistentwitheachother;haveothersreadittomakesure itisquiteclear. Putitinacoverthatcaneasilyberemovedbytherecipientfor copying. You have now completed your business plan for growth and the PLG Programme.Congratulations,andbestwishesforthefuture.
Appendix1
Cash-flowforecasting illustration
A simple example may help to explain the principles. John runs a very straightforwardbusinesssellingapplesfromamarketstall.Onhisfirstday inbusinesshedoesthefollowing: borrows£200fromhisgranny,interestfreeonthepromiseofrepaying herasfastaspossible; buysamarketstallfor£100cash; paysthecouncil£10foraday’spitchonthemarketsquare; buysapplesfor£90cash; sellshalftheapplesfor£80,allincash. At the end of that Monday his profit-and-loss account looks like Table A1.1. But where are the £45-worth of apples he still has, and the stall worth £100?Andforthatmatter,whereisthe£80weknowhehasinhispocket? The answer is that the profit-and-loss account records only the sales, and the expenses relating to those sales. It could not show where stock, cash orequipmentis.The‘missing’itemswillappearonthebalancesheet,an entirelyseparatedocument.Thebalancesheetpretendsthatyoustopallthe buyingandsellingforasplitsecondandrecordwheremoneyistiedupat thatmoment.Italsoshowswherethemoneyinthebusinesshascomefrom. AttheendofMonday,John’sbalancesheetlookslikeTableA1.2.
Appendices 163
TableA1.1 John’sprofit-and-loss accountforMonday £ Sales Costofgoodssold Valueadded Overheads Rentforpitch Profit
80 45 –– 35 10 –– 25 –– ––
TableA1.2 John’sbalancesheet Wherethemoney camefrom Loanfromgranny Retainedprofits
£ 200 25 –––– £225 –––– ––––
Whereitwasatthat moment Fixedassets(stall) Currentassets Stockatcost(apples) Cash(day’stakings)
£ 100 45 80 –––– £225 –––– ––––
Thiswayofshowingabalancesheetisnowold-fashioned,butitiseasierfor beginnerstounderstand–sodon’tworryifbalancesheetsyouhaveseenare laidoutdifferently.Theyallmeanthesamething. Youdonotneedtoconcernyourselffurtherwithbalancesheetsatthis stageofyourfirm’sdevelopment,soweshallleavethemthere.Thepoint in mentioning them is so that you can see that they are basically simple documents,toillustratethesortofinformationtheycontainandtoconfirm, yetagain,thatprofitisonlyoneofthetwokeymattersyoumustdealwith. Therefore,theyoungbusinessneedstomonitoritsprofit-and-lossaccountbut
164 Appendices
neednotworryaboutthebalancesheet.Insteaditpayshawk-likeattentionto itsperformanceagainstthecash-flowforecast,whichisamoreflexibleway ofcontrollingandconcentratingonthehigh-riskareasofthebalancesheet. ToreturntoJohn.ItisnowTuesdaymorningandhesetsuphisstallinthe marketagain.Hepaysthecouncil’ssuperintendentanother£10,andsellsthe restofhisapplesfor£80.TheresultofTuesday’stradingisshowninTable A1.3.
