UK Starting Business

Carrying out regular evaluations of both the business and yourself is a crucial part of ensuring that potential opportunities are maximised and that any non efficient practices are rectified.

Before discussing the specifics of any type of evaluation, it is important to express the gravity of the necessity and the alarming frequency with which the exercises do not form part of the everyday processing which occur within business operations.

Switching from being employed and starting a business often results in many changes to both one’s duties and outlook. Some of the changes may be obvious, such as where the person works or the fact that finances become their immediate responsibility.

Other changes have a greater subtlety and due to the time spent adjusting to the more striking alterations in the person’s life; these less overt differences can be overlooked. Such items which fall in to this category might be some of the broader administrative activities which existed in a person’s previous employment such as appraisals, management meetings and peer discussions.

These are a form of business and personal evaluation whereby others assess individual performance and also the strategic direction of the operations. The results of these exercises may have favourable or not so, but none the less, they provided a structured platform for commentary on performance and the mechanism to change it where this was deemed necessary.

Most small businesses fail to implement such structured evaluation methods in to their operations mainly due to the lack of time and other resources. They generally choose to rely on strict financial indicators such as profit and turnover to assess and evaluation how the business is performing and therefore, in turn, how effective they are being.

The problem with such crude techniques is that they would fail to reveal many of the lost and future opportunities available to the business and would not, in themselves, provide any detailed analysis of where either profit or turnover originated.

Also in cases where the person being evaluated is responsible for carrying out the critique, many would agree that this lacks objectivity and the motivation to provide useful information.

The evaluation of both the business and the person running it must be conducted if the business is to rely on anything apart from luck to deliver the full potential benefits to the owner.

Running a small business, particular as a sole trader or single company director might restrict the available avenues to obtaining an objective and thorough report card on performance.

They are some methods which can still be called up on however. These might include trusted friends, certain family members or even Management Consultants who might be able to review and assess the effectiveness of one or more aspects.

In the case of both family and friends, proper instruction by the owner and the fact that even negative comments would in fact be most useful might lead them exercise a higher degree of objectivity when conducting their analysis.

They also certainly have the advantage of being free and low costs means of receiving feedback and comment.

Management Consultants do charge and the initial quotation might be alarming. One should remember that in almost all cases you receive what you pay for and even though the expense might be large, the value obtained from a yearly or quarterly check-up could far outweigh the charge.

A reasonable halfway approach between the potentially far from objective approach adopted by friends and family and the expense of  a professional consultant might be that of joining a BNI chapter or some other group which can provide discussion, feedback and analysis both directly and indirectly to the business and owner.

By listening to others talk about their business, ideas can be gained as well as evaluated and such interactions can enable the business owner to compare their focus and direction to that of their peers.

Whichever methods or combinations of them that are adopted, it is vital that a sole proprietor have some means to receive external assessments on both their performance and direction and that which relates to businesses.

In the current economic climate starting business on the cheap has to be at the forefront of every entrepreneur’s plans for setting up. With the banks refusing to lend to each other yet alone an enthusiastic but unknown business start-up, people are being forced to scale back their plans and seek cheaper alternatives to bring their products and services to market.

The problem which is being faced by the small business sector is that spending and investment limitations in turn reduce the number of industries which can be entered in to.

Those areas such as manufacturing, retail shops and building which typically require substantial monies to begin with are probably out of the reach of most entrepreneurs with little capital of their own.

The obvious cheap methods of starting a business, such as through internet selling are immediately problematic because they typically have few barriers to entry and expose the operations to a vastly saturated and competitive environment from the outset.

Business objectives might change from making very good profits to generating sufficient income to cover operational expenses and provide the owner with some remuneration to meet personal costs.

Within the current business models which start-ups must adhere to, the importance of a website become even evident as this might now become the primary means of both advertising and selling.

Other considerations when seeking to set-up a business cheaply may well be to extend the current financial plans by a number of years to reflect that investment in to the operations will have to occur at a slower rate than that which was ideal.

The risks and disadvantages here are self-evident as those potential investors now see that it will take so many more years before the business achieves both profitability and adequate cash to return their capital and reward.

Another important aspect of reducing monetary exposure when setting up a new business, is to review and limit where possible, the number and value of overheads that are taken on.

The renting versus buying calculation might allocate a premium to the outright purchase option because of the risk associated with it. Although leasing or renting is typically the more costly financing alternative, any monetary benefits may have to be foregone. This is simply because a non-committal lease arrangement provides lower initial costs and the ability to cease the contact should the business fail to meet success in the way that was expected.

When selling a business it is important to achieve the highest price possible. Whilst the amount for which a business is disposed of for will depend on a number of factors, any final amount will ultimately be determined by the sum a potential purchaser is willing to pay.

After all, it may be very well declaring the a company, sole trader or partnership operation is worth some much but if there is not a buyer out there with both the funds and the inclination to pay that amount that figure become arbitrary and almost irrelevant.

Other factors which might influence the disposal price achieved for a business include:

1. The uniqueness of the business. If it is possible for a would-be purchaser to easily replicate the business which is being sold, then they would be unlikely to place a high value on it. It would just be as easy for them to start from scratch and within a short time have a similar operation.

If on the other hand the current organisation is unique in one or more ways, for example, it has coveted technology, customers, scale of operations or other attributes, then the value of that business would probably be judged to be higher.

2. Transferable success factors. Under this category would be elements such as if the current business’ success was largely due to the present owner or other key member of staff. On disposing of the operations and the vital ingredient leaving the business, it might well experience a downturn in the level of activity.

The value attached to those specific individuals who are responsible to the major successes might actually be higher than that given to the remainder of listed assets of the business.

In such cases it is not unusual for these key persons to be contracted in to aid the business following its sale in either a consultancy capacity or on a part time basis.

Another type of agreement which is also common in these circumstances is that of a restraint of trade. This is essentially to prevent the key staff or owner from selling the business on one day and then setting up a competing operation on the next.

From a buyer’s perspective the success of the business would be product or service based and not centred on specific individuals and certainly not the outgoing owner.

An additional protection against the risk that the purchase results in less than expected sales and profits is an arrangement whereby the agreed disposal price is remitted in stages and variable according to the actual activity experienced post sale.

3. Value to the Owner. On the basis that the business is profitable or at least shows signs that it will be at some stage in the future, that fact will lead it to have some value to the current owner.

Put simply, if the business is estimated to earn £500,000 profit over the next two years, leaving out statistical present value for the moment, the minimum price for which the owner would be willing to dispose of those operations would be at least this amount.

Other intangible factors such as any nostalgic value seen as inherent in the business, for example, if it had been passed down through several generations, might affect the minimum the proprietor would be comfortable in accepting.

4. Professional Valuations. These are usually carried out by Accountants who would seek to allocate a price to both the physical and intangible elements which make up a business.

Their work often focuses on current valuations of similar organisations where an amount has been already ascertained. This figure can then be adjusted to reflect both positive and negative aspects of the selling business where there are differences between the two sets of operations.

In essence, the objective is usually to obtain a benchmark which acts as a starting point. The intricacies and idiosyncrasies of the business being disposed of is then assigned a value which will either increase of reduce the benchmark price.