The Pros and Cons of starting up a business

Many people start their business adventure dreaming of riches and freedom. And while both are certainly possible, the first thing to understand is that there are trade-offs when you decide to start a business. Difficult bosses, annoying co-workers, peculiar policies, demands upon your time, and limits on how much money you can make are traded for independence, creativity, opportunity, and power. But by the same token, you also swap a regular paycheck and benefits for no paycheck and no benefits. A life of security, comfort, and regularity is traded for one of uncertainty.

There are definitely pros and cons to starting your own business. To be more precise, the benefits of starting a business include:

• Control. Even if you like your boss and your job, the possibility remains that you can be laid off at any time. That boss you like so much can be transferred. Your company can go bankrupt. So one advantage of starting your own business is that you are more in control of your work and career. And while that may be comforting, you should also realize that with that control will come increased responsibility and a new set of demands. As the boss, the buck must stop with you. You are the one who has to meet payroll. You are the one who has to make sure that clients and customers are happy. You are the one who must hire and fire the employees. It is not always easy, and you can bet that there will certainly be times when you will look fondly back on your days as an employee, when you had far less responsibility and control.

• Money. Many people choose to start their own business for the simple reason that they think that they are worth more money than they are making or they want the chance to provide a better life for their family. There is usually a limit to how much money you can make when you are an employee. The good news is that when you are the employer, the entrepreneur, the boss, there are far fewer limits. That can be a good or bad thing; you may make a fortune, or you may go bust. If this kind of uncertainty appeals to you, good, because it is what you will be getting if you start your own business.

• Creativity and independence. If you feel stagnant in your current job, you won’t feel stagnant for long if you start a business. Running your own business may require you to be the marketing wizard, salesman, bookkeeper, secretary, and president all rolled into one. It is a hectic life. But you may not mind that. It’s kind of like the Calvin and Hobbes cartoon in which Calvin’s mother tells him to make his bed. Calvin decides to build a robot to make the bed for him. When Hobbes asks, “ Isn't making the robot more work than making the bed?” Calvin answers, “It’s only work if someone makes you do it!” The same holds true when the business is yours—it often doesn't feel like work because no one is making you do it.

• Freedom. Working at your own business gives you the flexibility to decide when and where you will work. You decide your hours and place of business. The freedom that comes with being your own boss, where no one can tell you what to do or how to do it, may be the best thing about being an entrepreneur.

But there are also downsides to starting your own business:

• Uncertainty. As indicated, the life of an entrepreneur is not necessarily an easy one. Is it fun? Yes. Is it challenging, exciting, and spontaneous? You bet. But it is not easy. The hardest part of being in business for yourself is that there is no steady source of income; a paycheck does not come every two weeks.

• Risk. What is an entrepreneur? An entrepreneur is someone who is willing to take a risk with money to make money. Not all entrepreneurial ventures are successful. The willingness to take a smart, calculated risk is the hallmark of a smart entrepreneur. But even calculated risks are still risks. You could make a million or you could go bankrupt.

• Lack of structure. Many people like the structure of working for someone else. They know what is expected of them and what they need to accomplish each day. This is not true when you work for yourself. The work is very unpredictable. You need to consider carefully both the risks and rewards of entrepreneurship before deciding to jump in. It is easy to become infatuated with the idea of owning your own business. But if you are going to do it right, if you are going to be successful, you need to take emotion out of the equation. You have to begin to think like a businessman, consider the risks, and make an informed, intelligent, calculated decision.

Starting up a Business 101 - IV

Business? See whether you relate to any of the following most common reasons people give for starting up in business:

·         Being able to make your own decisions

·         Having a business to leave to your children

·         Creating employment for the family

·         Being able to capitalise on specialist skills

·         Earning your own money when you want

·         Having flexible working hours

·         Wanting to take a calculated risk

·         Reducing stress and worry

·         Having satisfaction of creating something truly of your own

·         Being your own boss

·         Working without having to rely on others

The two central themes connecting all these reasons seem to revolve around gaining personal satisfaction, which can be seen as making work as much fun as any other aspect of life, and creating wealth, which is essential if an enterprise is going to last any length of time.

Even when your personality fits and your goals are realistic, you have to make sure that the business you’re starting is a good fit for your abilities.

