Startup Business FAQs

When calculating the funding needs of a business, two different types of funds will need to be considered: start-up costs and working capital.

Start-up costs are one-off payments made in starting the business, like set-up fees, premises renovations, utility down-payments and equipment.  This outlay will include furniture, fixtures and fittings and machinery as well as location and admin and legal expenses.

Working capital is the float required to take care of day-to-day running expenses of the business like advertising, taxes, insurance premiums, utilities, salaries and all other costs associated with the running of the business.  When starting out, it's prudent to ensure that funding is in place to cover all of the start-up costs together with working capital to cover at least the first 6-12 months of the business.

Founding a business first starts with an idea.  It may be a product or an invention.  This is known as "intellectual property".  It is prudent to check whether the idea has already patented or registered and, if it hasn't, seek legal advice about patenting your idea so that no one can steal or copy it without your permission.

Once you have your initial idea, market research is imperative in assessing whether the proposed product or service is saleable and there is a genuine demand.  It is at this stage that problems can be identified and fixed, or if the idea is a non-starter, the prospective business person may move on without having wasted too much time, money and effort.

Market research is tackled by identifying potential customers and approaching them to find out their needs.  If it is a product that is to be sold, this is where a prototype would prove invaluable (though only once patents and registration of intellectual property has been dealt with), thus allowing potential customers to see the product you intend to market and give feedback as to whether it meets their actual needs.  The product can be tested and any faults identified and fixed.  Pricing points can be tested to see what potential customers would be willing to pay for it.  It is at this point that the prospective business person will gain a real insight as to whether the business is likely to be profitable or not.  Another vital component to bear in mind at this point is market competition.  Entering a market with high consumer demand for a product is a very different proposal to entering a saturated market where competitors are slashing their prices.

The next step is developing the concept, taking into account feedback on the product or service from potential customers.  This is where any identified problems can be ironed out including in the branding, manufacture and selling.  It is wise to return to potential customers for feedback on the updated product.  Once you are confident that the product/service meets their needs and is profitable, the next step is drawing up a business plan.

A business plan is imperative when setting up any business.  This will be the road map guiding the future of your firm or company.  It should include clearly stated goals.  A well drawn up business plan is critical in obtaining investment and loans, providing potential investors with the information they need to decide whether your proposal appears viable or not.  A business plan will provide organised, specific information about your business and how you intend to repay investments.  Basic components of a sound business plan should include:

1.     A business concept.

2.     An executive summary.

3.     Details of the products and/or services the firm or company proposes to sell.

4.     Market research and analysis. 

5.     A marketing plan.

6.     Details of the business's operations.

7.     A breakdown of the ownership, management and organisational plan.

8.     Financial data and projections.

9.     Details of critical risks to the business.

10.  Appendices and/or exhibits.

A business plan is an invaluable tool in attracting investors and convincing potential partners and funding sources of the viability of the business.

The next step is looking at potential partners, premises and suppliers.  Many businesses are started by a sole trader from their own home.  You will need to check that your proposed business falls in line with any legal obligations, for example Health and Safety regulations.

Where a partnership or limited company is to be set up, it's important to consider whether your co-founders are reliable and possess the requisite skills.  There could potentially be weighty legal and financial implications for founders personally if the business fails, so it is advisable to seek independent professional advice from lawyers and/or accountants.

Potential suppliers can be identified and approached via online searches and business research.  It's good practice to draw up a short list and approach them to begin to develop business relations, gain a sense of which suppliers are trustworthy and reliable and enter into pricing negotiations.  Consideration will need to be given to their trade credit stipulations, i.e. how long you have to pay their invoices and whether they offer discounts for buying in bulk etc.  It is then time to look at how you're going to attract potential customers and get your product to market.  Whether you work with a distributor, retailer or plan to build your own website, these are all good business practices borne in mind by experts like Tony Freeman.