STARTING YOUR OWN BUSINESS

A guide for Entrepreneurs

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CONTENTS 1. INTRODUCTION TO STARTING A BUSINESS......................... 7

1.1 THE LIFESTYLE OF AN ENTREPRENEUR........................................7 1.2 ENTREPRENEURIAL BEHAVIOUR ................................................7 1.3 ASSESS YOUR BUSINESS REQUIREMENTS ......................................8 1.4 RESEARCH YOUR MARKET .......................................................9 1.5 DEVELOP A BUSINESS PLAN......................................................9 1.6 SECURE CAPITAL ................................................................ 10

2. FORMING YOUR COMPANY ...........................................11

2.1 CHOOSE THE RIGHT NAME..................................................... 11 2.2 SELECT THE APPROPRIATE LEGAL STRUCTURE ............................ 11 2.3 IDENTIFY AND SET UP AN OFFICE ............................................ 13

3. GETTING STARTED .....................................................16

3.1 CREATE A RECORD-KEEPING SYSTEM ........................................ 16 3.1.1 The Cash Book ............................................................. 16 3.1.2 The Sales Ledger .......................................................... 16 3.1.3 The Purchase Ledger ..................................................... 17 3.1.4 The Wages Book Spreadsheet........................................... 17

3.2 PURCHASE EQUIPMENT......................................................... 17 3.2.1 Information Technology.................................................. 17 3.2.2 Communication Tools .................................................... 18 3.2.3 Furniture ................................................................... 18 3.2.4 Methods of Payment...................................................... 18

3.3 MANAGE YOUR CASHFLOW .................................................... 18 3.3.1 Cash Inflows and Cash Outflows........................................ 19 3.3.2 Avoid Cashflow Problems ................................................ 20 3.3.3 Manage Income and Expenditure....................................... 20 3.3.4 Forecast your Cashflow .................................................. 21 3.3.5 Use your Cashflow Forecast as a Business Tool...................... 21

3.4 SET UP A SIMPLE PROFIT & LOSS ACCOUNT ................................ 22 3.4.1 Keep Accurate Records .................................................. 22 3.4.2 Record Income from Sales............................................... 22 3.4.3 Record Other Income..................................................... 23 3.4.4 Record Business Expenditure ........................................... 23

3.5 SET UP A SIMPLE BALANCE SHEET............................................ 24 3.5.1 Contents of the Balance Sheet ......................................... 24 3.5.2 Assess the Strength of your Business .................................. 25

3.6 HIRE PEOPLE..................................................................... 25 3.6.1 Define the Job that Needs Doing....................................... 26 3.6.2 Identify the Type of Employee You Want............................. 27 3.6.3 Identify who is Right for the Job ....................................... 27

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3.6.4 Recruit Candidates ....................................................... 28 3.6.5 Interviewing the Candidates ............................................ 28

4. SALES AND MARKETING ...............................................30

4.1 CREATE YOUR MARKETING STRATEGY....................................... 30 4.1.1 Key elements of a successful marketing strategy ................... 30 4.1.2 Understanding your Strengths and Weaknesses ..................... 31 4.1.3 Developing your Marketing Strategy................................... 31 4.1.4 Tips and Pitfalls ........................................................... 32

4.2 WRITE A MARKETING PLAN.................................................... 32 4.2.1 Where to Start............................................................. 33 4.2.2 External and Internal Analysis for your Marketing Plan ............ 33 4.2.3 Your Marketing Objectives .............................................. 33 4.2.4 Marketing strategy for your marketing plan.......................... 34 4.2.5 Plan your Marketing Tactics............................................. 34 4.2.6 Implementation of your Marketing Plan .............................. 35

4.3 KNOW YOUR CUSTOMERS’ NEEDS ............................................ 35 4.3.1 Why do your customers need you? ..................................... 35 4.3.2 What do you know about your customers? ........................... 36 4.3.3 The customer's current supplier........................................ 36

4.4 MARKET RESEARCH AND MARKET REPORTS................................. 37 4.4.1 Customer Research: What you need to know ........................ 37 4.4.2 Information on Market Trends and Competitor Intelligence ...... 37 4.4.3 Using Market Reports and Other Data ................................. 38 4.4.4 Interpreting Market Information ....................................... 38 4.4.5 The Basics of Quantitative and Qualitative Field Research ....... 39 4.4.6 Planning Field Research ................................................. 39

4.5 FORECAST AND PLAN YOUR SALES ........................................... 40 4.5.1 A Basis for Sales Forecasts .............................................. 40 4.5.2 Your Sales Assumptions .................................................. 40 4.5.3 Developing your Forecast................................................ 41 4.5.4 Avoiding Forecasting Pitfalls ............................................ 42 4.5.5 Creating a Sales Plan ..................................................... 42

4.6 UNDERSTAND YOUR COMPETITORS .......................................... 43 4.6.1 Who are your Competitors? ............................................. 43 4.6.2 What you Need to Know About your Competitors................... 44 4.6.3 Learning about your Competitors ...................................... 44 4.6.4 Hearing about your Competitors ....................................... 45 4.6.5 How to Act on the Competitor Information you get ................ 45

4.7 PRICE YOUR PRODUCT OR SERVICE .......................................... 46 4.7.1 The Difference between Cost and Value.............................. 46 4.7.2 Covering fixed and variable costs...................................... 47 4.7.3 Cost-Plus versus Value-Based Pricing.................................. 48 4.7.4 How to Build a Pricing Strategy ........................................ 48 4.7.5 Different Pricing Tactics................................................. 48 4.7.6 Raising or Lowering Prices............................................... 49

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5. FINANCIAL CONTROL ..................................................51 5.1 FINANCIAL AND MANAGEMENT ACCOUNTS ................................. 51

5.1.1 Financial Accounts ........................................................ 51 5.1.2 Filing Financial Accounts ................................................ 51 5.1.3 Management Accounts ................................................... 52 5.1.4 Uses of Management Accounting ....................................... 53

5.2 BUDGETING AND BUSINESS PLANNING....................................... 53 5.2.1 Planning for Business Success........................................... 54 5.2.2 What to Include in your Annual Plan .................................. 54 5.2.3 Budgets and Business Planning ......................................... 55 5.2.4 Creating a Budget......................................................... 55 5.2.5 Key Steps in Drawing up a Budget ..................................... 56 5.2.6 What your Budget Should Cover........................................ 57 5.2.7 Use your Budget to Measure Performance............................ 57 5.2.8 Review your Budget Regularly .......................................... 58

6. OPERATIONS.............................................................59

6.1 STOCK CONTROL AND INVENTORY ........................................... 59 6.1.1 Types of Stock ............................................................. 59 6.1.2 How much stock should you keep? ..................................... 59 6.1.3 Stock Control Methods ................................................... 60 6.1.4 Stock Control Systems - Keeping Track Manually.................... 61 6.1.5 Stock Control Systems - Keeping Track using Computer Software 62 6.1.6 Control the Quality of your Stock ...................................... 62 6.1.7 Stock Control Administration ........................................... 63

6.2 DISTRIBUTION AND LOGISTICS ................................................ 63 6.2.1 Pros and Cons of Different Modes of Transport...................... 63 6.2.2 Distribution Decision-making Factors.................................. 64 6.2.3 Using Carriers or Buying or Leasing Business Vehicles.............. 64 6.2.4 Couriers, hauliers, freight forwarders and logistics services...... 65

6.3 SUPPLIER MANAGEMENT ....................................................... 66 6.3.1 What you should look for in a Supplier................................ 66 6.3.2 Identifying potential suppliers.......................................... 67 6.3.3 Drawing up a Shortlist of Suppliers .................................... 67 6.3.4 Choosing a Supplier....................................................... 68 6.3.5 Getting the Right Supplier for your Business......................... 68 6.3.6 Drawing up a Contract for your Purchase ............................ 69 6.3.7 Service Level Agreements ............................................... 70 6.3.8 Methods of Paying Suppliers ............................................ 70

7. INFORMATION TECHNOLOGY ........................................72

7.1 CREATE YOUR FIRST IT SYSTEM .............................................. 72 7.1.1 Manage your IT systems on a day-to-day basis ...................... 72 7.1.2 Data back-up and Disaster Recovery .................................. 73

7.2 IT SUPPLIERS..................................................................... 73 7.2.1 Identifying and Contacting Potential IT Suppliers................... 74

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7.2.2 Benefits of an effective IT supplier relationship .................... 74 7.2.3 Checklist: Choosing an IT Supplier ..................................... 75

7.3 COMPUTER NETWORKS......................................................... 76 7.3.1 Benefits of using networks .............................................. 76 7.3.2 Assess your Networking Needs.......................................... 76

7.4 GET THE MOST FROM IT IN YOUR BUSINESS ................................ 77 7.4.1 Understanding your Business............................................ 77 7.4.2 Aligning IT with the business............................................ 78 7.4.3 Developing an IT strategy ............................................... 79 7.4.4 Achieving greater efficiency ............................................ 79 7.4.5 Adding value to relationships ........................................... 80 7.4.6 Exploiting new opportunities ........................................... 80 7.4.7 Delivering and supporting IT solutions ................................ 81 7.4.8 Measuring Success ........................................................ 82

8. PROTECTING YOUR IDEA..............................................83

8.1 INTELLECTUAL PROPERTY..................................................... 83 8.1.1 Getting legal protection for your intellectual property............ 83 8.1.2 Protecting your business name and domain name .................. 84

8.2 COPYRIGHT FOR YOUR BUSINESS ............................................ 84 8.2.1 What does copyright cover? ............................................. 85 8.2.2 How can copyright help my business? ................................. 86 8.2.3 Copyright protection ..................................................... 86

8.3 PATENTS.......................................................................... 86 8.3.1 Can I get a patent?........................................................ 87 8.3.2 Should I get a patent? .................................................... 87

8.4 TRADE MARKS.................................................................... 88 8.4.1 How to register a trade mark ........................................... 89 8.4.2 Trade marks and domain names........................................ 89

9. ADVISERS AND SERVICES..............................................90

9.1 ACCOUNTANTS .................................................................. 90 9.1.1 How an accountant can help............................................ 90 9.1.2 Where to find an accountant ........................................... 90 9.1.3 How to choose the right accountant .................................. 90 9.1.4 Checklist: ten things to ask your prospective accountant ......... 91 9.1.5 Managing the relationship with your accountant.................... 92

9.2 SOLICITORS ...................................................................... 92 9.2.1 When will I need legal advice? ......................................... 93 9.2.2 Find a solicitor............................................................. 93 9.2.3 Choose a solicitor ......................................................... 93 9.2.4 Ten questions you should ask your prospective solicitor .......... 93 9.2.5 Manage the relationship with your solicitor.......................... 94

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Sources of Information: http://www.businesslink.gov.uk/ “The Financial Times Guide to Business Startup”, 2007, by Sara Williams “Start your Business Week by Week”, 2005, by Steve Parks

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1. INTRODUCTION TO STARTING A BUSINESS Setting up your own business requires your full commitment. One must consider and acknowledge many factors before they start1. 1.1 THE LIFESTYLE OF AN ENTREPRENEUR Personal Sacrifice The physical and emotional demands of starting up in business should not be underestimated. Starting a business is a life-changing event and will require hard work and long hours, especially in the early stages. Financial Insecurity There can be times of financial uncertainty and this may have a knock-on effect for both you and your family. For example, you may have to forgo holidays. You may have invested personal savings or used your family home as security and in the worst case scenario you risk losing your investment or even your home. Loss of Company Perks Setting up your own business means that you will no longer be able to take advantage of the usual benefits associated with a permanent job. This includes the loss of “safety new” benefits such as pension rights, sick pay, paid holiday and other company perks. Pressure on Close Relationships You will need the support of your family and friends. They should be aware from the outset of the effect starting up a business will have on your life and it is crucial that they are right behind you. Their emotional backing may also need to be complemented by a practical “hands on” approach. Discussing these issues before they arise will help. Isolation Being your own boss can be a satisfying experience. However, shouldering all the responsibility for the success of the business can prove lonely. Unless you develop a network of contacts, there will be no one there to bounce ideas off. The greatest determinant of the success of your business is you, your character and skills. The type of person who blames external factors for failure and believes that their own decisions have little impact on the course of future events is not suited to building a business. Bearing this in mind and based on research, an entrepreneur should have most, if not all, of the following characteristics: 1.2 ENTREPRENEURIAL BEHAVIOUR Self-confidence A self belief and passion about your product or service – your enthusiasm should win people over to your ideas. Self-determination A belief that the outcome of events is down to your own actions, rather than based on external factors or other people’s actions Being a self-starter 1 Information taken from http://www.businesslink.gov.uk/

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The ability to take the initiative, work independently and to develop your ideas Judgement The ability to be open-minded when listening to other people’s advice, while bearing in mind your objectives for your business. Commitment The willingness to make personal sacrifices through long hours and loss of leisure time Perseverance The ability to continue despite setbacks, financial insecurity and exposure to risk Initiative The ability to be resourceful and proactive, rather than adopting a passive “wait and see” approach Apart from these behavioural characteristics, an entrepreneur must possess core skills to execute their ideas so that their business survives in the long-term. An entrepreneur must assess their own skills and knowledge in order to decide whether they need to learn new skills or draw on outside help by delegating, recruiting or outsourcing. The areas that one needs to cover are shown below: 1.3 ASSESS YOUR BUSINESS REQUIREMENTS Financial Management This includes having a good grasp of cashflow planning, credit-management and maintaining good relationships with your bank and accountant. Product Development The ability to make long-term plans for product development and identify the people, materials and processes required to achieve them. In order to make such plans you will need to know your competition and your customers’ needs. People Management This includes management recruitment, resolving disputes, motivating staff and managing training. Good people management will help employees to work together as a well-functioning team. Business Planning The ability to assess the strengths/weaknesses of your business and plan accordingly Marketing Skills A sound marketing approach will help you set up and oversee sales and marketing operations, analyze markets, identify selling points for your product and following these through to market. Supplier Relationship Management The ability to identify suppliers and positively manage your relationship with them Sales Skills Without sales your business cannot survive and grow. You need to be able to identify potential customers and their individual needs, explain your goods and services effectively to them and convert these potential customers into clients. Ideas often fail because the entrepreneur has not spent enough time researching their idea and its viability in the market. It is essential that one must research their target market and competitors carefully before progressing into a new venture.

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There are certain criteria you can use to establish this: 1.4 RESEARCH YOUR MARKET Does your product or service satisfy or create a market need? Can you identify potential customers? Will your product or service outlive any passing trends or capitalize on the trend before it dies

away? Is your product or service unique, distinct or superior to those offered by competitors? What competition will your product or service face – locally, nationally and globally? Is the product safe? Does your product or service comply with relevant regulations and legislation? Can you sell the product or service at a price that will give you sufficient profit? By answering these questions you can increase your chances of success. How much research you do depends on time and funds available. You could: o Informally canvass the opinion of friends o Talk to industry contacts and colleagues o Survey the public about whether they would use your product or service o Ask customers of competing products what improvements they would like to see o Set up focus groups to test your product or service o Monitor what your competitors are doing o Look at what has and hasn’t worked in your industry or market niche o Study wider economic and demographic data Once you have the confidence and determination, as well as a market research (evidence) to support your idea, the next step would be to develop a full fledged business plan. This will help you when planning ahead and can also be used to secure financing to begin operations. 1.5 DEVELOP A BUSINESS PLAN Writing a business plan is merely encapsulating your longer-term objectives, estimates and forecasts on paper. Typically, as business plan should include the following: 1. Vision – What do you want this business to become? It should be very short, clear and

concise 2. Opportunity – What problem is this business solving? Where is the opportunity? 3. Product/Service – What are you providing? 4. Market and Competition – Who is your target market? How big is it? What is the

competition 5. Strategy – How do you plan on achieving your vision? 6. Business Model – How will you make money? What are the revenue and cost drivers? 7. Financials – What is your budget and what do you expect the business to generate over a 5

year period 8. Organisation and Management – How will the company be structured? What roles will each

person have? What are their backgrounds? 9. Milestones – What is the road map of the business? When and what needs to be achieved

over time? Once you have put down your plan, do not necessarily accept that it is sent in concrete. Forecasts and objectives change as new bits of information and your better experience emerge. The important point is to incorporate your best estimate, given your current state of information.

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There is nothing like writing something down to help to clarify your mind and reveal your uncertainties and weaknesses. The two most important reasons for producing a written plan2 are:

a) To use within the business to keep yourself on your planned course or to alert you to things that are not going according to your strategy.

b) To show to outsiders to help raise money 1.6 SECURE CAPITAL Securing the right financing for your new business is crucial, as there is no guarantee that your business will make money straight away. You should aim to have sufficient reserves to last you for several months without an income from your business. The financing options available to an entrepreneur include: Bank loans Personal/Private loans Overdrafts Government Grants Family and Friends Angel Investors or Seed Capital

2 Taken from “The Financial Times Guide to Business Startup”, 2007, by Sara Williams

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2. FORMING YOUR COMPANY The first step to creating your business is to select the name. Choosing the name is a creative and enjoyable process and is very important as first impressions count and customers deduce a lot from a company’s name. Taking an objective approach will help you consider your customers first. 2.1 CHOOSE THE RIGHT NAME Choosing a name is a long-term decision, which revolves around what you are trying to sell and identifying why customers will buy from you rather than your competitors. Your company or product name should encapsulate a message to potential or existing customers so if a potential customer hears the name, it instantly gives a good connotation. Here are some tips to help decide on the name for your business: Do you want the name to reflect what your business does – framing, moving, cleaning,

building? Or would something more abstract be suitable? Would it be a good idea to include your own name? Do you want a traditional-sounding name, conveying durability and old-fashioned values, or a

modern name, suggesting a fresh, innovative approach? Think about the future – avoid words or phrases that are likely to date quickly. If you’re likely to be trading overseas, check that the name doesn’t mean anything

inappropriate in the relevant languages, and that it can be easily read and pronounced Think about the customers – avoid very long names, strange wordings and unusual spelling.

If you’re planning to advertise in directories, think about using a name that appears near the beginning of the alphabet – it will ensure it’s an early entry.

If you’re focusing on the local market for your product or service, think about using the name of the city or town in the business name

Keep your trading name creative, but your corporate name bland. This will give you the flexibility to develop other brands and trading names in the future.

Once the name has been identified, one would need to think about the type of legal structure for the company. To put your business on the proper footing with authorities, you need to make sure that it has the right legal structure. 2.2 SELECT THE APPROPRIATE LEGAL STRUCTURE It is worth thinking carefully about which structure best suits the way you do business, as this will affect: The Tax that you might be required to pay The records and accounts that you have to keep Your financial liability if the business runs into trouble The ways your business can raise money The way management decisions are made about the business There are several structures to choose from, depending on your situation: 1. Sole Trader

Being a sole trader is the simplest way to run a business – it does not involve paying any registration fees, keeping records and accounts is straightforward, and you get to keep all the profits.

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Advantages Disadvantages Independence Ease of set up and running All profits go to you

Lack of support Unlimited liability3

2. Partnership

In a partnership, two or more people share the risks, costs and responsibilities of being in business. Each partner is self-employed and takes a share of the profits. Usually, each partner shares in the decision-making and is personally responsibly for any debts that the business runs up. Advantages Disadvantages Ease of set up and running Range of skills and experience

Problems when partners disagree Unlimited liability

3. Limited Liability Partnership (LLP)

An LLP is similar to an ordinary partnership – in that a number of individuals or limited companies share in the risks, costs, responsibilities and profits of the business Advantages Disadvantages Retain the flexibility of a partnership Personal liability is limited No restriction on the number of new

members

Formation is more complex and costly than that of a partnership

Problems when partners disagree

4. Limited Liability Companies (LLC) including a Free Zone LLC (FZ-LLC)

Limited companies exist in their own right. This means that the company’s finances are separate from the personal finances of their owners. Shareholders may be individuals or other companies. Advantages Disadvantages Personal liability is limited to how much

you invested and any guarantees you have given in order to obtain financing

Extra legal duties including the maintenance of a company’s public records (for accounts)

A company operating in a free trade zone is typically registered as a Free Zone LLC. These companies are meant to operate offshore, or outside the mainland, and usually have the following advantages and disadvantages: Advantages Disadvantages 100% foreign ownership 100% exemption from personal and

corporate tax Excellent infrastructure and support

facilities Cheaper than setting up an LLC (does

not require sponsorship fees) Strategic location Less bureaucracy Support from government Large, well established trade links

Restrictions on operating on the mainland (i.e. selling to local companies)

3 Personally responsible for any debt the business runs up (this means your home or other assets may be at risk if your business is in trouble.

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In many cases, business setup organisations can often provide a local partner for incorporation, and the company/founder pays them an annual sponsorship fee (which varies). If the founder wants to fully own the company, they would need to set up a side agreement with the local sponsor which supersedes the shareholder agreement and indicates that they do not own any shares in the company. This is a grey area and often risky if you do not trust or know the local sponsor.

5. Franchise

Buying a franchise is a way of taking advantage of the success of an established business. As the “franchisee”, you buy a licence to use the name, products, services and management support systems of the “franchiser” company. This licence normally covers a particular geographical area and runs for a limited time, after which it should be renewable as long as you meet the terms of the franchise agreement. Advantages Disadvantages Takes advantage of the success of an

established business and support networks

Limited freedom to the terms of the franchise agreement

Franchisees often pay a share of their turnover to the franchiser, which reduces overall profits

6. Social Enterprises

A social enterprise is a business with primarily social objectives. Any profits are largely re-invested in the business or in the community, rather than given to shareholders and owners. There are many different types of social enterprises, including community development trusts, housing associations, worker-owned co-operatives and leisure centres.

