Blog posts in Business planning

Why people in business make wrong decisions

All entrepreneurs are self-reliant. I know – I’m a serial offender! But almost everyone who starts a company cannot make much of it without support from a whole range of people – both in the company itself and outside.

These people are always chosen to be the best, most reliable, the most trustworthy. So how does it come about that dynamic self-starters with handpicked teams frequently not only make mistakes, but costly wrong decisions too?

Part of the explanation comes from our personality profiles. The kind of people we are not only affects how successful we are with the outside world (customers, suppliers, the authorities and so on). It also impacts on relationships and effectiveness within the company itself. In my book, Decide – Better ways of making better decisions, I have included advice from acknowledged experts and a guide to the main personality types, and how you can cope with difference and similarity – and importantly pick successful teams.

But decision-making is not a straightforward process, and so-called Decision Traps lie in wait for the unwary. Below I list some of the most lethal. You may well be able to identify examples from your own experience.

Downside delusion

The decision-maker is so excited about a potentially exciting outcome (the upside) that he/she seriously underestimates how bad the downside could be if everything goes wrong. Most of us are optimists and it’s natural to be enthusiastic. But wise decision-makers always weigh up reward and risk, and it’s often sensible to turn down an option (however glittering) if the downside could be disastrous enough to break you.

Group failure

A group of really bright people cannot believe they can ALL be wrong! But it can happen – particularly if the balance of personalities in the room is skewed on the positive side. Ten people are as capable of being wrong as one. There is a related trap called ‘Confirming Evidence’ – when we are prejudiced in favour of people who think like we do. The trick is to make sure it is always someone’s job to be the devil’s advocate, and ensure frequent reality checks.

Information underload

Sometimes it is tempting to go ahead and make a decision even before we have all the data we need. And it can be fatal to press the button before you have all the necessary information and research. But this is where judgement comes in. It can be almost equally wasteful to insist on having more and more information to the point that the opportunity has been lost. That is ‘information overload’.

The early decision

This is a polite term for a hasty decision that can come back to bite you. Governments and ministers do it all the time. We are all inclined to kid ourselves we have thought things through when we haven’t.

Those who cannot remember the past are condemned to repeat it (George Santanyana)

Really bad this one – making the same mistake again and again.

David Wethey is author of Decide – Better ways of making better decisions, published by Kogan Page.

The business benefits of a weekly sort-out

Part of the job of running your own business is figuring out how you can get ahead of the game. You need to have processes or systems that can focus on you finding cuter/smarter/cleverer ways of doing things. You must find ways that are cuter/smarter/cleverer than the way your competitors do things.

I will suggest two options:

1 The ‘Think On’ Hour

Most business owners arrive at work before the rest of the team. The place is quiet and there are far fewer interruptions. I know of some business people who take this time every day and spend up to one hour simply sitting and thinking about how to improve things. After all, if we agree that we need to spend more time working on the business and less time working in the business, this is a blindingly obvious thing to do – even if you only do it once a week!

2 The ‘KPI Focus’ Hour

A more focused and less freeform approach may produce even better dividends. We all have basic key metrics we use to measure and evaluate business performance – key performance indicators. If you don’t know what I am talking about you can stop reading now and just go for the ‘Think On’ Hour option.

Use your KPIs (or metrics or whatever you wish to call them) to evaluate performance. Once a week spend an hour (alone or with the team, whatever works best for your business) and focus on the one key issue you need to improve in your business. This can be called your single, most-important, over-arching goal for the coming month.

Decide what the over-arching goal is going to be then brainstorm, Google, steal, talk and debate about how you are going to improve your performance. Decide what you are going to do. Make it a high priority. Commit to it. Communicate it. And do it.

Robert Craven shows MDs and owners how to grow their profits. He is a keynote speaker and author of business bestseller Kick-Start Your Business (foreword by Sir Richard Branson). His latest book – Grow Your Service Firm – is out now. He also runs The Directors’ Centre, helping growing businesses to grow. For further information contact Robert Craven on 01225 851044 or rc@directorscentre.com

Why every small business owner should spare time for a mentor

In a business mentoring relationship, a seasoned business owner meets with a new or potential business owner one-on-one to give advice, focus objectives or simply boost morale.