TableA1.3 John’sprofit-and-loss accountforTuesday £ Sales Costofgoodssold Valueadded Overheads Rentofpitch Profit
80 45 –– 35 10 –– 25 –– ––
Fortherestoftheweekherepeatsthesamepattern,endingupwith6×£25 =£150bySaturdaynight,allincash.Havingmade£150,andbeinganice youngchap,JohnthinksofpayingoffsomeofGranny’sloan.Heknowshe mustkeepsomecashbacktopayforstockonMonday,topaythecouncil,and topayhis£30weeklykeep.Sohedoesacash-flowforecast.Heworksout whatcashhecanexpecttocomeinandwhen,andwhathewillhavetopay outandwhen.FollowwhatJohnwrotedown;evenifitlooksalittledifficult atfirstitisnotcomplicated.Asusual,bracketsmeanaminusfigure. TableA1.4showsthattheresultofMonday’stradingisexpectedtobe afallof£50inJohn’sholdingofcash,eventhoughhewillhavemadehis usualprofit.Thatprofit,plusanother£15,willbetiedupinapplesforsale onTuesday.SocanJohnpayoffGranny?Bearinginmindthathemuststart eachdaywithenoughcashforhisoutlaysthatday,helookstoseewhathe
Appendices 165
canpayGrannyandwhen.Hewillstartweek2withhis£150(thenexttolast figureintheMondaycolumn)andhemustfinishtheweekwithatleast£130 forhisoutlaysatthestartofweek3.Tryworkingoutwhathecanpay,and when.Theanswerisinbracketsbelow.Ifyoufoundthatalittlechallenging youwillseewhyJohndiditonpaperandnotinhishead.Thecalculation isnotdifficult–itisonlysimpleadditionandsubtraction–butthereareso manystepstoitthatyoucannotdoitinyourhead.Johncouldeasilyhave takentheshortcutandpaidoutofhisprofits.Hadhedonesohewouldhave runoutofcashandoutofbusiness.Asitis,hestillowesGranny£60buthe isstillinbusiness. TableA1.4 John’scash-flowforecastforweek2(£) Mon Cashtakeninday(a) Cashpaidoutatstartofday –keep –rent –apples Totalcashpaidoutinday(b) Netcashtakeninday(a–b) Cashinhandatstartofday Cashinhandatendofday
Tue
Wed
Thu
Fri
Sat
**180) 80 –– ––
80 ––
80 ––
80 ––
80 ––
**130) **110) **190) **130) ((((50) (*150) **100(
– 10) 90) 100) (20) 170) 150)
– 10 – 10 70 150 220
– 10) 90) 100) (20) 220) 200)
– 10 – 10 70 200 270
– 10 – 10 70 100 170
*Hewillstarttheweekwith£150leftoverfrompreviousweek. **Thefiguresonthislinebecomethe‘cashinhandatstartofday’forthefollowing day.
(Answer:Thisweek,Johncanpay£50straightaway,£20onMondayevening,£50onWednesdayevening,and£20onFridayevening.Ifhetriesto doitfaster,herunsoutofcash–sohestillowesGranny£60attheendof theweek.)
Appendix2
Drafttermsand conditionsofsale
Whatfollowsisalistofsuggestions.Somemayberightforyourbusiness, otherswrong,andsomerightafterrewriting.Yetothersmaybeneededthat donotappearhere.Usethelisttobuildyourownconditionsofsalethatreflect thewayyouwanttodealwithyourcustomers.Then,andveryimportantly, letyoursolicitorputitintopropershape.
Termsandconditionsofsale 1. Descriptions shown in brochures, advertisements, and by way of samplesarecorrectatthetimeofgoingtopress,errorsandomission excepted.Theyareliabletoalterationatanytimewithoutnotice. Thisismeanttoprotectyoufromminorcomplaintsaboutchanges inspecification,andmistakesinpricelistsandcatalogues.Youmight wanttochangeaspecificationbutnotthrowawaycatalogues.But itwouldnotoverridethecustomer’srighttogoodsthatare‘fitfor use’. 2. Wemayrevisepriceswithoutnotice.Priceswillbethoserulingatthe dateofdispatch.Anyinvoicequeryshouldbemadeinwritingwithin 10daysofthedateoftheinvoice.AllpricesexcludeVATwhichisdue attheratecurrentlyinforce.Quotationsandestimatesremaincurrent foronemonth.
Appendices 167
3. 4. 5.
6.
7.
8. 9.
