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Five common start-up mistakes

March 22, 2011 by Stuart Hartley

In all my years as an advisor, I’ve seen businesses start up and fail more times than I would have liked. Here are a few common reasons why:

  1. Lack of research. Whether it their products or services, customers, competitors or the wider industry/sector. Businesses often chase the uniqueness of a product or service rather than the value to the customer. Remember the Sinclair C5? Look at things from your customers’ perspective and if in doubt ask them. Remember to be aware of any potential pitfalls regarding intellectual property – which means protecting your own and making sure you don’t infringe someone else’s, of course.
  2. Underestimating time required. A high percentage of start-up failures I have had experienced have failed because of time. Not time in the sense of time-management, but time it takes to develop, launch and gain enough momentum behind a product or service. Do not underestimate how long this will take.
  3. Lack of passion or motivation. Only start a business if you genuinely have a passion for the idea. I’ve seen too many businesses struggle only for the owner to give up because they don’t have the necessary passion or motivation.
  4. Ostrich mentality. When things get difficult, burying your head in the sand and trying to ignore problems will not make them go away. Generally, they get worse. There’s lots of help available for small-business owners and none of the help that exists out there will judge you or think any worse of you for admitting you need a hand. Don’t be too proud to seek advice. Even the most experienced and famous business owners have business advisors and mentors.
  5. Lack of cash. The classic reason. Cash is the lifeblood of business. As you know, if you don’t have enough blood in your body, soon you’ll become very sick and you could even die. Similarly, if you don’t have access to enough cash when you need it, your business won’t last. Plan effectively and regularly and keep a constant communication with your bank manager and accountant.

Stuart Hartley is senior consultant and manager of the Corby Enterprise Centre in Northants.

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How can email marketing benefit a start-up?

March 21, 2011 by Georgia Christian

You’re a small start-up company with high ambitions but a tight budget, so how can you go about reaching that large, attentive audience you so desire? It’s simple— use email marketing.

Email marketing is a cost-effective, fast way to engage your customers and potential customers. Added to this, it delivers the highest return on investment over any e-marketing tactic available.

Being a small, new business, you might not have started on the path to creating and developing any lasting relationships with customers, which isn’t the end of the world, but it is something that email marketing can help you with. With each permission-based email campaign that you send and that your recipient opens, you are effectively establishing a trusting relationship with them.

Your email messages will, over time, make your customers feel as though they are an important part of your company. Email marketing campaigns give you the opportunity to inform your growing customer list about updates, product and service promotions, special offers and even changes and developments happening in your company.

Email marketing might not be far off from what your small business is doing already in terms of traditional marketing. Think about it, most businesses already conduct direct mail marketing in the form of specials, promotions and reminders, which means that they are already used to creating this type of material in print form.

Adapting to email campaigns from print is not a huge step, but it will save you a lot of money. It’s also worth pointing out that print marketing is not very targeted or easy to track, whereas email campaigns are highly segmented and targeted and can be tracked right down to who opens, or even forwards your message.

It goes without saying that start-ups often don’t have much time to market themselves. Most email marketing solutions offer pre-built templates and step-by-step guides to help you create an effective campaign in little time, which means the pressure is off you to create one from scratch. You should also be able to view your stats live, which makes follow-up campaigns much easier to manage.

Smaller companies often have more of a loyal customer following than larger businesses, simply because their contact with them is more personal. To be able to begin your email marketing campaign with a list of people who are already interested in you and what you have to offer is a major advantage that you can use to leverage your company to greater heights.

Georgia Christian is the editor of the online email marketing service Mail Blaze

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Seek to grow your business on profit – not loans

March 17, 2011 by Adam Ewart

The last two years have been tough. My business, Karacha.com is based in Bangor in Northern Ireland. It sells musical instruments, online and through my shop. Up until a few years ago, sales peaked around customers pay days. Now, people are much more cautious with their money.

Many of my customers now prefer to rent instruments rather than buy them. Our rental business has tripled, because parents are not racing out to buy ‘wee Johnny’ a saxophone until they know it’s more than a fad. Increased caution is to be expected, but it does not necessarily need to result in businesses closing.

In fact, despite the recession, many small businesses we supply have grown. And we’ve had more applications for trade accounts over the past two years than we did before the crunch.