The relationship can be a paid arrangement organised through a business support group or free advice from a local business expert. Either way, there is strong evidence that mentoring hugely benefits small businesses:

• 70% of small businesses that receive mentoring survive for five years or more, which is double the rate compared with non-mentored entrepreneurs
• small businesses that receive mentoring are 20% more likely to experience growth than those that don’t (source: the Small Firms Enterprise Development Initiative).

However, despite these encouraging statistics, surprising evidence has emerged recently that suggests 42% of small-businesses owners have never consulted a mentor (source: Moore & Smalley accountancy survey). Furthermore, according to a recent poll we conducted at BCSG, 55% of start-ups do not plan to use a mentor once their business is up and running.

It can be easy for small-business owners to get caught up in the whirlwind of day-to-day tasks involved in running their business, but putting aside time for regular mentoring sessions can prove invaluable, for personal development and business growth. Specific ways in which mentors can positively impact success include:

• giving advice based on first-hand experience, helping to point new business owners in the right direction and navigate successfully through complicated business matters

• providing support and motivation during stressful and challenging times, helping small-business owners to approach obstacles with perspective and confidence

• acting as a sounding board for new ideas, enabling the mentee to test out strategies with a trusted party outside of the business

• developing business skills by sharing expertise in fields such as managing staff, project management and marketing

• introducing mentees to useful contacts, helping them to build a wide network of support for their business.

Above all, effective mentoring can foster a long-term, mutually beneficial relationship between mentor and mentee that can span the length of a career.    

The Government is encouraging small business growth through mentoring by promoting initiatives such as MentorsMe, a national portal that gives businesses a single, easy-to-use search engine to locate organisations that provide mentor services. So far, 100 mentoring organisations are accessible through the portal, providing details for more than 16,000 trained mentors, and organisers are aiming for a network of 26,000 mentors by the end of September 2012.

Four social media tips for small businesses

As a small-business owner, you are busy and your time is limited. Social media is ubiquitous and may seem like a great way to communicate with hundreds (or maybe even thousands) of people really quickly, but it will only work if you do it right.

1 Know your audience

The first thing you want to do is figure out who you want to reach – new customers; existing customers; past customers or a more targeted group? For new customers, specify as much about your ideal client as you can. Are they male or female? How old are they? What hobbies do they have? What social media do they use regularly? There are, of course, more details you can add, but you must build a picture of your perfect punter.

If you want to talk to existing customers, find out what social networking sites they use the most. You can make free surveys online, hold focus groups, ask questions on relevant forums and more.  If they don’t spend a lot of time on Twitter, there’s no point in creating an account. Your target audience should dictate the social network(s) you are on, so once you know where they like to hang out, it’s easier to establish a goal.

2 What’s your goal?

You should know exactly what you want to achieve. Do you just want to provide another channel of communication between your business and your customers? Are you trying to increase awareness of your brand? Are you looking for another way to distribute great content? There are loads of things you can do with social media, but don’t try to do them all. Identify your most important goal and focus on that.   

Whatever your goal, it’s a good idea to incorporate your social media activities into everything you do. Web design software makes it easy to integrate social elements on your website, and you can talk about your social media accounts in your newsletter, as well as list the social media links on your marketing materials. It also works the other way. Use your social media channel(s) to deliver relevant, useful information to your customers.   

3 Plan your time

How much time can you commit to social media? If you can only spare a few hours a week, you may not see much of a return for your time. In fact, having a poor social presence can be more damaging to your brand than not having any – it will seem like you’re ignoring your customers. You’ll need to work on your account consistently to build momentum and a reputation. 

If the responsibility will be shared among two or more people, consider creating some basic guidelines so everyone knows what is expected of them. Among other things, it’s important for everyone to use the same tone of voice to maintain brand consistency.

Much like Rome, nothing awesome is built in a day. If you’re expecting to see positive results in a few weeks, you’ll be sorely disappointed. Allow at least six months before evaluating how well you are doing, then decide whether you want to continue.

4 Monitor your success

You should regularly monitor the impact of all of your marketing – including any social media activities. How you do that will relate directly to the goal you set. If your goal was to offer a fast way for customers to ask you questions (to reduce incoming support emails and calls), find out if it worked. There are a lot of different calculations you can do that involve percentages, comparisons to last period’s figures, and time spent per query, or, you could use the built-in analytics in your social media accounts.

However, you might get a better understanding of how you are serving your customers by simply asking them. Again, you can make use of free survey software, emails, focus groups, etc. If your customers love the new social media support option (and it’s actually being used enough so you can devote less resources to your traditional support methods), it is a good idea to keep it.