Business Assets

Safeguarding Your Business Assets

When you think of your business assets, you probably think first and foremost of your equipment or machinery, company cars, and so on. It’s important to make sure that all those assets are looked after and insured, as well as protected by alarms and locks to cut down the risk of damage or loss. However, if you’re in the business of inventing things or coming up with new ideas or you have logos or symbols that are a vital part of your business brand or image, those intangibles can be valuable assets. You can take care of most material assets, such as premises and computers, with insurance, but assets that fall under the heading of intellectual property are a lot harder to protect but even more damaging to lose.

Protecting your name

A rose by any other name may smell as sweet, but would your business be as successful if it was called something else? If you’ve worked hard to build a good reputation and your customers keep returning and sending referrals, your name is vitally important. For that reason, you don’t want anyone else using it and perhaps tarnishing it by selling inferior goods or services to the ones you provide. If someone is in competition with you and tries to use the same or a similar name as yours, you can take them to court and claim that they’re passing off their products as yours.

Of course, the last thing you want is to get involved in costly court proceedings, and you have to be sure that you have a good case. For example, the other company may not realize that another company with the same or similar name is doing a similar line of business. Try to negotiate before taking court action, but don’t wait too long before taking action or your good reputation may be lost.

Starting up a Business 101 - Employees

Taking on Employees

One of the most important decisions for any business owner – whether he’s a sole trader, in a partnership, or operating as a limited company – is when to take on employees. One minute everything is ticking along nicely, and then suddenly you have too much work to cope with and you need help. You have to make sure that you don’t do anything to contravene those rights, or you may find that your employees can make a claim against you at an employment tribunal. If the tribunal finds in favour of your employee, you can then face a bill for compensation.

Right from the moment you decide to take on a staff member, you have to stay on the right side of the law. If you need to talk things over with someone before taking the first steps, an adviser at Business is a good place to start.

Starting up a Business 101 - III

Working as a sole trader

Are you going to go it alone? You can establish yourself as a sole trader very easily. You don’t have to fill out a lot of forms, and you’ve got only yourself to answer to.

Most people who work on a freelance basis are sole traders, doing what they know best for a range of clients, as and when those clients need their services – say, a photographer who wants to work for himself rather than an employer. You can leave your job, make up a portfolio of your work or a brochure advertising your particular skills, and market your services to anyone you think might pay for them.

As a sole trader, you make your own business decisions; you answer only to clients, and the profits (and any losses) you make are yours. If you do make losses and run up debts, you’re personally responsible for those debts. If things go badly wrong, you may ultimately have to sell some possessions, perhaps even your home, to pay off your debts. Basically, as a sole trader, you’re running your business on your own. If you expand, you may decide to take on other people to work for you – as employees or as freelancers on short-term contracts – but the business is yours.

Most sole traders are self-employed and are taxed as such by the regulated and appropriate tax office. You need to register with the regulated and appropriate tax office within three months of starting up. You can find more information on its Web site or from your local tax office, which is listed in the phone book.

You have to be careful because if you’re a sole trader and you do most of your work for just one client, the local tax office may not accept that you’re self-employed. It may decide that you’re an employee of that client.

Starting up a Business 101- II

In establishing a profitable and well-suited business, the easiest way to fill an endurable need is to tap into one or more of these triggers:

Cost reduction and economy. Anything that saves customers money is always an attractive proposition. Lastminute.com’s appeal is that it acts as a ‘warehouse’ for unsold hotel rooms and airline tickets that you can have at a heavy discount.

Fear and security. Products that protect customers from any danger, however obscure, are enduringly appealing. In 1998, two months afterLong-Term Capital Management (LTCM), one of America’s largest hedge funds, was rescued by the Federal Reserve at a cost of $2 billion, Ian and Susan Jenkins launched the first issue of their magazine, EuroHedge. In the aftermath of the collapse of LTCM, which nearly brought down the US financial system single-handedly, there were 35 hedge funds in Europe, about which little was known, and investors were rightly fearful for their investments. EuroHedge provided information and protection to a nervous market and five years after it was launched the Jenkins’s sold the magazine for £16.5 million.

Greed. Anything that offers the prospect of making exceptional returns is always a winner. Competitors’ Companion, a magazine aimed at helping anyone become a regular competition winner, was an immediate success. The proposition was simple. Subscribe and you get your money back if you don’t win a competition prize worth at least your subscription. The magazine provided details of every competition being run that week, details of how to enter, the factual answers to all the questions and pointers on how to answer any tiebreakers. They also provided the inspiration to ensure success with this sentence: You have to enter competitions in order to have a chance of winning them.

