Micro-businesses are the enterprise story of our generation. Today, to start a business, you need not much more than a good idea and a laptop. Little wonder that, in the first half of 2016, around 80 new businesses were born every hour.
But while it may be easy to begin a business by starting on a micro level, sustaining and growing one into something bigger is a different question. Every micro-business is a big business waiting to happen, so entrepreneurs must think big initially.
This involves anticipating the enterprise’s needs further down the line when the business is more than just one person and a laptop. Putting the right structures and approaches in place from the start should not only give the business room to grow, but should also save you the stress and disruption of having to redesign the engine while you’re flying the plane.
There are plenty of new technologies and services that today’s business owners can use from the beginning to help their company run more efficiently and take better advantage of the opportunities available across all sorts of areas, from finance to HR.
To help entrepreneurs benefit from key opportunities and avoid future pitfalls they might not have considered, here are six things anyone setting out to build a successful company should be thinking about from the start.
1. Data can help grow your micro-business through open banking
Entrepreneurs should be aware of opportunities offered by the data their business generates, especially when raising external finance. I
n recent years, the range of funding options available to small companies has exploded. Between 2015-16, the UK alternative-funding market grew by 43 per cent . The result: your bank is no longer the only option when seeking to borrow money for your business. Would-be borrowers should shop around.
Historically this was tricky. Although there is more choice today, banks remain critical for any company seeking funding because they have the best overview of its financial history and creditworthiness.
A company’s current-account history offers one of the best ways for any potential lender to work out how strong the company is.
Although firms have been able to share this information with other lenders in the past, the process has been a laborious, says Conrad Ford, founder of the SME finance-broking website Funding Options. This will start to change from January 2018, with the introduction of open banking by the nine largest banks in the UK.
“Bank-account data is critical to small business lending – perhaps the most important insight behind credit decisions,” says Ford. “Absurdly, small firms have to scan their paper bank statements and submit them, only for the information to be manually re-keyed into the systems of lenders. With open banking, small firms will be able to share this bank-account data electronically, delivering simpler and more competitive finance.”
Open banking allows customers to instruct their bank to share their transaction data with third parties, using a secure data feed. This will make it simpler for customers to approach an alternative finance company for a loan and lead to faster processing of applications.
Open banking should also make it easier to use online comparison services to research a range of providers in one place, including banks and non-bank sources.
It should allow small companies to feel confident they are shopping around for finance and not just accepting the first offer they receive.
But to take advantage of this opportunity, company owners need to abandon the age-old idea that banking information is highly confidential and should rarely, if ever, be disclosed.
Instead, in the age of open banking, their account information can be made to work much harder for them – as long as they’re prepared to share it.
2. Cloud accountancy gives more benefits than easy invoicing
As well as sharing banking data, there’s another way small businesses can extract more value and insight from their financial information. Today’s Cloud accounting packages can generate up-to-date financial statements in real time, providing you with the best view of how your enterprise is performing day by day.
Such packages are becoming increasingly popular. Xero, a Cloud accountancy firm headquartered in New Zealand, had 15,000 UK subscribers in September 2012 ; by November 2017, it had 250,000.
Real-time data is valuable in itself, but its worth increases as Cloud accountancy software develops. It is becoming steadily more intelligent and better at forecasting how your business is likely to perform weeks or months ahead.
Many small companies have little idea how their finances will look in a month or two, but intelligent software can help lift that fog and give them a better idea of future income and outgoings.
This is extremely valuable because it can alert managers to a looming squeeze on cash that could make it hard to pay staff or suppliers, for example.
Once a business can anticipate when it might need additional funds to cover a short-term cash shortfall, it can put measures in place in good time. This is likely to be less stressful and cheaper than having to find extra funds at the last minute to bridge a gap.
Historically, most small businesses have only started to look for external finance a few days before their need for it becomes urgent – because they could not see far enough ahead to anticipate the problem.
Ford says that automatically linking firms’ bank-account data with Cloud accountancy software will “drive new services that analyse the cash-flow position of small firms in real time and proactively offer solutions. Imagine a service that offers finance to businesses before they’ve even realised that they’re going to need it.”
Anyone looking to build a company – which will inevitably require working capital to fund its growth – should find out what modern accountancy packages can do to help them stay on top of their finances.
3. Make yourself the best at sales
Generating sales is among the biggest challenges any business faces at the outset and the person best placed to meet that challenge has to be the entrepreneur leading the company.
Any potential backer will want to see not only their passion to communicate the benefits of their product or service, but also their ability to understand the customer’s needs and their psychology – the triggers that will excite them and grab their attention.
It might be a matter of differentiating your offer from the other options, packaging the proposition in a clever way or simply knowing the right point in customers’ planning calendar to approach them.
Craig Coulton, founder of premium brand Bloom Teas, which sells through major retailers, says: “When you approach buyers, the genuine entrepreneurs always stand out because they are passionate about the product and that’s what encourages buyers to engage. If you can’t talk about it convincingly, it’ll never sell.”
He spent time tracking down the people he needed to reach by talking to receptionists and scouring LinkedIn, then made sure his “elevator pitch” was distinctive by suggesting a package of teas for drinking at different times of day.
Although the sales challenges for product-based companies are different from those of service providers, there are parallels. The ability to communicate in an engaging way, to spell out compelling benefits and show you understand the customer’s concerns is vital. But so, says Coulton, is persistence and the willingness to put enough time into generating sales.