The underlying key points are these: while social media is free, it takes a lot of your (or someone else’s) time to research, plan, promote, execute and assess your activities. You’ll want to see a return on investment at some point, so you should only do it if you are going to do it well.

• Find out more about Serif, award-winning developer of products such as website design software WebPlus. 

How to survive beyond the start-up stage

In the past 30 years I’ve set up three businesses. I started my current business, Stinkyink.com, on 22 April 2012 (yes, we were ten years old last month!), knowing nothing about ecommerce. To make matters much worse, within months of starting the business I was almost bankrupted by a national ring of scamsters who defrauded me out of £32,000 using stolen credit cards.

The police could do nothing and I was at a very low ebb. But I’m not a quitter. I discussed it with my dog and decided to carry on! That really coloured the first four years of the business because it made it hard to get credit from suppliers as our balance sheet was so weak. It taught me the importance of having cash in the bank and watching my P&L like a hawk.

However, the gamble paid off and within two years my company was in profit and today Stinkyink.com employs 14 staff and turned over more than £3m last year. I’m really proud of what we’ve achieved together over the years in a highly competitive market. We all work hard to look after our customers and that has paid off with them staying loyal and recommending us.

I’m often asked for my tips for new businesses. It’s different for everyone, of course, but these tactics have worked for me:

1 Stay single

If you start a business with a friend, you will fall out eventually. That’s my experience, anyway. When my first business failed the bank chased me for the total amount of the guarantees when my partner couldn’t pay his share. This was £40,000 and took 10 years to clear.

2 Plan ahead

Putting time and thought into a business plan and revisiting it regularly is worthwhile. Unless you have a target to aim for you won’t know when or if you’re succeeding.

3 Minimise your liabilities

Never take a charge on your house and try to avoid providing more information than a lender requires.

4 Stay on top of your books

Do your accounts, get invoices out promptly and don’t accept being messed around over payment. Pay your suppliers on time, too – it gives you their goodwill and possibly more credit.

5 Monitor metrics

One of the many bonuses of online selling is you can find out where your customer has come from; how they searched for you; how quickly they left and whether they actually bought anything from you. Using this information will enable you to improve your website and also your customers’ satisfaction, which can only be a good thing.

6 Hire the right staff

It’s impossible to place a value on a hardworking employee that cares about your business and where it’s heading. Spending the extra on wages for key skill sets or talents that are suited to your business can be the difference between a 5% and 20% growth in a start-up’s early years.

John Sollars is MD of printer ink retailer Stinkyink.com

Understanding customer retention and churn

Two of the most important metrics a start-up needs to look at are customer retention and churn. These figures should be two of your key performance indicators (KPIs), and getting systems in place early to track and minimise issues in these areas will set you in great stead for your business life.

Customer retention

Customer retention is a measure of how many of your customers are loyal to your brand and return for another visit. Customer retention only deals with existing customers, with no consideration for new customers.

All companies spend a lot of money to acquire customers so sometimes it can be shocking how easily we let them walk away. It costs an estimated seven times more to acquire a new customer than it does to sell to an old one, due to factors such as lack of brand recognition, offering new customers incentives (e.g. a discount) and not having contact details to initiate a conversation.

Calculating customer retention

First things first, decide on a ‘churn time’, i.e. a period in which you would expect a customer to make a repeat purchase. Where I work an average user would be expected to re-order every three months, and in total we’d expect the vast majority of customers to have ordered at least every six months before thinking something is wrong.

This will obviously vary by product, so a supermarket’s churn time will be vastly different to a holiday booking’s company.

Next, you simply take whatever date period you wish to calculate retention for, and compare how many existing customers ordered within the expected time frame.

For example: to calculate our recent retention rate, we’d look at existing customer repeat orders in the past three months, and compare these customers to how many ordered in the three months before.

Customers ordered from Jan to Mar = 500

How many of these customers ordered again between Apr-Jun = 400

Customer retention rate - 400 / 500 = 80%

Customer churn

Churn, sometimes known as customer attrition, is the opposite end of the spectrum, i.e. how many customers don’t return to your company after making a purchase. Customer churn takes into account new customers in its calculation, which is a major difference to retention metrics.