Based on your business requirements, you must select the appropriate structure. Once that is complete, the entrepreneur would identify an office location to set up their operations. 2.3 IDENTIFY AND SET UP AN OFFICE Choosing the right premises is a key business decision. You want premises that help you operate effectively without excessive costs. At the same time, you want to avoid being tied to premises that might not suit you in the future. Different options suit different businesses. Working from home is a good option if all you need is a small office space. You can also rent premises or buy a property outright. What is the ideal location for the type of business you have in mind? The best place to start is to draw up a list of what you need from your premises and what business related factors affect your decision. The list might cover the following factors: Ownership Requirements In the MENA region, particularly the GCC, shareholders require a local partner to register an LLC company. Some cities and countries are now creating sector specific free trade zones (called “free zones”) where companies can be 100% owned by foreign entities. If you do not have a local partner or would like to fully own your business, it may be beneficial to see if there are any free zones within your sector since they will provide the appropriate infrastructure and support facilities for your type of business. Government and Local Authority Assistance Your business may be location-independent. Therefore you can look at some of the deals that the government and local authorities produce to stimulate the founding of new businesses in specific

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regions or sectors. This includes “free zones” as well as government foundations, e.g. the Mohammed bin Rashid Foundation and Khalifa Fund in the UAE. Communication How dependent is the success of your business on communications – road, air? This could be important if: You deliver your product Your business is service-based to particular areas of population You sell your product direct, using salespeople Your business is dependent on import and export (e.g. an ideal location would be near a

major airport, or motorways) Labour If your business is dependent on the use of certain skills, you may find that a country/a part of a country is more abundantly endowed with potential employees who have already acquired those skills. On the other hand, skills may be irrelevant – what you may need is a ready pool of unskilled labour, in which case some areas have higher unemployment than others. Centres of Population Your business may need to be located near particular centres of population. If you are trying to sell your product in large volume, being in a large centre of population may be an advantage. Or you may want to choose an area with a specific structure of population if your product or service is sold only to particular sectors. Suppliers Your business may depend on supplies of a particular raw material or some other product. Costs would be reduced if your business was located near the source of supply. This could either be the main distributor of the item or where the item is grown or produced. Domestic Constraints The extra benefits gained from moving to another area may not outweigh the domestic upheaval and cost of moving house when you want to start your business. If you decide not to move your home, it makes sense for your offices to be close to your home, as long as other business considerations do not apply. If it would not adversely affect your business to be near your home, it can be an advantage as it cuts down on your wasted travelling time from home to office. The next step would be to identify an appropriate office space. Start off by coming up with a list of what you need from your premises, and think about the following points: Size and layout of the premises Structure and appearance, both internally and externally Any special structural requirements, such as high ceilings Facilities and comfort for employees and visitors – including lighting, toilets and kitchen

facilities Permission, including planning permission to use the premises for this type of business Utilities, such as power and drainage, and any special requirements Access and parking space Whether you need the flexibility to alter or expand the premises Whether the premises is suitable for your long-term needs After this analysis, you may decide that working from home suits you best. In which case, you would need to think about properly equipping your workspace. If you work at a desk you need a comfortable workstation. Consider any potential hazards to yourself, workers, visitors and other members of your household and how to reduce the risk of accidental damage to your work or equipment.

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If you are deciding to rent or buy an office instead, the following costs would need to be considered: Initial purchase costs including legal costs such as solicitor’s fees and professional fees Initial alterations, fitting out and decoration Any alterations required to meet building, health and safety and fire regulations Ongoing rent, service and utility charges, including water, electricity and gas Continuing maintenance and repairs Building and contents insurance Once you have answered these questions and analysed your requirements, you should have a clear idea of where you would like to be located and what type of office space suits you best. At this point, you should be on your way to incorporation and near to beginning operations.

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3. GETTING STARTED Whatever kind of business you run, it is best practice and in your interest to keep financial records relating to it. Keeping records saves you time and money whenever you need figures to back you up. Therefore, the first step before beginning operations would be to create a basic record-keeping system. 3.1 CREATE A RECORD-KEEPING SYSTEM There are four basic sets of financial records that will help you run a tight business – the cash book, sales ledger, purchase ledger and wages book. 3.1.1 The Cash Book The cash book is the final record of all the money that comes into and goes out of your business – often referred to as cashflow. To complete your cash book, you’ll need to collect and hold on to: Cheque book stubs Cancelled cheques Bank paying-in books Bank statements Copies of your own invoices Receipts and delivery notes Your suppliers’ invoices Receipts for all cash purposes, till roles, etc Remittance advices from customers Copies of payments made or received using online banking systems Divide your cash book into two main sections (i) payments and (ii) receipts. Listing sales and purchases separately is sensible. Recording this information will help you when filling in your annual tax return. It is important to check the individual entries in your cash book with the bank statement to pick up items such as bank charges or credit transfers paid directly into your bank account for sales. If you pay by cheque, you should also check that these have been properly credited by your suppliers. Small, simply structured businesses may find this cash book sufficient. However, keeping a sales ledger and purchase ledger will enable you to record sales, purchases on credit, and keep track of amounts owed to you from sales and by you for purchases. This will make it easier to monitor your cash flow. 3.1.2 The Sales Ledger A sales ledger records (i) the sales your company has made, (ii) the amount of money received for your goods or services, and (iii) money owed at the end of each month. It’s a useful business-planning tool, enabling you to monitor and chase slow payers and see which customers are most profitable. Every time you invoice a customer, record it in the sales ledger on a regular basis (weekly). Each week or month, you can add up the total amount of sales invoiced by you, also called turnover. By recording the amounts paid by customers in the sales ledger you will also be able to identify the money owed to your business. Any customers that have exceeded your payment terms can then be chased. All those owing you money should remain on the ledger until their debts have been cleared.

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3.1.3 The Purchase Ledger A purchase ledger records all purchases made by your business. It helps you monitor: Your business outgoings How much money you owe at any one time In addition, it gives you a record of your most regular suppliers and how much you have spent with each. Date Received Supplier’s Name Reference No. Total Paid Date Paid By recording the purchase ledger payments for purchases you have made, you will be able to identify the amount unpaid. Each time a payment is made, note it in the “Total Paid” column. You can add up the totals on a regular basis to see how much you owe. Any creditors should remain on the purchase ledger system until payment is made. Each time a payment is made, note in the “Date Paid” Column. It is a good idea to number each bill when you receive it and record this number against an entry in the ledger. It is also helpful to file the bills in numerical order. That way you will be able to retrieve the bill if the query arises at a later date. 3.1.4 The Wages Book Spreadsheet If you employ staff you will need to keep a record of all the salary payments made. All the data above should be computerized either by using your computer’s standard spreadsheet package or buying an accounting software package4. This will allow you to add, delete, amend and share your data easily and will recalculate your running totals for you. 3.2 PURCHASE EQUIPMENT Investment in equipment should be a priority, particularly information technology (IT). Small businesses now need an IT strategy since it is a proven and cost-effective way of carrying out your work more efficiently, and giving a faster and better service to the customer. 3.2.1 Information Technology The first question you need to ask is what you want a computer to do in your business: Word processing: Writing letters, quotes or mail shots Accounts: computerized accounting packages, including some simple software designed for

small businesses Financial Control and Planning: programs range from cash management to sophisticated

systems for working out forecasts and updating them at regular intervals. Database-Type Work: If you have a large list of potential customers and send them out mail

shots or want to record information about them, using database software can improve your efficiency dramatically.

Databases are important if you are trying to sell your product by mail or telephone and if you are adopting a strategy of building a group of customers with like needs and interests and developing products to meet their requirements.

4 QuickBooks Pro, Pegasus Capital Gold and others

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It is crucial to have a fast computer. Ideally, buy one off the shelf that comes with ready-made packages, such as word processing, spreadsheet, accounts package, database software, email and access to the Internet. If you know particular aspects are important to you, choose specific software packages and install it yourself. You would also need to choose a color printer, which are readily available at affordable prices. If there is more than one of you in the business, you need to set up a network with a server. A network allows you to switch documents from one machine to another without making paper copies, and it allows more than one of you to work in the same application software at the same time. 3.2.2 Communication Tools Set up a telephone line, and connect your computer to an internal model. This enables you to link to the Internet and send and receive emails and faxes. There are also various communication tools online that are very useful: Basecamp Chatting Skype GoToMeeting 3.2.3 Furniture Choosing the right furniture for your business depends essentially on the type of business. Cheap, second-hand desks and chairs may not be good business sense. If you think that customers or suppliers will visit your premises at regular intervals, it is crucial to select furniture that projects the image you have planned for your business. 3.2.4 Methods of Payment There are four main ways you can pay for equipment: 1) Buying Outright – this does not always mean buying it with your own money. You could use

a bank loan or overdraft to finance the purchase of equipment. The advantage of buying outright is that you own the asset, which will be entered in your balance sheet.

2) Hire Purchase (or Credit Sale) – ultimately you will own the asset outright at the end of the hire period. As with buying outright, you can claim a capital allowance from the time you start using the equipment, and you will be able to take the equipment into your balance sheet as an asset (with what you owe as a liability). Using hire purchase also means that you are not laying out such a large sum initially, compared with buying outright, which can be helpful for cash flow. However, payments you make will consist of capital and interest.

3) Leasing – if you lease equipment you are not the owner of it, although you may be able to buy it at the end of the lease. The company that organizes the lease is the initial owner. The main advantage of leasing is that there is no capital outlay, so it can be a big help to cash flow. All payments you make are treated as an expense.

4) Contract Hire – This is a form of leasing, mostly used for financing a fleet of vehicles. In this case, what is in contract is not a specific vehicle or vehicles but the use of an agreed number of the specific type. The length of the agreement is usually shorter than the estimated life of the equipment.

3.3 MANAGE YOUR CASHFLOW Cashflow is the measure of your ability to pay your bills on a regular basis. It depends on the timing and amounts of money flowing into and out of the business each week and month. Good

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cashflow means that the pattern of income and spending in a business allows it to have cash available to pay bills on time. Cash balances include: Coins and notes Current accounts and short-term deposits Unused bank overdrafts and short-term loans Foreign currency and deposits that can be quickly converted to your currency It does not include: long-term deposits long-term borrowing money owed by customers stock It is important not to confuse cash balances with profit. Profit is the difference between the total amount your business earns and all of its costs, usually assessed over a year or other trading period. You may be able to forecast a good profit for the year, yet still face times when you are strapped for cash. To make a profit, most businesses have to produce and deliver goods or services to their customers before being paid. Unfortunately, no matter how profitable the contract, if you don't have enough money to pay your staff and suppliers before receiving payment from your customers, you'll be unable to deliver your side of the bargain or receive any profit. To trade effectively and be able to grow your business, you need to build up cash balances by ensuring that the timing of cash movements puts you in a positive cashflow situation overall. 3.3.1 Cash Inflows and Cash Outflows Ideally, during the business cycle, you will have more money flowing in than flowing out. This will allow you to build up cash balances with which to plug cashflow gaps, seek expansion and reassure lenders and investors about the health of your business You should note that income and expenditure cashflows rarely occur together, with inflows often lagging behind. Your aim must be to speed up the inflows and slow down the outflows.

Cash inflows Payment for goods or services from your customers. Receipt of a bank loan. Interest on savings and investments. Shareholder investments. Increased bank overdrafts or loans Cash outflows Purchase of stock, raw materials or tools. Wages, rents and daily operating expenses. Purchase of fixed assets - PCs, machinery, office furniture, etc. Loan repayments. Dividend payments. Income tax, corporation tax, VAT and other taxes. Reduced overdraft facilities. Many of your regular cash outflows, such as salaries, loan repayments and tax, have to be made on fixed dates. You must always be in a position to meet these payments in order to avoid large fines or a disgruntled workforce

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To improve everyday cashflow you can: ask your customers to pay sooner chase debts promptly and firmly use factoring ask for extended credit terms with suppliers order less stock but more often lease rather than buy equipment improve profitability You can also improve cashflow by increasing borrowing, or putting more money into the business. This is suitable for coping with short-term downturns or to fund growth in line with your business plan, but shouldn't form the basis of your cash strategy. 3.3.2 Avoid Cashflow Problems No matter how effective your negotiations with customers and suppliers, poor business practices can put your cashflow at risk. Look out for: Poor credit controls - failure to run credit checks on your customers is risky, especially if

your debt collection strategy is inefficient. Failure to fulfil your order - if you don't deliver on time, or to specification, you won't get

paid. Implement systems to measure production efficiency and the quantity and quality of stock you hold and produce.

Ineffective marketing - if your sales are stagnating or falling, revisit your marketing plan. Inefficient ordering service - make it easy for your customers to do business with

you. Where possible, accept orders over the telephone, email or Internet. Ensure catalogues and order forms are clear and easy to use.

Poor management accounting - keep an eye on key accounting ratios that will alert you to an impending cashflow crisis or prevent you from taking orders you can't handle.

Inadequate supplier management - your suppliers may be overcharging, or taking too long to deliver. Create a supplier management system.

Poor control of gross profits or overhead costs. 3.3.3 Manage Income and Expenditure Effective cashflow management is as critical to business survival as providing services or products. Below are some of the key methods to help reduce the time gap between expenditure and receipt of income. 1. Customer management

o Define a credit policy that clearly sets out your standard payment terms o Issue invoices promptly and regularly chase outstanding payments. Use an aged

debtor list to keep track of invoices that are overdue and monitor your performance in getting paid.

o Consider exercising your right to charge penalty interest for late payment. o Consider offering discounts for prompt payment. o Negotiate deposits or staged payments for large contracts. It's in your customers'

interests that you don't go out of business trying to meet their demands. o Consider using a third party to buy your invoices in return for a percentage of the

total. 2. Supplier management

1. Ask for extended credit terms. Giving your suppliers incentives such as large or regular orders may help, but make sure you have a market for the orders you're placing. Alternatively, consider reducing stock levels and using just-in-time systems.

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3. Asset Management o Consider leasing fixed assets, eg equipment, or buying them on hire purchase.

Buying outright can result in a huge drain on cash in the first year of business. 3.3.4 Forecast your Cashflow Cashflow forecasting enables you to predict peaks and troughs in your cash balance. It helps you to plan borrowing and tells you how much surplus cash you're likely to have at a given time. Many banks require forecasts before considering a loan. The cashflow forecast identifies the sources and amounts of cash coming into your business and the destinations and amounts of cash going out over a given period. There are normally two columns listing forecast and actual amounts respectively. The forecast is usually done for a year or quarter in advance and divided into weeks or months. In extremely difficult cashflow situations a daily cashflow forecast might be helpful. It is best to pick periods during which most of your fixed costs - such as salaries - go out. The forecast lists: Receipts Payments Excess of receipts over payments - with negative figures shown in brackets Opening bank balance Closing bank balance It is important to base initial sales forecasts on realistic estimates. If you have an established business, an acceptable method is to combine sales revenues for the same period 12 months earlier with predicted growth. 3.3.5 Use your Cashflow Forecast as a Business Tool A cashflow forecast can be an invaluable business tool if it is used effectively. Bear in mind that it is dynamic - you will need to change and adjust it frequently depending on business activity, payment patterns and supplier demands. It's helpful to set up a regular review of the forecast, changing the figures in light of your sales, purchases and staff costs. Legislation, interest rates and tax changes will also impact on the forecast. Having a regular review of your cashflow forecast will enable you to: See when problems are likely to occur and sort them out in advance Identify any potential cash shortfalls and take appropriate action Ensure you have sufficient cashflow before you take on any major financial commitment Having an accurate cashflow forecast will help ensure that you can achieve steady growth without overtrading. You will know when you have sufficient assets to take on additional business - and, just as importantly, when you need to consolidate. This will enable you to keep staff, customers and suppliers happy. It is important that you incorporate warning signals into your cashflow forecast. For example, if predicted cash levels come close to your overdraft limits, this should sound an alarm and trigger action to bring cash back to an acceptable level. Ideally, you should always have a contingency plan, such as retaining a minimum amount of cash in the business, perhaps in an interest-earning account. This "rainy day" money can be used to meet short-term cash shortages.

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3.4 SET UP A SIMPLE PROFIT & LOSS ACCOUNT A profit and loss account is a summary of business transactions for a given period – normally 12 months. By deducting total expenditure from total income, it shows on the “bottom line” whether your business made a profit or loss at the end of that period. 3.4.1 Keep Accurate Records Whatever your business type, by law you must keep accurate records of your income and expenditure. Accurate record keeping has important benefits:

Gives you the information you need to manage your business and make it grow Enables you to report on your profit or loss easily and quickly when required Will improve your changes of getting a loan or mortgage Helps you or your company avoid paying too much tax (if you are required to) Provides back-up for claims for certain allowances Help you plan and budget Helps reduce fees if you use an accountant – your annual accounts will be far easier to

produce The basic records you would need to keep to create your profit and loss account are:

A list of all your sales and other income A separate list for petty cash expenditure if relevant A record of goods taken for personal use and payments to the business for these A record of money taken out for personal use or paid in from personal funds – this

applied to limited companies Back-up documents for all of the above

3.4.2 Record Income from Sales The total sales of products and/or services in a trading year are referred to as turnover. This is the starting point for your profit and loss account. How you record your sales will vary according to your business type and size. You may use a simple list or “ledger” in a book, a tailored spreadsheet, or a computer software program. Whichever system you use, you need to ensure that it is accurate and updated regularly. The back-up for your sales ledger fall into two categories, and will vary according to your business type: 1) Sales Documentation:

Copies of sales invoices issued by you Rolls of till receipts Records of money you pay into the business when taking goods out for personal use –

note that if you take goods out of your business without paying for them you still owe the business for them, and so will have to add the retail cost of the items to your overall pretax profit figure.

2) Proof of income relating to the above:

Paying-in slips Bank-building society statements and similar

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If you operate on a “cash only” basis you must keep detailed records of your income in your sales book or ledger and be able to relate these to your expenditure, cash in hand and bank statements. 3.4.3 Record Other Income As well as reporting sales income, you need to report income to the business from other sources, for example:

Interest on business bank accounts Sale of equipment you no longer need5 Rental income to the business6 Money you put into a limited company from personal funds

It is best practice to keep paying-in slips and/or bank statements to account for your additional business income. You should be able to cross-reference this documentation to the above “other income” records. 3.4.4 Record Business Expenditure Business expenditure falls into three key areas for the purpose of reporting your profit or loss. You can save yourself, or your accountant, time by grouping your costs accordingly in your purchase list or “ledger”

Cost of sales – the base cost of obtaining or creating your product. When you create your profit and loss account, you deduct your cost of sales from your overall sales, or turnover, to arrive at your “gross profit”. Cost of sales might include:

o The cost of stock you buy for resale o Components/raw materials to make your product o Labor to produce the product o Machine hire o Small tools o Other production costs

Business expenses – these are all ongoing expenses associated with running your business that you can deduct from your “gross profit” figure on your profit and loss account to calculate a figure of “profit before tax”. If you pay tax, some of these expenses can be added back before your taxable profit is calculated. Legitimate business expenses for accounting purposes are:

o Employee costs o Premises costs o Repairs o General administration o Motor expenses o Travel/subsistence o Advertising/promotion/entertainment o Interest o Legal/professional costs o Bad debts o Depreciation o Other finance charges o Any other expenses

5 Record equipment sales in your sales ledger, or on a separate schedule of assets if you prefer 6 Keep a record of any rental income, for example if you sublet part of your office to someone else

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Cost of equipment - you have bought or leased for long-term use are called “capital items” or “fixed assets”. If tax applies to your business, capital items cannot be deducted from your taxable profits in the same way that expenses can. These costs might include:

o Furniture o Computer equipment o Cars or vans necessary for the business o Machinery o Premises

The back-up records for your business expenditure fall into two categories. As with sales records, they will vary according to your business type: 1) Purchase/expenditure Documentation

Copies of supplier invoices/receipts issued to you Till receipts for items bought over the counter Payroll and Insurance records if you have employees

2) Proof of expenditure relating to the above

Cheque book stubs Bank statements Credit card statements and receipts

It is important for you to be able to cross-reference your records to your expenditure figures if asked. If you mislay a receipt for a small item, make sure you enter it in your purchase or petty cash book ledger and make a note that you have lost the receipt. Once you set up your profit and loss account, the next step would be to set up a simple balance sheet 3.5 SET UP A SIMPLE BALANCE SHEET Your balance sheet is a financial statement at a given point in time. It provides a snapshot summary of what your business owns or is owed – assets – and what it owes – liabilities – at a particular date. The balance sheet therefore shows how your business is being funded and how you are using these funds. There are three ways you may use your balance sheet:

1) For reporting purposes as part of a limited company’s annual accounts 2) To help you and other interested parties such as investors, creditors or shareholders to

assess the worth of your business at a given moment 3) As a tool to help you analyze and improve the management of your business

3.5.1 Contents of the Balance Sheet A balance sheet shows:

Fixed assets – long-term possessions. Fixed assets include: Tangible Assets (e.g. buildings, land, machinery, computers) shown at their

depreciated or resale value where appropriate Intangible Assets (e.g. goodwill, intellectual property rights – patents,

trademarks and website domain names) and long-term investments

Current Assets – short-term possessions whose value can fluctuate from day to day and can include:

Stock Work in progress

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Money owed by customers Cash in hand or at the bank Short-term investments Pre-payments – e.g. advance rents

Current Liabilities – what the business owes and must repay in the short-term (due within one year). These include:

Money owed to suppliers Short-term loans, overdrafts or other finance Taxes due within the year

Long-term Liabilities – including owner’s or shareholders’ capital. These include: Creditors due after one year = the amounts due to be repaid in loans or

financing after one year, e.g. bank or directors’ loans, finance agreements Capital and reserves – share capital and retained profits, after dividends (if

your business is a limited company) The balance sheet is so-called because there is a debit entry and credit entry for everything, so the total value of the assets is always the same value as the total liabilities. What each balance sheet includes will vary from business to business. 3.5.2 Assess the Strength of your Business There are some simple balance sheet comparisons you can make to assess the strength or performance of your business against earlier periods, or against direct competitors. The figures you study will vary according to the nature of the business. Some comparisons draw on figures from the profit and loss (P&L) account. There are some simple balance sheet comparisons you can make to assess the strength or performance of your business against earlier periods, or against direct competitors. The figures you study will vary according to the nature of the business. Some comparisons draw on figures from the profit and loss (P&L) account: A positive relationship with your trade creditors is essential. Key to this is managing your

cashflow well, so that payments can be made on time. For example, trade creditors are more likely to be flexible about extending terms of credit if you have built up a good payment record.