Thisissomeprotectionagainstcostincreasesthatyoumighthave topasson.Thisstopsyoubeingboundbyoldquotationsandmakes itclearthatVAThastobepaid–ifyouareregistered. Allaccountsarepayableinfullwithinfourweeksofinvoicedate. Orwhateveryourtermsare–veryimportanttospecifyclearly. Wecannotacceptliabilityfordelayindispatchordelivery. It is not your fault if the delivery firm loses the parcel for a month. Ordersforgoodsmaybecancelledonlywiththewrittenagreement ofoneofourdirectors.Ordersforgoodsmadetospecialordercannot becancelled. Onlyadirectorortheownershouldgivethispermission,notsalespeople or others. Special orders are usually unsaleable to anyone else. All orders over £100 will be delivered free within 10 miles. Elsewhere,carriagemaybechargedinadditiontothequotedprice.Orders forlessthan£100arenotnormallyacceptedforacreditaccount. Whether you charge for delivery and what you charge needs to be carefully controlled, as does the cost of administering a lot of small accounts. There is nothing special about £100; it is just an illustration. Shortageofgoodsordamagemustbenotifiedbytelephonewithin threedaysofdelivery,andconfirmedinwritingwithinsevendaysof delivery,ornoclaimcanbeaccepted.Deliveryofobviouslydamaged goods should be refused. Notifications should give delivery note number,alistofquantitiesoftheproductsdamaged,anddetailsofthe typeofdamage.Damagedgoodsmustberetainedforinspection. Thisshouldbewritteninthelightofwhatyourcarrier’sconditions say.Astheywilldestroyallpapersprovingdeliveryafterashorttime, theywantspeedynotificationofanyclaim.Itisessentialfordamaged goodstobesavedandeventuallycollectedbyyoutostopdishonest collusionbetweencustomersandlorry-drivers,andmultipleclaims againstonedamageditem. Liability cannot be accepted for non-delivery of goods if written notificationisnotreceivedwithin10daysofthedateofinvoice. Seecommentson7above:tieinwithcarrier’sconditions. Noliabilityisacceptedforanyconsequentiallossordamagewhatsoever,howevercaused.
168 Appendices
10. 11.
12.
13.
Incasesofextremenegligencebyyourstafforyourselfthiswould probablynotstick,butyoursolicitormightwanttoseeitincluded. Acceptance of the goods implies acceptance of these conditions. Theseconditionsmaynotbevariedexceptinwritingbyoneofour directors. Nowthecustomercannottakethegoodsbutcomplainaboutthe conditions. Nor can he or she bully your salesperson into giving unlimitedcredit,forinstance. Under some circumstances we may cancel the contract without noticeorcompensation.Suchcircumstanceswouldincludeinability toobtainmaterials,labourandsupplies,strikes,lockoutsandother forms of industrial action or dispute, fire, flood, drought, weather conditions, war (whether declared or not), acts of terrorism, civil disturbance,actofGodoranyothercausebeyondourcontrolmaking itimpossibleforustofulfilthecontract. Coverforthetimeswhensnowblockstheroadsandsoon.You mightevenwanttoaddtheinsurancepolicyfavouritesofdamage byaircraft,fallingtrees,radioactiveandbiologicalhazards...but, thereagain,youmightnot. Untiltheyhavebeenpaidforwereserveourtitleingoodssupplied. Whenacustomergoesintoliquidationeverythinginhisorher possessionissoldtopaythecreditors,evenifithasnotbeenpaidfor. Theexceptionsareitemsonleaseorhirepurchase,orthatclearly