Churn is obviously something you want to avoid, as it’s nigh on impossible for a business to grow with a high churn rate. Thus it is a fantastic indicator of whether something is wrong with your product or service.

Calculating customer churn

Again, the first step is to decide on a churn time as we did above.

Next, ensure you can accurately track the total customers you have in a given time period. Don’t forget to include all the different ways a customer can reach you. For example, website, fax or phone orders all count as conversions in our system even though they are processed and recorded differently.

Now to calculate! Imagine a company with a churn period of 30 days.

Day 1 - you have 100 customers

During the next 30 days you acquire 30 new customers.

During the same 30 days, 5 of your existing 100 customers do not convert, or cancel a subscription for whatever reason (assumed lost).

Total customers = 100 + 30 - 5 = 125

Churn rate = 5 / 125 = 4%

Monitoring these two metrics gives a great performance benchmark that you can aim to better each period. If you implement any service changes or new features, these two KPIs will give you an accurate idea of the possible benefits to your company's performance. Couple this with some long-term customer value estimations and you’re well on your way to some fantastic performance data!

In my next post I’ll cover some easy methods of reducing churn and increasing your customer retention rates.

Matt Bird of printer cartridge supplier, StinkyInk

When is it best to accept defeat and close down your business?

The past few years have been tough for most businesses and even highly experienced business people have suffered. Many a good business that in more prosperous times could have been successful has gone to the wall, with failure often being outside of the owner’s control.

So, when should you accept that things are not going to get better?

Unfortunately, there will not be one clear sign that tells you it’s time to pull the plug – it will be a combination of factors. The important thing is to be looking for early warning signs.

Early warning signs

The build up to failure maybe slow, with a combination of unmanaged factors leading up to the final nail in the coffin, including:

• customers taking longer to pay – a day or so each month
• stock holding increasing – meaning cash is tied up in stock that may not sell
• stock is becoming obsolete and too out of date to be sold
• worse still, stock is being  damaged in the stock room because of the quantity being held
• having to sell at a loss or only just covering the cost of stock and direct costs such as delivery
• not being able to pay bills within the agreed payment terms.

By this time alarm bells should be well and truly ringing, but the key is to put effective management reporting systems in place so that each month you are checking these figures and managing things BEFORE they get out of hand.

It’s too late

Even with effective management systems in place showing the business is going off course, the emotional attachment that the owner has can mean that the warning signs are ignored. Before they know it the business is beyond recovery and it is too late.

The tell-tale signs that this may be the case are:

• needing to pump personal funds into the business to keep it afloat
• continually drawing on money set aside to pay VAT, PAYE, income tax or corporation tax
• bills mounting up that cannot be paid – in fact, envelopes remain unopened
• the bank refusing to extend your overdraft.

The writing is on the wall and in all likelihood the owner is at the end of their emotional tether. Even if a solution was available, many business owners are so stressed at this point that they are unable to function effectively.

Quitting and closing the business is probably one of the hardest business decisions anyone ever makes. The success comes when the business owner recognises that this is the best route to take and puts the steps in place to close everything down.

How do you close a business?

Closing any business that does not have debts is quite simple. If it is a sole trader or unincorporated business all you have to do is complete the accounts, file the final returns, pay outstanding taxes, inform HMRC of the closure and physically close the business down.

A limited company must take a few more steps, including advising Companies House via a special form, telling shareholders, directors and so on.

However, if a business has debts it gets more complicated and expensive to close down the business – madness given in all likelihood there will be no funds available.

When there are debts involved there is a legal process to follow and it is best to seek specific advice from a specialist who can advise the best route – especially if you operate as a sole trader or have personal guarantees on loans through a limited company.

Using 20 years’ experience spent working at some of the UK’s leading businesses, award-winning chartered accountant Elaine Clark is the founder and managing director of www.cheapaccounting.co.uk, an online accounting service aimed at small businesses with big ambitions.

There's more great advice available on the Donut business survival guide.

10 more reasons why start-ups fail

So what are the other key reasons why many new businesses fail to survive their first two years of trading and why do more established businesses go under? Once again, in no particular order…

1 Poor cashflow management

Inability to manage cashflow is the most common reason businesses fail. Many profitable and seemingly successful businesses have gone ‘belly-up’ because they haven’t had enough cash to pay their bills on demand. Lack of access to working capital is a major business killer.

• Find out how to manage your cashflow.

