It’s 2002. The stock market is volatile. As if this wasn’t gloomy enough, there’s also been a spate of publicly quoted companies calling in the receivers. The economy may not technically be in recession, but for many sectors it feels like it. And yet there are still ten good reasons why starting a business venture now can be the basis of a sound long-term enterprise.
1. INTEREST RATES ARE LOW
You may need to borrow money to set up. Interest rates are at a 38-year UK low, providing great encouragement that you will be able to negotiate longer-term, fixed deals which ensure that for the vital three-year period part of your operating costs will stay low and known.
2. INFLATION IS LOW
The curse for small businesses is the lurching of the economy from boom to bust. The effect of the current slowdown is different in character to the ravages created by the recessionary period of 1990 to 1993 – which hit the UK harder than many other countries. So far it appears that the UK economy is not under as much pressure as others. Much of this is due to the success that the Bank of England has achieved in keeping inflation under control, thus allowing some degree of stability for businesses.
3. COMMERCIAL PROPERTY RENTS HAVE PEAKED
Two years ago, when every man and his dog were forming an internet company, commercial property rents were sky-high. Now that many of these ventures, which were often well funded but not well managed, have bitten the dust, commercial rents are falling. If yours is the sort of business which really needs premises (and you should always question that assumption very closely), you want to keep that cost as low as possible.
Given the nature of the property market, you may find yourself tied into premises for a period of time, and it’s vital that this fixed cost is as low as you can make it. In these sorts of markets, you can negotiate fiercely on rent, service charge and the terms and conditions surrounding a lease. You may even be able to persuade a landlord that you are on a short-term contract, which gives you flexibility but makes you vulnerable to rent increases when the market improves.
4. GOOD EMPLOYEES ARE CHEAPER
When the economy is down, suddenly you find that you can attract high-quality staff at sensible rates, while in boom times you cannot get anyone of good calibre, no matter what you pay. Staff stay longer too when the market is in difficulty, giving you an opportunity to generate loyalty and commitment among your team.
5. A NUMBER OF DIFFERENT GOVERNMENT TAX INCENTIVES
It’s now easier to raise money from business angels and other individuals, who can invest in your business through the Enterprise Investment Scheme (so long as your business qualifies) and defer capital gains tax on existing gains if they invest the proceeds in a private company. So it should be possible to look for backers, although they may be more wary of investing when the outlook appears gloomier.
6. GOOD PRICES FROM SUPPLIERS
There are absolutely no rules when it comes to negotiating deals. Fantastic discounts can be agreed on basic supplies, and you should adopt the policy of always going back and asking for more – they can always say no. Even deals you have formally agreed can be renegotiated; don’t be too embarrassed to try this.
7. NEGOTIABLE PAYMENT TERMS
Bargaining for cheaper prices with suppliers is not the only option open to you in these difficult times. You should also focus on making your business as cash-generative as possible, which means speeding up the rate at which you persuade your customers to pay, while slowing down the rate at which you pay your suppliers. Now is the time to negotiate and persuade them to give you more and longer credit periods.
8. SUPPORT SERVICES TO GIVE ADVICE
Businesses prosper more when the owner-manager has a trusted outside adviser or mentor. This may be an experienced businessperson who you know and whose opinion you value. Or you may find someone from among the range of support services, such as the Business Links.
9. COMPETITION IS WEAKENED
If you set up a business in a sector that already has competitors that started when the economy was booming, you may find that the effort of surviving this far in a downturn has taken its toll. Thus the competition may be seriously weakened, providing you with an opportunity to act as predator. Of course it’s vital that your business is properly funded and well organised, otherwise you will find entry too tough.
10. FOCUS BETTER ON YOUR OFFERING
When demand is high, an ill-prepared and ill-considered marketing proposition can still be successful – at least until the next downturn. With lower demand, it’s imperative that your offering is completely tuned to your potential market, and that you have tailored it exactly to your customer needs. This provides a useful focus for your efforts.
YOU AND YOUR IDEAS
As a way of earning a living, running your own business has two distinctive features. The first is that you don’t submit yourself to a selection process; there’s not, as there is with a job as an employee, a sifting carried out of possible applicants for a vacancy. There’s no personnel manager wielding a battery of psychological tests or cunning interview questions to test your suitability for the job or the level of skills you have acquired.
You are the sole arbiter of your fitness to start and run your own business.
This puts a very heavy responsibility on your self-knowledge, because without a doubt not everyone is suited to being an entrepreneur or being self-employed. The only external check, which may be carried out on your fitness to found a business, occurs if you need to raise money; in this case, a bank manager or other lender or investor judges you. But by the time you reach this stage, you may already have committed time and money to your project.
The answer to the dilemma of this self-selection process is self-analysis.
Additional insight can be provided by the opinion of colleagues, friends or family. But this can be fraught with emotional problems. Those you ask for an opinion may feel under pressure to give a favourable view for fear of offending. If an unbiased view cannot be expected, do not seek an opinion at all.
Some people talk over a number of years of running their own show, but never take the ultimate step. Why do some people break the mould while others only dream of it?
The second unusual characteristic of starting your own business to create your own income is that you decide what type of business it is and what market you will be selling to. While you can select a salaried job in a firm of a particular size or selling to a particular market, you are restricted by the vacancies that are available.
When it comes to establishing a business, in theory, the world is your oyster. A well-run business should succeed in any market. In practice, however, you can make success more likely by choosing your product and market carefully.
The greatest determinant of the success of your business is you, your character and skills. This you must believe if your business is to have any chance of prospering. The type of person who blames external factors for failure and believes that their own decisions have little impact on the course of future events is not suited to building a business.
WHO ARE YOU?
How frequently do you overhear, or partake in, conversations which run along the following lines: ‘In a couple of years I would like to start off on my own if I can’t? Quite a number of people dream of running their own show, but not all take the plunge. A survey of children by MORI found that, while over a fifth of 11 to 15-year olds said they would like to start a business one day, only one-tenth of the over-15s ever do so. This proportion is much lower than in the United States, where one in three people starts their own business.
In some ways, it’s hardly surprising that few entrepreneurial dreamers take the final step. Lying ahead of them, maybe for a number of years, is the unknown: financial insecurity; long working hours; long-term financial obligations; and, at the end of it all, possible failure. So just what is different about those who jump and those who only talk?
The conventional image of an entrepreneur is of a strong-minded, positive risk-taker seizing every opportunity. Well, this may be a reasonably close approximation of some successful entrepreneurs and you may be that sort of person, but this still doesn’t explain why you are starting your own business and why now. There are many people like this who stay employees for the rest of their lives, and many more who start a business ‘accidentally’ but make a great success of it.
One plausible explanation for why some start a business and others do not is that those who go solo have received a rude shock to their lives. Their previously cosy existence has been disrupted.
Common examples today are:
- Being sacked or being made redundant;
- Not achieving the promotion you confidently expect;
- Having your plans/proposals/ideas rejected by your boss;
- Being transferred to a different job or location or finding the business you work for is to be sold;
- Retiring but finding you need to supplement your pension;
- Reaching a particular age and feeling no sense of achievement and
- Realising that there’s little security in corporate life.
If you have experienced one of these shocks, the comfortable niche in life which you have created for yourself may suddenly feel restrictive and unsatisfactory. Your response may be to try to seize control of your own life by creating your own job.
This feature is an edited extract from the Lloyds TSB Small Business Guide – 2003 edition. It is reproduced here with the permission of Lloyds TSB and Vitesse Media. To save £2 on the cover price, call publishers Vitesse Media direct on 020 7430 9777 quoting AA1, or visit www.smallbusiness.co.uk.