belongtosomebodyelse.Youcannotnormallysnatchbackthelast deliveryyousent.Clause12givesyouprotection,bysayingthatthey remainyoursuntilpaidfor.Youcouldshowtheliquidatorthisterm onthecopyoftheorderformsignedbythecustomer,andwalkout withthegoods.Itwillnotwork,however,ifwhatyousuppliedhas beenincorporatedinsomethingelse.Norwillitworkifyoucannot identifythoseitemsaspreciselytheonesontheinvoice. Any invoice not paid in full by the due date shall attract interest payments.Thesewillaccruefromtheduedateattherateof10per centpermonth. Unlessyouhavealicencetooffercredityoumustnotchargethe publicaninterestrate,andonethishighwouldalmostcertainlybe disallowed.Itissuggestedthatyouthinkaboutusingaclauselikethis toencouragepaymentinlinewithyourterms.Youwouldprobably neverneedtoactuallychargeit,asthethreatwouldbeenoughto makemostfirmspayup.Anycustomerwhoqueriesitcanbetoldthat
Appendices 169
itdoesnotapplytothem,buttopeoplewhobreaktheirpromiseto payontime.Somefirmsuseafigureof20percent,butthismightbe sohighastobreaktherulesthatthetermsmustbe‘reasonable’.At 10percentyoumightbeabletoarguereasonableness,asitwould compensateforthemanagementtimespentchasingoverduedebts. Whatisreasonablewilldependtoagreatextentonthenatureofyour particularbusiness. 14. Ifa‘quotation’isgivenitisafirmpriceforthejobbutsubjectto thesetermsandconditions.An‘estimate’isourbestestimateofthe finalcostbutmaybesubjecttofluctuationduetoexigenciesofthe jobwhichmaybedifficultorimpossibletoforesee. Insomebusinessesitisdifficulttogiveapriceforsomework,as timemayhavetobespenttouncovertherootoftheproblembeforea properquotationcanbegiven.Itisfairtothecustomerandyourself tomakethisclear.
Appendix3
Smallbusiness contactslist
Advisory,ConciliationandArbitrationService(ACAS) BrandonHouse 180BoroughHighStreet LondonSE11LW TheAcasHelpline:08457474747 www.acas.org.uk BritishFranchiseAssociation ThamesView NewtownRoad Henley-on-Thames OxonRG91HG Tel:01491578050 www.british-franchise.org BritishInsuranceandInvestmentBrokersAssociation 14BevisMarks LondonEC3A7NT Members:08447700266 ConsumerHelpline:09018140015(premiumrates) www.biba.org.uk
Appendices 171
BritishTradeInternational KingsgateHouse 66–74VictoriaStreet LondonSW1E6SW Tel:02072155000 www.brittrade.com BuildingResearchEstablishment BucknallsLane Garston WatfordWD259XX Tel:01923664000 www.bre.co.uk and KelvinRoad ScottishEnterpriseTechnologyPark EastKilbride GlasgowG750RZ Tel:01355576200 E-mail:eastkilbride@bre.co.uk BusinessEyeinWales Tel:08457969798 www.businesseye.org.uk BusinessGateway(Scotlandonly) Tel:08456096611 www.bgateway.com BusinessintheCommunity 137ShepherdessWalk LondonN17RQ Tel:08706002482 www.bitc.org.uk BusinessLink Tel:08456009006 www.businesslink.gov.uk
172 Appendices
CharteredInstituteofMarketing MoorHall Cookham MaidenheadSL69QH Tel:01628427500 www.cim.co.uk CharteredInstituteofPatentAgents 95ChanceryLane LondonWC21DT Tel:02074059450 www.cipa.org.uk CommunitiesandLocalGovernment ElandHouse BressendenPlace London SW1E5DU www.communities.gov.uk(forplanningpermission) CompaniesHouse 37CastleTerrace EdinburghEH12EB www.companieshouse.gov.uk CompaniesHouseExecutiveAgency 21BloomsburyStreet LondonWC1B3XD www.companieshouse.gov.uk CompaniesRegistrationOffices: CompaniesHouse CrownWay Maindy CardiffCF143UZ Tel:08703333636 www.companieshouse.gov.uk