2 Attitude to risk

Some owners are overly cautious, which can hinder their new business’s chances of getting off the ground. In other cases, taking too many risks can quickly lead to disaster (see 6). If in doubt, when it comes to big decisions, it’s probably best to err on the side of caution (well, most of the time…). 

3 Poor customer service

No matter how great their products are or attractive their prices, successful businesses prioritise customer service. Get it wrong and potential customers will vote with their feet. Offering superb customer service is one way to set yourself apart from competitors large and small.

• Find out about how to provide high-quality customer service.

4 Wrong employees

Small firms can’t afford to carry baggage, especially in the early days. Each team member must add value, excel at what they do and their commitment to the cause must be beyond question. Recruiting the wrong people usually proves to be a costly mistake.

• Find out how to build and manage a good team.

5 Poor marketing

Successful businesses know who their customers are and what they want. Their products are tailored perfectly to their customers’ tastes. They also know how best to let customers know about their products and services and the channels through which they need to sell.

• Find out how to market your business.

6 Inability to sell

If you or others you employ don’t have the skills to sell, your business will fail. Simple. Selling doesn’t come naturally to everyone. If you can’t do it, find someone who can and pay them to do it for you.

• Find out more about how to sell.

7 Wrong location

This can affect all business to an extent, but for those that rely on footfall, picking the wrong location leads to disaster. Sometimes poor decisions are made to save money, when paying more for a better location could deliver more sales.

• Learn how to find commercial premises.

8 Underestimating competitors

If you don’t believe you have any competitors – think again. And the bad news is some of them will have been open a lot longer than you, which means they will already have customers. You should know who your main competitors are and what they offer, but – underestimate them at your peril.

• Find out how to research your market.

9 Poor financial management

Not everyone has a head for figures, but if you don’t control your business’s finances you’re asking for trouble. Common misdemeanors include not getting invoices out promptly or chase them when overdue; failing to separate personal and business expenses; borrowing money out of the business for personal use; not properly keeping track of expenses; failure to keep accurate or up to date books. At all times you should have a good idea how much your business owes and how much it is owed.

• Get advice on accounting and bookkeeping.

10 Other reasons

Poor day-to-day decisions by people who aren’t cut out to run a business. Partnerships that don’t work. Inability to communicate ideas. Unwillingness to listen. Fear of success or failure. Too much or not enough confidence. Procrastination. Rash decisions. Inability to cope with pressure. Domestic distractions. Failure to learn from mistakes. Poor time- and task-management. Market conditions and wider economy. Bad luck.

In your experience, why do so many new businesses fail and what survival advice can you offer to start-ups?

There's more great advice available on the Donut business survival guide.

How to survive your first two years in business (part 2)

With few new UK businesses surviving to reach their second birthday, we asked followers of @StartUpDonut, @MarketingDonut, @TaxDonut, @LawDonut and @ITDonut on Twitter and members of our Facebook network for their advice about how to make it through your first two years in business…

Via Twitter

@JudithMorgan: Head down. Hard work. Plough on.

@JigsawCare: Support of family. Thick skin, hard work, endurance and remaining excited/positive that your service can have positive impact.

@rachelperry01: Networking & marketing. Not expecting customers to flood to you just because you're open for business...

@hcnewhouse: #Cashflow – without a doubt IMO. If you don't have cash everything dries up.

@CrtivCornerCafe: Determination. Commitment. Help. Hard work. All clichéd, but all true.

@EmmaWalker01: Strong back bone, it's really hard. And lonely. But you got to just keep going at it.

@Rileyandcoltd: Key to survival = cashflow, flexibility, stamina, understanding the market, including competitors, USP.

@enhance_me: Good customer care, if you can build up a customer base prior to launch even better! Have key goals, too!

@CharlieMoos: Sticking to your original idea. Biggest problem when I first started was I would do anything anyone asked – it nearly killed me!

@AgnesCserhati: Cashflow, determination, resilience, support by coach/mentor, ability to identify/focus on priorities and sense of humour.

@Change4Life_UK: Having great passion for what you do, and being successful at it, generates word of mouth and many referrals.

@nicholabates: A great network of other entrepreneurs around you. Good to have like-minded people to share your successes & failures with.

@HeathersNet: Decide your target buyer & go 4 it. Master your cashflow and network, network, network. Have enough money put by for ur 1st yr.

