With Europe plagued with unemployment, austerity measures and a lacking outlook, more people are starting their own small business to pay the bills. UK Unemployment has recently reached its highest level since 1994 and rising increasingly putting pressure on employed positions that are few and far between. Starting your own small business though is not the easiest of tasks and is not always the right thing to do for everyone, so we intend to give you an understanding of the likely pros and cons that you will face if you were to start-up you own small business.
Most new small businesses start as a sole trader. The mental image of a business for some is the office with a handful of staff or a shop with the couple of assistants working part-time to give the shop owner a chance to re-stock or attend appointments. But this also the thousands of handymen, plumbers, electricians; who work for themselves in the local community and often do their jobs on a business-2-consumer basis. These people or even small partnerships will not strictly look at themselves as a small business and will likely use a professional to oversee the business side of their endeavours. They are however a business all the same.
So can you consider that you are a person who can run their own small business? Those from an employed background will be aware of the tiers of management that run each department independently and with a degree of autonomy; reporting back towards the top of the tree and almost recommending specific strategies for the business owners to consider. A small business or sole trader environment is something completely different, you must do the paperwork, have an understanding of it and be able to develop your own strategy; all while you make sure you give your customers the best service that a small business can and ensuring that the mortgage gets paid at the end of the month.
managing the small business
Management of your own small business requires a lot of information retention. Those business owners are probably very thankful that government-based requirements, such as the declaration of taxes each year will come with an annual reminder; others though will need a range of post-it notes or the to-do list on you mobile phone.
HMRC and finances
The first thing to remember is that once you start your own small business; you usually become responsible for paying your own taxes, national insurance and (in some circumstances) VAT. Although HM Revenue and Customs do prompt the completion of annual tax and VAT returns, it is tempting for the small business owner to assume that they are going to be able to cover the tax bill when it arises. This is not always a suitable method of working, especially when a small business is relatively new and the success of a product or service is not necessarily fully known or appreciated by the small business owner; leading to the inevitable of a tax demand being issued and not able to be met.
The HMRC are sympathetic to those that are up front and honest when they realise there is a problem but it is entirely possible that failure to pay a demand will lead to court action and even the chance of having goods seized and auctioned to pay off any accrued debts. New small business owners should make sure that they have an appreciation of tax rules and there are many tax guides on the market that not only offer this, but tips on (legally) reducing your small business and tax liability.
As a small business owner, it would be you that is ultimately responsible.
Although the HMRC may have small business owners effectively trapped for their share of the money, it is more difficult for the small business owner to do the same to their customers. As an individual or a partnership, how would you deal with the inevitable day when a customer will not (or can not) pay for the services or goods that you have already provided? This is something that every small business owner should consider, especially at a time when money is fast becoming scarce and other businesses are starting to struggle financially.
Not only should a small business owner have an appreciation of what actions need to be taken, there also needs to be a realisation that not all customers are your friends and no customers should be treated as one. Debt problems in Europe and the likelihood of economic downgrades across multiple European countries will eventually have an impact on even the smallest of businesses across the EU but the same is already happening now as large British companies are already suffering economic hardship leading to the impact on suppliers and service providers that have B2B relationships with them.
There are often legal comebacks such as the HMRC writing off a proportion of bad debts, but to mitigate this the small business owner should really be in a position that they not to allow this to happen in the first place.
Likewise managing customers in the small business environment is not necessarily keeping tracks on them, but ensuring that you work to keep the good customers that you have already got. If you have a niche product or service and the customers few but valuable; you should make sure that you do everything that you can to get to know them, asking how the family is, taking an interest in where they went on holiday. As we have already mentioned, this is something that the management of a larger company might not be seen to be doing as much as those in a small business or partnership; we take for granted though that these multi-national CEO's might in fact be dining or a much more senior level and away from prying eyes.
"your business or your life"
Managing a small business can be a tiring prospect. In the first few years your customer base and orders/bookings may be so few that their distribution across the working year means you can not take any real time off, a stark contrast to the prospect of getting 4 weeks holiday every year without fail (because it's a legal requirement). This is something that can cause issues within a family environment, especially if there is an expectation of annual or biennial trips abroad which you can no longer get the time for or even afford.