If the amount trade debtors owe you is growing faster than sales, it could indicate poor internal credit controls. Find out whether any of your customers are having problems with cashflow, which could pose a threat to your business.

If inventory (stock) levels are rising from one period to the next, but sales in your P&L are not, some of your stock might be out of date. You may also have a cashflow problem developing.

Making early payments may qualify you for a discount. However, early payment for the sake of it will have a negative impact on your cashflow. Good payment controls will help prevent imbalances in what you owe suppliers and in levels of stock and inventory.

Borrowing as a percentage of overall financing (gearing) is important - the lower the figure, the stronger your business is financially. It's common for start-up businesses to have high borrowing requirements, but if the gearing figure reaches 50 per cent you may have difficulty getting further loans.

3.6 HIRE PEOPLE Deciding when to take on an employee is a delicate balancing act. On the one hand, if you increase your manpower, you might not be able to cover increased costs straight away. On the

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other hand, extra manpower could free you to spend more time on other activities, such as marketing or planning which should, in the end, mean increased profits. A useful rule of thumb for choosing the best time to increase your manpower is to ask yourself if you can generate enough extra sales to cover the cost of taking on that extra employee. If you will not be able to increase your sales straight away, you could still employ someone; but, in this case, you will need to be able to keep your business going until you have been able to build your sales up to the new level you need. The whole process can take several months, so finding you have made a mistake and having to recruit again can throw your business off its planned course. Nor should you underestimate the emotional problems of getting rid of an unsuitable employee, which can unnerve the toughest of businessmen or businesswomen and unsettle other employees. 3.6.1 Define the Job that Needs Doing Before you plunge into adding that extra employee, look carefully at the work to be done. It is very important to sort out in your own mind what the job entails. Once you have done this you can define the person you need. If you fail to do this preparatory work, you might find yourself employing someone who is not capable of doing the work. This list of topics might help you to organize your thoughts about the job: 1) Level of Skill

When you decided you needed an extra person, was it because you needed work done that you did not feel competent to carry out yourself? Does the work require a special skill?

2) Training If you have the skill to do the job, but not the time, would it take a lot of training to employ someone without that particular skill and teach them on the job? Would you have the time to carry out that training?

3) Length of Time Do you estimate that this extra work will need doing for a long period of time? Or is it a temporary bulge? Watch out for mistaking a backlog of work that can be cleared up quickly for a permanent increase in activity

4) How much Extra Work Can you quantify how much time will need to be spent by someone to carry out the work? Is it a full working week? Do not assume that if you find the work difficult and time-consuming because it is outside your range of skills, a skilled employee will take as long.

5) Experience Do you think the job requires a lot of experience? Would the employee need to be able to make independent judgments? Or is it intended that the work will be closely directed by yourself or another?

6) Responsibility How much responsibility will the employee have? Will the employee be required to man the office alone? If the job is selling, will the person be required to go out selling unsupervised? Will the employee handle money? Or be responsible for other staff? To whom will the employee be responsible?

7) Tasks List the things that need to be done by your new employee. Work out for whom the tasks will be done and the importance of the tasks

8) Authority Work out what your new employee can do without asking you or someone else for permission – for example, making appointments, spending money up to a certain limit.

9) Contacts Will your new employee need to deal directly with the general public or your customers? Will the contact be face to face, on the telephone or by letter? If the contact is by email/Internet, you need to make clear the authority of your employee and how far he/she may be able to bind your business

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10) Special Circumstances Does the job involve working during unsocial hours? Will your new member of staff need to do much travelling away from home? Will the working conditions be unpleasant or dangerous?

11) Future Development Consider how the job might develop and expand in the future. You need to assess a job hunter for this potential too.

Setting out your thoughts in this way may seem like overkill if the job is relatively simple. But hiring and firing a succession of unsatisfactory people will be more time-consuming and disruptive to your business than spending an hour or so defining the job. Another way of examining your need would be to fill in a job description form. 3.6.2 Identify the Type of Employee You Want Your next task is to match the employee to the job. Decide if you need someone full-time or part-time. Think about what experience, qualifications and personal abilities are needed to do the job. There are numerous options: Full-Time Employees – most employees are permanent, full-time and salaried, but this may

not suit your business. It will most likely be the most expensive option available, so do not ignore other ways of getting the job done.

Family – employing your family may not be the permanent solution you seek, but it may help to tide you over until you are confident that taking on an extra employee is justified

Freelance Staff – for quite a number of jobs it is possible to get people who are happy to work on a freelance basis. This means you will pay an agreed fee but have no responsibility for insurance, sick payments or holiday pay. If the extra work comes to an end, you need feel no responsibility towards finding more work for a contractor. The main advantage of this option is that it gives you a good opportunity to work with the person before you offer a permanent job. The main disadvantages are that it is very expensive for specialized contractors, and they may not be as passionate or enthusiastic as others.

Part-time Staff – if the work you want doing does not add up to a full working week, consider getting someone in on a part-time basis.

Commission-only Salespeople or Agents – this option is beneficial if you are looking to boost your selling effort. You may be able to find someone competent who would prefer to be paid by getting a commission on each item sold. This reduces your risk – no sales, means no pay. However, the commission you will pay will be greater per item than to a salaried employee who also gets commission on sales.

Fixed-Term Contracts – you may need people to carry out specific projects that cannot be undertaken by your full-time employees.

3.6.3 Identify who is Right for the Job Try to develop an idea of the sort of person who will perform well in the job and in your business. Use the groups of characteristics listed below to help you sort out what is important for the job and what is not: Physical Make-up – this covers the employee’s health, physique, appearance, manner and

speech Achievements – what education, qualifications and experience do you expect? General Intelligence – what sort of reasoning ability should the person have? How quickly

do they understand what you are saying? Special Aptitudes – what particular skills do you need, e.g. mechanical, verbal, numerical

etc Interests – what are the person’s hobbies and leisure activities? Are there any particular

hobbies that would be more or less suitable for the person who is needed for the job?

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Personal Characteristics – whether the person has the right personality to cope with that particular type of job. Avoid focusing on characteristics that can be met only by certain sections of the population

It would be a good idea to pick out of the list those characteristics that you think are very important, those that would be an advantage but are not crucial for this particular job, and those that would be a definite disadvantage to someone carrying out the job. 3.6.4 Recruit Candidates Once you have completed the essential preparation and so got a clear idea of what job you need doing and what sort of person you would like to fill the job, your problem now becomes – how can I find the person I want? The main ways you can tell job seekers about the job on offer are: By advertising direct, on the Internet or in newspapers or magazines Through recruitment agencies and consultants Through friends, family, existing employees and business contacts By recruiting direct from colleagues 3.6.5 Interviewing the Candidates An interview has two purposes:

1) It helps you to chose your new employees 2) It helps your new employee to choose you

It is important to remember that you should structure the interview process to enable you to find out what the applicant is really like and to allow the job seeker to find out about you and your company and decide that this is the job he or she wants. The first stage is to prepare for the interview and think of the potential questions that the job seeker may ask. This can include: Company Information – How big is the company? How many employees? Holidays – How many weeks can they take? Illness – What will happen if your employee is away from work because of illness? Starting date – What day do you expect them to start? Hours of work – What are the working hours per week? Salary – When and how do they get paid? Any rules on overtime, bonuses and commission? The second stage of preparation is to work out what key questions you want to ask. Useful interview questions include: 1) What is the best part and worst part of your present job, and why? 2) What bit of your work do you find difficult and what bit the easiest? 3) How do you rate your present boss? 4) Describe your ideal boss 5) What do you consider to be your greatest success and why? 6) What do you consider to be your greatest failure and why? 7) When were you last angry at work? What caused anger? What form of anger did you take? 8) What is most important to you about the job you are looking for? 9) What will your family and friends think of your new job? 10) What are your greatest strengths? 11) What are your weaknesses?

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12) What worries you most about the job? 13) What excites you most about the job? As well as these questions, there are more straightforward ones about the present job, the career, education and so on that needs to be asked. By filtering and interviewing the candidates you should be able to select the best person for the job. Once you have registered your company, developed adequate financial systems and recruited the required people (if required), you are ready to start operations. This involves an understanding of several key areas, starting with sales and marketing.

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4. SALES AND MARKETING Getting your sales and marketing right is crucial to the success of your business. Creating a marketing strategy will help you identify potential customers and target them with appropriate products or services. Using the correct sales techniques will help you turn interest in your product or service into customer orders. 4.1 CREATE YOUR MARKETING STRATEGY Developing a marketing strategy is vital for any business. Without one, your efforts to attract customers are likely to be haphazard and inefficient The focus of your strategy should be making sure that your products and services meet customer needs and developing long-term and profitable relationships with those customers. To achieve this, you will need to create a flexible strategy that can respond to changes in customer perceptions and demand. It may also help you identify whole new markets that you can successfully target The purpose of your marketing strategy should be to identify and then communicate the benefits of your business offering to your target market Once you have created and implemented your strategy, monitor its effectiveness and make any adjustments required to maintain its success. 4.1.1 Key elements of a successful marketing strategy One of the key elements of a successful marketing strategy is the acknowledgement that your existing and potential customers will fall into particular groups or segments, characterised by their "needs". Identifying these groups and their needs through market research, and then addressing them more successfully than your competitors, should be the focus of your strategy. You can then create a marketing strategy that makes the most of your strengths and matches them to the needs of the customers you want to target. For example, if a particular group of customers is looking for quality first and foremost, then any marketing activity aimed at them should draw attention to the high quality service you can provide. Once this has been completed, decide on the best marketing activity that will ensure your target market know about the products or services you offer, and why they meet their needs. This could be achieved through various forms of advertising, exhibitions, public relations initiatives, Internet activity and by creating an effective "point of sale" strategy if you rely on others to actually sell your products. Limit your activities to those methods you think will work best, avoiding spreading your budget too thinly. A key element often overlooked is that of monitoring and evaluating how effective your strategy has been. This control element not only helps you see how the strategy is performing in practice, it can also help inform your future marketing strategy. A simple device is to ask each new customer how they heard about your business. Once you have decided on your marketing strategy, draw up a marketing plan to set out how you plan to execute and evaluate the success of that strategy. The plan should be constantly reviewed so it can respond quickly to changes in customer needs and attitudes in your industry, and in the broader economic climate.

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4.1.2 Understanding your Strengths and Weaknesses Your strategy must take account of how your business' strengths and weaknesses will affect your marketing. Begin your marketing strategy document with an honest and rigorous SWOT analysis, looking at your strengths, weaknesses, opportunities and threats. It is a good idea to conduct some market research on your existing customers at this point, as it will help you to build a more honest picture of your reputation in the marketplace. Strengths could include: personal and flexible customer service special features or benefits that your product offers specialist knowledge or skills Weaknesses could include: limited financial resources lack of an established reputation inefficient accounting systems Opportunities could include: increased demand from a particular market sector using the Internet to reach new markets new technologies that allow you to improve product quality Threats could include: the emergence of a new competitor more sophisticated, attractive or cheaper versions of your product or service new legislation increasing your costs a downturn in the economy, reducing overall demand Having done your analysis, you can then measure the potential effects each element may have on your marketing strategy. For example, if new regulations will increase the cost of competing in a market where you're already weak, you might want to look for other opportunities. On the other hand, if you have a good reputation and your key competitor is struggling, the regulations might present the opportunity to push aggressively for new customers. 4.1.3 Developing your Marketing Strategy With an understanding of your business' internal strengths and weaknesses and the external opportunities and threats, you can develop a strategy that plays to your own strengths and matches them to the emerging opportunities. You can also identify your weaknesses and try to minimise them. The next step is to draw up a detailed marketing plan that sets out the specific actions to put that strategy into practice. Questions to ask when developing your strategy What changes are taking place in our business environment? Are these opportunities or

threats? What are our strengths and weaknesses? What do I want to achieve? Set clear, realistic objectives. What are customers looking for? What are their needs? Which customers are the most profitable?

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How will I target the right potential customers? Are there groups that I can target effectively? What's the best way of communicating with them? Could I improve my customer service? This can be a low-cost way of gaining a competitive

advantage over rivals, keeping customers, boosting sales and building a good reputation. Could changing my products or services increase sales and profitability? Most products need

to be continuously updated to maintain competitiveness. Could extending my product list or service provision meet existing customers' needs more

effectively? Remember that selling to existing customers is generally more cost effective than continually trying to find new ones.

How will I price my product or service? Although prices need to be competitive, most businesses find that trying to compete on price alone is a poor strategy. What else are my customers interested in? Quality? Reliability? Efficiency? Value for money?

What is the best way of distributing and selling my products? How can I best promote my products? Options might include advertising, direct marketing,

exhibiting at trade fairs, PR or marketing on the web. How can I tell if my marketing is effective? Check how your customers find out about your

business. A small-scale trial can be a good way of testing a marketing strategy without committing to excessive costs.

4.1.4 Tips and Pitfalls Before looking at new markets, think about how you can get the most out of your existing customer base - it's usually more economical and quicker than finding new customers. Consider whether you can sell more to your existing customers or look at ways of improving the retention of key customers. Focus on the market Your marketing strategy document should: analyse the different needs of different groups of customers focus on a market niche where you can be the best aim to put most of your efforts into the 20 per cent of customers who provide 80 per cent of

profits Don't forget the follow-up Approach a third party for feedback about your strategy - they may be able to spot any gaps

or weaknesses that you can't see. Put your marketing strategy into effect with a marketing plan that sets out the aims, actions,

dates, costs, resources and effective selling programmes. Measure the effectiveness of what you do. Be prepared to change things that aren't working. Pitfalls to avoid Making assumptions about what customers want. Ignoring the competition. Trying to compete on price alone. Relying on too few customers. Trying to grow too quickly. Becoming complacent about what you offer and failing to innovate. 4.2 WRITE A MARKETING PLAN Marketing is a key part of business success. You need to decide which customers to target. You need to work out how you will reach and win new customers. You need to make sure that you keep existing customers happy. And you need to keep reviewing and improving everything you do to stay ahead of the competition.

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Your marketing plan should be the reference document you use as a basis to execute your marketing strategy. It sets out clear objectives and explains how you will achieve them. Perhaps most importantly it looks at how you can ensure that your plan becomes reality. 4.2.1 Where to Start Your marketing plan should start with an executive summary. The summary gives a quick overview of the main points of the plan. Although the executive summary appears at the beginning of the plan, you should write it last. Writing the summary is a good opportunity to check that your plan makes sense and that you haven't missed any important points. Business strategy It's a good idea to introduce the main body of the plan with a reminder of your overall business strategy, including:

what your business is about (your business mission) your key business objectives your broad strategy for achieving those objectives

This helps to ensure that your marketing plan, your marketing strategy and your overall business strategy all work together. For example, suppose your business strategy is based on providing premium quality products and service. Your marketing strategy and plan will need to take this into account, targeting customers who appreciate quality, promoting your product in ways that help build the right image and so on. 4.2.2 External and Internal Analysis for your Marketing Plan Understanding the environment your business operates in is a key part of planning and will allow you to discern the threats and opportunities associated with your area of business. A PEST analysis helps you to identify the main opportunities and threats in your market: Political and legal changes such as new regulations Economic factors such as interest rates, exchange rates and consumer confidence Social factors such as changing attitudes and lifestyles, and the ageing population Technological factors such as new materials and growing use of the Internet You also need to understand your own internal strengths and weaknesses. For example, the main strengths of a new business might be an original product and enthusiastic employees. The main weaknesses might be the lack of an existing customer base and limited financial resources. A SWOT analysis combines the external and internal analysis to summarise your Strengths, Weaknesses, Opportunities and Threats. You need to look for opportunities that play to your strengths. You also need to decide what to do about threats to your business and how you can overcome important weaknesses. For example, your SWOT analysis might help you identify the most promising customers to target. You might decide to look at ways of using the Internet to reach customers. And you might start to investigate ways of raising additional investment to overcome your financial weakness. 4.2.3 Your Marketing Objectives Your marketing objectives should be based on understanding your strengths and weaknesses, and the business environment you operate in. They should also be linked to your overall business strategy.

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For example, suppose your business objectives include increasing sales by 10 per cent over the next year. Your marketing objectives might include targeting a promising new market segment to help achieve this growth. Objectives should always be SMART: Specific - for example, you might set an objective of getting ten new customers. Measurable - whatever your objective is, you need to be able to check whether you have

reached it or not when you review your plan. Achievable - you must have the resources you need to achieve the objective. The key

resources are usually people and money. Realistic - targets should stretch you, not de-motivate you because they are unreasonable. Time-bound - you should set a deadline for achieving the objective. For example, you might

aim to get ten new customers within the next 12 months. 4.2.4 Marketing strategy for your marketing plan Your marketing plan is how you put your marketing strategy into practice. It should therefore be a practical reflection of your strategy. If you understand the market well, you can probably break it down into different segments - groups of similar customers. For example, you can break the business market down into businesses of the same sector and of a similar size. For each segment, you need to look at what customers want, what you can offer and what the competition is like. You want to identify segments where you have a competitive advantage. At the same time, you should assess whether you can expect high enough sales to make the segment worthwhile. Often, the most promising segments are those where you have existing customers. See what you can do to expand sales to these customers. If you are targeting new customers, you need to be sure that you have the resources to reach them effectively. Once you have decided what your target market is, you also need to decide how you will position yourself in it. For example, you might offer a high quality product at a premium price or a flexible local service. Some businesses try to build a strong brand and image to help them stand out. Whatever your strategy, you need to differentiate yourself from the competition to encourage customers to choose your business first. 4.2.5 Plan your Marketing Tactics Once you have decided what your marketing objectives are, and your strategy for meeting them, you need to plan how you will make the strategy a reality. Many businesses find it helpful to think in terms of the four Ps: Product - what your product offers that your customers value, and whether/how you should

change your product to meet customer needs. Pricing - for example, you might aim simply to match the competition, or charge a premium

price for a quality product and service. You might have to choose either to make relatively few high margin sales, or sell more but with lower unit profits. Remember that some customers may seek a low price to meet their budgets, while others may view a low price as an indication of quality levels.

Place - how and where you sell. This may include using different distribution channels. For example, you might sell over the Internet or sell through retailers.

Promotion - how you reach your customers and potential customers. For example, you might use advertising, PR, direct mail and personal selling.

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For a more comprehensive approach, you can extend this to seven Ps: People - for example, you need to ensure that your employees have the right training. Processes - the right processes will ensure that you offer a consistent service that suits your

customers. Physical evidence - the appearance of your employees and premises can affect how

customers see your business. Even the quality of paperwork, such as invoices, makes a difference.

4.2.6 Implementation of your Marketing Plan Your marketing plan must do more than just say what you want to happen. It must describe each step required to make sure that it happens The plan should therefore include a schedule of key tasks. This sets out what will be done, and by when. Refer to the schedule as often as possible to avoid losing sight of your objectives under the daily workload It should also assess what resources you need. For example, you might need to think about what brochures you need, and whether they need to be available for digital distribution (by email or from your website). You might also need to look at how much time it takes to sell to customers and whether you have enough salespeople The cost of everything in the plan needs to be included in a budget. If your finances are limited, your plan will need to take that into account. Don't spread your marketing activities too thinly - it is better to pick a handful and make the most of them. You may also want to link your marketing budget to your sales forecast. Control As well as setting out the schedule, the plan needs to say how it will be controlled. You need an individual who takes responsibility for pushing things along. A good schedule and budget should make it easy to monitor progress. When things fall behind schedule, or costs overrun, you need to be ready to do something about it and to adapt your plan accordingly. From time to time, you need to stand back and ask whether the plan is working. What can you learn from your mistakes? How can you use what you know to make a better plan for the future? 4.3 KNOW YOUR CUSTOMERS’ NEEDS However good your product or service is, the simple truth is that no-one will buy it if they don't want it or believe they don't need it. And you won't persuade anyone that they want or need to buy what you're offering unless you clearly understand what it is your customers really want. Knowing and understanding customer needs is at the centre of every successful business, whether it sells directly to individuals or other businesses. Once you have this knowledge, you can use it to persuade potential and existing customers that buying from you is in their best interests. 4.3.1 Why do your customers need you? Every business needs a reason for their customers to buy from them and not their competitors. This is called a Unique Sales Proposition (USP). Your USP can be identified by completing the phrase 'Customers will buy from me because my business is the only...' Your USP can change as your business or your market changes, and you can have different USPs for different types of customer.