Niche markets. Big markets are usually the habitat of big business – encroach on their territory at your peril. New businesses thrive in markets that are too small to even be an appetite wetter to established firms. These market niches are often easy prey to new entrants as they have usually been neglected, ignored or ill-served in the past.

Differentiation. Consumers can be a pretty fickle bunch. Just dangle something, faster, brighter or just plain newer and you can usually grab their attention. Your difference doesn’t have to be profound or even high-tech to capture a slice of the market. Book buyers rushed in droves to Waterstones’ for no more profound a reason than that their doors remained open in the evenings and on Sundays, when most other established bookshops were firmly closed.

Business tip

Checking the fit of the business

Having a great business idea and having the attributes and skills needed to successfully start your own business are two of the three legs needed to make your business stool balance. Without the third leg, though, your stool isn’t stable at all. You need to be sure that the business you plan to start is right for you.

Before you go too far, make an inventory of the key things that you are looking for in a business. These may include working hours that suit your lifestyle; the opportunity to meet new people; minimal paperwork; a chance to travel. Then match those up with the proposition you are considering.

Starting up a Business 101

Checking Viability

An idea, however exciting, unique, revolutionary, and necessary is not a business. It’s a great starting point, and an essential one, but there is a good deal more work to be done before you can sidle up to your boss and tell him or her exactly what you think of them.

The following explore the steps you need to take so that you won’t have to go back to your boss in six months and plead for your old job back (and possibly eat a large piece of humble pie at the same time).

Researching the market

However passionate you are about your business idea, it is unlikely that you already have the answers to all the important questions concerning your market place. Before you can develop a successful business strategy, you have to understand as much as possible about your market and the competitors you are likely to face. The main way to get to understand new business areas, or areas that are new to you at any rate, is to conduct market research. The purpose of that research is to ensure that you have sufficient information on customers, competitors, and markets so that your market entry strategy or expansion strategy is at least on the target, if not on the bull’s-eye itself. In other words, you need to explore whether enough people are attracted to buy what you want to sell at a price that will give you a viable business. If you miss the target altogether, which you could well do without research, you may not have the necessary resources for a second shot.

The areas to research include:

 Your customers: Who will buy more of your existing goods and services and who will buy your new goods and services? How many such customers are there? What particular customer needs will you meet?

Your competitors: Who will you be competing with in your product/market areas? What are those firms’ strengths and weaknesses?

Your product or service: How should you tailor your product or service to meet customer needs and to give you an edge in the market?

The price: What would be seen as giving value for money and so encourages both customer loyalty and referral?

The advertising and promotional material: What newspapers, journals, and so forth do your potential customers read and what Web sites do they visit? Unglamorous as it is, analysing data on what messages actually influence people to buy, rather than just to click, holds the key to identifying where and how to promote your products and service.

Inflated numbers on the Internet If you plan to advertise on an Internet site it makes sense to check out the sites you’re considering. Be aware that some sites publish a fair amount of gobbledygook about the high number of ‘hits’ (often millions) the site scores. Millions of hits doesn’t mean the site has millions of visitors. Some Internet sites increase their hit rate by the simple expedient of adding the number of pages each viewer must download to view the page.

Another mildly meaningless measure of the advertising value of a site is the notion of a ‘subscriber’. In Internet parlance anyone visiting a Web site and passing over their e-mail address becomes part of that company’s share price! It is rather like suggesting that anyone passing a shop and glancing in the window will turn into hard cash tomorrow. Any real analysis of Web site use starts with ‘page impression’, which is a measure of how many times an individual page has been viewed.

Channels of distribution: How will you get to your customers and who do you need to distribute your products or services? You may need to use retailers, wholesalers, mail order, or the Internet. They all have different costs and if you use one or more they all want a slice of the margin.

Your location: Where do you need to be to reach your customers most easily at minimum cost? Sometimes you don’t actually need to be anywhere near your market, particularly if you anticipate most of your sales will come from the Internet. If this is the case you need to have strategy to make sure potential customers can find your Web site. Try to spend your advertising money wisely. Nationwide advertisements or blanketing the market with free disks may create huge short-term growth, but there is little evidence that the clients won by indiscriminate blunderbuss advertising works well. Certainly few people using such techniques made any money.