While it’s never been a better time to create a startup than it is today, the reality is that the vast majority of new businesses will fail. And in most cases, it’s all down to the fact that they haven’t been paying enough attention to the most important aspect of their start-up: the money.
There are a few reasons why this is the case, but in general terms, people start businesses without thinking. They have a very good idea, get working, and think the world is their oyster. Unfortunately, unless you are paying close attention to your finances, the chances are you will end up on the scrapheap.
With this in mind, let’s take a look at some of the major cost issues all startups will face at some point. Read on to find out more in our startup owner’s guide to ensuring your money is protected when it comes to your new business.
First and foremost, make sure that your business liability is sorted. Sad as is might be, if you get something wrong in business, you are more likely to be sued than you were at any point in history - it’s the climate we live in. And unless you have separated your personal and business finances, you can expect trouble ahead. There are a couple of things to consider. First of all, set up your business structure as a limited company as a bare minimum. Going into business as a sole trader does have its benefits, but there is no separation between your business and personal finances so you will be personally liable for any debts incurred. Secondly, make sure you are insured properly. As long as you keep your premiums up to date, you should get the cover you need should something happen - an accident at work, property damage, or being a victim of a crime, for example.
As we discussed above, if an employee has an accident while at work, you could be liable. It is important to ensure that you are getting the right employment law advice, either from an HR specialist or a legal consultation. Everything, from your health and safety policy through to your employee contracts, has to be watertight or you can expect things to go awry in the event of a problem. Don’t assume that because you are a small company, people will ‘let things lie.’ Many small businesses have had to fold because of enormous payouts to injured staff in the past, and that number is unlikely to decrease in the future. You don’t want to end up as part of those statistics, so ensure you are treating your employees well, giving them a safe environment, and ensuring they are trained to do their jobs safely.
While we are on the subject of employees, be careful about the hiring process. There are a few reasons why this is important for small and growing companies. First of all, hiring full-time staff can be expensive. Not only do you have to pay a wage, but there is also National Insurance, pension payments, and other benefits to think about. You also need to pay for their equipment, holiday time, and training - and the hiring process itself is more expensive than you might think. Think carefully about your finances before hiring anyone full-time, and ensure that your revenue can cope with it. In many cases, it will be better to hire outsourced contractors for specific tasks, until your business is well established.
Like it or not, debt is part of running a business, and no matter how wealthy you are when you are starting out, you will end up owing money at some point. It might be from a bank loan, a supplier of materials, or for services you use on a regular basis. Most of this debt will be easy to handle, of course - you pay it all off at the end of the month or clear your accounts before the contract terms finish. However, with borrowing from banks or other lenders, you need to keep a careful eye on tracking your payments and interest rates. Many new businesses get enticed to all kinds of products, but once the introductory period has finished, they end up owing a fortune in interest - which, if you aren’t properly on your feet yet, can kill your company stone dead. So, you need to be savvy about engaging with other types of debt and move your borrowing around as much as possible. While debt is necessary in the vast majority of cases, you need to control it - or it will end up controlling you.