@jmbratley: Key to survival: business plan; control costs; accurate & up-to-date accounting records; self-believe; determination.

Via Facebook

Debbie Oldham (self-employed at TanTastic): Consistent methods and working hard 24/7.

Yiannis Gedeon: Don’t get disappointed by mistakes. You’ll make lots. It is normal and it will pay off in the long run.

Cat Moyle: Give yourself a day off every now and even though there is a temptation not to (space helps creativity), look after yourself (without you there is no business), be prepared to question but never compromise your values (they are what make you and your business you-nique). Smile as much as possible.

SuperTollFree: Make sure you put yourself and your company out there. If people don't know who you are, you won't be able to grow. Especially in your first year, it's important to build up even a small set of loyal clients.

Sian Lenegan (managing director at Sixth Story): It's all about clarity... defining why you do what you do, what you do and linking that to your customers' pain. If you can clearly articulate what you do in your brand communications it'll make for a strong foundation. Also invest in your brand identity – it's showing your attitude and claiming your stake in the world, it shows people how you value yourself, so take it seriously!

Antonia Chitty (director at ACEInspire): Persistence – don't give up, because you'll face many hurdles. Be prepared with a good support network, both practical and emotional, to help you leap over each one.

Mandy Hemingway: Wine.

We’d like to hear from you, what tips do you offer to new owners who are trying to survive their first two years in business?

There's more great advice available on the Donut business survival guide.

10-step business survival guide

1 Size up your problems

You won’t be able to create a survival plan unless you know how much of a problem your business faces. Assess your cashflow for the next 12 months. How do your costs compare with your likely income? Are there any times when your business will face serious cash shortages? If your business is to survive, it must be able to overcome short-term cashflow crises.

2 Seek advice – now

You might not be able to come up with all of the answers, especially if you’re under pressure and lack experience, but other people can help you. First explore sources of free support and advice, but don’t rule out paying for tailored advice from an accountant if necessary. When trying to save a business, often it’s wise to seek dispassionate professional advice from the outside. With their help, your problems might not turn out to be as insurmountable as you thought.

3 Cut your costs

If you fail to eliminate unnecessary costs, you’ll significantly hamper your chances of survival. Assess every area of your business and find ways to eradicate waste and inefficiency. Rule nothing out. Often survival involves having to make tough decisions. Try to negotiate better deals with all of your suppliers. If you can save money, explore cheaper alternatives but be warned: cutting too much or in the wrong places can make matters worse, so your decisions need to be well informed.  

4 Tighten up your credit control

Having an effective credit control system can help your cashflow to remain positive, as well as lessening the chances your business will be affected by bad debts. Overtime, credit control can become slack, so look for ways to improve your system. If you are to avoid any nasty surprises, you must remain aware of your cash position at all times. Explore alternative sources of finance such as factoring and invoice discounting, because these might offer you a cashflow solution.

5 Improve your offer

Are there any no-cost ways to enhance what you’re offering? Perhaps you could enhance, update or otherwise improve your products to provide better value for money. Maybe you could introduce new products/services, but only if it won’t place even more demands on your time. Don’t rule out trying new things. As other business fail, there could well be new opportunities for your business.

6 Assess your prices

Could you justify increasing your prices? Even a small price increase can make a big difference. If you can’t, try to reduce your costs. And even if you’re desperate, don’t slash your prices. Don’t even decrease them unless you’ve worked out whether your business can afford it. You must protect your margins.

7 Refocus your marketing

Cutting cost doesn’t mean stopping all your marketing activity, but it does mean stop wasting your time and money on things that don’t deliver enough sales sales. Reassess your marketing strategy. If you haven’t already done so, explore no-cost and low-cost ways to publicise your business, including social media websites such as Twitter and Facebook. Find ways to ensure your own website is more effective Ash yourself whether even going back to basics (eg sticking cards in local shops or carrying out a door-to-door leaflet drop) would bring additional sales.

8 Sell more to existing customers

Selling to new customers is more difficult and according to some as much as eight-times more expensive than selling to existing punters. Try to find ways to sell more to your existing customers, maybe through offering new products/services or discounts for spending more. You could offer them rewards for recommending your business to new customers? Building greater customer loyalty could help your business out of the mire.

9 Stop doing things that don’t make money

You and any employees cannot afford to waste your time doing things that ultimately do not bring any money into your business – especially when times are tough. Look for ways to boost efficiency and productivity so all team members can maximize their contribution to your business.

