What advice can you give to someone wishing to set up on their own in general practice?
These days more and more independent businesses are being formed — around 250,000 a year. Setting up in business can be very rewarding, but much depends upon the type of person you are. You are bound to encounter many difficult situations and factors beyond your control and it is worth noting that a very significant proportion of new businesses fail within the first 12 months. The higher the risks involved, the greater the returns, both financial and psychological; but if you have any doubts about your ability to cope with the risks and hard work then advice is simple, don’t do it!
However, for those who are able to overcome this initial hurdle and who are determined enough, the service sector must represent a good bet in that it involves relatively little capital commitment and relies heavily on the personality of the originator. The sale of personal professional services in the property sector is a business where success can come in a short time span. In fact, research shows that those who will be successful find that success comes quickly; perhaps one reason is the flexibility and drive of the person who starts the business. The very personal nature of the property sector may well go some way towards explaining the recent well-publicised failure of the financial institutions to ride the slump in the housing market. It may well be that we will see many of these agencies returning to the hands of the smaller, independent operator.
To set up your own business you will need certain qualities and the first step is to establish whether you are indeed the sort of person who can start and run a business. The qualities you will almost certainly need include resilience and determination, but in addition you will need to be the type of person who does things on his or her own initiative; you will need to get on well with other people and have the capacity to lead and motivate others. You will need to be able to organise yourself, work hard and long hours, and be honest and decisive.
When you have satisfied yourself that you have the qualities necessary to start and run a business successfully, it is necessary to evaluate your business idea to establish whether it is viable. Obviously you need to be satisfied that there is a market for the services you propose to offer and that people will indeed pay for it. So examine the range of services you propose to offer, consider who your potential customers are and what they need. Is this a growing market and how good is the competition? If you are satisfied there is room in this market for another business then you need to examine what your costs will be and how much income you can expect.
Planning is, of course, crucial and the first step of any budding entrepreneur will be to prepare a business plan. To survive, flair, energy and hard work may not be enough. Any new business needs thorough planning and sustaining it needs even more. Unexpected problems can result in disaster and these have to be faced skilfully and calmly.
The business plan
This will be no more than an identification in list form that you know who you are and where you are going. As a well-prepared business plan is the key, it should include all the elements identified below, as well as being simple, accurate and useful for continuous monitoring. The plan will cover the services offered, market analysis and strategy, income, cash flow and profitability forecasts. It will identify the structure of the business, its management and administration including staffing proposals and accounting methods. In addition it will identify financing needs and sources as well as risk.
The name: Are you going to trade under your own name? You will if you are already known. There are a number of restrictions on the selection of business names and it is worth referring to Department of Trade and Industry leaflet Business Names — Guidance Notes, which is available from Small Firms Centres.
The structure: A decision will have to be made as to whether you will trade as a sole proprietor or will take in a partner or even operate as a limited company. If you choose the latter course remember that the constitutional document of the company must be drawn up to satisfy the requirements of the “Rules of Professional Conduct for Chartered Surveyors”. Each structure has its own advantages and disadvantages and it will be necessary to select that which is most appropriate.
The premises: Where do you locate? Service is sold on performance and business grows on recommendation; location may not be the key element at the start, but always look to the customer: where would they want you to be? Ask them. The acquisition of a freehold property may well turn out to be a good long-term investment in itself, but it may not be possible to service the borrowing required and it may be necessary to lease.
Should you decide to work from home, consider whether you need planning permission and establish that there is no prohibition in your legal title. You may be able to set certain expenses against tax, but take care that this does not result in a future capital gains tax liability if you sell your home.
Services offered: List in detail what you propose to offer and identify also how these are to be packaged, delivered with time-limits and the range available.
Experience, qualifications and skills: This will identify any shortcomings and help you to decide what outside aid you will need, or what training is required. You will certainly have the necessary professional skills, but what about business skills? Training may well be available, so check with your local enterprise agency.
Staffing: You will now have identified what support you will need. One of the more important ingredients for success will be the co-operation of all who work in the enterprise. Personnel selection is therefore crucially important. Furthermore, once others are employed we are faced with a whole new range of legal complexities. Advertisements must not contravene race and sex discrimination laws. Terms of engagement will need to be settled. Employers are obliged to make deductions for PAYE and National Insurance Contributions. The local Inland Revenue and DSS offices will be able to guide you here.
Accounts: There is no general statutory requirement for partnerships or sole principals to keep accounts, but it will be essential as both a record of transactions and an invaluable management tool. You are required to keep separate accounts for any clients’ money received or held. Records will be required for VAT if registered and the Inland Revenue require records for PAYE and National Insurance contributions. So it will be necessary to decide which system to adopt.
Marketing: In the service industry the marketing mix consists of product, price, promotion, place and people. Your product is the service you offer and the first step is research. You must ask yourself if there are indeed customers out there who require your service. There are an infinite number of statistics in any local library. Use them, see if demand is likely to grow and look at the market segments.