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For example: A stationery shop could offer a free same-day delivery service for its business customers

within a local area - an effective USP for businesses that need fast delivery The same stationery shop could offer a 5 per cent discount to businesses that spend more

than $500 a month - this would be a USP for cost-conscious customers The stationery shop could also make sure it offers the most comprehensive stock of artists'

materials in the area - a USP for local professional or amateur artists All of these USPs can be effective because they are driven by what the customer looks for when making a buying decision. It's a good idea to review your USPs regularly. Can you tailor your products or services to better match your customers' needs? Consider asking your customers why they buy from you. This will tell you what they think your USP is - this may differ from what you think your USP is. 4.3.2 What do you know about your customers? The more you know about your customers, the more effective your sales and marketing efforts will be. It's well worth making the effort to find out: Who they are What they buy Why they buy it If you're selling to other businesses, you'll need to know which individuals are responsible for the decision to buy your product or service. You can learn a great deal about your customers by talking to them. Asking them why they're buying or not buying, what they may want to buy in the future and asking what other needs they have can give a valuable picture of what's important to them. Strong sales are driven by emphasising the benefits that your product or service brings to your customers. If you know the challenges that face them, it's much easier to offer them solutions. It's also well worth keeping an eye on future developments in your customers' markets and lives. Knowing the trends that are going to influence your customers helps you to anticipate what they are going to need - and offer it to them as soon as they need it. You can conduct your own market research and there are many existing reports that can help you build a picture of where your customers' markets - and your business - may be going. 4.3.3 The customer's current supplier Chances are your potential customer is already buying something similar to your product or service from someone else. Before you can sell to a potential customer, you need to know: Who the customer's current supplier is If the customer is happy with their current supplier If buying from you would offer the customer any benefits - and, if so, what those benefits

would be The easiest way to identify a potential customer's current supplier is often simply to ask them. Generally people are very happy to offer this information, as well as an indication of whether they're happy with their present arrangements. If you can find out what benefits they're looking for, you stand a better chance of being able to sell to them. The benefits may be related to price or levels of service, for example. Are there any

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benefits your business can offer that are better than those the potential customer already receives? If there are, these should form the basis of any sales approach you make. 4.4 MARKET RESEARCH AND MARKET REPORTS All successful businesses need to have a close understanding of potential and existing customers and the marketplace they work in. This understanding allows you to target customers, sell effectively, compete with other suppliers and spot new opportunities. Performing market research on potential customers and your competitors will help you to gain this vital knowledge. You can build a picture of general trends using published market information - from free government statistics and data to paid-for market reports from commercial providers. Your own contacts and sales records can also be a great resource. You can add to your knowledge by using field research - from surveys and discussions to product tests - to investigate customers' attitudes and examine questions specific to your business. 4.4.1 Customer Research: What you need to know Undertaking customer research on loyalty, satisfaction and service can make a big difference to your business. You'll need to focus your efforts on finding out as much as you can about existing and potential customers. If you can work out how they make their buying decisions, you can adapt your sales methods and techniques to fit your customers' needs. For business customers, you'll want to know how big their businesses are, what sectors they're in, and who makes the decision to buy your product or service. If you're targeting individual consumers, it may be useful to know such things as their gender, age, occupation, income, lifestyle, attitudes or social class. For your existing customers, try to find out: What they think about your products or services Why they need your product or service - this may be different from what you believe Why they buy from you and not your competitors What they think of your prices What they expect from you, eg reliable delivery How they rate your customer service How they think you could develop or refine your products or services For your potential customers, try to find out: Who your potential customers are and what groups they fall into How many potential customers there are How much of your kind of product or service they already buy from your competitors The criteria on which they make buying decisions What it would take to get them to buy from you What developments they expect in your product or service When and where they prefer to buy 4.4.2 Information on Market Trends and Competitor Intelligence Getting a good understanding of market trends is important if your business is to make the most of its opportunities and remain competitive. You will also need to understand your competitors

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and keep an eye on what they are doing in order to predict their next moves and exploit their weaknesses. Try to get information on: Demand for your product or service - is it growing or shrinking? General economic and market trends. How customer requirements and buying behaviour could change in the future. What new products are in your competitor's pipeline - could they make yours look outdated? How competitors are changing - what are their plans? What competitors offer and the prices they charge. How your competitors advertise and promote themselves. Any forthcoming legislation which could affect your market. 4.4.3 Using Market Reports and Other Data Once you've identified the information you need, you can start to draw it together. Initially it's worth looking at information that's already been published, eg market reports, official statistics, trade publications, etc. Some of this information is free, but some you'll have to pay for. You can obtain market reports and other information from a wide range of sources: Your trade association will have information about your market sector and about any relevant

trade publications. You can read official statistics on the economy, population and social trends at some

Government Authority websites Reports in business magazines and the business pages of national newspapers can be

informative. Local authorities and Chambers of Commerce can provide local information. The Internet contains a wealth of business data. Search engines such as Google and Ask

can aid searching, while directories such as Yahoo make it easy to look for information by sector.

Commercial publishers of market reports. Don't neglect your business' own data. Analysing your sales records or levels of enquiries

can provide useful insights. Finally, talking to customers and monitoring their buying habits and how they behave is one of the best methods of market research.

4.4.4 Interpreting Market Information Though there's a lot of readily available market information, you need to be careful how you interpret it. External data might not be in a useful format to use easily. It may have been collected for other purposes or be from a range that doesn't tally with your target market. Beware of out-of-date market information. This can be misleading, as the market may have changed significantly since the information was published. It can be particularly hard to tell how recent any information published on the Internet is. Some information on the web can be unreliable or biased. Remember that statistics can sometimes mask the true picture. For example, an "average" income for the population in your area might conceal a high proportion of low earners - meaning fewer people can afford your product than it appears. The same principle applies to your own sales records - one or two major customers could distort the picture. Most of all, don't make up your mind in advance. Finding market information that

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simply confirms what you already believe is easy - but only a realistic picture of your customers and markets will be useful to your business. 4.4.5 The Basics of Quantitative and Qualitative Field Research Published market information and your own data can tell you a lot about your customers and your market - but it's unlikely to tell you everything. Field research can be quantitative or qualitative: o Quantitative research provides statistical information - for example, how many potential

customers there are and what their average incomes are o Qualitative research examines people's feelings and attitudes towards your product or

service, and what motivates them You'll probably need to carry out some of your own quantitative and qualitative field research - talking, observing or carrying out product tests with customers and potential customers. This can help you to: o Test customers' reactions to a new product, and adapt it if necessary o Investigate attitudes of customers and potential customers o Find information specific to your business or a local market, rather than the market as a

whole 4.4.6 Planning Field Research Good planning is essential if you're to get the right results from field research. First you need to decide how to collect the information you want. Popular methods include: o A survey, using a fixed set of questions - the most effective way of carrying out a survey is

typically with face-to-face interviews, but phone interviews, online questionnaires and postal surveys are also possibilities.

o A discussion - discussions are good for qualitative research as they allow you to explore people's attitudes in more detail. Discussions are often held in small focus groups.

o Observation - investigate what people do rather than what they say. For example, look at how shoppers react when they pass a particular point-of-sale display.

o An experiment - you might, for instance, run a blind taste test of your soft drink against your competitors' products. Alternatively, you could lend your new product to a customer and ask for feedback.

Once you've decided how you'll gather the information, you'll need to work out how to make it happen. Budget how much time and money will be needed - the time involved will normally be significant. You'll need to design your research. For example, drawing up a questionnaire or deciding how you'll run a focus group. Then there are the logistics. If you want to carry out street interviews, make sure your researchers have the required local authority licence and identity card. If you want to run a focus group or conduct face-to-face interviews or product tests, where will you hold them? Where will you find the participants? And who'll run the session? Consider carefully whether you've got the skills in-house to do this. If not, it's probably a good idea to get a market research agency to do your research for you.

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4.5 FORECAST AND PLAN YOUR SALES Accurately forecasting your sales and building a sales plan can help you manage your production, staff and financing needs more effectively and avoid unforeseen cashflow problems. A sales forecast is an essential tool for managing a business of any size. It is a month-by-month forecast of the level of sales you expect to achieve. Most businesses draw up a sales forecast once a year. Armed with this information you can rapidly identify problems and opportunities - and do something about them. While it's always wise to expect the unexpected, a well-constructed sales plan, combined with accurate sales forecasting, can allow you to spend more time developing your business rather than responding to day-to-day developments in sales and marketing. 4.5.1 A Basis for Sales Forecasts Sales forecasts enable you to manage your business more effectively. Before you begin, there are a few questions that may help clarify your position: o How many new customers do you gain each year? o How many customers do you lose each year? o What is the average level of sales you make to each customer? o Are there particular months where you acquire or lose more customers than usual? Existing businesses The starting point for your sales forecast is last year's sales. Before you factor in a new product launch, or an economic trend, look at the level of sales for each customer last year. Do you know of any customers who are going to buy more - or less - from you next year? In the case of customers who account for a significant value of sales, you may want to ask them if they plan to change their purchase level in the foreseeable future. New businesses New businesses have to make assumptions based on market research and good judgement. You can also include the new customers that you expect to attract without actually knowing who they are, or what they will buy. Simply enter 'new customer' on your forecast. Depending on your type of business, you may want to specify the volume of sales in the forecast - for example, how many five-litre cans of paint you sell - as well as the value of sales. By knowing the volume, you can plan the necessary resources in areas such as production, storage and transport. 4.5.2 Your Sales Assumptions Every year is different so you need to list any changing circumstances that could significantly affect your sales. These factors - known as the sales forecast assumptions - form the basis of your forecast.

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Wherever possible, put a figure against the change - as shown in the examples below. You can then get a feel for the impact it will have on your business. Also, give the reasoning behind each figure, so that other people can comment on whether it's realistic. Here are some typical examples of assumptions: The market o The market you sell into will grow by 2 per cent. o Your market share will shrink by 2 per cent, due to the success of a competitor. Your resources o You will double your sales force from three people to six people, halfway through the year. o You will spend 50 per cent less on advertising, which will reduce the number of enquiries

from potential customers. Overcoming barriers to sale o You are moving to a better location, which will lead to 30 per cent more customers buying

next year. o You are raising prices by 10 per cent, which will reduce the volume of products sold by 5 per

cent but result in a 4.5 per cent increase in overall revenue. Your products o You are launching a range of new products. Sales will be small this year and costs will

outweigh profits, but in future years, you will reap the benefits. o You have products that are newly established and that have the potential to increase sales

rapidly. o You have established products that enjoy steady sales but have little growth potential. o You have products that face declining sales, perhaps because of a competitor's superior

product. 4.5.3 Developing your Forecast Start by writing down your sales assumptions. You can then create your sales forecast. This becomes easy once you've found a way to break the forecast down into individual items. o Can you break down your sales by product, market, or geographic region? o Are individual customers important enough to your business to warrant their own individual

sales forecast? o Can you estimate the conversion rate - the percentage chance of the sale happening - for

each item on your sales forecast? For example, you might predict that a customer will purchase $1,000 worth of products. If you estimate that there's a 70 per cent chance of this happening, the forecast sales for this customer are $700, ie 70 per cent of $1,000. Selling more of your product to an existing customer is far easier than making a first sale to a new customer. So the conversion rates for existing customers are much higher than those for new customers. You may want to include details of which product each customer is likely to buy. Then you can spot potential problems. One product could sell out, while another might not shift at all. By predicting specific sales, you're forecasting what you think will be sold. This is generally far more accurate than forecasting from a target figure and then trying to work out how to achieve it.

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The completed sales forecast isn't just used to plan and monitor your sales efforts. It's also a vital part of the cashflow. There is a wide range of sales forecasting software available that can make the whole process much simpler and more accurate. This software generates forecasts based on historical data. If you are considering buying software, get advice from an IT expert, your trade association, your business advisers and businesses of a similar size and in similar markets. 4.5.4 Avoiding Forecasting Pitfalls Five common forecasting pitfalls are: Wishful thinking It's all too easy to be over-optimistic. It's a good idea to look back at the previous year's forecast to see if your figures were realistic. New businesses should avoid the mistake of working out the level of sales they need for the business to be viable, then putting this figure in as the forecast. You also need to consider if it is physically possible to achieve the sales levels you're forecasting. For example: o One taxi can only make a certain number of airport trips each day o A machine can only produce a given number of components on each shift o A sales team can only visit a certain number of customers each week Ignoring your own assumptions Make sure your sales assumptions are linked to the detailed sales forecast, otherwise you can end up with completely contradictory information. For instance, if you assume a declining market and declining market share, it's illogical to then forecast increased sales. Moving goalposts Make sure the forecast is finalised and agreed within a set timescale. If you're spending a lot of time refining the forecast, it can distract you from focusing on your targets. Avoid making excessive adjustments to the forecast, even if you discover it's too optimistic or pessimistic. Not consulting your sales people Your sales people probably have the best knowledge of your customers' buying intentions, therefore: o Ask for their opinions o Give them time to ask their customers about this o Get the sales team's agreement to any targets they will be set Not obtaining feedback Having built your sales forecast, you need someone to challenge it. Get an experienced person - your accountant or a senior sales person - to review the whole document. 4.5.5 Creating a Sales Plan The questions you should answer in your sales plan are: What are you going to focus on? What are you going to change? In practical terms, what steps are involved? What territories and targets are you going to give each salesperson or team? The sales plan will start with some strategic objectives. Here are some examples:

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Break into the local authority market by adapting your product for this market Open a shop in an area that you believe has the potential for generating lots of sales Boost the average sale per customer You can then explain the stepping stones that will allow you to achieve these objectives. Use objectives which are SMART - Specific, Measurable, Achievable, Realistic, Time-bound. Using the example of breaking into the local authority market, the stepping stones might be to: o Hire a sales person with experience of the local authority market on a salary of $34,000 by

the beginning of February o Fully train the sales person by mid April o Ensure that any changes the product development team has agreed to make are ready to

pilot by the beginning of April As well as planning for new products and new markets, explain how you're going to improve sales and profit margins for your existing products and markets. It is often helpful to identify how you will remove barriers to sales: Can you increase the activity levels of the sales team - more telephone calls per day, or more

customer visits per week? Can you increase the conversion rate of calls into sales - through better sales training, better

sales support materials or improved sales incentives? 4.6 UNDERSTAND YOUR COMPETITORS Knowing who your competitors are, and what they are offering, can help you to make your products, services and marketing stand out. It will enable you to set your prices competitively and help you to respond to rival marketing campaigns with your own initiatives. You can use this knowledge to create marketing strategies that take advantage of your competitors' weaknesses, and improve your own business performance. You can also assess any threats posed by both new entrants to your market and current competitors. This knowledge will help you to be realistic about how successful you can be. 4.6.1 Who are your Competitors? All businesses face competition. Even if you're the only restaurant in town you must compete with cinemas, bars and other businesses where your customers will spend their money instead of with you. With increased use of the internet to buy goods and services and to find places to go, you are no longer just competing with your immediate neighbours. Indeed, you could find yourself competing with businesses from other countries. Your competitor could be a new business offering a substitute or similar product that makes your own redundant. Competition is not just another business that might take money away from you. It can be another product or service that's being developed and which you ought to be selling or looking to license before somebody else takes it up. And don't just research what's already out there. You also need to be constantly on the lookout for possible new competition. You can get clues to the existence of competitors from:

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Local business directories Your local Chamber of Commerce Advertising Press reports Exhibitions and trade fairs Questionnaires Searching on the internet for similar products or services Information provided by customers Flyers and marketing literature that have been sent to you - quite common if you're on a

bought-in marketing list Searching for existing patented products that are similar to yours Planning applications and building work in progress 4.6.2 What you Need to Know About your Competitors Monitor the way your competitors do business. Look at: The products or services they provide and how they market them to customers The prices they charge How they distribute and deliver The devices they employ to enhance customer loyalty and what back-up service they offer Their brand and design values Whether they innovate - business methods as well as products Their staff numbers and the calibre of staff that they attract How they use IT - for example, if they're technology-aware and offer a website and email Who owns the business and what sort of person they are Their accounts at Companies House if they're a limited company Their annual report - if they're a public company Their media activities - check their website as well as local newspapers, radio, television and

any outdoor advertising How they treat their customers Find out as much as possible about your competitors' customers, such as: Who they are What products or services they buy What customers see as your competitors' strengths and weaknesses Whether there are any long-standing customers If they've had an influx of customers recently What they're planning to do Try to go beyond what's happening now by investigating your competitors' business strategy, for example: What types of customer they're targeting What new products they're developing What financial resources they have 4.6.3 Learning about your Competitors Read about your competitors. Look for articles or adverts in the trade press or mainstream publications. Read their marketing literature. Check their entries in directories and phone books. If they are an online business, ask for a trial of their service.

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Are they getting more publicity than you, perhaps through networking or sponsoring events? If your competitor is a public company, read a copy of their annual report. Go to exhibitions At exhibitions and trade fairs check which of your competitors are also exhibiting. Look at their stands and promotional activities. Note how busy they are and who visits them. Go online Look at competitors' websites. Find out how they compare to yours. Check any interactive parts of the site to see if you could improve on it for your own website. Is the information free of charge? Is it easy to find? Business websites often give much information that businesses haven't traditionally revealed - from the history of the company to biographies of the staff. Use a search engine to track down similar products. Find out who else offers them and how they go about it. Websites can give you good tips on what businesses around the globe are doing in your industry sector. Organisations and reference sources Your trade or professional association Your local Chamber of Commerce Directories and survey reports in any business reference library 4.6.4 Hearing about your Competitors Speak to your competitors. Phone them to ask for a copy of their brochure or get one of your staff or a friend to drop by and pick up their marketing literature. You could ask for a price list or enquire what an off-the-shelf item might cost and if there's a discount for volume. This will give you an idea at which point a competitor will discount and at what volume. Phone and face-to-face contacts will also give you an idea of the style of the company, the quality of their literature and the initial impressions they make on customers. It's also likely you'll meet competitors at social and business events. Talk to them. Be friendly - they're competitors not enemies. You'll get a better idea of them - and you might need each other one day, for example in collaborating to grow a new market for a new product. Listen to your Customers and Suppliers Make the most of contacts with your customers. Don't just ask how well you're performing - ask which of your competitors they buy from and how you compare. Use meetings with your suppliers to ask what their other customers are doing. They may not tell you everything you want to know, but it's a useful start. Use your judgement with any information they volunteer. For instance, when customers say your prices are higher than the competition they may just be trying to negotiate a better deal. 4.6.5 How to Act on the Competitor Information you get Evaluate the information you find about your competitors. This should tell you whether there are gaps in the market you can exploit. It should also indicate whether there is a saturation of suppliers in certain areas of your market, which might lead you to focus on less competitive areas.

