It’s very sad, but pretty much every day we hear of more businesses failing and consequently more people losing their jobs and facing redundancy. If the predictions of a second spike are correct, that, together with the phasing out of the Coronavirus Job Retention Scheme, will push the jobless numbers to levels not seen since the great depression, or even worse.
For many, and particularly the older section of the workforce, finding new jobs in such a downturn will be problematic indeed, so for many thoughts will turn to other options, one of which being starting your own little business.
On the face of it this is not such a radical idea. After all, there are currently around five and a half million small businesses in the UK employing around half of the private sector workforce, and, since with great changes come great opportunities, now might seem like a good time to join their ranks. After all, what have you got to lose? Well potentially quite a lot actually, so some careful thought is needed before taking the plunge:
Running almost any small business involves taking risks and making decisions on pretty much a daily basis. Are you the sort of person who would be comfortable with this, or could become so? Paradoxically this never goes away as the larger your business gets the bigger the decisions you have to take and, consequentially, the bigger the downside if you get it wrong. So best to be sure that risk is something that you can handle as an everyday part of your working life.
Appetite to work
Lots of business owners work crazy hours, especially in the early stages when there are all sorts of things to be done but no budget to hire other staff to do them. Would you be comfortable with this for a few years, at least, or are you more of the type that insists on going home at five and forgetting all about work? If it’s the latter then the SME world is probably not for you.
Hiring and firing
Have you been a boss before? Do you have the mindset to recruit and manage, and, if necessary, discipline other people? Or would that make you uncomfortable? Again, if it’s the latter then you may want to think twice about being your own boss as usually that leads to being other people’s boss as well.
Having said all of the above, running your own enterprise that you have built from scratch can be incredibly rewarding, and not just financially. A successful small business provides great benefits to a surprisingly wide community of people. Clearly any staff that you hire benefit directly from their employment, but so do their families or dependants. The shops, pubs or restaurants where they choose to spend their earnings benefit also. Your suppliers also gain from your existence and thus so do their own staff. The taxman takes his cut from both your own earnings, your profits and the payroll taxes that are levied on your employees, and thus the wider county is also better off because of you, and as a result can afford to spend more on all the necessary things that governments have to provide.
In short you are a wealth creator and that’s a pretty good feeling.
Clearly there are some common sense steps that you should take before you press the go button:
Establish your offering
The first, evidently, is to decide what it is that you would want your new business to do. Have you, during your career to date, acquired any marketable skills or knowledge that could be transferred into your own business? If so, this could be a very strong starting point as, in addition to knowledge you may have a ready-made network of potential customers and suppliers which is at least half the battle. If not, are you starting out in a field in which you have some background, such as a hobby that could be turned to profitable activity?
Create a business plan
Having established your offering it is absolutely essential that you put together a proper business plan. There are many online resources to help you do this as well as government sponsored assistance. Having developed your plan, it is just as important to have it tested and challenged by a third party who has the appropriate background to ask awkward questions and challenge optimistic assumption. Asking your mum probably won’t cut it.
Lastly, a critical part of the plan should be to identify how much funding you are going to need and where you are going to get it from.
In very simple terms your source of funding comes from one of three places, or a combination thereof. The first is your own resources, the second friends and family and the third, and most common is a loan or other finance from a commercial third party such as a bank.
It’s fair to say that banks are not overly keen to lend to SMEs right now and, even if you did apply successfully, the security requirements would likely be pretty onerous for any amounts more than trivial sums. A charge on your domestic residence is the usual way of taking security, something that significantly ramps up the pressure and risk.
Beyond the banks there are a wide variety on non bank lenders, some government backed such as the Start UP Loans Scheme which, dependant on the amount required can be very useful. Navigating your way through the maze of offerings can be tricky however, so registering with one of the business funding aggregator sites such as www.alternativebusinessfunding.co.uk is always a good idea. Not only will you quickly discover who has an appetite to lend to you, you will also be able to compare how appropriate their products are to your business needs.
Using your own resources can be a good idea too. Basically you are risking your own money and thus don’t have to dance to the tune of external lenders, as long as you are happy that if things go wrong you can survive the loss without catastrophic consequences. One way of doing this which has grown rapidly in popularity is Pension-led funding. Basically, if you have accumulated pension savings during you previous employments these can be used, subject to a number of checks and balances, to provide the finance that your business needs. See above regarding risk, but on the plus side you do end up paying interest to your own pension pot instead of a commercial lender which is always a bonus. You can find out more at www.pensionledfunding.com.
So, business idea? Tick. Relevant skills or experience? Tick. Credible business plan? Tick. Funding arranged? Tick. Seems like you’re good to go. Get ready for a wild ride, but if things do work out it could be the best decision you have ever made. After all, to quote Brutus in Shakespeare’s Julius Caesar ‘there comes a tide in the affairs of men which, taken on the flood, leads on to fortune.’ Good luck.
– Adam Tavener, Pension-led Funding Chairman