Appendices 173
CountryLandandBusinessAssociation 16BelgraveSquare LondonSWIX8PQ Tel:02072350511 www.cla.org.uk CraftsCouncil 44aPentonvilleRoad LondonN19BY Tel:02072787700 www.craftscouncil.org.uk DepartmentforBusiness,EnterpriseandRegulatoryReformResponse Centre 1VictoriaStreet LondonSW1H0ET Tel:02072155000 www.dti.gov.uk DesignCouncil 34BowStreet LondonWC2E7DL Tel:02074205200 www.design-council.org.uk ExportCreditsGuaranteeDepartment POBox2200 2ExchangeTower HarbourExchangeSquare LondonE149GS Tel:02075127887 www.ecgd.gov.uk FederationofSmallBusinesses SirFrankWhittleWay BlackpoolBusinessPark BlackpoolFY42FE Tel:01253336000 www.fsb.org.uk
174 Appendices
TheForumofPrivateBusiness RuskinChambers DruryLane KnutsfordWA166HA Cheshire Tel:01565634467 www.fpb.co.uk GreaterLondonEnterprise NewCityCourt 20StThomasStreet LondonSE19RS Tel:02074030300 www.gle.co.uk HighlandsandIslandsEnterprise CowanHouse InvernessRetailandBusinessPark InvernessIV27GF Scotland Tel:01463234171 www.hie.co.uk Hotel&CateringInternationalManagementAssociation TrinityCourt 34WestStreet SuttonSM11SH Tel:02086614900 www.hcima.org.uk InstituteofDirectors 116PallMall LondonSW1Y5ED Tel:02078391233 www.iod.com InstituteofPatenteesandInventors POBox39296 LondonSE37WH Tel:08712262091 www.invent.org.uk
Appendices 175
InstituteofTradeMarkAttorneys CanterburyHouse 4thFloor 2–6SydenhamRoad CroydonCR09XE Tel:02086862052 www.itma.org.uk InvestNorthernIreland BedfordSquare BedfordStreet BelfastBT27ES Tel:02890239090 www.investni.com LiveWIRE–seeShellLiveWIRE Manufacturers’Agents’AssociationofGreatBritainandIreland Incorporated(MAA) Unit16,ThralesEnd HarpendenAL53NS Tel:01582767618 www.themaa.co.uk NationalFarmers’Union AgricultureHouse StoneleighPark Stoneleigh WarwickshireCV82TZ Tel:02476858500 www.nfuonline.com TheNationalNewspapers’SafeHomeShoppingProtectionSchemeLtd 18aKingStreet MaidenheadSL61EF Tel:01628641930 www.shops-uk.org.uk
176 Appendices
ThePatentOffice ConceptHouse CardiffRoad NewportNP18QQ Tel:08459500505 www.patent.gov.uk Prince’sTrust 18ParkSquareEast LondonNW14LH Tel:02075431234 www.princes-trust.org.uk ProductionEngineeringResearch Association(PERA) MeltonMowbray LeicestershireLE130PB Tel:01664501501 www.pera.com ScottishEnterprise FreepostSCO7559 GlasgowG28BR or 5AtlanticQuay 150Broomielaw GlasgowG28LU Tel:08456078787 www.scottish-enterprise.com ShellLiveWIRE DesignWorksUnit15 WilliamStreet Felling Gateshead Tyne&WearNE100JP Tel:08457573252 www.shell-livewire.org
Appendices 177
SHOPS(SafeHomeShoppingProtectionScheme)–seeTheNational Newspapers’SafeHomeShoppingProtectionSchemeLtd SmallBusinessBureauLtd CurzonHouse ChurchRoad Windlesham SurreyGU206BH Tel:01276452010 www.smallbusinessbureau.org.uk TheStationeryOffice POBox29 NorwichNR31GN Tel:08706005522 www.tso.co.uk TradeMarksEnquiryUnit Tel:0845500505 www.patent.gov.uk UKTradeandInvestmentEnquiryService Tel:02072158000 www.uktradeinvest.gov.uk VCRDirectoryOnline(searchabledatabaseofinvestorsinunquoted businesses) www.vcrdirectory.co.uk WelshAssemblyGovernment CathaysPark CardiffCF103NQ Tel:08450103300 www.new.wales.gov.uk