“You need to give yourself at least 12-18 months to sell your product,” he says. “It’s not just a week’s worth of phone calls.”
4. Social media can help you recruit
Social media can help you project the right image for your business and attract the appropriate talent to join it as it grows.
Most of the people that small businesses are likely to hire will already use social media and the younger generation see it as the first place to go to find out about individuals or organisations.
The great opportunity for smaller companies in social media is that it offers free channels through which they can create and project their brand and personality. Things to consider including might be:
- opinions, stories and information the company thinks is relevant or important
- what it’s like as a place to work
- what causes it supports
- how it celebrates the achievements of its employees
- how it talks to its customers
Clare Suttie, founder of Atlas Translations, is a big believer in social media to reinforce trust among customers and the company’s large pool of freelance translators.
“If we’re translating a client’s packaging into Arabic and no one in their office speaks Arabic, they need to know we will do a good job. Freelancers will also want to know who we are before they work with us, because they want reassurance about our reputation – and that we will pay them.
“Part of that trust comes through looking at how we operate and who we are. That’s why we make our social media social; it’s personal, it’s us, it’s what we do and how we operate,” she says. Most businesses have someone managing the company’s social-media presence and although they concentrate on the message to the outside world, social media also defines the firm’s internal culture.
A social-media profile will strongly influence the first impressions of people it wants to hire. A dynamic and supportive working environment will help to attract the talent the business needs.
As well as creating a positive overall impression of the company, social media can help in specific ways when looking for talented people to hire.
At a basic level, businesses can announce vacancies on their social-media channels, increasing the odds of receiving referrals from existing contacts and followers.
They can increase that likelihood further by making sure they are active on social-media groups that attract the type of individual they need, and using hashtags to ensure their messages become part of the right conversations. Doing this will also increase awareness among key groups of potential future staff and create a positive impression.
Equally, companies can involve their existing employees by asking for referrals through their personal social-media networks. Candidates who come via this source are likely to have a good insight into the company’s culture and how it operates well before they formally apply for a job.
Social-media channels are becoming an essential tool for businesses in identifying and attracting the right talent – and for would-be employees in deciding whether this is a company they really want to join.
5. Outsourcing is your best friend
Every owner of a small company should ask themselves whether they need to do everything. Many activities are essential, but are not directly connected to making money – from maintaining the IT system to emptying bins and changing light bulbs.
The traditional argument for outsourcing is that companies do best by focusing on activities that bring revenue and finding outside specialists to do the rest. An outsourcer can perform these jobs more efficiently because it serves a wide group of customers and enjoys economies of scale.
Amelia Bishop, head of business services and advisory group Amelia Bishop Consulting, argues that if skills shortages get worse, outsourcers are likely to become a more important way for companies to access skills they need.
In areas such as human resources, for example, businesses may not have the expertise internally to ensure their employment contracts safeguard their interests properly. “The HR outsourcer will update the company’s employee handbook or contracts, which minimises the chance of anyone taking action against the company, and then move forward with managing HR for them,” says Bishop.
She draws an important distinction between completely internal activities – such as accounting and payroll or HR – that are easy to carve out and hand to an outsourcer, and customer or supplier-facing activities such as logistics and sales, where businesses need to work closely with the outsourcer on a day-to-day basis and require detailed service-level agreements.
“You really do need to manage it internally to make sure it’s delivering for your customers and your business,” she says.
Virtual PAs and outsourced switchboard services are also becoming more popular, partly because they offer ways for a small company to appear larger and more established. But Bishop warns that there’s a risk customers and contacts will be able to tell that the person they’re speaking to is remote from the company.
“Selecting the right provider is critical and you should test them out for yourself,” she says. “Ask them for a couple of numbers of companies they’re covering so you can hear how they come across.
“If you’ve got someone representing you in that front-office role, they need to be right for your business. Sometimes the best price isn’t always the best option.”
The key issue for any enterprise looking at outsourcing possibilities must be the business case, which is always about more than simple cost. Using outsourcing to allow you to concentrate time and money on the core business proposition is a sound principle, but the commercial benefits have to be compelling and – critically – the quality of the outsourced service has to be right.
It must genuinely make the company easier to manage. If too much time is spent managing the outsourced providers, the case for outsourcing soon fails.
But for companies needing an efficient way to grow, outsourcing is among the key strategies that entrepreneurs should consider from the start.
6. Understand GDPR from back to front and front to back
Information has always been critical for businesses and there are several ways for them to benefit from making the best use of data – whether it’s a humble customer list or the detailed user information their website spits out.
Be aware that the rules governing how businesses collect and process data have changed with the arrival of the EU’s General Data Protection Regulation (GDPR). This covers organisations anywhere in the world that process personal data belonging to individuals based in the EU and sets out rules on what they can do with it and how long it can be retained and has been incorporated into UK law.
No one aiming to build a business that will store and use personal data can afford to ignore the GDPR, even if their business is just starting out. Instead, they need to make sure they know how to stay within the rules from the word go.
GDPR gives people much greater control over how companies collect and use our personal information – whether that’s employees’ HR files or the payment details we enter to make online purchases.
Personal data is vital for many businesses, but from now on they will have to take greater care over how they handle it. Familiarity with the rules from day one will prevent problems further down the line.
The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.