When you’re starting a business, it’s easy to get bogged down in the priorities of winning business, product development, marketing, admin and so on. Your ultimate exit from the business can seem like an eternity away, hardly worthy of your precious time. However, the day will come when you finally leave the business and the value you extract from it can be maximised by decisions you make early on.
The most common exit for a small business owner is via a trade sale, where the whole company or just its assets are sold to a third party (often another company in the same sector). Having been involved in selling two businesses I started, I've learned the hard way that value is not just decided by turnover and profit. Here are some key factors to consider at an early stage.
It’s important to retain the copyright for your designs; to register trademarks and product patents where possible; and make sure you own the source code for your software. It may sound obvious, but many outsource contracts allow the contractor to retain intellectual property (IP) for their work and it’s crucial to stipulate that all IP reverts to you.
In a service business, it’s tempting to outsource as much of your service as possible to third party providers. This often makes sense during normal business operations because it keeps costs more predictable. However, going towards a sale, if your offering relies upon another company for delivery, it will be perceived as an extra risk by a buyer.
This is something that makes sense for the general well being of your business – with or without a sale in mind. Recurring income streams are extremely valuable. If your business model allows, invoice your clients on a regular monthly, quarterly or annual plan, ideally using a passive billing method such as credit card or direct debit. That way, the buyer of your business knows that they will walk into a cash-generating machine from day one.
Monthly or quarterly billing cycles are best. Annual billing cycles are great for cashflow, but be prepared for your buyer to query the unused portion of any pre-payment as a liability. Get advice from a good accountant on how to counter this.
To fund business development, you might need investors. Avoid building up a large number of small shareholders, because the chances are that one of them will at some point become a problem. Ideally you want to keep 100 per cent of the business for yourself.
If you need to give away equity, only do so when all other options have been exhausted. Pay for a lawyer to create a watertight shareholders’ agreement that ensures you maintain overall control of the company, and can drag along all other shareholders should you wish to sell.
So it may sound counter intuitive to think about the end at the beginning, but it will help shape your long-term plans and ensure you develop an asset worth selling.
Jonathan Rodger is managing director of email marketing service Message Horizon.
The design and functionality of your blog should be determined by your blogging targets and goals. Not all blogs will look the same or require the same functionality. Getting exactly the right blog for your business takes careful consideration.
How people find content on your blog is call “navigation” and numerous common methods are used:
It’s fine to encourage all methods of navigation but it’s useful to decide on one method for the primary navigation. A useful exercise is to rank the different types above in order of importance.
Your primary navigation (menu) should be easy for visitors to spot, higher up the page, more prominent and allocated enough space. Your menu will usually be placed across the top of the screen (horizontal menu) or down the left hand side (left hand menu). I often see the menu on the right, which is acceptable, but remember that will be the first section of the page to be hidden on smaller monitors (and therefore visitors might need to scroll to reach it).
I often hear that the magic number is at is at least three times a week. However, the truth is the frequency of posts should be calculated based upon your goals and the return on your investment (time).
One great blog features is the ability to allow visitors to post comments on your posts. But don’t just use the feature because it’s available. Comments can be subject to abuse and you’ll need to monitor them closely. If you do want to encourage lots of comments, then remember to ask for them and always respond to people quickly. Alternatively, you might not want to allow comments or you may choose to turn them off for some articles only – all up to you and your goals.
To summarise – As with all marketing, there is no “one size fits all” approach. The way you manage your blog will depend on your goals, your company and the resources available. Your blog and your approach to managing your blog should be as unique as your business.
It seems to always be true that the only time that it’s easy to raise finance for a start-up is when you no longer need it. That’s certainly been my experience.
Over the years, I’ve raised money from family and friends, personal savings, government grants, business angels, venture capitalists and going public on the stock market. I’ve only ever once sought a loan from my bank and been offered it, but I turned it down.
I’ve also been an investor in a number of companies, with good and bad results. Here are a few thoughts that result from my experience on the whole process of raising money…
There are two factors involved when anyone decides whether to invest or lend you money – risk and reward. If you want to raise money, think long and hard about how you can persuade the potential source that the risk is low and the reward is likely to be high. You also need to think this equation through for your own personal well-being. If you have no idea of the risk and no plan should the business fail, you’re probably not realistic enough to start a business.
If your start-up is unproven, any bank finance isn’t that appropriate and if available, it will most likely be tied to a guarantee against your personal assets – which means you are the one taking the risk. It’s bad enough if your business goes bust, but losing your house too can turn it into a personal disaster. If you’re considering going down this route, think about selling the house, investing the money in the business and renting or remortgaging your house. When you do the sums, it will probably be a much cheaper source of finance, while having the same risk profile.
The time when bank finance, or finance from someone such as Lombard makes more sense is when the money will be used to purchase tangible assets, and the source of finance can take a charge on these assets.
