In part one, we examined the first three questions facing new start-ups. We now focus our attention on the final two questions to help prospective new business owners start their journey on to their road to business success. As a reminder the five questions were:
1) Why am I starting this business?
2) What is my business?
3) Have I done my business homework?
4) Have I got an external advisory team?
5) Do I understand my financials?
Interwoven into the homework stage of building and developing that transition into successful business ownership is the need to develop an advisory team. Many start-ups overlook the need to source or use the experience and expertise of external advisors to help them to become successful. A common reason for this behavior arises from the subscription to the myth of the self-made businessman or woman. That debate can be postponed for another time and place.
Most new business owners do not have any experience or the multiple skills or hats to be worn in running a business at start-up, hence the need for external support and advise. Successful sports men and women rarely conduct themselves like business start-ups. Success is rarely achieved without preparation or an external support team.
The vexing questions are who should be on that team sheet? and where can team members be found? In response to the first question, a definite omission should be the two F’s, family members and friends, unless they can be objective and eliminate the emotional baggage they often bring to the table.
The three ever present team members required are an accountant, solicitor and a banker. The additional optional team members (not in order of importance) are a human resource adviser, independent financial adviser, patent attorney and public relations adviser. The advisory team will be dependent upon the nature of the business and its legal structure. An accountant is required initially to provide financial direction and guidance. A solicitor will help the business stay on the right side of the track and not operate in breach of the law. This includes for example overseeing the free contract downloaded from the internet or borrowed from a friend is appropriate. The pain and agony of choosing between free and fee paying is always less than between the penalties incurred from breaking the law rather than operating within the law. A banker’s sole role in 2013 is to operate the business cash collection and payment system.
The final stage and often the most difficult especially for start-ups seeking to raise finance is understanding the financials. It is a misconception that understanding the financials is solely about putting together a cash flow forecast and hoping the rest of the show goes well. However, there are four elements within the understanding of the financials before progressing to considering a cash flow forecast. These four elements are: what are the costs of the product or service? what is the selling? will the selling price yield a profit? what is the break-even sales volume? Help with these should be sort from the accountant in the team.
As a result of systematically addressing our five questions the new business begin its journey on the right road. Addressing the five questions does not guarantee success but they can minimize the degree of a false start of even a stumbling start. Furthermore, it does not mark the end of the process. It is just the beginning. Enjoy the journey.
David Frederick FCCA
Principal Marcus Bishop Associates
Chartered Certified Accountants
