NEABusiness Planning

Choosing Self EmploymentThe more glamourous aspirations attached to self-employment take years of hard work and commitment to achieve. It’s this realisation that provides the biggest shock to most people who decide to work for themselves. This may cast some light on why only one in three business start-ups in the UK succeed in the first three years of business.

So, it is important to consider the following:

You do everything yourself and are responsible for the day-to-day running of the business. This may mean doing tasks that you dislike.

Large salaries or income are rare in the early days. Need for personal financial investment in the business, competition, economic fluctuations and changes in consumers may occur.

You may need to consider having a second job to help provide a guaranteed source of income for day-to-day living costs.

You need to offer a product or service for which there is a demand. You alone are accountable. Taking an unwise decision could reduce

your income. Expanding too rapidly or not being quick to seize a chance might be

detrimental to your business. Working from home is most effective when you have the space and facilities

to do so. If you work out of other premises, you’ll have to pay rent and other overheads.

It’s impossible to escape some pressures, especially those that come from clients and customers, who’ll often dictate your working hours.

By not being employed, you risk losing a range of benefits and a support infrastructure.

Setbacks may impact on your confidence and profits. Be realistic and learn from your mistakes.

You will have to make your own tax, pension and health insurance arrangements.

That being said, many people find self-employment to be highly rewarding both personally and financially. Some of the upsides to being self-employed are:

Freedom. Being your own boss. Potentially earning more money (and possibly becoming rich). Choosing your working hours. Independence. Doing something you enjoy.

2

Important things to know about starting and running your own business

1. Start by focusing on your customers

Before starting up you need to know where you’ll find customers, why they’ll want to buy from you, and how you can make enough sales and profit to be viable. Research your market carefully.

2. Be realistic

Remember, most of your potential customers are already being supplied by someone else – you’ll have to win customers from other businesses. You must be better than them, not just as good!

3. Pricing

If your business doesn’t offer anything new or different, you’ll have to compete on price. Do your sums - check and double check that you can earn a decent profit to sustain your lifestyle from your prices.

4. Find the right way to sell your services

Find out where and how your potential customers make their purchases. Will they come to you, on-line or in a shop? Do you need to network or are you relying on recommendations? Work out and focus your attention to where most sales are likely to come from.

5. Basic advice

Before setting up, you need to know what kind of legal structure you want your business to have. These days, most start-ups are structured as limited companies, but you could choose to be a sole trader, form a partnership or limited liability partnership (LLP). An Accountant can help you decide on the best structure.

6. What about Tax and VAT?

Go to www.gov.uk for information on setting up a business and tax. Remember to include your tax and insurance costs when calculating your breakeven figure.

7. Calculate your costs to set your breakeven figure:

Development costs (if applicable). Variable costs such as supplies, travel costs and equipment. Fixed costs (overheads) such as rent and leases. Add your costs together to get your breakeven figure – then you know how

much you need to sell before you can make a profit. 3

8. Get the price right

Start with solid research into what your competitors charge and how much people will pay. Until you’re absolutely sure what your costs will be, don’t just match the lowest price. Be ready to change your price – including putting prices up in busy times.

9. Write and refine your business plan

Create a business plan that clearly and concisely explains your business, your customers, how you see your business making money and growing over the next few years. Remember, your business plan is a living, working document.

10. Forecast your sales

Make sales forecasts every month to cope with fluctuating demand. Think about the year and when will be your busy and slower times. Plan for this and ensure you have money saved to cover the not so busy months.

11. Finding finance

You may be able to arrange a small overdraft on your business bank account. Most people starting up use their own savings, or turn to friends or family for a loan (in which case, always agree how and when to pay them back). Get a legally binding document signed by all parties.

12. Find an accountant

Find an accountant with experience of working with your kind of business who can help you organise your finances so you can keep more of what you earn. To find a registered Chartered Accountant in England and Wales, go to www.find.icaew.com

13. Be the best you can be

Keep your customer happy. If you are delivering the service yourself, be sure to keep your promise and do an excellent job. Repeat business and recommendations are crucial to all business start-ups.