If you have prosperous friends or family, they might be able to lend you money or invest in your business. Remember, though, if the business fails the result can be damaged relationships – and that might be a risk not worth taking.
Business angels and venture capitalists want the same thing as we all do – a risk-free, returns-rich opportunity. While this doesn’t really exist, you need to form your business pitch to get as close to that as possible. Don’t sell your proposition like you would to a customer; instead paint the picture of why and how they will get a major return. You can find lots of potential sources of finance by searching for “Business Angels” and “Venture Capital” on Google.
For a start-up with a strong offering, crowd funding is another option. It’s where you pitch your business proposition to the general public and build the capital you require from lots of small investments. Look at sites like KickStarter, CrowdCube and RocketHub to find out more.
Raising money is usually a frustrating experience, where persistence and hard work are the keys. Good luck with your fundraising – it can be the key to major growth and success.
Talk about a love-in. Anyone who’s anyone in UK enterprise was there - and then some. David Cameron’s giving a speech? You’re kidding, right?
And not only Cameron (as if his presence weren’t impressive enough). We also had George Osborne hinting at new policies for small investors, Vince Cable making cutting asides about the banks, Peter Jones speechifying sincerely, Duncan Bannatyne growling tongue-in-cheek.
So, you could say the launch of StartUp Britain was a fairly high-profile affair. Always a risk, that. It was slick, it was glossy, it had inspirational music and clever sloganeering (“by entrepreneurs for entrepreneurs”, “itunes for entrepreneurs”, etc). There was a fair bit of hype, to say the least.
But beneath the marketing gloss, what have we actually got? You can read the detail elsewhere, but basically we have a web portal linking to existing start-up resources; we have corporate offers for small businesses, many of which are already available elsewhere; we have the promotion of enterprise education, most of which was already happening; and we have the start of a mentoring system which aims to put business owners in contact with each other (this is new, but hardly an original idea).
Reading between the lines, it looks a lot like the Government has looked at StartUp America (launched three weeks ago), said “We need some of that” and approached a few of the entrepreneurs who carry most influence with small businesses. The conversation probably went something like this:
Government stooge: “Dave wants to launch StartUp Britain.”
Enterprise campaigner: “Great – we’re up for that. When? July time maybe?”
Government stooge: “No.”
Enterprise campaigner: “Ok, June then. I expect we could get something decent together by June.”
Government stooge: “Er, no. March.”
Enterprise campaigner: “But it’s already March.”
Government stooge: “Yeah.”
Enterprise campaigner: “Oh. Right.”
The whole thing has been pulled together in about three weeks by a small group of exceptional people, quite possibly to a schedule set by the Government. Yes, it’s far from perfect, but it’s out there now and it’s just the start of something. The PM and his chums will likely now move on to the next publicity opportunity (they’ve not actually put any money into this); meanwhile, the founders will have to make something more of what they’ve started. Believe me, these are not the sort of people who will want to let an opportunity like this go.
The thing is, StartUp Britain is actually something we need. In the last few years, a huge number of small business resources have sprung up online (Donuts included); how the hell are prospective business owners supposed to know what’s worth looking at? Until now, they’ve only really had Business Link serving this kind of function in a systematic way, and Business Link has always been very conservative about its recommendations (with good reason). StartUp Britain doesn’t have to be - if it’s the most useful resource, it should get on the portal. How you decide what is ‘most useful’ is a different matter.
Of course, there are plenty of gaps - we’d like to see more focus on helping people get to grips with the technical and legal aspects of setting up and running a business, for example (Law Donut, anyone?). But it’s a start, and the founders themselves admit they’re only “two per cent” of the way there.
Perhaps it was launched prematurely - but, hey, it’s been done in true fly-by-the-seat-of-your-pants entrepreneurial spirit, and the people behind it should be given a high five for just going for it. This is something “by entrepreneurs for entrepreneurs”, after all, so let’s support StartUp Britain and help to turn it into something genuinely helpful to small-business owners. I haven’t even mentioned the potential lobbying power of this group of people (it’s considerable) - in fact, it's in the unified campaigning for enterprise education where StartUp Britain might have the biggest impact. This is an opportunity for the UK’s enterprise community - let’s take it.
Do you suppose they’re going to remove David Cameron’s giant disembodied head from the home page now they’ve launched?
Two irritations - the language of enterprise and navel-gazing by the media
One thing that annoys me whenever I go to small-business events is the readiness with which everyone talks about ‘enterprise’ and ‘entrepreneurship’. On the one hand, they discuss the ‘fear factor’ of starting a business and how we can help people overcome it; on the other, they use the very terminology that puts people off in the first place. How many ordinary small-business owners associate themselves with the qualities of a ‘classic’ entrepreneur? Not many, I bet.
