There comes a time when many of us wish they had their own business, but for many, thinking about doing so, to actually taking the leap is a difficult one and it stops there. For this post, I want to share some realities a start up faces.
At first, when you are not working or even when you start your own business (whether self employed or as a company), you have that moment where if you get up late, it doesn't matter. Now whilst this is true, where is the next pay cheque?
When we do get to a stage you are serious about the work, what time will you start and what time will you finish? Are you working alone or working with a partner? When you are alone, there is no passing the buck. Every little job has to be done by yourself. Discipline is key here and determination to succeed is another good trait to have.
What about money?
• Are we looking at money coming in and going out?
• Are we expecting a fixed or variable salary?
There are lots of expenses to consider when you start out. In the IT profession, software needs to be paid up front or each month. For other office based services, having good IT systems will save you time and you cannot ignore the costs. Physical hardware is forgotten and if you buy cheap, you could buy twice costing you time and money.
For many, having business cards, leaflets, posters and even a website is on their list of items. Having them made is a task in itself but design and content comes from you. Without your passion it is not you representing the company, but a third party. This is where a number of website developers will ask you for the text and images so they can add them to the website.
Now lets presume you have everything you need from cards, websites, IT kit, furniture, telephone/mobile, an email address and the list goes on. Next, how do you get customers to come to you. You could pay someone money to get your website found, hand out leaflets to people and deliver them to companies. Some people even write letters to company directors to get their attention whilst others go to networking events. Recently I was at an event where I found out that people may go to three events a day just to spread the word of the company they are representing. That is fine if you are in a team, but if you are on your own, you need to be available to take calls and even help customers from your office or on the road.
Now you have your customer
You have a meeting or multiple meetings going over what they need, now you quote the customer the price for the work. If they agree, you carry out the work and send them the invoice.
When you reflect on the work, how much did you make, did you cover your daily rate, did you even factor in your overheads (what)?
Lets say you earn £10 per hour (keeping the maths simple) in your last workplace and now you are self employed, would you charge your customer £80 for 8 hours? For those who answered yes, you need to factor in overheads (all your additional costs to you in the year divided by total days worked, then add your labour cost). If you missed out the overheads (lets say £20 per day), then you would need to charge the customer £100 for 8 hours work to earn the same amount of money. So would you charge £12.50 per hour? Probably not.
Your suppliers, other businesses and service based businesses don't charge £12.50 an hour. Other factors to consider is how many billable hours do you honestly think you will get per week? If the answer is 20 hours then here is a new equation to help (Cost of supplies + bills + salary) / hours.
• Example 1: £600 / 20 hours to give you a £30 per hour rate to break even.
• Example 2: £600 / 10 hours to give you a £60 per hour rate to break even.
This will be industry specific. As your overheads increase you have to increase prices, or make efficiencies. If you are working 60 hours in a week, you will want to pay yourself more. Looking at the examples again.
• Example 1: £800 / 20 hours to give you a £40 per hour rate to break even.
• Example 2: £800 / 10 hours to give you a £80 per hour rate to break even.
Before putting up your prices, can you see what your competitors charge? Some may use the secret shopper trick and some may use a friend or family member to use the other provider for a one off job to get an idea of the service too.
Do not spend money quickly
Every pound you spend is another pound you need to earn. Looking at the previous section, you cannot just put your prices up each time. Look at where your money is going out and review:
• Can you go without this product/service?
• Can you buy items in bulk?
• Do you need the latest and greatest items every year?
The more frequent you spend money on items the more frequent you need money to come in to pay for these items. Having cash in the bank is important for a rainy day/month. This helps pay for staff wages too. Don't risk paying staff late or they may look for another job elsewhere. The cost of recruiting could hurt you financially and the loss of time would be a double blow.
When other businesses know you are doing well, they will be happy to promote their offering. Remember the points from earlier, if you didn't need it last month, do you need it next month? Focus on your business requirements and what you need for the next 3, 6 and 12 months.
What are the hardships?
In business, you will have good days and bad days. To keep calm and not react when a bad moment occurs will help you move forward. There are lots of lessons to learn and if you are employing staff in year one, then that is a bonus and congratulations to you. For others, it may take a few years to factor in all the costs.
You will have to factor in losses. This could be where customers don't pay for work you carried out and even if you take action, there could be a case where they manage to get away and the extra costs hurting you. Equally if you get a supplier who sends you items of inferior quality. We have had both happen to us in year 1 and you have to move on and get what you need elsewhere.
Would we start again if we knew all of this beforehand, yes we would. Without the experience, you wouldn't have the knowledge. Don't give up after one year. The hardest lessons have been learnt and it gets easier. We are completed year 3 by March 2019 and success of our customers makes it worth while to help others.
If customers are spreading the word, you are doing a great job. This referral track is the best as it shows happy customers, loyalty and best of all free marketing.
Contracts are around to protect all parties just like when you employ staff. There is a set of rules which we all adhere to. This may be boring, but it's important.
Lets start with supplier contracts. When you sign up for internet, telephones or even purchase goods. There is paperwork to approve. You are given paperwork and then you pay your suppliers.
For goods, have it written when money is due so you are not left out of pocket. Possibly a deposit on agreement so you can guarantee a commitment.
Now when you plan to have customers, you should consider the same practices. In a service industry, asking for money up front may not work (unless you have a monthly support package in place). If you work remotely or in person, this is time that you should consider billing your customer.
Contracts ensure there is a signed agreement in place. Have then checked over if these are new so that customers only see them when you have covered the scenarios like what is chargeable and what is not. After all, in the IT world, you support companies over the phone and they say it was just advice but you know it's more than that. This is a lesson that if you spend 30 or more minutes, why are you providing all this FREE work when it could be paid work to help pay your bills.
Remember, consultancy, training and education can be over the phone, online and in person. Regardless it's considered chargeable so ensure you have this noted in contracts.
Finally on the word of contacts, keep them short and avoid small print (people don't like it).
What recommendations do you have for others?
• Money is needed if you are looking to grow a business. Ideally save up beforehand.
• Monitor your accounts regularly so you know how the month is going so you can forecast for the next few months.
• A fixed salary is not guaranteed to begin with.
• When you have a holiday, enjoy it, but when it's a work day, you need to put in the hours because a business is not 9-5, it can be 5-9.
• You may have to work on a bank holiday or weekend.
• Don't put off certain tasks. Those tasks tend to be of a higher priority so book time for them in your calendar and action them at that date and time.
• Gain knowledge in a particular field that you enjoy even if it means working for another company. It will help you gain knowledge and experience of what works. As well as where you could improve on what you see each day.
• Find your target market and focus on a selection of services to offer your customers.
If you would like help with starting up a business, please speak to a member of our team on 01489 290 001. You can also drop us an email.
This post was brought to you by Baldeep on 25 Feb 2019.
Small businesses are often left behind by IT companies as the aim is to work with the larger businesses. Baldeep started the company knowing that IT doesn't have to be your frustration. Provide great solutions at small business budgets is helping companies in Hampshire to focus on their goals without the burden of IT overheads or downtime.
Baldeep continued developing his skillset and has multiple accreditations to his name including his degree, Microsoft Certifications, ITIL and VMware Data Center Virtualization Certification. He is always learning to move IT forward for your business.
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