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Draw up a list of everything that you've found out about your competitors, however small. Put the information into three categories: What you can learn from and do better What they're doing worse than you What they're doing the same as you What you can learn from and do better If you're sure your competitors are doing something better than you, you need to respond and make some changes. It could be anything from improving customer service, reassessing your prices and updating your products, to changing the way you market yourself, redesigning your literature and website and changing your suppliers. Try to innovate not imitate. Now you've got the idea, can you do it even better, add more value? Your competitors might not have rights over their actual ideas, but remember the rules on patents, copyright and design rights. What they're doing worse than you Exploit the gaps you've identified. These may be in their product range or service, marketing or distribution, even the way they recruit and retain employees. Customer service reputation can often provide the difference between businesses that operate in a very competitive market. Renew your efforts in these areas to exploit the deficiencies you've discovered in your competitors. But don't be complacent about your current strengths. Your current offerings may still need improving and your competitors may also be assessing you. They may adopt and enhance your good ideas. What they're doing the same as you Why are they doing the same as you, particularly if you're not impressed by other things they do? Perhaps you both need to make some changes. Analyse these common areas and see whether you've got it right. And even if you have, your competitor may be planning an improvement. 4.7 PRICE YOUR PRODUCT OR SERVICE The price you charge for your product or service is one of the most important business decisions you make. Setting a price that is too high or too low will - at best - limit your business growth. At worst, it could cause serious problems for your sales and cashflow. If you're starting a business, carefully consider your pricing strategy before you start. Established businesses can improve their profitability through regular pricing reviews. When setting your prices you must make sure that the price and sales levels you set will allow your business to be profitable. You must also take note of where your product or service stands when compared with your competition. 4.7.1 The Difference between Cost and Value Knowing the difference between cost and value can increase profitability:

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The cost of your product or service is the amount you spend to produce it The price is your financial reward for providing the product or service The value is what your customer believes the product or service is worth to them For example, the cost for a plumber to fix a burst pipe at a customer's home may be £5 for travel, materials costing £2.50 and an hour's labour at £10. However, the value of the service to the customer - who may have water leaking all over their house - is far greater than the £17.50 cost, so the plumber may decide to charge a total of £50. Pricing should be in line with the value of the benefits that your business provides for its customers, while also bearing in mind the prices your competitors charge. To maximise your profitability, find out: What benefits your customers gain from using your product or service The criteria your customers use for buying decisions - for example, speed of delivery,

convenience or reliability What value your customers place on receiving the benefits you provide Wherever possible, set prices that reflect the value you provide - not just the cost. 4.7.2 Covering fixed and variable costs Every business needs to cover its costs in order to make a profit. Working out your costs accurately is an essential part of working out your pricing. Divide your costs under two headings: Fixed costs are those that are always there, regardless of how much or how little you sell,

for example rent, salaries and business rates Variable costs are those that rise as your sales increase, such as additional raw materials,

extra labour and transport When you set a price, it must be higher than the variable cost of producing your product or service. Each sale will then make a contribution towards covering your fixed costs - and making profits. For example, a car dealership has variable costs of $9,000 per car sold and total fixed costs of $200,000 a year that must be covered. If the company sells 80 cars each year, it needs a contribution towards the fixed costs of at least $2,500 per car ($200,000 divided by 80) to avoid making a loss. Using this structure, you can assess the consequences of setting different price levels: If the car dealership sells cars at less than $9,000 (the variable cost per car), it makes a loss

on each car it sells and does not cover any of its fixed costs Selling 80 cars at $9,000 means a loss of $200,000 per year as none of the fixed costs are

covered Selling cars at $11,500 results in breaking even, assuming the target 80 cars are sold (80

contributions of $2,500 per car = $200,000, ie the fixed costs) Selling cars at $12,000 results in a profit, assuming 80 cars are sold (80 contributions of

$3,000 = $240,000, ie $40,000 over the fixed costs) If more or fewer than 80 cars are sold, profits are correspondingly higher or lower

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4.7.3 Cost-Plus versus Value-Based Pricing There are two basic methods of pricing your products and services: cost-plus and value-based pricing. The best choice depends on your type of business, what influences your customers to buy and the nature of your competition. Cost-plus pricing This takes the cost of producing your product or service and adds an amount that you need to make a profit. This is usually expressed as a percentage of the cost. It is generally more suited to businesses that deal with large volumes or which operate in markets dominated by competition on price. But cost-plus pricing ignores your image and market positioning. And hidden costs are easily forgotten, so your true profit per sale is often lower than you realise. Value-based pricing This focuses on the price you believe customers are willing to pay, based on the benefits your business offers them. Value-based pricing depends on the strength of the benefits you can prove you offer to customers. If you have clearly-defined benefits that give you an advantage over your competitors, you can charge according to the value you offer customers. While this approach can prove very profitable, it can alienate potential customers who are driven only by price and can also draw in new competitors. 4.7.4 How to Build a Pricing Strategy You need to decide whether to use cost-plus or value-based pricing. It's important to find out what your competitors offer and what they charge. If you phone your rivals and ask them for a quote, you can use this information as a framework. It's probably unwise to set your prices too much higher or lower without a good reason. If you price too low, you will just be throwing away profit. If you price too high, you will lose customers, unless you can offer them something they can't get elsewhere. The perception of your product or service is also important. In many markets, a high price contributes to the perception of your product as being of premium value. This might encourage customers to buy from you - or it might deter price-conscious customers. It can be useful to charge different prices to different customers, eg to customers who purchase repeatedly, or buy add-on or related products, as a thank you for their loyalty. Bear in mind that customers who are expensive to satisfy will be less profitable, unless you charge them higher prices. One-off sales may cost you more than repeat business. You can also use pricing tactics to attract customers by using different pricing tactics. Whatever prices you set, check that they cover your costs and can deliver a profit. 4.7.5 Different Pricing Tactics Different tactics can help you attract more customers and maximise profits. Discounting

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Offering specially-reduced prices can be a powerful tool. This could be a clearance discount to sell old stock, a discount for making multiple purchases of the same or similar products, or you could offer bulk discounts to encourage larger orders. You should be able to make these more profitable through lower costs. But be careful. If you discount too much, customers may question your full-rate pricing or see you as a cheap option, making it difficult to charge full-rate prices in the future. Odd value pricing Using the retailer's tactic of selling products for £9.99 instead of £10 can be useful if price is an essential part of customers' buying decisions. Some customers perceive odd value prices like this as being more attractive. Loss leader This involves selling a product at a low or even loss-making price. Although you may not make a profit selling this product, you could attract customers who will also buy other, more profitable products. Skimming If you have a unique product or service, you can sell it at a high price. This is known as skimming - but you need to be sure that what you are selling is unique. Otherwise you may just price yourself out of the market if there is credible competition. Penetration This is the opposite of skimming - starting at a low price and gaining market share before competitors catch up with you. Once you have a loyal customer base, you should be able to find ways to raise prices later. 4.7.6 Raising or Lowering Prices There will be times when you need to change your prices. But before you do, you should analyse the impact on your profitability of any proposed price change. There are two key questions you will need to answer: What effect will the price change have on the volume of sales? What will the effect be on the profit per sale? Increasing prices Increasing prices can improve your profitability even though your sales volume may drop. If you are increasing your prices, always explain to your customers why you are doing it. You can use the price change as an opportunity to re-emphasise the benefits you offer. A good explanation can also strengthen your relationship with a customer. There are also ways that you can hide price increases. For example, you might: Introduce new, higher-priced products or services and make older, cheaper ones obsolete Lower the specification - and your costs - while maintaining the same price But be aware that hiding price increases can risk adverse reactions from customers if they realise what you are doing. Reducing prices You should never take the decision to lower prices lightly. Low prices often go hand-in-hand with poor-quality service - is this the image you want to create for your business?

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Concentrate on building profits rather than cutting prices to build up sales. In most circumstances, your customers decide to buy from you because of the benefits you offer, along with your price. It is rare for the decision to be made based solely on the price.

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5. FINANCIAL CONTROL The accounting needs of your business will vary according to its size, type and sector. As the business owner, it's your responsibility to make sure your business keeps accurate records and accounts. 5.1 FINANCIAL AND MANAGEMENT ACCOUNTS There are two types of accounting information - financial accounts and management accounts. Financial accounts describe the performance of your business and have to be filed at Companies House - or Companies Registry for businesses in Northern Ireland. Management accounts are aimed at helping you to plan your business and make decisions about key areas such as sales, margins and stock. 5.1.1 Financial Accounts Financial accounts are an historical record of your business' performance over a past period - usually one year - for the benefit of external users such as shareholders, employees, suppliers, bankers and authorities. Financial accounts normally include the following elements. Profit and loss account This measures your business' performance over a given period of time, usually one year. It compares the income of your business against the cost of goods or services and expenses incurred in earning that revenue. Balance Sheet This is a snapshot of your business' assets (what you own or are owed) and your liabilities (what you owe) on a particular day - eg the last day of your financial year. Cashflow Statement This shows how your business has generated and disposed of cash and liquid funds during the period under review. A cashflow statement is different from a cashflow forecast, which is used to predict the expected rises and falls in cashflow over the coming year. Statement of recognised gains and losses This records all gains and losses since the previous set of accounts. For example, changes caused by currency fluctuations, property revaluation, profits earned by associates and joint ventures not included in the normal accounts. Unincorporated businesses Unincorporated businesses such as sole traders and partnerships are required by HM Revenue & Customs (HMRC) to maintain proper books and records to support annual income tax returns. These must be kept for a minimum of six years. 5.1.2 Filing Financial Accounts The UAE do not have their own accounting standards. International Accounting Standards are widely used for the preparation of financial statements for distribution to shareholders, government bodies, and banks.

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The Commercial Companies Law and Commercial Transaction Law require all companies to maintain accounting reports and original copy of all correspondence and invoices issued or received. All accounting information and documents must be kept for the period of five years. Companies have to file their financial statements within 120 days of the end of the financial year with the UAE Federal Ministry of the Economy and Commerce and with the local licensing authority (the Economic Department or Municipality). Some licensing authorities such as free trade zone request audited financial statements as a part of the annual license renewal process and the time period may be even shorter, usually 90 days within the year-end. Certain businesses may be required to file their annual financial statements with additional government bodies. Banks and financial institutions have to submit their statements to the UAE Central Bank. In the UK for example, Limited companies are obliged by law to prepare a set of financial accounts each year and publish them by filing a copy with Companies House. You must file accounts within 22 months of your business' formation, and thereafter within ten months of each financial year end. For accounting reference periods which begin on or after 6 April 2008 the period for filing accounts has been reduced from ten months to nine and the turnover and balance sheet totals included in the definitions of small and medium-sized companies has been raised. There have been no changes to the number of employees. Small companies A small company is one which meets at least two of the following criteria: Annual turnover must be £5.6 million or less (£6.5 million or less for accounting reference

periods after 6 April 2008) The balance sheet total - fixed and current assets - must be £2.8 million or less (£3.26 million

on or after 6 April 2008) The average number of employees must not exceed 50 Small companies must deliver the following to Companies House: Abbreviated balance sheet and notes Special auditors' report - unless the company has a small company audit exemption Medium companies A medium-sized company must meet at least two of the following criteria: Annual turnover must not exceed £22.8 million (£25.9 million or less for accounting reference

periods after 6 April 2008) The balance sheet total must not exceed £11.4 million (£12.9 million on or after 6 April 2008) The average number of employees must not exceed 250 Medium-sized companies must deliver the following to Companies House: Full balance sheet Abbreviated profit and loss account Special auditors' report Directors' report Notes to the accounts 5.1.3 Management Accounts Management accounts are invaluable in helping you to make timely and meaningful management decisions about your business. Different businesses will have different management accounting needs, depending on the business areas that are important to them. These can include:

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The sales process - including pricing, distribution and debtors The purchasing process - including stock records and creditors A fixed asset register Employee records There is no legal requirement to prepare management accounts, but it is hard to run a business effectively without them. Most companies produce them regularly - eg monthly or quarterly. Management accounts analyse recent historical performance and usually include forward-looking elements such as sales, cashflow and profit forecasts. The analysis is usually performed against forecasts and budgets that have been produced at the start of the year. The information in management accounts is usually broken down so that the performance of different elements of the business can be measured. For example if a business has more than one sales outlet, there might be a separate report for each. There may also be a report produced to show how well a particular product has done across different outlets. For businesses selling more than one product, it is advisable to provide a financial breakdown for each product category. This will allow you to ensure that profitable products are not subsidising those that are selling poorly, unless you intentionally promote loss leaders to attract further custom. 5.1.4 Uses of Management Accounting Management accounts will enable you to: Compare your accounts with original budgets or forecasts Manage your resources better Identify trends in your business Highlight variations in your income or spending which may require attention They should be used for the following: Record keeping

o Recording business transactions o Measuring results of financial changes o Projecting financial effects of future transactions o Preparing internal reports in a user-friendly format

Planning and control o Collecting cash o Controlling stocks o Controlling expenses o Co-ordination and monitoring of strategy/performance

Decision making o Using cost information for pricing, capital investment and marketing o Evaluating market and product profitability o Evaluating the financial effect of strategies and plans

5.2 BUDGETING AND BUSINESS PLANNING Once your business is operational, it's essential to plan and tightly manage its financial performance. Creating a budgeting process is the most effective way to keep your business - and its finances - on track.

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5.2.1 Planning for Business Success When you're running a business, it's easy to get bogged down in day-to-day problems and forget the bigger picture. However, successful businesses invest time to create and manage budgets, prepare and review business plans and regularly monitor finance and performance. Structured planning can make all the difference to the growth of your business. It will enable you to concentrate resources on improving profits, reducing costs and increasing returns on investment. In fact, even without a formal process, many businesses carry out the majority of the activities associated with business planning, such as thinking about growth areas, competitors, cashflow and profit. Converting this into a cohesive process to manage your business' development doesn't have to be difficult or time-consuming. The most important thing is that plans are made, they are dynamic and are communicated to everyone involved. The Benefits The key benefit of business planning is that it allows you to create a focus for the direction of your business and provides targets that will help your business grow. It will also give you the opportunity to stand back and review your performance and the factors affecting your business. Business planning can give you: Greater ability to make continual improvements and anticipate problems Sound financial information on which to base decisions Improved clarity and focus Greater confidence in your decision-making 5.2.2 What to Include in your Annual Plan The main aim of your annual business plan is to set out the strategy and action plan for your business. This should include a clear financial picture of where you stand - and expect to stand - over the coming year. Your annual business plan should include: An outline of changes that you want to make to your business Potential changes to your market, customers and competition Your objectives and goals for the year Your key performance indicators Any issues or problems Any operational changes Information about your management and people Your financial performance and forecasts Details of investment in the business Business planning is most effective when it's an ongoing process. This allows you to act quickly where necessary, rather than simply reacting to events after they've happened. A typical business planning cycle: 1. Review your current performance against last year/current year targets. 2. Work out your opportunities and threats. 3. Analyse your successes and failures during the previous year.

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4. Look at your key objectives for the coming year and change or re-establish your longer-term planning.

5. Identify and refine the resource implications of your review and build a budget. 6. Define the new financial year's profit-and-loss and balance-sheet targets. 7. Conclude the plan. 8. Review it regularly - for example, on a monthly basis - by monitoring performance, reviewing

progress and achieving objectives. 9. Go back to 1. 5.2.3 Budgets and Business Planning New small business owners may run their businesses in a relaxed way and may not see the need to budget. However, if you are planning for your business' future, you will need to fund your plans. Budgeting is the most effective way to control your cashflow, allowing you to invest in new opportunities at the appropriate time. If your business is growing, you may not always be able to be hands-on with every part of it. You may have to split your budget up between different areas such as sales, production, marketing etc. You'll find that money starts to move in many different directions through your organisation - budgets are a vital tool in ensuring that you stay in control of expenditure. A budget is a plan to: Control your finances Ensure you can continue to fund your current commitments Enable you to make confident financial decisions and meet your objectives Ensure you have enough money for your future projects It outlines what you will spend your money on and how that spending will be financed. However, it is not a forecast. A forecast is a prediction of the future whereas a budget is a planned outcome of the future - defined by your plan - that your business wants to achieve. Benefits of a business budget There are a number of benefits of drawing up a business budget, including being better able to: Manage your money effectively Allocate appropriate resources to projects Monitor performance Meet your objectives Improve decision-making Identify problems before they occur - such as the need to raise finance or cashflow difficulties Plan for the future Increase staff motivation 5.2.4 Creating a Budget Creating, monitoring and managing a budget is key to business success. It should help you allocate resources where they are needed, and should not be complicated. You simply need to work out what you are likely to earn and spend in the budget period. Begin by asking these questions: What are the projected sales for the budget period? Be realistic - if you overestimate, it will

cause you problems in the future. What are the direct costs of sales - ie costs of materials, components or subcontractors to

make the product or supply the service?

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What are the fixed costs or overheads? You should break down the fixed costs and overheads by type, eg: Cost of premises, including rent or mortgage, business rates and service charges Staff costs - eg pay, benefits, National Insurance Utilities - eg heating, lighting, telephone Printing, postage and stationery Vehicle expenses Equipment costs Advertising and promotion Travel and subsistence expenses Legal and professional costs, including insurance Your business may have different types of expenses, and you may need to divide up the budget by department. Don't forget to add in how much you need to pay yourself, and include an allowance for tax. Your business plan should help in establishing projected sales, cost of sales, fixed costs and overheads, so it would be worthwhile preparing this first. Once you've got figures for income and expenditure, you can work out how much money you're making. You can look at costs and work out ways to reduce them. You can see if you are likely to have cashflow problems, giving yourself time to do something about them. You should stick to your budget as far as possible, but review and revise it as needed. Successful businesses often have a rolling budget. 5.2.5 Key Steps in Drawing up a Budget There are a number of key steps you should follow to make sure your budgets and plans are as realistic and useful as possible. Make time for budgeting If you invest some time in creating a comprehensive and realistic budget, it will be easier to manage and ultimately more effective. Use last year's figures - but only as a guide Collect historical information on sales and costs if they are available - these could give you a good indication of likely future sales and costs. It's also essential to consider what your sales plans are, how your sales resources will be used and any changes in the competitive environment. Create realistic budgets Use historical information, your business plan and any changes in operations or priorities to budget for overheads and other fixed costs. It's useful to work out the relationship between variable costs and sales and then use your sales forecast to project variable costs. For example, if your unit costs reduce by 10 per cent for each additional 20 per cent of sales, how much will your unit costs decrease if you have a 33 per cent rise in sales? Make sure your budgets contain enough information for you to easily monitor the key drivers of your business such as sales, costs and working capital. Accounting software can help you manage your accounts.

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Involve the right people It's best to ask staff with financial responsibilities to provide you with estimates of figures for your budget - for example, sales targets, production costs or specific project control. If you balance their estimates against your own, you will achieve a more realistic budget. This involvement will also give them greater commitment to meeting the budget. 5.2.6 What your Budget Should Cover Decide how many budgets you really need. Many small businesses have one overall operating budget which sets out how much money is needed to run the business over the coming period - usually a year. As your business grows, your total operating budget is likely to be made up of several individual budgets such as your marketing or sales budgets. What your budget will need to include Projected cashflow - your cash budget projects your future cash position on a month-by-

month basis. Budgeting in this way is vital for small businesses as it can pinpoint any difficulties you might be having. It should be reviewed at least monthly.

Costs - typically, your business will have three kinds of costs:

o Fixed costs - items such as rent, rates, salaries and financing costs o Variable costs - including raw materials and overtime o One-off capital costs - purchases of computer equipment or premises, for example

To forecast your costs, it can help to look at last year's records and contact your suppliers for quotes. Revenues - sales or revenue forecasts are typically based on a combination of your sales

history and how effective you expect your future efforts to be. Using your sales and expenditure forecasts, you can prepare projected profits for the next 12 months. This will enable you to analyse your margins and other key ratios such as your return on investment. 5.2.7 Use your Budget to Measure Performance If you base your budget on your business plan, you will be creating a financial action plan. This can serve several useful functions, particularly if you review your budgets regularly as part of your annual planning cycle. Your budget can serve as: An indicator of the costs and revenues linked to each of your activities A way of providing information and supporting management decisions throughout the year A means of monitoring and controlling your business, particularly if you analyse the

differences between your actual and budgeted income Benchmarking performance Comparing your budget year on year can be an excellent way of benchmarking your business' performance - you can compare your projected figures, for example, with previous years to measure your performance. You can also compare your figures for projected margins and growth with those of other companies in the same sector, or across different parts of your business.

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Key performance indicators To boost your business' performance you need to understand and monitor the key "drivers" of your business - a driver is something that has a major impact on your business. There are many factors affecting every business' performance, so it is vital to focus on a handful of these and monitor them carefully. The three key drivers for most businesses are: Sales Costs Working capital Any trends towards cashflow problems or falling profitability will show up in these figures when measured against your budgets and forecasts. They can help you spot problems early on if they are calculated on a consistent basis. 5.2.8 Review your Budget Regularly To use your budgets effectively, you will need to review and revise them frequently. This is particularly true if your business is growing and you are planning to move into new areas. Using up-to-date budgets enables you to be flexible and also lets you manage your cashflow and identify what needs to be achieved in the next budgeting period. Income and expenditure There are two main areas to consider when reviewing your budget - income and expenditure. Your actual income - each month, you should compare your actual income with your sales budget. To do this: Analyse the reasons for any shortfall - for example lower sales volumes, flat markets,

underperforming products Consider the reasons for a particularly high turnover - for example whether your targets were

too low Compare the timing of your income with your projections and check that they fit Analysing these variations will help you to set future budgets more accurately and also allow you to take action where needed. Your actual expenditure - regularly review your actual expenditure against your budget. This will help you to predict future costs with greater reliability. You should: Look at how your fixed costs differed from your budget Check that your variable costs were in line with your budget - normally variable costs adjust

in line with your sales volume Analyse any reasons for changes in the relationship between costs and turnover Analyse any differences in the timing of your expenditure, for example by checking suppliers'

payment terms

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6. OPERATIONS Efficient stock control allows you to have the right amount of stock in the right place at the right time. It ensures that capital is not tied up unnecessarily, and protects production if problems arise with the supply chain. 6.1 STOCK CONTROL AND INVENTORY Stock control, otherwise known as inventory control, is used to show how much stock you have at any one time, and how you keep track of it. It applies to every item you use to produce a product or service, from raw materials to finished goods. It covers stock at every stage of the production process, from purchase and delivery to using and re-ordering the stock. 6.1.1 Types of Stock Everything you use to make your products, provide your services and to run your business is part of your stock. There are four main types of stock: Raw materials and components - ready to use in production Work in progress - stocks of unfinished goods in production Finished goods ready for sale Consumables - for example, fuel and stationery The type of stock can influence how much you should keep. Stock value You can categorise stock further, according to its value. For example, you could put items into low, medium and high value categories. If your stock levels are limited by capital, this will help you to plan expenditure on new and replacement stock. You may choose to concentrate resources on the areas of greatest value. However, low-cost items can be crucial to your production process and should not be overlooked. 6.1.2 How much stock should you keep? Deciding how much stock to keep depends on the size and nature of your business, and the type of stock involved. If you are short of space you may be able to buy stock in bulk and then pay a fee to your supplier to store it, calling it off as and when needed. Keeping little or no stock and negotiating with suppliers to deliver stock as you need it Advantages Disadvantages Efficient and flexible - you only have what you need, when you need it

Meeting stock needs can become complicated and expensive

Lower storage costs You might run out of stock if there's a hitch in the system

You can keep up to date and develop new products without wasting stock

You are dependent on the efficiency of your suppliers

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This might suit your business if it's in a fast-moving environment where products develop rapidly, the stock is expensive to buy and store, the items are perishable or replenishing stock is quick and easy. Keeping lots of stock Advantages Disadvantages Easy to manage Higher storage and insurance costs Low management costs Certain goods might perish You never run out Stock may become obsolete before it is used Buying in bulk may be cheaper Your capital is tied up This might suit your business if sales are difficult to predict (and it is hard to pin down how much stock you need and when), you can store plenty of stock cheaply, the components or materials you buy are unlikely to go through rapid developments or they take a long time to re-order. Stock levels depending on type of stock There are four main types of stock: 1. Raw materials and components

Ask yourself some key questions to help decide how much stock you should keep: - How reliable is the supply and are alternative sources available? - Are the components produced or delivered in batches? - Can you predict demand? - Is the price steady? - Are there discounts if you buy in bulk?