We must look at our competitors in detail to find if there is a gap in the market. Use a strengths and weaknesses format. Examine the material published by competitors. People will only buy our service if it is better, cheaper, easier, speedier, simpler or just different. The service package must have an appeal in one or more of these terms. Asking the public may help; then target the sector for which you will be working.
Pricing: This is bound up with competition, quality and costs. A detailed pricing policy will have to be worked out in the cash flow forecast.
Promotion: This can be costly, so choose wisely. You market yourself first and foremost. You must give a great deal of time to others and go beyond their expectations, even if it does not relate to immediate returns.
Identify the customer; make a list of all the people you know and everyone you think you should know who may require your service. Visit them or prepare promotional literature to tell them about yourself. Promotion is like the pebble in the pond which causes ripples to radiate out. Tell as many people as you can about the company, ask them for business or ask them to tell everyone. Always thank them in writing, and keep following up.
A well-designed visual mailshot can be used as an introduction; it must be of good quality, communicate effectively and must be sent out regularly.
You cannot beat the competition in advertising, so ensure top-quality service to sell yourself. Always ask customers about the level of service they received — they will tell you and may be only too happy to give you further business.
You may not spend excessively on the office, but a smile and courtesy is far more important, both in direct contact and on the phone, so train your staff well.
Resources: Start by deciding on what equipment is needed. This leads to cash flow: how much money will be needed for initial setting up and working capital over, say, the first 12 months, when large amounts will be consumed with very little income coming in.
A detailed assessment will be needed in the form of management accounts for the banker as well as own constant monitoring. If a loan is to be taken out then a list of business and personal assets will be required for collateral. Cash flow is vital; a monthly forecast of cash in and out geared to timing, terms of trade and chasing debts is needed. Contact an accountant for help in these areas; it could be the start of a long-lasting relationship. Free advice is given by banks and the Enterprise Agencies.
Cars: A range of choices is available from outright purchase, credit sale, hire purchase or lease. Examine all the alternatives and select the most appropriate. Capital expenditure probably needs to be spread by purchasing according to a preconceived plan with some certainty as to commitments. It may be more expensive in the long run to buy secondhand. The AA provide detailed information on motoring costs.
Finance: Having identified the resources it will be clear that loan or overdraft facilities or both will almost certainly be an initial requirement of any new business. A number of options may be available at fixed or variable interest rates. You will need the advice of someone who knows the range of sources and the best methods of negotiation and whether the terms offered are realistic and justified. Key terms will include: amount of loan, period, rate of interest, interest period, terms of repayment, security, costs and fees. Always think very carefully about offering your home as security.
Finance proposals need to be carefully researched and presented in an acceptable form. Cash flow forecasts for at least the first 12 months setting out projected monthly receipts and payments along with projected profit-and-loss account balance sheet and applicants’ career history will normally be expected.
All major banks publish information on setting up a business and, among other things, these make clear the type of detailed information they will require in a financial proposal. The business plan itself will be a crucial document enabling the bank to evaluate your proposal. This should provide information on your background, training, qualifications and experience, and should contain enough detail for the bank to determine the amount you will need to borrow and the viability of the business. The plan may be a consideration in determining the terms of the loan such as the rate of interest and security. The bank will also want to know something of your character, your competence in running the business and what financial resources you have. They will need to know how much money you intend to borrow and for what this is going to be used. Ultimately, they will need to be satisfied that the profits of the business will be sufficient to pay back the loan.
They will require detailed financial projections. These need to be made on the basis of realistic assumptions. You will need to identify what level of turnover is necessary to break even. This will be based on projected fee income and direct costs such as labour and materials as well as overheads. Overheads will include business salaries, rent and rates, heat, light and power, telephone, insurance and maintenance, advertising, bank interest and so on.
Insurances: The range of insurances can be bafflingly wide, but these cover areas of risk which can offer some security against the unexpected. You need to consider fire and other perils, not forgetting coverage for consequential losses which might result from interruption to business. You will have to be covered for a range of liabilities, public and employer, as well as professional indemnity. The latter is an area where premiums have increased substantially, but so have the risks. Special consideration needs to be given to easily damaged items such as office equipment and it is necessary to look carefully at policy exclusions. Consider also personal insurance to cover both accident and sickness, long-term health and medical expenses. Tax-effective pension schemes are available to the self-employed and may represent a valuable investment; however, avoid starving the new business of cash.
Objectives: Finally, make a realistic assessment of where you see yourself in the short and medium term (no longer than two years). This will give you a series of goals to work towards which can be used to assess progress.
This then is the business plan to guide you through those early stages. Remember that the plan should be flexible enough to allow for those factors which are beyond your control; it should also be regularly monitored and analysed if it is to work for you.
In producing the business plan you will already have consulted an accountant and possibly your bank manager as well as your solicitor. In addition to these conventional sources of advice, do not forget that free advice may well be available from Local Enterprise Agencies. These are local advisory organisations usually funded by large companies with local authority support providing business advice and counselling for small firms. The Small Firms Service is operated by the Department of Trade and Industry and again provides information and advice to small firms.
It takes hard work and dedication to make a business tick and it must always be driven by you. Good luck. If you truly give quality service and follow the rules, you will always earn a good income.