I doubt I need to say though that not every small business will be plagued with this problem, effective time management and planning will mitigate this to enable the small business owner to relax, unwind and even take that weeks break at Butlin's.
managing your office
Many small businesses will start from humble beginnings in the home office. Whether this is the preparation of a business plan, the hours of market research or even running the operation; it is the one room in the house where you need some peace and quiet to distinguish you from the hustle and bustle of the family abode.
If you are starting your small business from home, there are a considerable number of factors to consider;
- Have you registered with your local council? Depending on how much you have adapted your office and how much it is used as such may mean that you owe Business Rates. Most councils deal with this on a case by case basis.
Actually having a separate work-space at home is the most difficult problem. You have to make sure that you have a designated place to work, and not on the sofa with the laptop, mounting a tablet in the kitchen to work when you cook, etc, etc.
- Have you got children? Although it sounds like a great alternative to childcare, if you are looking after children at the same time as working there will be times when you have to choose between one or the other. There will be times when children are restless or sick just as you start that tele-conference and this can lower productivity; is it more difficult to lose that money or let your child fend for themself while you are sitting a few feet away?
- Can you separate your home and work life? Believe it or not, it is more difficult than you think, especially when you are self-employed; staying up late to finish off a document, waking in the early hours because you have thought of a new marketing edge. The small business start-up at home might mean having to set hours in a similar way to working 9 to 5 in the office. Never, ever, cancel a dinner date with your wife to work in your home office.
- Can you cope with the isolation? Socialising in the work place is an essential part of the workday and increases the variety of conversation and opinion compared to remaining around the family domicile. Some small business owners thrive on the chance to be alone with their new creation but others will find that it is distracting and may cost them their small business in the long run. This ties in to an extent with the question as to whether you can create your own workspace at home. If you are working in an area that looks like a professional office then you are likely to act in the same way.
enjoying the benefits
Alongside the cons of starting your own small business there are also many beneficial reasons why someone might consider it. If it wasn't right for anyone, then starting a small business would not happen and the world would be full of multinational corporations.
you manage your workload
If you are working in the office as an employee it is often difficult to up your workload to make a little more money; either your salaried contract or lack of overtime would be a factor and when you need a little extra you must look elsewhere.
As a small business owner though the opportunity might be there to increase the workload and earn a bit more money for that holiday or Christmas. This is especially so for repair and installation style small businesses, such as a plumber or electrician; where a small business in these fields can simply mean taking on extra work on a saturday or in the evening for a short period. The ability to get the work is of course the most important point which means it is not necessarily a carte blanche method of getting more money.
Likewise the small business owner will also be able to see where there is a lull in demand or a suitable point where they can take a short break and not be harmful to the custom that is incoming. For a service provider who might get very little custom between Christmas and New Year, it gives the small business owner the chance to take a few days off; with no thought for the next customer of the day.
you control the supply and demand
When we additionally consider the workload I think in a corporate environment there is lessflexibility for pricing. A company often sets the rates you work for and pay your salary but if you are a small business owner you can be flexible with your rates as you see fit.
Something which every small business owner should remember is supply and demand. Essentially it is a point of context that when:
- A product or service is being demanded more than supplied; suppliers can command a high price
- A product or service is being supplied more than demanded; customers can command a low price
Hopefully if you are considering or running a small business of your own; this should be obvious. We can relate this directly to something like the January sales. Once Christmas has come and gone retailers are desperate to get rid of Christmas stock to make space for their summer to start being advertised; quite often at very little profit or even a small loss. This is because the demand for gifts that are Christmas orientated to be very low, with very few actually buying presents ready for the following festive season. Some stores are able to reduce their Christmas overstocking by considerable rates and post-Christmas 2011, there were reductions of up to 80% promoted by some retail outlets indicative of this practice in the national retailers.
To a lesser extent, the small business can run in both this and the opposite way. For a small business that is not able to afford writing off stock at the end of the year, maintaining a stock level and increasing the price may be the preferred way forward and by finding the products or services that match the season or event, premium prices can be commanded in the same way as we mentioned before about managing the workload.
Are you ready for it?
As you can see, there is a lot to think about when starting your own small business. The small business owner needs to make sure that there is a profit to be made as well as the will to do it and running a small business alone or in a partnership is not always easy. It's not for everyone and hopefully with this tip of the iceberg, some prospective small business owners are encouraged and others thinking again as to whether it is right for them.