2. Work in progress - stocks of unfinished goods

Keeping stocks of unfinished goods can be a useful way to protect production if there are problems down the line with other supplies.

3. Finished goods ready for sale

You might keep stocks of finished goods when: - Demand is certain - Goods are produced in batches - You are completing a large order

4. Consumables

For example, fuel and stationery. How much stock you keep will depend on factors such as: - Reliability of supply - Expectations of price rises - How steady demand is - Discounts for buying in bulk

6.1.3 Stock Control Methods There are several methods for controlling stock, all designed to provide an efficient system for deciding what, when and how much to order. You may opt for one method or a mixture of two or more if you have various types of stock. Minimum stock level - you identify a minimum stock level, and re-order when stock reaches

that level. This is known as the Re-order Level. Stock review - you have regular reviews of stock. At every review you place an order to

return stocks to a predetermined level.

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Just In Time (JIT) - this aims to reduce costs by cutting stock to a minimum. Items are delivered when they are needed and used immediately. There is a risk of running out of stock, so you need to be confident that your suppliers can deliver on demand.

These methods can be used alongside other processes to refine the stock control system. For example: Re-order lead time - allows for the time between placing an order and receiving it. Economic Order Quantity (EOQ) - a standard formula used to arrive at a balance between

holding too much or too little stock. It's quite a complex calculation, so you may find it easier to use stock control software.

Batch control - managing the production of goods in batches. You need to make sure that you have the right number of components to cover your needs until the next batch.

If your needs are predictable, you may order a fixed quantity of stock every time you place an order, or order at a fixed interval - say every week or month. In effect, you're placing a standing order, so you need to keep the quantities and prices under review.

First in, first out - a system to ensure that perishable stock is used efficiently so that it doesn't deteriorate. Stock is identified by date received and moves on through each stage of production in strict order.

6.1.4 Stock Control Systems - Keeping Track Manually Stocktaking involves making an inventory, or list, of stock, and noting its location and value. It's often an annual exercise - a kind of audit to work out the value of the stock as part of the accounting process. Codes, including barcodes, can make the whole process much easier but it can still be quite time-consuming. Checking stock more frequently - a rolling stocktake - avoids a massive annual exercise, but demands constant attention throughout the year. Radio Frequency Identification (RFID) tagging using hand-held readers can offer a simple and efficient way to maintain a continuous check on inventory. Any stock control system must enable you to: - Track stock levels - Make orders - Issue stock The simplest manual system is the stock book, which suits small businesses with few stock items. It enables you to keep a log of stock received and stock issued. It can be used alongside a simple re-order system. For example, the two-bin system works by having two containers of stock items. When one is empty, it's time to start using the second bin and order more stock to fill up the empty one. Stock cards are used for more complex systems. Each type of stock has an associated card, with information such as: - Description - Value - Location - Re-order levels, quantities and lead times (if this method is used) - Supplier details - Information about past stock history More sophisticated manual systems incorporate coding to classify items. Codes might indicate the value of the stock, its location and which batch it is from, which is useful for quality control.

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6.1.5 Stock Control Systems - Keeping Track using Computer Software Computerised stock control systems run on similar principles to manual ones, but are more flexible and information is easier to retrieve. You can quickly get a stock valuation or find out how well a particular item of stock is moving. A computerised system is a good option for businesses dealing with many different types of stock. Other useful features include: Stock and pricing data integrating with accounting and invoicing systems. All the systems

draw on the same set of data, so you only have to input the data once. Sales Order Processing and Purchase Order Processing can be integrated in the system so that stock balances and statistics are automatically updated as orders are processed.

Automatic stock monitoring, triggering orders when the re-order level is reached. Automatic batch control if you produce goods in batches. Identifying the cheapest and fastest suppliers. Bar coding systems which speed up processing and recording. The software will print and

read bar codes from your computer. Radio Frequency Identification (RFID) which enables individual products or components to be

tracked throughout the supply chain. The system will only be as good as the data put into it. Run a thorough stocktake before it goes "live" to ensure accurate figures. It's a good idea to run the previous system alongside the new one for a while, giving you a back-up and enabling you to check the new system and sort out any problems. Choose a system There are many software systems available. Talk to others in your line of business about the software they use, or contact your trade association for advice. Make a checklist of your requirements. For example, your needs might include: Multiple prices for items Prices in different currencies Automatic updating, selecting groups of items to update, single-item updating Using more than one warehouse Ability to adapt to your changing needs Quality control and batch tracking Integration with other packages Multiple users at the same time Avoid choosing software that's too complicated for your needs as it will be a waste of time and money. 6.1.6 Control the Quality of your Stock Quality control is a vital aspect of stock control - especially as it may affect the safety of customers or the quality of the finished product. Efficient stock control should incorporate stock tracking and batch tracking. This means being able to trace a particular item backwards or forwards from source to finished product, and identifying the other items in the batch.

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Goods should be checked systematically for quality, faults identified and the affected batch weeded out. This will allow you to raise any problems with your supplier and at the same time demonstrate the safety and quality of your product. With a good computerised stock control system, this kind of tracking is relatively straightforward. Manual stock control methods can also use codes to systematise tracking and make it easier to trace particular batches. Radio Frequency Identification (RFID) can be used to store information about a product or component's manufacturing date, to ensure that it is sold or processed in time. The system can also be used to trace faulty products quickly and efficiently. 6.1.7 Stock Control Administration There are many administrative tasks associated with stock control. Depending on the size and complexity of your business, they may be done as part of an administrator's duties, or by a dedicated stock controller. For security reasons, it's good practice to have different staff responsible for finance than those responsible for stock. Typical paperwork to be processed includes: Delivery and supplier notes for incoming goods Purchase orders, receipts and credit notes Returns notes Requisitions and issue notes for outgoing goods Stock can tie up a large slice of your business capital, so accurate information about stock levels and values is essential for your company's accounting. Figures should be checked systematically, either through a regular audit of stock - stocktaking - or an ongoing programme of checking stock - rolling stocktake. If the figures don't add up, you need to investigate as there could be stock security problems or a failure in the system. Health and safety Health and safety aspects of stock control are related to the nature of the stock itself. Issues such as where and how items are stored, how they are moved and who moves them might be significant - depending on what they are. You might have hazardous materials on your premises, goods that deteriorate with time or items that are very heavy or awkward to move. 6.2 DISTRIBUTION AND LOGISTICS Each business has its own particular transport needs. These depend on the nature of the business and the type of products or services it buys and sells. 6.2.1 Pros and Cons of Different Modes of Transport When deciding which method of transport to use, you need to weigh up the advantages and disadvantages of each.

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Depending on the distance, destination, volume and type of goods you deliver, if you want to transport goods directly from door-to-door, you can choose between different types of road transport, such as bikes, cars, vans or trucks or use alternatives such as rail, air, sea or electronic delivery. Method Advantages Disadvantages Road Cheap, convenient, flexible,

private Noisy, pollutes the environment, less safe than alternatives, stressful for drivers, potential delays, can be expensive where there are congestion or road charges

Air Fast for long distance deliveries, safe

Expensive, unsuitable for some goods, limited routes, inflexible timetables, pollutes the environment, airport taxes

Sea Cheap for large volumes Very slow, relatively few ports, inflexible routes and timetables, port duty or taxes - requires inland transportation for door-to-door delivery

Courier Fast, reliable, secure Expensive, weight of deliveries is limited Electronic Delivery

Instant, cheap, for international and domestic deliveries

Insecure due to viruses and hackers, limited to certain goods and services

6.2.2 Distribution Decision-making Factors When deciding which type of transport meets your business' distribution needs, there are several logistical factors you may want to take into account. What you want to transport Consider the nature of the products you need to distribute. Are they perishable dangerous or expensive? If you transport perishable goods such as food, you may wish to consider specialised refrigerated transport. If you transport goods that are classified as dangerous, you must meet requirements regarding packaging, labelling, training of drivers, etc. When transporting people or live animals you will need to gauge the expected volume to ensure your transport has an appropriate capacity and meets health and safety standards. Frequency and timing of deliveries You need to decide: If you will deliver daily, monthly, etc Whether you want delivery capability to be available 24-hours a day Whether you can predict the dates and times you'll need to distribute your goods How much control you want over the timing of your deliveries, eg whether your schedules fit

with train timetables How quickly you want goods to reach their destination Transportation costs Transporting goods by air or courier tend to be the most expensive methods per unit, but can be the fastest. Using trains, ships or the post can be more cost-effective, but not always practical, especially if the goods are perishable. Email is another cost-effective delivery method but is limited to electronic files and data. 6.2.3 Using Carriers or Buying or Leasing Business Vehicles There are three main ways of acquiring the use of vehicles. You can:

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Buy your own vehicles outright Hire purchase or lease them Use a courier or distributor to move your goods The most cost-effective choice for your business depends on the amount and frequency of the goods you deliver. Don't buy your own vehicles if they will sit idle for most of the time, or be half empty when on the road - balance this with any tax breaks you may miss out on. If you produce certain goods, eg very fragile ones, making sure that they reach your customer in one piece may be your priority, and it may be easier to do this using your own transport. Your goods may be insured when a carrier transports them, but this may not compensate for losing a customer if their goods arrive in pieces. If your business places particular emphasis on customer service or prompt delivery, then owning your own vehicles may be advisable. If you want flexibility and control over when you transport goods, and want the ability to dispatch goods at a moment's notice, then owning your vehicles makes business sense. As well as the upfront vehicle costs, there are extra costs to take into account before making the final decision, eg vehicle licences, employee training and fuel and maintenance costs. Leasing or renting vehicles is an alternative. It gives you more control over transporting your goods than using carriers, and allows you to minimise costs by hiring vehicles only when you need to. If you operate your own vehicles, your drivers are allowed to work a maximum of 60 hours in a single week and no more than an average of 48 hours a week. This is normally calculated over 17 weeks. Carriers can be more expensive but provide a more complete transportation service. Logistics providers, for example, can manage the entire process for you, including organising any documentation that is needed. 6.2.4 Couriers, hauliers, freight forwarders and logistics services If you decide to use a carrier, there are several options to consider. Couriers specialise in the speedy and secure delivery of small goods and packages. They deliver nationally and internationally. They only deliver goods up to a certain weight. Hauliers will collect goods from your premises and deliver them to your chosen destination by road. This may prove expensive if your goods don't fill up an entire vehicle, such as a van or truck. Freight forwarders specialise in "consolidation". This means they combine your goods with other consignments in a single container or vehicle, reducing the costs. They generally offer related services, eg organising the paperwork for exports. Logistics service providers manage the entire transportation process, tracking goods and organising any documentation needed. They can also provide warehousing and local distribution centres if necessary. When choosing a carrier, you need to consider: Their experience of handling similar products to yours Their experience in the modes of transport you wish to use

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Cost and extra charges Delivery schedules Their location Whether they offer national and international coverage Whether they provide insurance Membership of trade associations and professional bodies Word of mouth recommendations 6.3 SUPPLIER MANAGEMENT The most effective suppliers are those who offer products or services that match - or exceed - the needs of your business. So when you are looking for suppliers, it's best to be sure of your business needs and what you want to achieve by buying, rather than simply paying for what suppliers want to sell you. For example, if you want to cut down the time it takes you to serve your customers, suppliers that offer you faster delivery will rate higher than those that compete on price alone. The numbers game It's well worth examining how many suppliers you really need. Buying from a carefully targeted group could have a number of benefits: It will be easier to control your suppliers Your business will become more important to them You may be able to make deals that give you an extra competitive advantage For example, if you've got a rush job for an important customer, your suppliers will be more likely to go the extra mile if you spend $1,000 a month than if you spend $250. However, it's important to have a choice of sources. Buying from only one supplier can be dangerous - where do you go if they let you down, or even go out of business? Equally, while exclusivity may spur some suppliers to offer you a better service, others may simply become complacent and drop their standards. 6.3.1 What you should look for in a Supplier There are a number of key characteristics that you should look for when identifying and short listing possible suppliers. Good suppliers should be able to demonstrate that they can offer you the following benefits. Reliability Remember - if they let you down, you may let your customer down. Quality The quality of your supplies needs to be consistent - your customers associate poor quality with you, not your suppliers. Value for money The lowest price is not always the best value for money. If you want reliability and quality from your suppliers, you'll have to decide how much you're willing to pay for your supplies and the balance you want to strike between cost, reliability, quality and service. Strong service and clear communication You need your suppliers to deliver on time, or to be honest and give you plenty of warning if they can't. The best suppliers will want to talk with you regularly to find out what needs you have now and how they can serve you better in the future.

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Financial security It's always worth making sure your supplier has sufficiently strong cashflow to deliver what you want, when you need it. A credit check will help reassure you that they won't go out of business when you need them most. A partnership approach A strong relationship will benefit both sides. You want your suppliers to acknowledge how important your custom is to them, so they make every effort to provide the best service possible. And you're more likely to create this response by showing your supplier how important they are to your business. 6.3.2 Identifying potential suppliers You can find suppliers through a variety of channels. It's best to build up a shortlist of possible suppliers through a combination of sources to give you a broader base to choose from. Recommendations Ask friends and business acquaintances. You're more likely to get an honest assessment of a business' strengths and weaknesses from someone who has used its services. Directories If you're looking for a supplier in your local area, it's worth trying directories such as Yellow Pages and Thomson. Trade associations If your needs are specific to a particular trade or industry, there will probably be a trade association that can match you with suitable suppliers Business advisers Local business-support organisations, such as Business Link, Chambers of Commerce or Enterprise Agencies can often point you in the direction of potential suppliers. Exhibitions Exhibitions offer a great opportunity to talk with a number of potential suppliers in the same place at the same time. Before you go to an exhibition, it's a good idea to check that the exhibitors are relevant and suitable for your business. Trade press Trade magazines feature advertisements from potential suppliers. 6.3.3 Drawing up a Shortlist of Suppliers Once you've got a clear idea of what you need to buy and you've identified some potential suppliers, you can build a shortlist of sources that meet your needs. When considering the firms on your shortlist, ask yourself the following questions: Can these suppliers deliver what you want, when you want it? Are they financially secure? How long have they been established? Do you know anyone who has used and can recommend them? Are they on any approved supplier lists from trade associations, local or central government?

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Do some research and try to narrow your list down to no more than four or five candidates. It's a waste of time for you and the potential supplier if you approach them when there's little chance of them fulfilling your requirements. 6.3.4 Choosing a Supplier Once you have a manageable shortlist, you can approach the potential suppliers and ask for a written quotation and, if appropriate, a sample. It's best to provide them with a clear brief summarising what you require, how frequently you'll require it and what level of business you hope to place. Get a quotation It's worth asking potential suppliers to give you a firm price in writing for, say, three months. You can also ask about discounts for long-term or high-volume contracts. Compare potential suppliers When you've got the quotation, compare the potential suppliers in terms of what matters most to you. For example, the quality of their product or service may be most important, while their location may not matter. Price is important, but it shouldn't be the only reason you choose a supplier. Lower prices may reflect poorer quality goods and services which, in the long run, may not be the most cost effective option. Be confident that your supplier can make a sufficient margin at the price quoted for the business to be commercially viable. Check that the supplier you employ is the one that will be doing the work. Some suppliers may outsource work to subcontractors, in which case you should also investigate the subcontractor to determine if you are happy with this arrangement. Wherever possible it is always a good idea to meet a potential supplier face to face and see how their business operates. Understanding how your supplier works will give you a better sense of how it can benefit your business. Remember that your business' reputation may be judged on the labour practices and environmental record of your suppliers. It makes good business sense to consider the ethical and environmental dimensions of your supply chain Negotiate terms and conditions Once you've settled on the suppliers you'd like to work with, you can move on to negotiating terms and conditions and drawing up a contract. 6.3.5 Getting the Right Supplier for your Business Know your needs Make sure you know what you need. Don't be tempted by sales pitches that don't match your requirements. Understand the difference to your business between a strategic supplier, who provides goods or services that are essential to your business - such as high-value raw materials - and non-strategic suppliers who provide low-value supplies such as office stationery. You will need to spend much more time selecting and managing the former group than the latter. Spend time on research Choosing the right suppliers is essential for your business. Don't try to save time by buying from the first supplier you find that may be suitable. Ask around People or other businesses with first-hand experience of suppliers can give you useful advice.

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Credit check potential suppliers It's always worth making sure your supplier has sufficiently strong cashflow to deliver what you want, when you need it. A credit check will also help reassure you that they won't go out of business when you need them most. Price isn't everything Other factors are equally important when choosing a supplier - reliability and speed, for example. If you buy cheaply but persistently let down your customers as a result, they'll start to look elsewhere. Agree service levels before you start It's a good idea to agree service levels before you start trading so you know what to expect from your supplier - and they know what to expect from you. Don't buy from too many suppliers... It will be easier for you to manage - and probably more cost-effective - if you limit the number of sources you buy from. This is particularly the case with low value-added suppliers. ...but don't have just a single supplier It's always worth having an alternative supply source ready to help in difficult times. This is particularly important with regard to suppliers strategic to your business' success. 6.3.6 Drawing up a Contract for your Purchase Once all the points have been negotiated and a deal has been agreed it's best to get a written contract drawn up and signed by both parties. Although verbal contracts are acceptable and legally binding, they're very hard to rely on in court. Both parties should agree what the contract will cover. Typically it will include: Details of price, payment terms and delivery schedule A clause stating the supplier's right to ownership of the goods until they're fully paid for A clause limiting the seller's contractual liability - taking into account the purchaser's statutory

rights Depending on who holds the bargaining power in the negotiations, the terms and conditions used may be your own, the supplier's or a mixture of the two. You should consider getting legal advice when drawing up your standard terms and conditions. Aim to get a contract that protects your interests and that shifts legal responsibility for any problems to the supplier. Notify the supplier in writing how you intend to use its supplies and ask for written confirmation that what it is selling you is suitable. It's a good idea to explicitly ask about any hidden problems and to keep a written record of all assurances given. Make sure that your contract covers the level of after-sales service you require. Build into the contract what will happen if there are any problems with the goods or services. For example, will the supplier replace individual faulty goods or the whole batch and within what time period? Agree penalties for failure to meet delivery times or quality standards, such as a future discount.

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You should also consider including any dispute resolution or exit procedures that must be followed if either party is dissatisfied with the relationship or wants to end the contract. 6.3.7 Service Level Agreements Service level agreements (SLAs) are agreements or contracts with suppliers that define the service they must provide and the level of service to be delivered, and which also set out responsibilities and priorities. SLAs themselves are contractual obligations and are often built into a contract - in the form of one or more clauses or as an entire section. SLAs can be used in any supplier contract where a business' ability to meet its customer requirements is dependent on the supplier. SLAs are complex documents that should be well defined and cannot be drawn up in an ad hoc fashion. Drawing up an SLA It is important that you are involved in drawing up the agreement together with the supplier. Typical SLAs set out: The service being provided The standards of service The timetable for delivery Respective responsibilities of supplier and customer Provisions for legal and regulatory compliance Mechanisms for monitoring and reporting of service Payment terms How disputes will be resolved Confidentiality and non-disclosure provisions Termination conditions If suppliers fail to meet agreed levels of service, SLAs usually provide for compensation, commonly in the form of rebates on monthly service charges. When drawing up your SLA with your supplier, highlight the most critical components of the deal so you can apply the strictest penalties to these. Build periodic performance reviews into the SLA. SLAs require constant discussion and updating. If the needs of your business change, you may require different performance criteria. Likewise, improvements in technology should be taken into account when reviewing your SLA. 6.3.8 Methods of Paying Suppliers There are four main methods for paying overseas suppliers for the goods you import from them - or for receiving payment if you're exporting overseas: Advance payment. The supplier only ships goods once payment has been received. Letters of credit. The importer's bank guarantees to pay when presented with a set of

specified export documents by the supplier - the bank guarantee increases the cost of this method.

Documentary collection. When goods are shipped, the supplier sends the export documents to the importer's bank. These documents are only given to the importer when payment has been made.

Open account trading. The supplier ships goods to the importer, and asks for payment within an agreed period.

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Minimise payment-related risks For importers, the risk decreases as you move down the list above. Advance payment is the riskiest - there is a chance you'll pay but never receive the goods. Open account trading is the least risky - you only pay after receiving the goods. For exporters, however, the risk increases as you move down the list. So while you might prefer open account trading, your overseas supplier may want advance payment. Letters of credit and documentary collections offer some protection to both parties by involving their banks as intermediaries in the process. Match payments to cashflow needs Payment methods can have a major impact on your cashflow position. Most banks offer import finance packages to bridge the period between paying for your imports and receiving payment when you sell them on to your customers. Bear in mind that payment methods and terms are frequently a matter of negotiation. For example, you might offer a supplier a letter of credit in return for an extended 75-day payment period to match your cashflow requirements.

