Business advice: cruel to be kind?

If you think the last few years have been bad for jobs, as the old song goes, “you ain’t seen nothing yet”.

Worrying new research from accountants PwC forecasts up to one million private and public sector job losses will result from the cuts announced in the government’s spending review.

Given that adult unemployment is currently running at 7.7% of the working population – that’s 2.45 million people – quite a few of the recent jobless will look to start up their own business instead of waiting for the job market to recover.

Running a business is sexy these days. Hit TV programmes such as Dragons’ Den and The Apprentice show how glamorous it can be.

But therein lies the danger. Approximately half the 400,000 new ventures that start each year fall over in their first 12-24 months.

With this failure rate, should professionals who deal with early stage companies be better off advising most would-be new entrepreneurs not to bother?

Keith Seeley, managing director of Target Chartered Accountants, a firm that serves growing businesses, is supportive but frank to entrepreneurs who knock on his door: “If someone wants to start up a business, I would always see them. But if they have a daft idea that has no chance of success, I would try and put them off. I see too many business plans produced by accountants, which have cost a lot of money but are no better than toilet paper”.

It’s fair to say Seeley is not altogether complimentary about how some in the accountancy profession support their retained clients.

“They don’t do enough to encourage small businesses,” he argues. “They simply churn out year-end accounts, adding no value, stuck in their comfort zones, looking backwards not forwards. A lot of accountants… don’t get their heads around the actual business.”

Michael Levy, senior partner of London-based accountancy practice Michael Levy & Co, identifies a problem common to a lot of the new businesses he sees.

Levy says that too many new entrepreneurs don’t think through what sort of business they are hoping to build.

“One of the most common failures among would-be entrepreneurs is the failure to recognise the difference between building a business that makes them a good living, but which has no longevity without them, and one that can eventually operate without their day-to-day involvement,” he says.

“So the advice I give to entrepreneurs is, if their aim is to build a business that can be sold in the future, make sure to plan for this as the business grows. Put in place the necessary structures to meet this objective. You will want to ensure that the business does not need to rely on you on a day-to-day basis. This enables you to take a more strategic role in its development.”

Anthony Cross is a fund manager from Liontrust, a company that invests in early stage publicly quoted companies. He believes many would-be entrepreneurs should think hard about the alternatives before starting out alone.

“Only if you are utterly convinced you have a product or service that can outperform established rivals, and you have the grit to tough out the difficult early years, should you start out in business,” says Cross.

He argues that some people might be much better off trying to secure promotion in their current work, or looking for a new job that offers better rewards and prospects.

“If your drive to start a business comes from frustration with your current employment, think doubly hard. Running your own venture could result in you disliking both your job and your life even more than your current situation.”

What does Seeley look for in an entrepreneur?

“Setting up a business and running it is going to be tough. I look for someone who will be tough. I look for someone with a clear focus who really can take the rough with the smooth. If you have these personal characteristics with a decent business plan, of course, running a business can be great”.

Tyrone Courtman, a partner in Cooper Parry’s restructuring, recovery and insolvency division, likes to start with a clean sheet of paper when planning a new business.

“A new business with no legacy practices or procedures can be amazingly fleet of foot,” he notes. “They are nimble, they can react, they are not bound by legacy issues.”

But before they start, Courtman’s advises first-timers to think carefully about the nuts and bolts issues that inevitably come in the first years of business.

“Think about how you’re going to live [before you can take a salary]. What are your cash needs? How are you going to meet the mortgage? Will you be able to afford a holiday? Will the family be prepared to make those sacrifices in the early years?”

Neil Boom is a director of onenewspage.com, and has recently published a humourous guide to business called ‘Going Bust: How to Ruin Your Business’

Keith Seeley’s Guide to Starting Out 

Personal qualities

You must have self belief, ambition and drive, as well as being resilient and hardworking.  You also have to have the ability to pick yourself up and dust yourself down.

Have a clear idea of your offer.  You’ve got to think why you are different and have a clear vision of where you are trying to get to and be a quick learner.

Know your market and be a leader of people

You need to be able to sell your dream to your customers and employees.

Don’t ignore the numbers

You will fail if you don’t get your management accounts, cash-flow and credit control right. You’ve also got to understand profit. People who are successful in business understand profit and know how to drive it.

Stay in control

You need to stay on top of your cash flow and have strict credit control.  Getting your customers into good habits early on, in terms of paying invoices, is essential.

Dig deep

From a finance perspective, banks aren’t going to lend new businesses any money.  There’s no track record, no assets – you’ll need to find finance from somewhere else.  The best option is to use your own resources, friends and family, and get proper funding on track when you’re up and running.

Invest in a business plan

The thing to remember is that a business plan will always be wrong; however, it is a vital thought process which allows business owners to take corrective action.

Get contracts in place

If you are setting up a shareholder or a partnership, make sure you have an agreement in place; otherwise, if you end up falling out (which in my experience happens at least 50% of the time), there will be nothing to fall back on.

Take ownership

Successful businesses are the ones which are managed and directed.  It is very difficult to do that if you are up to your armpits in day-to-day issues.

Extract yourself from the business and work on it, not in it. You have to have a ‘helicopter view’, otherwise you won’t see the wood for the trees.

Keith Seeley is managing director of Target Chartered Accountants

See larger version of table