Appendix4
Helpforsmall businesses
Thefollowingorganisationsaresomeofthosewhichofferhelpofvarious sortsforsmallfirms.Ifyouareinanydoubtastohowtogetintouchwith them,BusinessLinkshouldbeabletotellyou(www.businesslink.gov.uk): Banks.Mostbankspublishfreebookletsandofferadviceonmany aspectsofstartingandrunningabusiness,giveawayformsonwhich todofinancialplanning,andrunnewsletters. BritishTradeInternational.Thisgovernmentbody,withintheDepartmentforBusiness,EnterpriseandRegulatoryReform,givesleaflets, helpandadviceonexporting. ChambersofCommerce.Joiningthelocalchambercanbeagood wayofmakingbusinesscontacts,aswellasgivingyouaccesstoa libraryandinformationservice,helpwithexporting,andavoicein representationstopublicauthorities. ChambersofTrade.QuiteseparatefromtheChamberofCommerce, whichusuallyservesindustryandcommerce,theChamberofTrade doessimilarworkforretailersandwholesalers. Cooperativedevelopmentagencies.Theseorganisationsgivehelpand advicetopeoplewishingtosetupaco-operativeventure. Countycourts.Theygiveawayabookletonmakingclaimsforpayment ofdebtsofupto£5,000,andwhattodoifsuchaclaimismadeagainst you.
Appendices 179
DepartmentforBusiness,EnterpriseandRegulatoryReform.This governmentdepartmentisthemainsourceofgrantsforindustry.Its regionalofficescanadviseoneveryfacetoftheirhelp(visitwww.dti. gov.uk). Developmentagencies(forScotland,WalesandNorthernIreland). Governmentbodiesthatcanofferawiderangeofadvice,help,premisesandfundsforbusiness. Enterpriseagencies.Thesepartnershipsbetweenthepublicandprivate sectorsaimtoofferadvice,helpandotherfacilitiestoencourage newandexistingbusinesses.ContactvialocalauthorityorBusiness Link. HighlandsandIslandsEnterprise.ThisnorthernScottishorganisation supports,helpsandpromotessmallbusinessesinitsarea. HMRevenueandCustomsInspectorsofTaxes.Leafletsandadvice aregivenonthetaxpositionofbusinesses,whichcanbemostuseful tonewstarters(visitwww.hmrc.gov.uk). HMRevenueandCustomsVAToffices.Theirstaffofferadviceonall aspectsofVATanddispensefreebooklets(visitwww.hmrc.gov.uk). IndustrialTrainingBoards.Althoughmanyhavebeenabolishedor changedinnatureinthelastfewyears,someofferexcellentpublications tohelpnewandsmallfirmsintheirparticularindustry. Jobcentres.Notonlyaretheyasourceofrecruitment,butJobcentres alsocarryastockofleafletsandDepartmentforWorkandPensions publications,manyofwhichareessentialreadingforanemployer. Localauthorities.Theycanusuallyprovideinformationonanyindustrial aidwhichmaybeavailablelocally.Inaddition,asoneofthemostinfluentialenforcementbodiesactingonsmallfirms,theycanadviseyouon howtoavoidtrouble.Themaincontactsaretheplanningdepartment, healthinspectors,firedepartment,buildinginspectorsandtrading standardsoffices. LocalEnterpriseCouncils(LECs).TheseScottishbodiesofferarange ofbusinesssupport. NewspaperPublishersAssociation.Thisbodylaysdowntherulesgoverning,amongotherthings,mailorderadvertisinginmostnewspapers andmagazines.Anyoneplanningtosellbythismethodshouldcontact themwellinadvanceoftryingtoadvertise. PatentOffice.ThePatentOfficeoffersaninformativesetofleaflets ontrademarks,registereddesignsandpatents.