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7. INFORMATION TECHNOLOGY IT is a part of almost every business' day-to-day life. It enables businesses to work more effectively or take advantage of new opportunities that wouldn't exist if it were not for the development of new systems and services. However, whatever level of IT and e-commerce solutions you use, it's important to get them right. This means that you need to understand the ways in which technology can make your business more effective and how to go about selecting the right system to meet your business needs. You also need to select systems that are capable of growing as your business grows. 7.1 CREATE YOUR FIRST IT SYSTEM If you're starting a new business or you feel that you can benefit from using IT and e-commerce in your business, make sure that the solutions you choose suit your needs now and can be adapted and extended where necessary in the future. First-time system builders If you haven't built an IT system before, assess your business needs before starting. The components of an IT system To find out more about the types of equipment you can buy or lease and how to maintain them. Your hardware will be more effective if you have the right software for your needs. Decide whether you want an off-the-shelf software solution or a system designed specifically for your needs. As your use of computer systems increases over time, you could take advantage of networking to share the cost of peripherals such as printers and provide access to shared data. Introducing computers to your business If you haven't used IT systems in your business before, you will probably be moving from paper-based systems to electronic processes. Computerised accountancy systems are very common applications for new or developing businesses. You need to ensure that your staff are paid accurately and on time. Payroll software systems are common applications that can help speed up the process of producing on-time, accurate pay calculations and payments. 7.1.1 Manage your IT systems on a day-to-day basis To get the most out of your investment in IT, you will have to manage the day-to-day operations of your systems. If you haven't got technological expertise, there are simple procedures and best-practice policies you can follow. To maintain your own systems, you'll need maintenance routines, back-ups and a plan for disaster recovery. You could outsource the maintenance of your IT system. Your systems should be able to communicate with others, both inside and outside your

business. If you have a website or run an e-commerce site, ensure that the content of the site is

accurate and updated regularly. This will help in promoting a positive image for your business, and attracting and retaining visitors to the site.

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It's important to make sure that your systems are secure. A small investment in a firewall or anti-virus software could save you significant amounts of money compared with the costs of your systems being disrupted - or even crippled - by viruses or hackers.

Security is also important when running an e-commerce site. Any disruption of service caused by hackers or denial-of-service attacks can have serious implications for the success of your site. 7.1.2 Data back-up and Disaster Recovery The extensive use of computer systems makes business operations vulnerable to major problems, ranging from the accidental loss of data to deliberate sabotage. Storage systems, whether computer or paper-based, can be at risk of theft or physical damage through a fire or flood. If computer systems are out of action due to any of these reasons, you may face problems in paying staff, complying with data protection law, taking customer orders, or having deliveries cancelled because you have not paid your suppliers. Backups can allow you to continue trading even if computer data has been lost. Backups consist of data copied from your key systems. These copies are made to portable media such as magnetic tapes, DVD ROMS, external hard disks, or to offsite media provided by online backup services that allow data back up over the Internet. You should have a back-up routine (often done every day) as part of your IT security policy and you should check that this is being correctly carried out. Best practice for backing-up data includes: Giving one person the main responsibility for backing up, and designating a second to cover for absence Using a different tape or disk to back up each day of the week and have a schedule for rotating them Keeping backups secure - preferably off-site from the main business premises, eg in a bank box Periodically testing your backups to ensure that your data can be successfully restored Disaster recovery is intended to provide cover for really serious incidents such as fire or flood It is good security practice to work out in advance how your business could survive and recover from such an incident, recording this in the form of a disaster recovery plan. Good data security and data backups are essential requirements for disaster recovery. You should train your staff in business continuity methods - safeguarding essential functions. 7.2 IT SUPPLIERS Though most IT suppliers can provide a comprehensive range of hardware, software and services, there are some differences between them. For example: Resellers act as agents for hardware manufacturers, but can also offer software and a wide

range of IT services and support System integrators select the appropriate hardware and software for your needs and deliver

an integrated, working system Specialist suppliers have expertise in one specific area, such as customer-relationship

management systems Consultants may just provide consultancy, with no hardware, software or maintenance

services Retail, mail order and online suppliers may be appropriate if you're confident you don't

need advice and simply need the IT system supplying direct

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Size of supplier IT suppliers range from small local outfits to global organisations. Even the largest suppliers can provide systems, services and consultancy to small businesses. You may rely on your supplier for a system that's central to your business success. You need complete confidence in them. A local business, or a larger company with a local office, can be a reassuring presence. Single source or multiple suppliers Unless you have extensive IT expertise in-house, it's generally best to use a single supplier for all hardware, software, services and support. If you buy from multiple suppliers, you'll have to decide which one is responsible when there's a problem - unless you have a service provider prepared to support your whole system. 7.2.1 Identifying and Contacting Potential IT Suppliers At the outset of any IT system procurement exercise you should establish and document your requirements. This means you can provide potential suppliers with details of your requirements. It will also provide a framework to compare the different quotations you may receive. The next stage is to research the potential solutions and suppliers. Try to identify three to five suppliers who are able to propose a solution for the budget you have set. Sources of information include: Computer trade magazines IT exhibitions IT seminars and conferences The Internet, including the suppliers' own websites and sites offering independent guidance Advice from relevant trade associations and professional bodies Recommendations from trading and business partners This research may highlight further options which should be reflected in your statement of requirements. Having identified the potential suppliers, you can contact them. Two commonly used approaches are an invitation to tender or a request for information. The invitation to tender asks for suppliers to submit formal proposals. This is usually followed by a shortlisting of candidates who are required to provide a series of presentations and/or demonstrations. The invitation to tender should include: The agreed statement of requirements An indication of what format the proposal should follow An indication of the level of detail required in the proposal The timescales within which the proposal should be submitted The procedure for obtaining any further information from you should the suppliers have any

queries The request for information is a list of key requirements distilled from your statement of requirements. This approach requires a significantly less detailed proposal than the invitation to tender. The intention is to provide a fast track approach to identifying a preferred supplier, rather than drawing up a shortlist of suppliers. 7.2.2 Benefits of an effective IT supplier relationship Building a successful relationship with your IT supplier is essential to your system's success. Trying to purchase IT systems and services at the lowest possible cost - with no regard to your

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business goals for the project or the overall cost of ownership - is likely to lead to a strained relationship with your supplier and cause system problems. Ideally, your supplier should have a clear view of your business goals and the role of IT in achieving these. This will help you build a relationship that can deliver a number of benefits: It will help ensure that service-level agreements are met and that system availability is high It will help in the speedy resolution of problems or queries The supplier can provide valuable guidance on your business' future IT direction through their knowledge of your industry sector and the latest IT developments To build a successful relationship with any IT supplier you should be clear from the outset about what you both expect from the arrangement. Make sure that: 1. You both have clear expectations of exactly what you'll get in terms of hardware, software

and services 2. The business relationship is mutually beneficial - your supplier will have no interest in

whether you achieve your business goals if you just want goods as cheaply as possible 3. There are specific targets to be reached at set dates representing what your business gets

out of its IT systems - not the delivery of boxes and cables 4. The supplier provides regular reports of progress towards the agreed business objectives for

the system 5. You hold regular reviews with your supplier to keep tabs on how things are going 6. You have enough flexibility to accommodate change - whether this is through new

technologies, the business environment or refined business goals 7. You have a signed contract which you both agree to, that includes details of each party's

obligations and what should happen in the event of a disagreement or dispute 7.2.3 Checklist: Choosing an IT Supplier As a new IT system can be a significant investment, it's important to choose the right system and supplier. Before you choose an IT supplier you should: 1. Find out whether the supplier can provide all the hardware, software, services, support and

maintenance you need 2. Check whether they will install and configure your system so it's fully operational 3. Ask whether they will train your staff 4. Confirm what frontline support they can provide - eg a telephone helpdesk 5. Ask whether they will take responsibility for system components purchased elsewhere 6. Investigate what sort of maintenance contracts they provide 7. Get details of what exactly is included in their supply contract 8. Find out what sort of warranty they provide 9. Confirm whether they will continue to provide support if you take responsibility for replacing

faulty hardware yourself 10. Find out if they will accept payment for the system only when it is installed and working to

your satisfaction 11. Ask whether upgrades and fixes to software are included in the price 12. Ask them to provide references from other, similar companies they've helped in the past 13. Ask whether they will provide you with written documentation that will help you understand

your system 14. Decide whether you feel they understand your business needs 15. Ask about any experience they may have in your industry 16. Ask whether they are happy for you to test the proposed system, perhaps under a non-

disclosure agreement 17. Find out whether they are financially viable and able to meet your requirements in the

foreseeable future

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7.3 COMPUTER NETWORKS Even the smallest businesses can take advantage of networking to share the cost of peripherals, such as printers and scanners, and provide access to shared data. However, the growth of wireless networks and the increasing use of virtual private networks, which allow a user to access a business' network via the Internet, have not only resulted in a wider choice of solutions for the business owner, but also a number of additional business benefits. 7.3.1 Benefits of using networks As your business grows, good communication between employees is needed. You can improve efficiency by sharing information such as common files, databases and business application software over a computer network. With improvements in network capacity and the ability to work wirelessly or remotely, successful businesses should regularly re-evaluate their needs and their IT infrastructure. Properly planned, an efficient network brings a wide range of benefits to a company. You can improve communication by connecting your computers and working on standardised systems, so that: o Staff, suppliers and customers are able to share information and get in touch more easily o Sharing information can make your business more efficient - eg networked access to a

common database can avoid the same data being keyed multiple times, which would waste time and could result in errors

o Staff are better equipped to deal with queries and deliver a better standard of service as a result of sharing customer data

You can reduce costs and improve efficiency by storing information in one centralised database and streamlining working practices, so that: o Staff can deal with more customers at the same time by accessing customer and product

databases o Network administration can be centralised, less IT support is required o Costs are cut through sharing of peripherals such as printers, scanners, external discs, tape

drives and Internet access You can reduce errors and improve consistency by having all staff work from a single source of information, so that standard versions of manuals and directories can be made available, and data can be backed up from a single point on a scheduled basis, ensuring consistency. 7.3.2 Assess your Networking Needs Consider what you want the system to do and what results you want. Express your requirements in business terms, not computer terms - for example you might consider the value remote workers can provide customers by having immediate access to stock levels. Consider the following issues to help assess your needs: Analyse your system o Consider your business processes. Do any depend on producing or accessing information -

could you benefit from storing this centrally and letting staff access it via individual PCs?

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o Consider which processes networking could support, eg staff might need access to centralised customer records to create sales quotations.

o Estimate your future computing requirements. If your business takes on more staff your IT system will need to expand to support them - this is called scalability.

o Audit your existing equipment. o Consider how many people will use the network - staff, suppliers and customers. o Assess your printing requirements and the best locations for equipment such as scanners

and disk drives. o Decide how much you can spend on computer networks. o Calculate costs - include purchase, installation, support, maintenance and training as well as

lost business due to staff involvement. Consult your local Chamber of Commerce or similar-sized businesses that you deal with.

o Calculate potential savings - replacing manual and paper-based processes, reducing hardware costs by sharing facilities, and capital allowances.

Consider security o Consider who will use the network. o Identify what access controls you will require, such as passwords. o Outline back-up procedures - eg take regular back-ups of your data in case your system

crashes. Select products o Research the available technology through networking suppliers' websites, specialist

exhibitions, or discussing your requirements with PC and networking companies. Networking magazines - often online - include features on the latest developments.

o Do you want a peer-to-peer network - which you could install in-house - or do you need an expert to help set up a client/server system?

o Prepare a shortlist of suitable products from different vendors. o Talk to people using these products or read magazine reviews. o Consider the support facilities for each product. 7.4 GET THE MOST FROM IT IN YOUR BUSINESS As IT becomes an increasingly important business tool for organisations of all sizes, it is vital to ensure that your business gets the most out of any system it introduces. In order to achieve this, you need to make sure that the IT system you choose supports your business and adds value to it. 7.4.1 Understanding your Business The IT function in every business is about capturing, processing, storing and distributing information or data. Therefore the first principle of aligning IT with business is to have a clear understanding of your business itself. Without this it's difficult to ensure that you'll get the most out of any IT investment that you make. Before you consider investing in IT solutions, you need to identify the business objectives you've set out in your business plan. For example, you may want to: Improve customer service and communicate with customers and suppliers more effectively Cut your costs and streamline your business' operations Increase staff productivity Respond to change more quickly Improve the way you manage, share and use knowledge in your business

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Once you're clear what your objectives are, you can then decide how technology can help you achieve them. As well as considering the overall objectives of your business, you also need to consider what you do, and how you do it. The key factors to take into account are: Organisation charts Responsibilities Formal and informal processes Markets Products Key customers Key suppliers Key business partners Another way in which you can understand your business better is to establish the ways in which it is likely to change as a result of either internal or external factors, such as: Legislation Regulation Business initiatives Technology initiatives Customer-driven change Supplier-driven change It is important to understand how these changes are likely to impact upon the business and, in turn, how IT will support such changes. This will ensure that any IT investment you make now is capable of supporting your business and its operations in the longer term. 7.4.2 Aligning IT with the business In order to identify the mix and type of IT systems that can support and add value to your business, you should begin by defining the overall objectives of your business, which could include the following: A mission statement or overall goal The functional structure of the business that supports your main activities - eg finance

department, sales department, etc Goals for each of these functional areas, consistent with the overall goal - eg an overall

objective of despatching all orders within 48 hours supported by individual goals for sales, order processing, stock control and despatch

A set of targets, financial and otherwise, that can be measured for the organisation as a whole and the individual functional areas

In order to identify your information needs you should: Look at the main activities in each of the functional areas you have identified. Decide what information will be needed to undertake these. Review the information and associated systems requirements and decide if you could

automate either the production of it or its re-use. Could you create a template for standard letters and insert customer names and addresses, or produce invoices automatically combining delivery details with pricing information?

This will give an overall view of the type of systems that your business plan calls for, both in terms of their functions and the information that they process.

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The next step is to decide what type of IT you need to make these systems work by putting together an IT strategy. This is a long-term plan that defines how and why the business will use IT to achieve its business objectives. An IT strategy is useful because it ensures that: Your business purchases and uses compatible systems that can share data You introduce a standard set of IT tools across the business, making the training and support

issues significantly easier to handle Investments in IT are assessed properly, so that only those projects that contribute to the

overall business strategy are undertaken 7.4.3 Developing an IT strategy It is important to plan ahead for the development of your IT systems, which will need to be able to grow and adapt to any changes in your business. An IT strategy provides a roadmap for how IT will be implemented. Such a strategy should contain the following: A definition of the main standards, or the agreed set of hardware and software components

that the business will use. This should include the operating systems, hardware types and underlying software such as database management systems.

The network infrastructure, both for local area networks (LANs) and wide area networks (WANs), used to connect offices in different locations.

A series of projects to implement the required changes in IT provision. Building your IT strategy An IT strategy should be based on the system requirements you have defined. A typical IT strategy plans for three to five years and should include the following actions: Produce an inventory of your current hardware and software. Consider its life expectancy. Review this against your future requirements. Decide how closely they meet those needs. Define the gap between what you currently have and the systems that you need. Decide on the general standards that you will use - eg the operating systems that you intend

to use for servers and desktop. Review the IT infrastructure and support that will be needed to fill the gap you have

identified. For example, if you intend to increase the number of desktop computers in use, you will need to extend the LAN.

Define a programme of implementation projects, with defined start and end dates, to close the gap between your current IT provision and what you aim for at the end of the plan.

Produce cost estimates so that you know roughly how much you will need to spend and when. You can estimate these figures based on your own research, eg from supplier literature or websites, or ask a supplier to give you an outline cost based upon the provisional requirements you have identified.

Check that this programme will fit in with your overall business plan. 7.4.4 Achieving greater efficiency IT can enhance the operation of your business in a number of ways and can add value to its day-to-day activities. In particular, it can help improve the productivity and efficiency of your staff. Even the simplest use of technology can dramatically improve your business' productivity and efficiency. Consider: Accounting software - makes bookkeeping faster and more accurate

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Word processing software - lets you set up standard letter templates Email - improves your internal and external communications, speeds up decision-making and

helps you transfer and modify documents Systems integration - linking your systems with suppliers and customers can improve

productivity right through your supply chain Intranet - in effect a set of web pages accessible only to people within your business - to give

quick and easy access to key company documents Extranet - to allow selected external partners such as customers or suppliers to access key

information about your business and collaborate with you All businesses need to keep a close eye on costs in order to maximise profits and remain competitive. The right technologies can play a part in achieving this goal. You could reduce your administrative costs, for example by integrating your online e-commerce shop front with stock control and accounting systems. You might consider using an application service provider to cut the amount you spend on managing IT. In effect you rent - rather than buy - the software you use, and access it over the internet. Other ways in which IT can improve efficiency include labelling products with unique numbers and scannable bar codes to improve your stock control and supply chain management. 7.4.5 Adding value to relationships Every business has a network of customers and suppliers that it deals with - usually referred to as a supply chain. Working more closely with your supply chain partners can add real value to your business' operations. By improving communication with customers and suppliers, you could save time and energy, allowing you to react quickly to new work. If you involve them in your design processes from the start, you will have a better chance of getting it right first time. For example, you could use an extranet to gather feedback on a new product from customers or suppliers. Standardising business documents, such as orders and invoices, and exchanging them electronically will also save time and reduce costs. By using information more effectively - eg by keeping track of company orders and collating customer profiles - you can get a better understanding of your customers' needs and offer improved levels of customer service. There's a range of technologies that can help you with this. A contact-management system can help you record, organise and plan contact with customers. With the right software and hardware, employees can access customer details and histories at the click of a mouse. Consider, too, how mobile computing solutions can help you boost your customer service. For example, a salesperson could place customer orders by connecting to your network remotely using a laptop and a mobile phone. Even improving your phone system's functionality can help. For example, you might give employees their own dedicated phone number using direct dial-in to allow customers to contact them more easily. You could also provide staff with their own voicemail accounts. 7.4.6 Exploiting new opportunities The growth in the use of the internet and other networking technologies means that businesses can move quickly to exploit new opportunities or adopt new ways of working.

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Getting your product out there first, or being quickest to react to changing market trends, can have a huge impact. Consider the use of more innovative applications of technology in order to exploit new business opportunities, such as the following: Monitor changes in your market - use email or online questionnaires to gather feedback from

customers on new features or services they might find useful. Research the internet to find new products that may improve your offering.

Study other more advanced markets where trends may emerge earlier. There is a wealth of market research and product announcements available on the internet to help you identify such trends.

Find out what your competitors are doing by looking at their websites and conducting online market research. Are they introducing any new services or special offers? How can you compete? Can you improve on their ideas?

Shorten time to market by using digital design and information-sharing tools such as computer-aided design/manufacturing to speed up your processes.

The internet and networking technologies offer the ability to fundamentally change the way your business operates. Applications such as e-commerce and mobile technologies enable new business models that would have been unthinkable only a few years ago. Examples of new business models include: Setting up an e-commerce shop front - permanently open and capable of selling your goods

into new markets around the world. Enabling customers to solve their own enquires by logging onto your website and locating the

information they need. Establishing a virtual workforce - workers operate from their own premises and collaborate as

part of a team using technologies such as workflow (software used to automate the sequence of steps in a business process), email and extranets.

7.4.7 Delivering and supporting IT solutions The real test of how effectively your business uses IT comes when you actually implement new systems. To achieve the potential benefits you must use the system effectively. This means taking into account a variety of management, implementation and support issues. Implementing IT systems requires careful planning and management. Suppliers typically offer some project management during implementation. However, your business should also be involved in managing the project, to ensure that the implementation goes smoothly. Set up a single point of contact between the supplier and your business, to be responsible for ensuring that both sides meet their obligations. The supplier will normally handle the actual installation of the system, but if you have an in-house IT department then it will usually be involved. During installation, the system should be configured as agreed at the procurement stage. This means that the various hardware components and networks should be installed and all appropriate software loaded on the system. As part of the software installation, all of the outputs that are to be produced as regular reports should be set up and ready to run, eg weekly sales reports, monthly debtor reports, etc. Consider system-specific training for your staff to operate the new system. While they are being trained and the new system is being implemented, you may need cover for their regular tasks. You should also consider 'top-up' training later to reinforce the initial sessions.

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In addition you should review your general training in key office applications such as word processing, spreadsheets and databases. The European Computer Driving Licence (ECDL) qualification provides an acknowledged level of competence in the use of computer skills. You should also consider how to provide ongoing support to your IT users. You may opt to have an in house helpdesk solution or use some form of external support. 7.4.8 Measuring Success Most business initiatives are implemented in order to achieve tangible results. However, many of the business benefits of IT activity are difficult to measure directly. Nevertheless you can adopt different approaches to this measurement. For many businesses, IT is one of the single largest costs. Because of this it is tempting to focus on what the system is likely to cost, and to pay little attention to the likely return on investment. Even when attempts to measure return on investment are made, they are often highly subjective with little or no evidence that such gains are ever achieved. It is important to identify the actual costs of the system, including all of the hidden costs in areas such as training and support. However, to assess return on investment meaningfully, you should also consider how much money the system will save you, or how much profit you will make out of the new business opportunities that it offers. The key to assessing return on IT investment is to use objective metrics - measurable aspects - rather than subjective opinions. Examples of such metrics might include: The increase in responses to a marketing campaign using e-marketing techniques rather

than traditional methods The additional number of customers that can be handled by a call centre following the

introduction of CTI (computer telephony integration) technology The number of hours saved in completing an invoice run following the introduction of a new

accounts package You should hold a formal review of progress at an appropriate point after implementation of the system. It can be time-based (eg six months after a system has been implemented) or activity-based (eg immediately following on from the upgrade of a software package). You should assess whether or not the project's objectives have been met, and if not, what action needs to be taken.