10 Get full support

Survival is a team game. If your business has employees, you need their full buy-in if your business is to survive – you can’t do it all by yourself. Ask your people for their ideas on how you could cut costs and make more sales. Crucially, you need to make sure employees remain focused and well motivated. Communication between yourself and your employees must be good. You should also be in touch with your accountant for advice while trying to ensure the survival of your business.

Many ‘business turnaround’ experts condense survival strategy into three key stages. The first is to work out exactly how bad things really are. The second is to solve the business’s immediate cashflow problem. The third is to address the fundamental issues that created significant problems for the business.

There's more great advice available on the Donut business survival guide.

Budget 2012 summary - Key points for small businesses

The Chancellor announced a raft of measures affecting small firms in the 2012 Budget, which he said “unashamedly backed business” so that firms could “innovate and be the best”.

Key points for small businesses at a glance are:

Enterprise and finance summary for the 2012 Budget

• National Loan Guarantee scheme launched offering £20 billion guaranteed bank finance
• The Enterprise Finance Guarantee scheme is to be expanded
• UK export finance support is to be expanded
• Detail of the Government’s national infrastructure plans — road, railway and air development initiatives — will be published this summer
• £70 million development fund launched to attract new businesses and jobs in London
• Government support for £150 million of tax increment financing, from 2013-14, to help local authorities promote local development
• Enterprise Zones offering enhanced capital allowances for start-ups in the London Royal Docks Enterprise Zone, three Scottish Enterprise Zones in Irvine, Nigg and Dundee, and Deeside in North Wales
• A Green Investment Bank to open next month
• The Government is considering introducing Enterprise Loans to provide funds to young start-ups

Red tape cuts featured in the Budget

• The previous Government’s carbon reduction commitment is overly bureaucratic and is therefore under review. If red tape can’t be cut, it will be replaced with a new scheme in the autumn
• Details of the overhaul of planning regulations to be announced next week — planning regulations will be cut from 1,000 pages to 50 pages in the “biggest reduction in business red tape ever undertaken”
• Sunday trading laws will be suspended for eight Sundays during the Olympics and Paralympics starting 22 July and ending 9 September
• Firms will pay tax on the cash passing through their business for those with turnover up to the VAT threshold of £77,000 — providing simpler tax returns for up to three million small firms

Budget summary for research and tech support

• £100 million support launched for new university research facilities
• The Government is aiming to turn Britain into Europe’s technology centre — with corporation tax relief for video games, animation and high-end TV production industries
• The Government has set a target for 90% of the UK to have superfast broadband. Funding has been announced to ensure ultrafast broadband in ten of UK’s largest cities and a further £50 million for broadband development in smaller cities

Tax rates

• From 1 April 2012, the VAT registration threshold will be increased from £73,000 to £77,000 and the deregistration threshold from £71,000 to £75,000
• Details of government plans to integrate income tax and National Insurance will be published shortly
• VAT loopholes to be closed on fast food and other items — but exemptions remain for food, children’s clothes, newspapers and books
• Taxes on profits from patents to be cut - a reduced 10 per cent rate of corporation tax will also apply to similar types of intellectual property from 2013
• A new personal tax statement will be introduced in 2014-15, so people can see where their taxes are spent
• Research and Development tax credits will be increased above the line from April 2013 with a minimum rate of 9.1% before tax - loss-making companies will also be able to claim
• The Enterprise Management Scheme, which helps small firms recruit and retain staff, is to be reformed to help start-ups access the scheme — doubling the individual grant limit to £250,000
• The main rate of corporation tax will be cut by an additional 1% from this April to 24%; and cut again to 23% in 2013 and 22% in 2014
• Income tax — top rate of tax will be cut from 50p to 45p per pound from April 2013
• Personal tax allowance raised to £9,205 from April 2013, making 24 million people £220 per year better off
• From April 2013, small unincorporated businesses with receipts of up to £77,000 will be able to use a simpler, cash-based way of working out their tax

More on the Budget 2012

• Budget 2012 small business coverage on the Donuts
• Budget Forum: What did you think?
• Small businesses respond to the 2012 Budget
• Budget 2012 doesn’t go far enough to help struggling small firms, say business groups
• ‘Turnover tax’ for smallest firms in “Budget for business”

13 Things you need to know about being a sole trader

1. Becoming a sole trader is the most popular option

According to the government, three-quarters of all British businesses are sole traders, which amounts to about 3.6m businesses out of some 4.8m firms. Sole traders (aka the “self-employed”) drive the UK economy.

