7 Questions to Ask Yourself Before You Start Your Own Business
When we think entrepreneurship, the image that often springs to mind is a footloose and stress-free lifestyle with flexible working hours, no annoying boss and ultimately, if not riches beyond our wildest dreams, then a very comfortable income.
The reality of starting a business is however, a little different. Before you dive head-first into your exciting new venture, be sure to ask yourself the following questions:
1. What Problem Is My Business Going to Solve?
You have a great idea for a new business and can’t wait to get to work. Before you hand in your resignation, sit down with a pen and paper and think about how your product or service is going to help customers once it’s out there. The easiest way to do this is to ask yourself the question “What problem is my business going to solve?”. If an answer doesn’t spring to mind, then it’s time to have a think about what your product can actually be used for, as this will define its value once it’s on the market.
2. Am I Looking to Create A Job for Myself or a Scalable Company?
You may simply be aiming to create a small company with yourself in a key position or as the sole employee, and that’s fine – in 2018, 75% of businesses in the UK didn’t employ anyone except the owner. Be very clear about this before you start out however, as it’s essential to have an idea of if and how you will scale your business before you get started. If you kick off with unrealistic expectations, you will most likely find yourself taking on more work than you should without the necessary funds or personnel to back you up. Think about how big you want to go – do you want to create a lifestyle business, i.e. something that will provide you with the income you need with limited scope for scalability, or do you aim to step back from the company a few years down the road?
3. How Should I Register My Company?
The four business structures you can choose from are a sole trader, partnership, limited liability partnership and limited company. Registering as a sole trader is probably the simplest option, but keep in mind that there is no difference between you and your company, which means that if your business is sued, you are too, putting your personal assets at risk. This is also the case with a partnership, in which case you are strongly advised to draw up a partnership agreement. A limited liability partnership is a separate legal entity from the partners and must file its accounts every year, which are then on public record. A limited company remains a separate legal entity from its directors and shareholders and must also file an annual return. It’s more complicated to set up than a sole proprietorship or partnership but can be more advantageous from a tax point of view, making it a popular option.
It’s important to choose a structure that best fits your business, which makes this a major decision – don’t hesitate to call in a financial advisor to give you a helping hand.
4. What Kind of Funds Am I Going to Need?
One question that will feed into your choice of legal structure is the type of business you intend to build, which will also greatly impact the amount of funds required. A lifestyle business won’t require as much as a franchise, while a tech business will probably involve raising significant capital. The various options that are open to you include a business loan (probably the most common type of funding for new companies), equity investment (when investors put a certain amount of money into a business, and can be hard to obtain), asset finance (when a company’s balance sheet assets are used to obtain a loan) and invoice finance (when a company borrows money against amounts due from customers). Yet again, a financial advisor is probably the best person to help you define which type of funding is best for your business.
5. Am I Prepared to Invest My Own Money?
One thing that many first-time entrepreneurs don’t take into account is that fact that your personal life and professional life are about to become a whole lot more connected. What’s more, your first investor (or only investor) is most likely to be… you. Are you willing to invest your own capital in your business? Keep in mind that if you decide to go down the equity route, VCs will most likely want to know how much of your own money you’ve put into the company as a gauge of how committed you are. After all, if you’re not prepared to invest, why should someone else?
6. How Long Am I Willing to Go on Very Little Pay?
Or even no pay at all. Starting your own business can mean going for quite some time without making any money – and when the cash starts to come in, you’ll have to decide whether to distribute profits back to the owner(s) or reinvest them back into the company in order to expand operations. A popular misconception about entrepreneurship is that you’ll be laughing all the way to the bank – this may be the case at some point, but it’s certainly not going to happen immediately.
7. Am I Prepared to Sacrifice My Social Life?
Starting a business is a bit like having a baby, in that your friends aren’t going to be seeing much of you for a while. Yet again, this depends on the kind of business you intend to set up: a lifestyle business might see you back on track within a relatively short time, while getting an innovative new tech product on the market will mean you can forget about quiz nights and Sunday brunches for the foreseeable future. Recent research by Virgin Money revealed that one of the hardest things about entrepreneurship is finding the time for holidays, dating and ultimately maintaining a social life.
In conclusion, the key to building a successful business is being very clear about your goals from the get-go. Thinking carefully about what you want in terms of scale and how much time and money you are prepared to invest is the best way to make entrepreneurship a rewarding and ultimately lucrative experience.
Meet the Author: Rebecca Brown
Becca is a translator and interpreter, living the digital nomad life and enjoying it to the fullest. She has recently ventured into the world of writing, and is trying to convey some of her experiences through her posts. You can read her blog at roughdraft.eu.