Surviving the Challenge of Running Your Own Business
One of the most challenging, stressful, and yet, ultimately, rewarding experiences is setting up your own business and seeing it succeed. The sense of accomplishment, and the rewards, make it an attractive proposition for the owners of 5.4 million small businesses in the United Kingdom (UK) today. Small businesses are vital not only to the UK economy but also globally. They are the engine drivers of economies, creating jobs—more than 12 million in the UK (almost half of all private sector jobs)—and they deliver innovation and drive economic growth.
But if starting a business is a big achievement, then surviving is an even larger one. More than half of UK start-ups cease trading within five years for a variety of reasons. In the Institute of Chartered Accountants in England and Wales (ICAEW)’s Audit Insights: Small Businesses, auditors look at some of the barriers that need to be overcome to ease the challenge of building a sustainable, profitable business. They have focused on four key areas which reoccur with a degree of frequency.
Plan in Advance
Many small businesses plunge into the competitive arena of setting up a business without a formal business plan. Owners need to draw up a well-written business plan that conveys the unique selling point of their product or service. But this is only the start of the process.
It is essential that there are regular reviews of the plan so that any changes—such as cash flow problems, or sales and revenues not on target—are picked up quickly and corrective actions are taken. Many fail not because they are unprofitable, but because they do not manage their cash resources and find they are unable to pay their debts.
Value in IT
Small businesses need to make sure that the investment in IT represents value for money. Recognizing that the internet will not be relevant to the work of some small UK businesses, for those that have ambitions to grow, it is vital they have a website presence. But the website should be a low-cost investment while owners are growing their business. Owners will need to be clear whether they will use their website as an advertising tool, or a device that will also receive payments online, as this will be more costly at a time when cash flow will be important.
Small businesses will need to manage their cash flow. They will need to build into their plans that they will experience late payment, and strengthen their relationships with their key customers so that they are in a stronger position when it comes to payment disputes.
Adapt to Pressures
Lastly, but no less importantly, is that owners need to accept that running their own business will be stressful in whatever country they operate. They will need to deal with long periods of uncertainty while managing a range of business risks. The key is to accept these pressures as inevitable and to develop the mental agility to respond positively when they do occur.
Many owners are not experienced in financial affairs such as evaluating the relative benefits and costs of capital expenditure and other long-term investments. They can understandably fail to take into account some of the variables that might sensibly be considered in financial decision making, such as the cost of finance or the time value of money more generally. Owners who lack financial expertise should seek professional advice. The consequences of failing to get such advice could be significant financial or reputational damage.
The report also found that the ability of small businesses to take risks is disproportionately affected by government regulation, which increases their compliance costs and acts as a barrier to growth. The auditors’ advice to governments is that in helping small business to grow, they need to be careful not to impose additional burdens that increase their costs.