2. Registering as a sole trader is dead easy

All you need do is call the HMRC ‘Helpline for the Newly Self-Employed’ on 0845 915 4515. You’ll be asked for your name, date of birth, address, telephone number, National Insurance number, business start date, name and type of business and whether you’re a sole trader or working with a partner. You can register even online or download and complete the HMRC form ‘Becoming self-employed and registering for National Insurance contributions and/or tax’.

3. If you don’t register as self-employed soon enough you risk a fine

You must register as self-employed with the HMRC within three months of starting your business or you risk a £100 fine. Best advice? Do it straight away, there’s no point in delaying.

4. Being a sole trader involves some personal financial risk

As a sole trader, you are the business. It’s not a separate legal entity, as it would be if you formed a limited company. Therefore, you’re liable for your business’s debts. If you’re starting a business that won’t build up big debts, becoming a sole trader isn’t too risky. If you are likely to build up significant debts, you should consider setting up a limited company.

5. Being a sole trader is cheaper than being a limited company

You have to pay to set up a limited company and running it requires slightly more administrative effort when it comes to tax. Registering as a sole-trader costs nothing, while accounting costs and tax liabilities are likely to be cheaper than if you started a limited company.

6. Sole traders can still employ people

But if you do employ people, you must collect income tax and National Insurance contributions (NICs) from them and pay these to HMRC. You’ll need to operate a PAYE (Pay As You Earn) payroll scheme for this purpose.

7. Sole traders must pay tax (of course)

You pay income tax based on your business profits. You (or your accountant) must fill in a self-assessment tax return each year, detailing your income and expenses. You’ll also have to make flat-rate Class 2 NICs throughout the year (£2.50 a week payable every six months). If your annual profits are more than £7,225, you’ll also have to pay Class 4 NICs (9 per cent on profits up to £42,475; 11 per cent on annual profits above this figure). You pay this with your income tax and the figure is calculated from your self-assessment tax return.

8. Sole traders must also keep detailed financial records

That includes details of all your sales. You must also keep proof of any expenses (eg receipts, invoices, utility bills, etc). Anyway, they’ll help when you’re filling in your tax returns. Keeping basic financial records (aka Bookkeeping) doesn’t have to be as arduous as it might sound.

9. Some sole traders must be VAT-registered

If your turnover exceeds the VAT threshold (currently £73,000 a year), you will need to register for VAT. When you’re VAT registered, you charge your customers VAT on VAT-able goods and pay it to HMRC. In turn, you can reclaim the VAT you pay on goods and services you buy.

10. Sole traders can become limited companies

The size and nature of your business can change quickly and for a range of reasons (including increased exposure to risk) you might want to set up your own limited company (“incorporate”) at a later stage. Providing someone else hasn’t already registered the name, you should be able to use your sole trader name (with Ltd added, of course).

11. 31 January and 31 July are key dates for sole traders

Self-employed people pay tax on the 31 January following the end of their tax year. Crucially, HMRC will request payments on account for the following year’s estimated tax – on 31 January and 31 July each year. That means, after your first year in business, your tax bill could be 150 per cent of what you were expecting to pay, with another 50 per cent payable in July. If your business income is very low, you may not have to pay Class 2 National Insurance contributions.

12. You should put money into a tax fund bank account each month

When it comes time to pay HMRC, you’ll be glad you put a few quid away each month. Being faced with a large tax bill you haven’t saved for is a nightmare. Try to put 25 per cent of your grow earnings into a separate bank account (and don’t dip into it). Failing to pay your tax bill on time will result in penalty charges.

13. Sole traders have to ‘wear many hats’

Crucially, you’ve got be good at sales and marketing. If you don’t make enough sales, your business will fail – simple. There will be admin tasks to take care of, too, including simple accounting/bookkeeping. Paying an accountant to do your tax return can save you time, but you’ll still have to maintain simple financial records. Having to manage employees for the first time could prove a big challenge, too.

• You can read more information about registering as sole trader on the Start Up Donut. You should also look at Q&A – Tax for the self-employed and our concise guides – Choose the right form of business and Forming a business.

Mark Williams is a freelance journalist and editor of Start Up Donut.