14. Keep one eye on the future

Ensure you have a pipeline of sales and/or bookings which will bring in future income and sustain your business. Contingency plan for the unexpected – an order or booking might be cancelled; an unexpected emergency at home. Try to have a Plan B ready to go, should the unexpected happen.

4

Business planningEvery business needs a set of plans which demonstrates that you have a credible, viable and sustainable business. An important part of establishing your business is spending time developing a series of plans that you’ll need to get started.

Your business plan should provide details of how you’re going to develop your business, when you’re going to do it, who’s going to play a part and how you’ll manage the finances. The process of building your plan will also focus your mind on how your new business will need to operate to give it the best chance of success.

Writing a business plan is one of the most important tasks you will complete when setting up your new business. You should take time to complete your plan, carefully thinking through all aspects of how you will run your business. Once you start getting into the detail of your plan and are realistic with what you can achieve, it will help you to verify that your business is realistic and workable.

What your NEA business plan should include

Full Description of your Business Idea - full details of your business idea.This section should include

What is your business? What goods or services will you provide? Where will you provide them? Who are your customers? How will you attract and retain them? Who are your competitors? What is your sales and pricing strategy? When will you start your business up? What profit are you expecting to earn?

The description you provide should give the reader a very good idea of what your business is, why it will be a success, when you will start up and how it will be profitable.

To help you draft the Full Description of your Business Idea

What business are your creating? Does it have a name? What are you selling? Why do you think people will buy this from you? Where will you sell your services? Is this in places you already know or is

the new territory for you? Who is your target customer? How will you find them? How will you get

access to them to sell your product/service? Why will they buy from you? Who is your competition? What do they offer? How much do they charge?

Why are you different? How will you get customers to leave the competition?

What does your service or product cost? Are you more expensive or cheaper than the competition? How are you better or different?

5

When will you start? What plans have you got in place to start up? How viable is your business? When do you expect to earn a profit? How

much will it cost you to start up?

Business Financial Plan

As part of your plans you will need to produce a Financial Plan. This plan translates what you have said about your business into numbers. The Financial Plan is a critical document as it will tell you whether you have a viable business which you can earn a living from.

Be very realistic when you complete this plan. Think of the next 12 months for your business and plan how much money will come in through sales and how much money will go out through expenses. It goes without saying that if the money you expect to come in through sales does not cover all of your expenses, then you have an unviable business proposition.

Points to consider when developing your Business Financial Plan

In developing your plan you will need to include actual figures or your best estimate of what the figure might be and predict (forecast) what you will earn and spend each month. Please keep as close to actual and/or realistic numbers as you can. Most businesses fail because they have not accurately forecast their numbers each month and find they do not have enough cash to survive.

What should your forecasts include?

Sales Forecast – the amount of money you expect to receive from sales of your goods or services

How much will you earn each month? When will you get paid? How long will you have to wait to get paid? Which months will be busy and slow? Will your income increase or decrease depending on the month?

Cashflow forecast How much cash do you need in the pot (contingency fund) to keep your

business ticking over if an order or a booking is cancelled or a payment is late?

Do you make enough profit (working capital) to live reasonably after all of your business expenses are paid?

What amount of money do you need to buy to start up? What will you need to buy each month? What other expenses will you have each month?

Profit and loss forecast

6

Throughout the year will you have months where you know you may run at a loss? Does the months you expect to earn a profit make up for the loss making months? What profit will your business generate at the end of your first year in operation?

Personal Financial Planning

Becoming self-employed is not a decision you should take lightly.

Your future income depends on your business being viable and you need to carefully consider your personal circumstances and financial situation before making your final decision.

It is important that you understand what is your current household income and expenditure so that you can assess whether the future earnings from your business is enough to cover your household expenditure.

Please see the Personal expenditure section of the business plan.

Now you have done your sums, take a look and see how much you will need to earn as profit from your business to cover your outgoings.

While you are in receipt of New Enterprise Allowance other benefits that you are entitled to will remain untouched.

The NEA payment is designed to provide you with a small income as you start out on your business.

Consider carefully whether your business will cover your outgoings once your NEA payments stops.

7