If you’re reading this, you are seriously considering setting up your own business, and you’ve got lots of questions that need answers. This book should provide you with most of the answers you need, and save you thousands in professional fees.
This book will also help prevent you falling into the traps that many unsuccessful businesses have found themselves caught up in. It’s not an easy job to grow a successful small business, and it’s for that reason I have included a few cautionary notes to stop you wasting what little time and money you have.
With regard to your planned business startup, the figures are stacked against you before you start, as 90% of new businesses fail! Read on and let’s see what we can do to ensure your business becomes one of the 10% that make it.
Even if you don’t make it on your first attempt (as you’re not a quitter, you’ll try again!), what you learn from this book will ensure that your dreams will become reality somewhere down the line.
The aim of this book is to provide you, the new business owner, with sufficient knowledge to successfully run your own business. It also aims to provide you with an insight into the level of knowledge of taxation, general management and the legal framework that you will need to successfully grow your business.
Who Will Be Interested in This Book?
Although this book will be of interest to those already running their own business, it has been written primarily for the benefit of those planning to set up a new business.
Much of the content relates to business owners operating as
Sole traders
Expense-sharing arrangements
Partnerships
Limited companies
The distinction between these different arrangements and the tax and legal considerations of each will be explained in full in Chapter 3.
I have already referred to the high level of failure in business startups. To give you a further insight into the failure rate, I would like to add some information from the Small Business Administration in the USA regarding the longevity of new business startups.
They discovered that 7 out of 10 new businesses survive at least 2 years, half at least 5 years, a third at least 10 years and a quarter last 15 or more years.
However, this doesn’t appear to have dampened the desire of entrepreneurs to try, as the number of new businesses continually being set up is phenomenal.
There are always entrepreneurs who will continue to identify and take advantage of every opportunity available to make a profit, with a staggering 100 million businesses launched worldwide each year.
In the 10 minutes or so that you’ve taken to read to this point, over 1900 new businesses have been created, and sadly over 1710 new businesses will have ceased trading.
This high level of failure does not put off those who wish to start their own business, as the desire to set up in business, especially among people in their twenties and thirties, has increased significantly in the last few years. Figures that I have obtained from Companies House in the UK of new businesses that recently incorporated clearly show this trend (Table 1.1).
Table 1.1 UK Business Incorporations
|
Year |
New Incorporated Businesses |
|
2016 |
658,000 |
|
2015 |
608,000 |
|
2014 |
581,000 |
|
2013 |
527,000 |
The number of new company registrations in the UK in 2017 to date (July 2017) exceeds 305,000.
The data does not show the real picture regarding the number of new startups in the UK, as this data is restricted to those businesses which have decided to incorporate (Chapter 3). There will have been hundreds of thousands of other startups in 2013 to 2016 that didn’t consider it appropriate to incorporate.
Further, the figures show that new company registrations are growing at a startling pace right across the UK, with Central London showing incorporations of 500 per 1000 residents. The particular reason (the gig economy) behind this high level of incorporations will be discussed in detail in Chapter 5.
Interestingly, information from the Official Records Office in the UK also shows that there has recently been a decrease in the number of businesses failing, with a 4% reduction in company liquidations.
These healthy figures are not impressive, though, when compared with those coming from the USA where 543,000 new businesses are being set up each month. The UK figures are encouraging, however, given the political upheavals (such as Brexit) that have taken place in the last few years.
What are the reasons for the increased activity in new startups?
There has been a move by governments to outsource a number of their services to subcontractor businesses as part of cost-saving exercises. (We will look at the growth in subcontracting in detail in Chapter 5.)
These arrangements can often result in the governments in question circumventing their own employment legislation and avoiding expensive commitments (which can then become the problem of the subcontractor businesses!).
Another reason for the increase in the number of new startups is the number of graduates leaving education looking for a career, and on finding that there are few opportunities available decide to set up their own business.
It is also very easy to set up an online business from home, and relatively easy to obtain finance.
Government Assistance for New Businesses
At the moment, there is a lot of political will to encourage more new startup businesses, with grant funding, subsidies, assistance raising finance, exemptions from statutory reporting and tax incentives available to those who are willing to take the plunge. So, there couldn’t be a better time to start.
Assistance with financing means that it is less risky now than it has been to start a business, as governments in some cases will underwrite startup loans.
Businesses can now be set up and registered in a matter of hours, as regulations have been relaxed.
I would advise that you take advice from a qualified business adviser in the area you are considering your startup, as to the assistance currently available locally. There is also a lot of advice available free online, but be wary of who you are taking advice from as there are plenty of rogues purporting to be more able than they are.
Governments have cottoned on to the fact that today’s new startup businesses become tomorrow’s major employers and taxpayers and have realized that by taking an active role in the creation of new business, they are ensuring a thriving future economy. Often, their involvement is not purely altruistic, as they find they have to fix economies that they have broken with their own policies.
The following details from the US Small Business Administration show how key small new startup businesses are to the economy. They define small businesses as enterprises having fewer than 500 employees, and there are 28 million of these businesses in the USA.
These small businesses employ over 50% of the US working population (currently 120 million individuals).
Sixty-five percent of new jobs created in the USA since 1995 have been created by small businesses.
Fifty-two percent of US small businesses are home based, with the fastest-growing sector being freelance businesses.
Government support in the form of innovation vouchers that subsidize advice for startups, and Entrepreneurs Relief, which reduces tax for business owners looking to sell their businesses, has helped more people to set up their own business.
