By Gary Addison
According to the Office for National Statistics 4.76 million people were self-employed between May and July 2016. This equates to 15% of the working population, and illustrates just how tempting it is to be your own boss, creating an enterprise that sustains you financially in the long-term.
Although some people set up their business using a ‘just do it’ approach, a little planning and preparation go a long way to mitigating the risks of self-employment. So what are some of the pitfalls you might experience during the first year in business?
1. Squandering your business capital
It’s very tempting to buy or rent items that convey a certain image – expensive technology, a trendy office, all the bells and whistles – but your business won’t be sustainable if you spend money on non-essentials at this stage.
During the first year you’re laying the foundations for a viable long-term future, and should focus on what’s needed today to deliver your service or product – anything more than this compromises your efforts, and threatens to destabilise the entire enterprise before you’ve even found your feet.
2. The temptation to overtrade
Taking on a new contract without being properly equipped to fulfil it can mean the end for any business, but the fact that you’re also in year one means you’ll have limited access to funding.
It’s easy to assume you’re heading for success when terms are agreed with a high-profile customer, but resources could be stretched to breaking point in an effort to meet their requirements.
Planned, steady growth is a more reliable base on which to build your business, and when you’re ready you’ll be able to take on larger contracts with more confidence.
3. Failing to pay the bills on time
Gaining control over cash flow is one of the biggest challenges during the first year, but it’s vital that your creditors are paid on time. Not only will you develop a good reputation in the industry, you could gain access to extra credit from suppliers.
The threat of legal action for non-payment can come only too quickly for businesses struggling with cash flow, especially if the creditor is HMRC. They have additional powers to recover debt, and are known to take action promptly.
If you know where the money is going, when more funding will be needed, and constantly strive to minimise your outgoings, you’ll stand the best chance of success.
4. Falling behind with the bookkeeping
Bookkeeping and accounting is generally seen as an onerous task, and with so many other demands on your time it’s easy to let good practices slip.
This can very quickly lead to trouble, however, because you lose track of how the business is faring, risking investigation by HMRC for late or non-submission of statutory accounts and returns.
5. Not making use of social media
Even if you don’t want to trade on a global scale, you can use the internet to garner interest from a wider audience and extend the reach of your business. Whether or not social media marketing was incorporated into your original business plan, it’s an important tool that can increase sales and provide you with an insight into customer behaviour.
With so many demands on your time, running a business can feel overwhelming in the first year. By focusing on the core aspects during this time – increasing sales, managing cash flow, and fulfilling orders – you should feel more in control in year two, and able to look at the bigger picture.
Gary Addison is a director at www.redundancyclaim.co.uk and has helped thousands of company directors at their lowest ebb with advice around redundancy and statutory entitlements.