180 Appendices
RoyalMail.TheRoyalMailgivesconsiderableconcessionstovolume usersofitsservicesingeneral,andespeciallytofirst-timeusersof directmailselling.PostalsalesrepresentativesatHeadPostOffices providethedetails. TouristBoards.Organisedregionally,theTouristBoardsoffermanagementadviceandpublicitytotheirtourism-basedmembers.These donothavetobejusthotels:theyareconcernedtohelpmostfirms havingsometourismaspecttotheiroperations.Theyalsopublishsome usefulguidestorunningdifferentsortsoftourismbusinesses.
Index
3i 71 80/20rule(Pareto) 3 ACAS 127 accuracy 99 activitycentre 122 administratorasentrepreneur 9 advertising 38 agency 38 forstaff 118 advisers 135 AIDA 35 Amazon 43 assessmentsummary(recruitment) 124 auditing 76 B2B 21,109 balancesheet 57,163 bankfees 70 banks 52,70,108,143 benefits 25 bigfirmcfsmallfirm 7 bigorders 52 borrowing 72 BRAD 38,40 Branson,SirRichard 139 break-evenpoint 64 BritishFranchiseAssociation 15 BritishStandards 105 BT 45
budget 56,72 businessangels 71 businessclubs 21 BusinessEyeonWales 136 BusinessGatewayinScotland 136 business’slegalstatus 60,74 BusinessLink 69,111,130,132,136 businessname 60,76–78 businessplan 72 businesstypes 12 buyers 19 buyingabusiness 13 catastrophe 132,133 CDROM 35 CapitalGainsTax 111 cash 52–54,57,72,162–65 Caulkin,Simon 97 ChamberofCommerce 21,69,136 ChamberofTrade 21 chasingpayment 52 Citizens’AdviceBureau 130 civillaw 79 click-throughs 42 colleges 21,137 CompaniesHouse 76 competitiveness 24 competitors 25,37 conditions 85,166 consultants 143
182 Index ConsumerCreditAct 61 consumers 26 contingency fee 82 planning 132 contracts 103 contractlaw 80,83–85 contribution 66 contributioncosting 64 control 50,57,99 co-operative 73 copyright 87 CorporationTax 111 costing 47,64–66 costs 47 CountyCourt 82 craftspeopleasentrepreneurs 5 credit 52,57 creditcards 44,58 creditcontrol 58–63 criminallaw 79 culture 142 customers 19,25,34,132 DBERR(DepartmentforBusiness, EnterpriseandRegulatory Reform,formerlyDTI) 69, 130 DVD 35 debtcollector 63 deliverynotes 52 Dell 97 depreciation 54,55,57 designer 44,26 developmentagencies 21,68,69 disciplinaryprocedure 129 directmail 28,30 directors,company 75 DirectSalesAssociation 30 discrimination 115 dismissal 129 distancesellingregulations 29 distribution 26,27 distributors 27,32 domainnames 44
eBay 43 employeecosts 51 EmploymentTribunal 127 entrepreneurialtypes 5 expansion 139,145–61 factoring 71 family 4 fixedcosts 64 forecasting 54 ofsales 21,22 ofcashposition 53 franchises 14 Fridaystaffmeetings 101 funding 143 Gillette 20 goodwill 14 Google 119 grants 68 grievanceprocedure 129 grossprofit 31,56 growthseeexpansion guarantees 85 healthandsafety 101,103 HealthandSafetyExecutive 81 HighlandsandIslandsEnterprise 136 HMRevenueandCustoms 71,107, 110 holidays 49 hourlyrate 48,51 image 26,34 inductionofstaff 125 IndustrialTribunal(NIreland) 127 InspectorsofTaxes 110 insurance 12,52,90,133 broker 134 internet 41–45 interviewrecord 121 interviewingseerecruitment in-trayexerciseseerecruitment InvestNorthernIreland 136 invoicing 52,60,62