So, with the level of assistance available at the moment, this is a good time to start a business.
I have already referred to the fact that businesses are increasingly being founded by people in their twenties and thirties. Figures from the Companies House UK website show that in 2017 almost 400,000 companies in the UK were founded by someone born during or after 1982.
My intention in writing this book is to provide you with all the information that you will need to build a skill set to run a successful business. It is hoped that by reading this book, you don’t become a loser.
I have tried to do this by focusing on the right and the wrong things to do. But first, to whet your appetite, I have included some interesting information on the formation of some of the world’s leading businesses.
This section looks at how some household names found their feet. Take note that there was often no big plan, the businesses just took off. By the time you have read this book, you will be able to identify why these businesses thrived while others failed.
In 1995, a computer programmer, Pierre Omidyar, started auctioning off his personal belongings on his personal website, AuctionWeb, as a personal project. However, when the amount of web traffic made it necessary to upgrade to a business Internet account and his costs increased from $30 a month to $250, he had to start charging people fees to make ends meet.
Pierre needed to take on staff to deal with the task of managing the cash he was receiving. He had not planned on setting up a business, but things escalated and he built up a team that could handle the volume of work, and turned the phenomena into a business.
His business and the website are now known as eBay.
At about the same time that eBay was setting up, Max Levchin was setting up Confinity, a business producing security software for handheld devices. He did not achieve enormous success with that business model, and decided to focus instead on developing an electronic wallet.
He then found that people were using the electronic wallet as an eBay auction currency.
Max had not intended to work with eBay, but Confinity soon became consumed by that business.
Eventually, Confinity expanded its operations and changed its name to PayPal. Thereafter, it was taken over by eBay.
Pierre made himself and Max very rich by auctioning off his belongings!
Neither of them started out with the plan to run the businesses they ended up with!
Howard Schultz started his business the classic way, which is to work in a business long enough to know the ropes and then set up on your own.
Howard had worked for Starbucks, which at that time was a retailer of high-quality roasted coffee beans and not the chain of espresso coffee shops and cafes it is today.
It was on a trip to Milan that Howard saw the opportunity for a chain of upmarket espresso cafes, and he decided to leave Starbucks to set up ‘Il Giornale’, with funding provided by Starbucks, who saw his new venture as a potential customer for their roasted beans.
At that time, Starbucks had no interest in providing cafe facilities, so they were happy to help Howard. They also sold him their brand name.
From that inauspicious start in Seattle in 1987, Howard developed the business into the global brand we know today. This is a great example of knowing your business and doing it well.
Konosuke Matsushita, the founder of Panasonic, displayed a quality that is essential in the successful business owner, which is a strong belief in self and product.
In 1917, Konosuke, then a 23-year-old apprentice at an electrical company, invented an improved light socket, which his then employers had no interest in. He believed in the socket so much that he decided to leave his employment and concentrate on his invention.
He carried on improving it further until he had created a viable business, Matsushita Electric (which later became Panasonic).
Konosuke’s belief in himself and his creative talent drove him to create products that other electrical businesses were not producing, such as battery-powered cycle lamps.
The key to Konosuke’s success was his willingness to take a risk on his ability. He was confident enough to follow his belief that his product was as good as he thought it was.
Konksuke became one of Japan’s richest men, but because of his humble beginnings he held a far from average view on business ethics. He believed that he should create wealth for all, as well as himself.
Konksuke believed that business should create wealth for society as a whole, as well as for shareholders, and he was a major contributor to charity.
Steve Wozniak had been working on the design of a small personal computer for a number of years, but hadn’t got very far in creating a business until he met Steve Jobs, an old school friend. Steve Wozniak displayed the creativity and had the imagination to produce a world-beating product, but hadn’t been able to exploit his position.
Steve Jobs instantly saw the commercial potential of Wozniak’s work, and got to work on branding and selling the first Apple products.
The two Steves had been friends since high school. They had both dropped out of college and gained employment at Atari. It wasn’t until Steve Wozniak displayed a phone router at a computer club, which both he and Steve Jobs attended, that their association began.
Steve Jobs convinced Steve Wozniak to join him in a business, which initially had no funding. However, he managed to convince their suppliers, who provided the parts to make the first batch of computers, that the proceeds of Apple’s first sales would be enough to pay for their bills.
He did this with the assistance of his major customer, who verified the details with the suppliers. This was enough for Apple to fulfill its first big order, and the rest is history.
Steve Jobs had found a unique way to finance his soon-to-be multibillion-dollar company. That was in 1976.
When Apple went public in 1980, it generated more money than any public sale of a business since Ford Motor Company in 1956.
Between 1976 and 1980, Apple had difficulties raising finance because banks at the time did not think the idea of a computer for everybody made any sense. It wasn’t until Mike Markkula, a professional business investor, underwrote a business loan of $250,000 for Apple, that the business was safe.
It is said that Steve Jobs visited Mike Markkula at his home to coax him out of retirement, to ensure that the deal went ahead.
Steve Jobs had the vision to see the world we live in today, and to see the advances in technology that allowed the development of products such as the iPhone.
Apple is an example of a collection of talented individuals coming together to make the perfect whole. It is also another example of someone with total confidence in themselves and their product.
The company has consistently increased its income since its formation, from sales of $773,000 in 1977 to sales of $215.6 billion in 2016.
These four examples tell the tale of some of our most successful business people and the lessons that can be learned from their success.