My concern is that by indulging the fantasy that everyone can be a restless, risk-taking, dynamic wealth-generator who starts another business - sorry, enterprise - with every million made, we distance ourselves from the reality of what it’s like to actually start and run a small business. It’s just one more step from this to Government business policies that offer a disproportionate benefit to a niche section of our total business community. Take last week’s Budget, for instance…
My second irritation is the media talking about the media. So I’m going to finish this blog by mentioning two ‘real’ people I met today, both of whom I’d love to feature on the Donuts in the future.
Eliza Rebeiro is 17. She started her community interest company at just 14, to campaign against the growing threat of knife crime to young people in south London. Of course, Eliza didn’t know she was starting a business when she launched Lives Not Knives. She just did it and it gathered momentum and now she organises events, provides mentoring to young people and has all sorts of other plans to pull young people away from the gang culture that surrounds them (including business education, a theme of the day). Eliza’s properly inspiring.
The other is the beautifully-dressed Adam King, co-founder of affordable bespoke tailor King and Allen. I have to declare an interest here - King and Allen is based down the road from my flat and I bought one of their suits with some redundancy money about five years ago. At the time they were plying their trade from some pokey rooms above, I think, an abandoned bank branch, and I was struggling to find a job. It’s a very nice suit.
Anyway, Adam’s story started with a successful world record attempt and - well, more of that another time. Meeting Eliza and Adam made my day. There are hundreds of thousands of excellent people starting and running myriad businesses all over the UK. Every one of them has a story worth telling and every one of them is deserving of support and recognition. As long as initiatives like StartUp Britain don’t lose sight of this simple principle, they should do all right.
Today sees the launch of StartUp Britain, a government initiative which will see the UK’s startup businesses receive support from the big corporates, and a new website to point them in the right direction for business advice.
More than 60 leading brands, including Google, AXA, BlackBerry and Microsoft, are backing the scheme and have already pledged a total of £1,500 of discounts and support packages to startups.
This week’s Budget speech was full of references to enterprise, start-ups and growth. But it remains to be seen just how much George Osborne’s budget will actually do to help small firms in the UK.
Like every Chancellor of the Exchequer, George Osborne has had to try and deliver something for everyone — and in business terms that includes local shop-keepers and high-growth technology firms, big businesses and the city.
But while there was some good news for small businesses — and lots of talk about helping entrepreneurs — many of the substantial changes look set to benefit large companies.
In fact, as Robert Peston noted in his BBC blog, this was a budget for big businesses.
First and foremost, the surprise two per cent reduction in Corporation Tax is good news for big companies. But what about the small business rate? That drops one per cent (as previously announced) to 20 per cent but there’s no extra reduction for small firms in this Budget.
The relaxation of planning restrictions will be music to the ears of some of the UK’s largest corporates such as supermarkets and construction firms. But will it really make a great deal of difference to the average small business?
George’s big moment was the announcement that fuel duty would be reduced by 1p, effective immediately. In addition, the planned inflation rise in fuel duty due in April was delayed and the annual 1p above inflation “fuel escalator” rise was scrapped until 2015.
But these gestures mostly represented a chance to grab — and make — the headlines with the clever message that this is the Budget that “fuels” growth. Do you see what they did there?
In fact, the price of petrol has gone up by 17p in the past 12 months and the price of diesel has risen by 23p. That’s the reality on the forecourt for small firms.
OK, yes we’re getting 21 new Enterprise Zones — but how these will work has yet to be revealed.
And yes, from April, there will be a moratorium exempting start-ups and all businesses employing less than ten people from new domestic regulation for the next three years. That’s just new legislation, mind.
And yes, the tax code is being simplified, with 43 tax reliefs being abolished. Call me cynical, but I would bet these are the 43 most obscure parts of the tax code — the removal of which may not radically reduce red tape for the average business.
OK, the government has agreed with the banks a 15 per cent increase in the availability of credit to small businesses. But how that translates into real lending remains to be seen. Does that mean that your business will get the lending it needs to invest in people, product development, equipment, stock — all necessary for growth.
Then there’s the merging of National Insurance and Income Tax. With NI costs rising, this sounds like a plan that could make a very real difference to SMEs. But it’s only a consultation. And the government is looking at merging the administration of NI and income tax, not necessarily fully merging the two systems. And anyway, it’s going to take ages…
Much of the talk about encouraging enterprise in the Budget was full of soundbites — tell the world, “Britain is open for business”, we are making the UK “the best place in Europe to start, finance and grow a business” and this is a “budget for making things not for making things up”.
But soundbites don’t fuel growth. And, as important as Wednesday’s Budget was, the effect of the sweeping cuts is about to be felt. With this year’s growth figures revised downwards, we’ve got a long way to go.
Rachel Miller, editor, Marketing Donut.