Index 183 IT 16,97,132 strategy15 jobcard 100 jobdefinition 117 InstitutionofCivilEngineers 119
merchantbanks 71,143 mobileshowroom 28 multiples 27 NationalInsurance 74,110 contributions 11 NewDeal 69 newsrelease 40,41
Kodak 20 LRAArbitrationSchemeseeIndustrial Tribunal Laithwaite’s 30 landlord 132 latepaymentpenalties 61 law 79 employment 127 LawfulDevelopmentCertificate 91 leasing 71 leases 94 limitedcompany 74–76,143 liquidator 52 loans 70 localauthority 21,68,86,89,92,94, 132,136 LocalEnterpriseCompanies 136 localradio 40 localTV 40 logo 26 MailingPreferenceScheme 30 mailorder 28,29 mail-ordercatalogues 27,37 mailorderbatteries.com 16 maleentrepreneurs 9 management 96–102,140,141 ofpeople 113 managersasentrepreneurs 6 MapShop,The 17 margins 30,31 marketstalls 28 markettraders 23 marketsegments 20 Marks&Spencer23 mark-up 31
objectives 39,139,141 overdrafts 70 overheads 49,51,55,64 PCs 102,107,108 Pareto(80/20) 3 parishcouncil 93 partyplan 28 partnership 74 patents 87 PatentAgent 87,88 pensioncontributions 11 people 101–02,113–17 personspecification 118 personal characteristics 4 finances 11 income 11,108 presentation 34 planning 52,97–99 planningappeals 93 PlanningInspectorate,The 93 planningpermission 91–93 premises 89–91 prestigepremises 52 pricing 31,36,49 Prince’sTrust,The 69,136 priority(matrix) 2 productliability 86 production 100 productivehours 49 profitplanning 55,63–64 profit-and-loss 54–57,63,72,163 publiclibrary 21,136 publicity 39 purchasing 103
184 Index quality 104–05 rates 94 ratingassessments 94 records 52,106 recruitment 116–26 redundancy 130 references 60 regionaldevelopment bodies 68 registereddesign 87 registeredinsurancebroker 134 regulations 29 research 20 retailmarginconventions 31 retailers 30,32 riskmanagement 131–34 Rockefeller,JD 20 RoyalMail 30 safetyseehealthandsafety saleorreturn 33 sales agents 27 forecasting 22 presentation,planningthe 35 promotion 36 proposition,definingthe 18,23 representatives 27 stationery 34 salespeople 26 asentrepreneurs6 ScottishEnterprise 136 searchengine 43 security (collateral) 72 segmentationofmarkets 20 SelectiveFinancialAssistance 69 self-employed 128 selling 35 sellingdirect 28 sharecapital 75 ShellLiveWIRE 136,137 SHOPS29 shortlistingseerecruitment sickness 49 smallcfbigbusiness 7
SmallClaimsProcedure 63,82 SmallFirms’LoanGuarantee Scheme 69,71 soletrader 74 specification 103 staffseepeople standardsseeBritishStandards statements(ofaccount) 60,62 supervision 101 suppliers 103,132 suspension(ofstaff) 129 tax 110–12 technicalspecialists 5 TelephonePreferenceScheme 30 theft 52,132 time,useof 3 tort 81 towncouncil 93 tradeassociations 21 trademarks 87 tradingname 77 TradingStandardsoffices 86 training 101 typesofbusiness 12 UBR(UniformBusinessRates) 94 UnfairContractTermsAct 83 value 17,37 variablecosts 64 VAT 15,31,55,60,106,108–10 warranties 85 watercharges 94 webtrading 16 website 29,35 hosting 44 setting-up 45 wholesalers 27 WillingsPressGuide 38,40 womenentrepreneurs 10 YellowPages 21,30