The reason why many independent smaller shops have weathered the storm, I believe, is they are inherently run completely differently than large business. In a well-run small business, the owner has a good knowledge of all areas of the business. The larger a business becomes, the more cracks can appear in the foundations, cracks that can go unattended until it’s too late.

Certainly, in my sector, many businesses that failed were asking for it. Too many people believe the way to grow a business is to add as many locations as quickly as possible. Personally, my aim has always been to secure the biggest net profit on the lowest possible turnover. In other words – maximise my margins, not my turnover.

But in my sector (and in others, I’m sure) the focus hasn’t been on margin, more the drive to grow at all costs, with the misconception that with scale will naturally come profitability. This is why as soon as the recession hit, the smallest dip in turnover was enough to bring down some of the biggest chains.

I saw it firsthand several weeks ago. A company that held stock belonging to Karacha.com went into administration, entirely out of the blue. They had just moved into bigger and better premises and hired new staff to grow the business. All well and good, but they were balanced on such a knife-edge that the loss of the smallest amount of business resulted in them going bust.

In August I was being regaled with their success story. In October I found myself at their warehouse at 5am on a Saturday morning overseeing a considerable amount of our stock being moved by lorry before the administrators turned up.

If your business is worth a £100,000 loan, you or your business should probably be investing the same amount yourself. In the years leading up to the crunch, businesses were opening new premises and expanding too quickly without having a sound bottom line. Consequently, when the banks would no longer play the game, many businesses failed.

The general lesson from what I’ve seen over the last year is that small businesses should aim high, but don’t overstretch yourself or try to run before you can walk. You should seek to grow your business on profit – not on loans.

Adam Ewart, Karacha

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Two ways start-ups can outperform the big fish

March 15, 2011 by Matt Bird

There are very few certainties in life, but you’ll encounter one each time you start a new business – you will be smaller than your competitors. Whether by staff numbers, physical space or market share, unless you have a completely unique product you will be playing catch-up.

But this supposed shortcoming presents two opportunities. Take them and you’ll have a selling point your competition will struggle to match – agility and personal service.

Agility

Nothing hinders a business like size. Much like the giant boxer undone by his faster, smaller opponent, a start-up can take advantage of market movements far quicker than larger competitors. They often have their hands tied by hierarchy, limited by the fact they cannot make decisions without approval from “on high”.

A start-up will often be an individual/close-knit team trusted in their roles, with freedom in their responsibility.

It could involve writing a great new guide in response to a design flaw of a top-selling product or emailing an offer to trump a sudden price rise. It could even stretch to personally contacting a small number of individuals affected by a very niche item.

Whatever is necessary – you can get there first. First to market. First into customers’ minds. First to the rewards.

Personal service

You can’t help but feel like just another number when you buy from large business, which is fine and dandy until something goes wrong.

They can employ hundreds of customer service staff on the phone and dedicated instore support, but you always know they’re tied by a pre-determined script and unable to truly grasp your frustrations and how it impacts your life at an individual level.

Strip this scenario of size and you have a personal experience that can make a customer feel treasured and comfortable – even when a problem is encountered. The ability to ask for staff by name, or something as simple as being remembered when you get back in touch, is incredibly valuable to consumers in today’s technology-driven world.

If you ensure everything is in place for a customer, from pre-purchase information to post-purchase support, you can really provide a worthwhile experience. This, in turn, guarantees that the word-of-mouth you crave will spread, and you will not remain a small start-up for long.

Matt Bird of printer cartridge supplier, StinkyInk

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Limited company director? Could you be earning more?

March 14, 2011 by Elaine Clark

Some of you may be operating your own limited company. It might be just you, maybe you and your partner/spouse or you and your employees.

So how much can you pay yourself? Did you know that from April 2011 you can pay yourself a salary of £589 a month without paying any tax or NI?

At this level:

  • You get National Insurance Credits towards some benefits (eg pension)
  • You must register as an employer and complete employer’s annual returns
  • You don’t have to pay any tax or National Insurance
  • This is a perfectly legal and acceptable way of paying yourself from your company.

