As an experienced business coach, I am being asked a lot lately whether someone should start a new business in the current economic climate. This is an excellent question and I’m pleased people are considering things fully before jumping in. There is no simple ‘yes’ or ‘no’ answer, but rather, each situation (and person) is different.
Here are some questions you should be asking yourself and actioning if you are looking at getting into a new business.
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What’s your demeanour?
Ask yourself (seriously) if you have an entrepreneurial mind. Do you think like a business owner? Are you happy to work longer hours or non-traditional hours? Some businesses require you to get up early or work at night or on weekends. How risk-averse are you? Could you sleep at night not knowing when or from where your next job is coming? And my biggest question, are you disciplined? There are aspects of the business which are unpleasant. Some people don’t enjoy chasing their clients for money, or selling, or boing and mundane (but necessary) paperwork. Could you live without reliability, consistency and smooth sailing? If not, perhaps you would be best just sticking to a job.
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What type of business?
You really need to consider the type of business you’re looking at. In a recession, I would not be starting a new business which is a luxury product or service or which is non-necessary. When people are tightening their belts, they will cut out what they don’t absolutely need, or can live without. Whilst they might have previously enjoyed dinner out several nights a week with lots of wine, they will either consider a BYO restaurant or take-away at home or a friend’s place. Trades which repair (rather than purely provide new) will do well, as people are holding onto things more, and getting them fixed, rather than just replacing. For this reason, motor mechanics will do well, as we need our cars, but we’ll spend a little in maintenance or repairs than a lot in upgrading to something new. In a digital world, I believe anyone in the IT field will do well – as long as you’re doing business smartly. With the aging of the Baby Boomers, health and aged care is absolutely a growing market. If you were considering cleaning, I’d steer away from residential and go more for commercial as individual homeowners can do their own, but corporations, government, schools and hospitals simply cannot just skip this cost. Sure, they will likely shop around and try to get a good price, but it won’t be cut out.
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Got enough cash?
If starting a new business, do you have adequate cash for 6-12 months of operations? Every business is different and it will depend on many factors. Do you already have a decent-sized database or ‘following’? How hard will you hit the action steps needed? How good are you at selling? What are you selling? How quick will it be to get your website up? (Some designers move promptly and others not so much so). You will need money to set up, plus money to actually live/eat so it’s necessary to have some cash behind you.
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Consider your personality
If you like to follow a set system and be guided, then a franchise may be a better model for you. If you’re independent and want to do your own thing, your own way, then you’re better going solo. Do you have the knowledge and strength of persistence to start from scratch OR prefer to pay some dollars and buy something already up and going? Personally, I’m a get out there and do it from scratch person; though I know not everyone is.
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Do your due diligence
If you are buying an existing business, you and your accountant will do ‘due diligence’. This will be around the finance, margins etc, but also check out this business. Talk to customers (unless confidentiality clauses forbid), check out Google and reviews. If it’s a franchise, you might actually contact other franchisees and see if they are happy. Possibly do this before formally showing interest in the franchise, before any ‘confidentiality’ agreement is signed. Read the franchise agreement. If you see a clause which concerns you, ask about it, in writing (never just verbally) and if that condition gives you a cold feeling down your spine, perhaps don’t proceed, before you spend the cost of a franchise lawyer. If you think they have answered suitably, once you engage a franchise lawyer (which you really should!) then again reconfirm the meaning of that clause. The concept of a franchise is excellent, but in my 12+ years of business coaching, I have seen many franchises which don’t benefit the franchisee. A good number sell out, go under or fight to exit the franchise. This is not all; some are excellent and will make you good money. Remember this, franchise agreements are prepared by the franchisor; it’s going to be slanted in their favour.
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‘What If’ Scenarios
Consider ‘what if’ scenarios; as invariably whatever you plan will hit hiccups, glitches and bumps in the road. This can be anything from losing a large client to staff being sick, or you yourself getting sick. It might be considering what happens if your website goes down, or if you’re reliant on Facebook, what happens if you’re blocked, hacked or algorithm changes. Consider what you will do if you don’t get any clients for a long period of time? Don’t just consider your finances but your own personal resilience.
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Systems and processes
It’s a great idea to set up your systems and processes early. I know many business owners (especially if they don’t intend to employ) figure they can just skip this step. The thing is that when you set up a documented system, you give it fair consideration, planning and sensible implementation. This just takes time, but it’s something you can do before you even start the business and other than your time, will cost you next to nothing.
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Watch your financial figures closely
As part of setting up systems, is setting up a method to watch your figures closely. You may set up your Xero dashboard or have a system to monitor your key figures. Whether it’s viewing reports, a dashboard or some other method, make that part of your weekly routine.
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Know your KPIs
Part of watching your financial figures (sales, net profit, margins, debtors, creditors, stock, average collection days etc) is also knowing and monitoring other KPIs (key performance indicators). This is very likely going to include a number of leads, lead source, conversion rate, customer satisfaction and many more. As you grow and potentially have staff, then those KPIs will expend and possibly even your staff will have their own KPIs or targets as well.
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Forecast your cash-flow
This is different from a budget and as cash is critical in every business, then it’s important you know when you’ll get paid, and when you’ll need to expend funds. Just because you issue an invoice and have ‘profit’ on the books does not mean you have money in the bank.
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Plan for profit
In simple terms, I’m saying have a budget. But when I say budget some of my business coaching clients cringe or avoid. Psychologically this equates in their mind to missing out or doing without. Call if profit planning and you might be more on board to action this financial planning. The important part of budgeting is to review the budget after the fact.
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Keep debt to a minimum
Every business should monitor it’s debt, especially in a recession. Keeping debt to a minimum for a new business is important and hence the negatives of a franchise or buying a business under finance for this reason.
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Do a SWOT analysis
A SWOT (strengths, weaknesses, opportunities, threats) is an old concept but still incredibly worthwhile if done well. It’s not just about doing it, but then addressing what you discover. That is where the true gold lies.
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Prepare in advance
If you are currently working in a job and starting your business part-time, then you have an excellent opportunity to prepare as much as possible in advance. Tasks like setup, structure, website, marketing all need time and action and are important and should not be rushed. Having that breather of a job, whilst you take this action is really a relief for many new business owners. Just ensure you don’t get too comfortable in the job, or relaxed otherwise, the new business actually will never happen.
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Inadequate support
“During an economic recession, small businesses are often hit the hardest“ was quoted on https://smallbusiness.chron.com/. One of the reasons small businesses suffer the hardest because often a small business has little preparedness and inadequate support. This is where an experienced business coach (yes, like myself) is invaluable. Check out my “12 reasons to get a coach“ and if you’d like to talk to me about your business idea, drop me an email or call 0411 622 666. I’m here to help!
Read Resilience in Business During (and After) A Crisis Like Covid-19.