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8. PROTECTING YOUR IDEA All businesses have intellectual property (IP), regardless of their size or sector. This could be the name of your business, or copyright, designs, patents and trade marks. Your IP is likely to be a valuable asset. Securing and protecting it could be essential to your business' future success, so it's vital to understand your rights and how the law can help you. 8.1 INTELLECTUAL PROPERTY Intellectual property (IP) rights are valuable assets for your business - possibly among the most important it possesses. Your IP can: Set your business apart from competitors Be sold or licensed, providing an important revenue stream Offer customers something new and different Form an essential part of your marketing or branding You may be surprised at how many aspects of your business can be protected - its name and logo, designs, inventions, works of creative or intellectual effort or trade marks that distinguish your business can all be types of IP. Some IP rights are automatically safeguarded by IP law, but there are also other types of legal protection you can apply for. To exploit your IP fully, it makes strong business sense to do all you can to secure it. You can then: Protect it against infringement by others and ultimately defend in the courts your sole right to

use, make, sell or import it Stop others using, making, selling or importing it without your permission Earn royalties by licensing it Exploit it through strategic alliances Make money by selling it 8.1.1 Getting legal protection for your intellectual property There are four main ways in which the law provides protection for your intellectual property. Patents Patents protect your inventions for a set period. You must apply to the Intellectual Property Office for a patent. You can only patent an invention if no one has done so before you. To see if there is an existing patent you need to carry out a patent search. Trade marks A trade mark is the distinctive way in which your business' goods or services are represented - in the form of slogans, symbols, words, logos, brand names or shapes, for example.

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You can take legal action to prevent someone else using your trade mark if you've built up sufficient trading reputation and goodwill in it - but this can be difficult to prove. For added protection it's a good idea to use trade mark registration to safeguard your trade mark. Design right and registered designs Design right gives automatic but limited protection for the appearance of three-dimensional objects. A registered design gives added protection and applies to both two-dimensional and three-dimensional objects. Copyright This is the automatic protection the law affords original literary (including software), artistic or dramatic work and sound recordings that are the result of intellectual effort or creative skill. This could cover your website's content, technical drawings or instruction manuals, for example. 8.1.2 Protecting your business name and domain name Your business name is the most basic intellectual property asset you have. It could also be the most important. Your business' reputation is tied up with its name so you don't want somebody else trading on it. If the name of your business is distinctive to the goods and services you provide, you may be able to take legal action against anyone using it in the same or a similar field. You will get additional legal protection if you register the name as a trade mark. Protect your name on the Internet If you want to set up a website for your business you will probably want to register a domain name incorporating your business name, or any trade marks you have. To register a domain name you first need to check whether it's available. Many web hosting companies offer domain searching and registration facilities. However, having a trade mark doesn't give you an automatic right to a domain name incorporating your trade mark. Someone may have already registered the domain name you want for the same or different goods and services. But you may be able to take legal action if you think: Someone is using a domain name to pass off their goods and services as yours Someone has taken out your trade mark as a domain name just to sell it back to you 8.2 COPYRIGHT FOR YOUR BUSINESS You automatically own the copyright in any literary, dramatic, musical or artistic works that you or your employees create. These works can range from information booklets and computer programs to written music or paintings. Copyright will also protect any sound recordings, broadcasts or films that your company creates. As the copyright owner you are able to decide whether: Or not your original works are used by others They are copied, adapted, published, performed or broadcast Or not you will let others make use of your work for a royalty or licence fee To sell the copyright to others

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8.2.1 What does copyright cover? If your business produces any of the following, they will automatically be protected by copyright once they are 'fixed' in some way, eg written or recorded: Literary works, including books, webpages, computer programs and instruction manuals Dramatic and musical works, including the music to songs Artistic works, including technical drawings, photographs, diagrams and maps Films, videos and broadcasts, including those on cable and satellite Sound recordings Databases, whether paper or electronic Typographical arrangement or layout of publications Copyright covers every medium in which a work exists, including the internet. What copyright doesn't cover Copyright does not protect: Names, titles, slogans or phrases - though you might be able to register these as a trade

mark Products or industrial processes - though these may have design right or be eligible for

patent protection Ideas Business-created work and copyright Your business owns the copyright in works created by your employees, but remember that contractors own copyright in any work they create for your organisation unless you agree otherwise. Automatic right Unlike most other intellectual property rights, copyright does not require registration. It is an automatic right once your work is 'fixed'. How long copyright lasts The period of protection varies according to the type of copyright work. When and where it was created may also be important. Protecting material connected with copyrighted material You may have files, research and development documentation or accounts that don't qualify for copyright, but that could be connected with the particular copyright material you develop. You could consider registering them on an unofficial copyright register and many companies offer this facility. Moral rights Authors also have moral rights to their work. Moral rights mean you: Can object to distortions of your work Have the right to be identified as the author of your work (provided you have clearly declared

you want that right) However, there are certain situations where moral rights may not apply. The right to be identified as author does not apply to anything done by the copyright owner where the copyright in the work was originally owned by the author's employer. In addition, authors of computer programs or material to be used in newspapers, magazines or in reference works can't claim either of the above moral rights in those works.

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8.2.2 How can copyright help my business? Copyright can be an important source of income for your business. If your business owns the copyright in a piece of work - be it an advertising jingle, a technical manual, song lyric or a magazine article - you can control how it's used commercially. For example, you could charge every time someone plays your jingle on the radio, transfers your manual to the internet, makes copies of your song lyrics or reprints your magazine article. Copyright means that copies of your work cannot be made, issued, rented or loaned without your permission. Also, your work may not be adapted, performed or broadcast without your permission. Importantly, it means you can take action to stop any copyright infringement. Copyright is a private right which means it is your responsibility to take action if anyone makes use of the whole or a substantial part of your work without your permission. Copyright is a type of intellectual property and like other property rights it can be sold or licensed. It can also be transferred and inherited. In several fields, copyright owners have come together to form collecting societies that work on their behalf to collect royalties by issuing licences. They can simplify the process for copyright owners as well as for those who wish to make repeated use of your original copyright works. Where copyright owners and users cannot reach agreement on terms and conditions, the Copyright Tribunal is available to establish the facts and reach a decision. 8.2.3 Copyright protection If your business creates original works, copyright protection could be an important part of ensuring its success. It might be essential to enforce your rights if a rival with a similar product or service copies your instruction manual or welcome pack for instance. If you think your copyright is being infringed, you are advised to first seek legal advice from a specialist who may discuss with you a first step of sending a carefully worded warning letter to the alleged infringer. They may be genuinely unaware of the infringement or they might stop when they know they've been found out. If this fails you should take further legal advice from a specialist. If you go to court and win your case, you could be awarded damages and get an injunction to stop your material from being misused. Before becoming involved in an expensive court case, you should try to negotiate with the other party and come to some sort of agreement. The courts may look favourably on any party which seeks to resolve the disagreement in this way before taking legal action. Mediation could even lead to you agreeing to license your material to the other party. Joining an organisation to protect copyright Some groups of copyright owners - eg software designers and music producers - can join organisations which help to protect their interests. Some may even investigate copyright infringement and take action against alleged infringers. 8.3 PATENTS A patent is a monopoly right giving the holder the right to manufacture, use and sell their invention for a set period of time. The holder can generate revenue by utilising the invention or licensing others to exploit it.

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You may consider applying for a patent if you invent: A new component or innovative product - eg a new type of lid for a drinks carton which keeps

the contents fresher for longer An industrial process or way of making or manufacturing something - eg a new plastic-

moulding technique New apparatus or equipment used in an industrial process - eg a new kind of tool for cutting

metal Patents give the holder the right to stop others making, selling, importing or using the patented invention without permission. A patent can be a valuable asset and can form the basis of a business. But it costs money, can take a long time to apply for and protection isn't automatic. If you take out a patent, it is up to you to defend it against any infringements - by going to court if necessary. A patent: Applies across a specific territory Is valid for a limited period Can be bought, sold and licensed like any other piece of property Where a patent may not be appropriate, cost effective or applicable, there are other options to protect your intellectual property. 8.3.1 Can I get a patent? To apply for a patent, you must be the legal owner of your invention. If you created it as part of your work as an employee, you are unlikely to be the legal owner. To get a patent, your invention also has to: Be capable of being made or used in some kind of industry - you can't get a patent for a

theory or an idea, a discovery, an artistic work or an animal or plant variety, though there may be other ways to protect this intellectual property.

Be new - your invention must not have been made public before you apply for a patent. This means it is essential that you keep your invention secret when you are developing your idea. You should make sure that everyone concerned - including partners, press, employees and suppliers - signs a non-disclosure or confidentiality agreement before you talk about or collaborate on your invention.

Contain an inventive step - meaning the idea wouldn't be an obvious development to someone with a good knowledge of the field.

Remember, the fact that you can get a patent doesn't necessarily make it worthwhile. You should carefully weigh up the pros and cons before deciding whether you should apply. You might also want to consider conducting market research to assess your invention's commercial viability before going ahead and applying for a patent. Other forms of intellectual property protection, such as trade secrets, trade marks, copyright and registered and unregistered design, may be more suitable for your purposes. 8.3.2 Should I get a patent? Deciding whether to apply for a patent involves weighing up a number of advantages and disadvantages.

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Advantages It gives you the right to stop others from copying, manufacturing, selling or importing your

invention without your permission. You get protection for a pre-determined period, allowing you to keep competitors at bay. You can then utilise your invention yourself. Alternatively, you can license your patent for others to use it, or sell it, as with any asset. This

can provide an important source of revenue for your business. Indeed, some businesses exist solely to collect the royalties from a patent they've licensed - perhaps in combination with a registered design and trade mark.

Disadvantages Your patent application means making certain technical information about your invention

publicly available. It might be that keeping the details of your invention secret will keep competitors at bay more effectively.

Applying for a patent can be a very time-consuming and lengthy process (typically two to three years) - technology may have overtaken your invention by the time a patent is granted.

It will cost you money whether you are successful or not - the application, searches for existing patents and a patent attorney's fees can all contribute to a reasonable outlay.

You'll need to be prepared to defend your patent. Taking action against an infringer can be very expensive. On the other hand, a patent can act as a deterrent, making defence unnecessary.

8.4 TRADE MARKS A trade mark can be seen as a badge of origin for a business. It provides a distinctive way of representing your goods or services that sets them apart from those of other traders. It is a valuable piece of intellectual property and can play an important role in your marketing and branding activities. A trade mark can be: A word, phrase or slogan A logo or symbol A sign or form of packaging A sound or jingle A colour A gesture A brand name Your company name A trade mark must be distinctive for the goods and services you use it for. And it mustn't mislead people about the nature of your products or services. Common law may give some trade mark protection automatically, provided sufficient trading reputation and goodwill have been built up in a mark. But this is likely to be difficult and costly to defend against infringement. You should consider registering your trade mark for added protection Registering a trade mark costs money and you need to get it right. But registration establishes in law that your mark: Is a trade mark Belongs to you alone You then have an automatic right to sue anybody who infringes it. In fact, just registering a trade mark can serve as a deterrent to people who might otherwise infringe it.

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8.4.1 How to register a trade mark When applying for a trade mark it's important that you: Conduct a search to check nobody has registered or applied for the same or a similar trade

mark for the goods or services Get your trade mark right first time, as it can't be altered after your application has been

submitted List all the goods and services you want your trade mark to cover, as you can't add any

later It is now possible to register a trade mark that is the same as, or similar to, an existing trade mark unless the owner of the earlier trade mark successfully opposes the new application. However, it is still worth checking that no one has registered the same or a similar trade mark before you make your application. A trade mark is registered for ten years, after which time it can be renewed indefinitely. If you want your registered trade mark to apply overseas, you have to apply to the appropriate national or international organisations. Where to get help Applying for a trade mark and carrying out an in-depth trade mark search is a complicated process. Mistakes can be expensive and time-consuming. To check that your trade mark meets registration requirements and doesn't conflict with other trade marks you can use the Intellectual Property Office Search and Advisory. You may also want to take professional advice from a trade mark attorney or a patent attorney. 8.4.2 Trade marks and domain names If you've got a trade mark it might also make business sense to register a domain name incorporating that trade mark or business name as your website address (domain name) - for example, www.mycompany.com. Registering a domain name incorporating your trade mark as a website address could mean people searching the Internet find you with greater ease and it could help strengthen your branding. However, having a trade mark doesn't give you an automatic right to a domain name incorporating your trade mark. Someone may have already registered the domain name you want for the same or different goods and services. But you may be able to take legal action if: You think someone is using a domain name to pass off their goods and services as yours You think they have taken out your trade mark as a domain name just to sell it back to you Simply having a domain name doesn't give you a right to register that name as a trade mark. It will still have to meet all the normal criteria of trade mark registration. And you must ensure the domain name doesn't infringe anyone else's mark.

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9. ADVISERS AND SERVICES 9.1 ACCOUNTANTS Accountants can offer your business a range of services from basic bookkeeping to specialist business advice. They can save you time and help to make your business more profitable. You may employ one simply to prepare financial statements for your end-of-year tax return or you may need to rely on them for other added-value services, such as auditing. 9.1.1 How an accountant can help If you run any business, you're legally required to: Keep certain records, for example if you have employees or pay VAT records if you're VAT

registered. This will involve regular bookkeeping work. Appoint an auditor to carry out an annual audit of your accounts, unless the company is

exempt In addition to basic accounting functions, many accountants offer added-value services, such as start-up business advice and management-systems advice. You could decide to do some of this work yourself - but many businesses prefer to turn to an accountant for at least some of it. Weigh up factors such as time, cost and know-how and ask yourself: What does my business have the skills to do in-house? What would be more efficiently and effectively outsourced to an accountant? What must, by law, be done by a qualified person? 9.1.2 Where to find an accountant Look for someone who has professional accounting qualifications. The best way to find a good accountant is by using professional associations or through personal recommendations. Professional associations Qualified accountants usually have the words "chartered" or "certified" attached to their title. They also usually belong to one of accountancy's professional associations. Recommendations It can be helpful to ask for recommendations from your: Friends, family, business associates and contacts Bank or lawyer Professional or trade associations - this can be a particularly useful route if you're looking for

an accountant that specialises in your industry Bear in mind that it's best to start looking for an accountant well before you need to use one. If possible, don't leave such an important decision to the last minute. Once you have found some names and considered their reputations and qualifications, you should draw up a shortlist of about six accountants you'd like to contact. 9.1.3 How to choose the right accountant It's important to select an accountant who's right for your business. Speak directly to everyone on your shortlist, discuss their experience and services and outline your business needs. Ideally the

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relationship you have with your accountant will be long-term, so these are important considerations. Telephone your shortlist Ask each accountant about their practices: Experience - do they have clients in your sector and experience of businesses of a similar

size? Can they deal with your business' unique needs? Charges - what do these cover, how are they scaled and do they offer all-in fees? Personnel - who will look after your business most of the time - a partner or someone more

junior? How many partners are there? Sometimes smaller practices suit smaller businesses. Efficiency - what response times do they work to? Added value - what additional services can they offer? Choose about three to visit. Check whether you will be charged for this meeting. Meet your prospective accountant When you visit a practice, you should discuss: How the practice can help you develop your business. Whether it will be able to offer you advice. What services you will be charged for and how and when you will pay for them. The level of access you will be given to the data held about your business. This is important

as you might need data to update your business plan or for a tender document. You will also want easy access if you ever decide to change accountants.

Take your business plan and other useful information about your business to the meeting. A good accountant should want to know as much about you as you do about them. A good accountant should also be happy to pass on names of clients for you to take up references. Once you've found an accountant, let them know that you've selected them and they will issue a letter of engagement. This letter will be the contract between you and your accountant and should detail: Your responsibilities The accountant's responsibilities Their fees and how they will be charged 9.1.4 Checklist: ten things to ask your prospective accountant An accountant can offer your business help ranging from basic bookkeeping to specialist business advice. However, in order to get the best value for money there are things you should find out first. Before you choose an accountant you should: Ask about their qualifications Find out how many partners there are in the practice Investigate whether they are experienced in dealing with businesses of a similar size and at a

similar stage of growth to yours Assess whether they understand your business sector and its needs Find out who will look after your business on a day-to-day basis Ask about their estimated response times Ask whether the service you will receive will be proactive - eg whether they will remind you

when you need to submit accounts, or send you updates on changes in tax law Find out if they offer any additional services - eg inheritance planning or advice on

information systems

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Ask whether the practice offers any specialist services - eg in start-ups or stock-market listing Investigate their charges and what they cover - find out if a fixed fee can be arranged for the

first 12 months 9.1.5 Managing the relationship with your accountant The terms of the relationship with your accountant are set out in the letter of engagement issued to you. In addition your accountant can help you to manage and develop your business. To get the best out of your accountant you should arrange to have regular contact with them. You should always allow yourself plenty of time to discuss tax implications before the preparation of year-end accounts. Any problems in the relationship could be evidenced by certain types of behaviour on the part of your accountant. These include: Being difficult to contact Failing to provide you with information Issuing unexpected fee increases It is important to have a good relationship with your accountant. Make sure that you: Keep agreed records or deadlines Inform your accountant of changes to your business Discuss major issues such as the tax implications of amounts you take out as drawings,

salary or dividend with your accountant Reviewing the relationship The needs of any business do not stand still and a good accountant should adapt with you. However, every three to five years, it can make good business sense to ask: Is my business still getting value for money? Is my accountant informative and easy to contact? Does my accountant still suit the needs of my business? If the answer to these questions is no, then it could be time to find another accountant who is better suited to your current requirements. Making a complaint If for any reason you suspect your accountant of misconduct then you could raise this with them directly or you can make a complaint to the professional body they are accredited with. However, the professional bodies will not help you get compensation for any funds lost as a result of the misconduct - to do this you will need to seek legal advice. 9.2 SOLICITORS You can save your business a lot of time and money if you approach legal issues in the right way from the start. It is far easier to sort out any legal issues at the outset instead of later, when they can be more problematic and costly to solve. There are a number of common legal errors made by businesses. For example, some don't take proper advice when signing a lease for their business premises and find themselves vulnerable to unexpected rent increases or hidden charges. Others make critical errors when setting up the legal structure of the business. And some going into a partnership don't allow for the consequences if the relationship breaks down.

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9.2.1 When will I need legal advice? There are nine key areas where you may find it useful to take professional legal advice: Company structure - whether to trade as self-employed, a partnership or a limited company,

and to make sure the proper legal agreements are drawn up. Business premises - negotiating and making sure you understand the terms of your lease. Dealing with regulations - many new regulations are specific to particular sectors. You need

to be aware if they apply to you. Contract terms and service levels - you should be sure of your legal responsibilities to

customers and suppliers. Protecting your business ideas and confirming ownership - making sure any intellectual

property rights to your product or service are protected and that you're not infringing the rights of other businesses.

Finance - the legal implications of raising finance - for example on your home - and agreeing terms with the lender.

Debt control - protecting you against bad debts and advice on debt collecting. Franchising - anyone going into franchising needs to check all the small print with a

specialist lawyer. Employment law matters. 9.2.2 Find a solicitor It's a good idea to ask other businesses of a similar size to yours or other business associates if they can recommend a particular solicitor or firm. If you belong to a trade or professional association they may be able to put you in touch with solicitors who are used to dealing with issues in your type of business 9.2.3 Choose a solicitor Most legal firms cover the majority of issues that your business might need advice about. You need to be sure your solicitor is qualified and has insurance to protect you if anything goes wrong. Solicitors must hold a practising certificate, unless they are only employed by your business. The practising certificate means they are licensed to practice. It's a good idea to ask for quotes from a number of solicitors - just as you would from any other service supplier. Once you've gathered a shortlist of potential solicitors, it's well worth meeting them face to face to make sure they will be suitable for you. Most solicitors offer an initial interview free of charge. But make sure you're meeting the person who will actually be carrying out the work for you. Solicitors usually charge on an hourly rate, but it is possible to agree a fixed spending limit so that you don't go over budget. Once you have worked with a particular solicitor and are happy with the service they have provided, it's often wise to develop a long-term relationship with them. If they understand the needs of your business, they will be more effective. 9.2.4 Ten questions you should ask your prospective solicitor In order to find the best solicitor for your needs, try to find out the following about your prospective solicitor. 1. Do they understand the nature of your business? If not, it's often helpful to provide them with

a written summary.

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2. Is the solicitor happy to take you on as a client and comfortable with the work you want them to do?

3. Are they qualified to act for you? 4. What hourly rate will they charge? 5. Do they think what you are looking to achieve is realistic? If so, will they outline the steps they

think you need to take to achieve it? 6. Will they explain things in clear plain language and not confuse you with legal jargon? 7. Will they provide you with real practical solutions and not just a legal commentary on your

case? 8. Will they agree methods and frequency of keeping in contact, using face-to-face meetings,

phone, letters or email? 9. Can they provide you with a client-care letter that sets out their terms of business and

complaints procedure? 10. Can they outline what other services the firm may be able to provide as your business

develops? 9.2.5 Manage the relationship with your solicitor Many businesses maintain a relationship with the solicitor they have used from the outset. But it's important to monitor that relationship to ensure you are getting the right level of advice for the money you are paying. It's a good idea to check the range of services that a solicitor offers - there may be other areas they can advise on to make the relationship more cost effective for you. They may be able to give you advice on employment law, for instance, or advise you on the insurance you may need to protect your business in the event of a claim. As with any business relationship, it is important that you monitor the effectiveness in terms of cost and efficiency of using a particular solicitor. You should regularly check whether:

The advice you have been given has been useful or successful You believe the solicitor has acted in your best interests The solicitor's rates are in line with their competition There are other legal issues that it may be more time and cost effective for your solicitor

to handle, rather than you handling them yourself in house