Dividends

One of the tax-efficient ways to operate* as a shareholder of a limited company is to pay anything over and above the salary as dividends. A dividend is the distribution of ‘after-tax profits’, so it’s essential that the company has sufficient retained profits to pay a dividend.

If this rule is not followed, the dividend could be viewed as an unlawful distribution of the company’s funds.

No additional income tax** is due on dividends received where the total income of the person is below the higher rate threshold.

The higher rate threshold from April 2011 is £35,000.

Assuming that you have no other income, you can pay a divided from the company of £31,866 before you pay any additional income tax.***

Other income covers interest received, rental income received, additional dividends etc

Total

On an annual basis you can pay:

  • Salary of £589 per month = £7,068 per year
  • Net dividends from the company of £31,866
  • Total = £38,934

Notes

*Subject to your specific circumstances. Check with your accountant whether this is best for you. This is a guide only.

**Corporation Tax has been paid on the company profits at 21 per cent until 31 March 2011 and 20 per cent from 1 April 2011. So while the above is free from additional income tax, Corporation Tax has been paid on the profit where profit = income less costs (the salary is an allowable cost).

***Calculation for dividend – here’s the maths!

  • Personal allowance £7,475
  • Higher earnings threshold £35,000
  • Gives total income of £42,475 before additional income tax is due
  • Salary of £7,068 leaves gross dividends of £35,407 to be paid
  • Net dividends (the amount paid from the company) £35,407/100 * 90 = £31,866

Elaine Clark, www.cheapaccounting.co.uk

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Protect your business from common email scams

March 11, 2011 by Daniel Offer

There are many types of online fraud, but email scams are among the most prolific. Thankfully, many people are now more aware of online scams, but email fraud is still rife and it often targets small business. Here are two of the most common types of email scams:

1 Domain name expiry scam

Malicious fraudsters have now started targeting .uk domain names with falsified domain expiry warnings. Sadly, many of those who fall for this latest domain name con are small firms, largely because they do their own in-house IT management and are not fully au fait with some of the technical aspects involved.

Unscrupulous online criminals are manipulating this lack of knowledge. Many websites receive emails that warn of an imminent domain name expiry. A lot of small businesses, fearing they’re about to lose their domain name, pay extortionate fees to renew their domain unnecessarily.

The emails are usually called something like ‘Domain Registry Services’. They warn of an urgent renewal being required and will state the charge for a renewal. This charge will be much more than an average renewal. It will also be completely bogus.

Many small businesses don’t keep accurate records of when they bought or last renewed their domain name and they probably will not remember the original charge.  This is probably why this scam works so well. If you receive one of these emails and are in any doubt, contact Nominet.org.uk (the .uk internet registry at www.nic.uk).

2 Phishing and password theft

Most small businesses tend to manage and respond personally to business emails and can become targets for this renowned, but effective, email scam. ‘Phishing’ is the practice of attempting to gather sensitive, protected information by persuading someone to enter their private details online. The most common form of phishing scam is the fake bank email.

Internet criminals clone an official bank email address or manipulate the recipient’s email inbox into believing the email has come from a trusted source. Often the sender of these emails will appear to be the real company. The email will often say that “owing to a recent security threat to the business’s account, to ensure there has been no fraudulent activity”, the business must log in to its account with its username and password.

The email will contain a believable login section that mimics the real bank’s website template. If the business owner enters their details, online fraudsters can access a business’s private accounts and steal money or make unwarranted transactions in the business’s name. Real banks will never ask for personal account information via email, of course.

Trust Your Instincts

Be cynical. If an email just doesn’t seem right – don’t open it. Then report it. Many email providers enable you to report spoof emails and phishing attempts. One of the best things a small business can do is use an email provider with high-end junk and spam filters. Many cheap web-hosting services provide email services, but their filtering software may be substandard. It may be prudent to invest in a reputable web host or use a generic email provider such as Gmail, Hotmail or Yahoo!. If you receive a domain expiry email, contact your domain name supplier. It’s that simple. They won’t take umbrage.

There are many more scams other than the two I’ve mentioned. Caution, common sense and a little bit of knowledge will go a long way towards reducing the likelihood you’ll fall for an online dupe.

Daniel Offer is a partner in the Facebook messaging application Chit Chat for Facebook

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