As a chartered accountant and business adviser specialising in owner-managed businesses, I consider myself fortunate to work with a diverse range of start up businesses. Over the last 25 years I have gained a number of insights into the difficult decisions start up business owners have to make, just to keep going.
We should not lose sight of how important small businesses are to our economy. According to the Federation of Small Businesses (FSB), they account for around 99% of all private sector businesses, providing 60% of private sector employment.
For those starting a business, however, there are undoubtedly challenges. Perhaps this is why more than 50% don’t survive for more than five years.
I have advised start up businesses across sectors, with different ideas, ambitions and values. However, three challenges come up time and time again.
1. Lack of cash
In business there is the old adage that ‘cash is king’. Running out of cash is the single biggest reason why start up and early stage businesses fail. Your business may be profitable, but if a major customer doesn’t pay their bill, or you don’t budget to pay your corporation tax, then you have a problem. Sadly, many businesses go under simply as a result of cash flow problems.
As accountants, we can work with the business owner to prepare realistic cash flow forecasts that can identify possible pinch points. For the newest businesses, raising finance is often the first hurdle. This might include looking at specific grants or allowances that may be available, for example R&D Tax Credit. We can also help with this, through our network of connections. You might be surprised by what you can claim for your business.
An important, but often over-looked, issue for new business owners is how business and personal finances interact. For instance, many business owners have not considered how their new venture might impact on their child benefit or tax credits. In addition, a number of our clients have started a business on a part-time basis alongside their current employment, so we can advise how you proceed if you are in that position.
2. Being time poor
While most entrepreneurs are aware of the importance of cash flow, most new business owners don’t appreciate the lack of time they will have. They have to wear many different hats, managing all aspects of the business from marketing to operations, while still trying to maintain a life outside of work, which might also involve running a home and looking after children.
For every business owner, there is a trade-off between cash and time. The more you delegate, the more time you gain, but the less cash you have. And vice versa. That is why it is important to find the right balance. Talking this through with someone can really help. We can help a business owner prioritise the tasks ahead and break them down into manageable chunks, which can prevent people from feeling overwhelmed.
Tapping into your accountant’s contacts book can also be useful. We have an extensive network of professionals that we can recommend to take the strain off a business owner, including solicitors and financial brokers.
The third issue is even more under the radar than lack of time. Being a business owner can be a lonely experience. After all, who can you talk to about your business? Spouses, family members and friends won’t necessarily understand and banks have largely retreated from this role. In my view, accountants should step in and become a mentor or, at the very least, a sounding board to business owners. This is especially valuable to start up business owners, who are on a steep learning curve and often working in isolation.
Accountants are best placed to be a ‘critical friend’, a trusted confidant who can ask the right questions and offer a different perspective. I have seen businesses succeed and fail, so working with a range of companies means we can provide benchmarking information and business owners can tap into that experience. Things can change very quickly in a new business and new challenges arise all the time. That is why I would recommend a business owner doesn’t just see the accountant once a year.
The right accountant will give you far more than financial advice and can be a mentor, a critical friend and a route into a wider business network. This is important for any business owner, but absolutely critical if you are starting a new business.
By Patrick Tigwell, Partner