Member advice on Self Employment

Anyone can start a business. It’s easy. Just go online and for a few pounds you can register as a limited company and, hey presto, you’re an entrepreneur.

Well, yes, maybe. But clearly there is more to it than that. This review aims to give you some insights from my and my wife’s experiences in setting up our own business.

I will be deliberately “generic” because the purpose of this is not to advertise my business. What I have to say I think applies to any small start up business of the kind that an individual or a couple of partners might consider starting.

In early 2003, we were both beginning to contemplate changed circumstances. We were about to become empty-nesters in our early 40s, and saw this as an opportunity to take stock of our lives and to see if there were any new directions open to us. I was tired of commuting to London, and my wife was in a job which had been inspiring and fulfilling to start but which had become more about pushing paper and trying to implement crazy bureaucratic rules than anything else. My wife had recently come into an inheritance, so we had some money to invest.

We were heading off for a long weekend in our favourite spot (Alghero) and in the airport I picked up a franchising magazine. We both went through it during our break, and one company in particular stood out above the rest. This was a business that could be run from home, so we didn’t have the expense of hassle of setting up premises. Having previously worked for the head office of a fast food franchise, I was clear that I didn’t want to go down that route. There was a franchise show in London a few weeks later. My wife couldn’t go, but I went along and made our first contact with this company. Following further contact, my wife and I went down to the company headquarters near Bristol and met with the owners. Their ethos appeared to match ours, and we spent the better part of a day talking to them (having planned only a couple of hours). It went well. Their franchising scheme was new, but they already had a few franchisees. We spoke to them, and received good feedback. We also did the normal things, like having the franchise agreement looked at by lawyers etc.

Everything seemed right.They were prepared to offer us a franchise, and we were ready to invest. Initially, my wife became the franchisee. It was agreed that I would keep my job so that we had some guaranteed income, and that I would join her in the business when it was financially viable.

Before any of this could happen, of course, we needed to set up a company. There are several options available, the main ones being a limited company, a partnership or a sole trader. They all have their advantages, and you would be wise to research the implications of each with your advisors before proceeding. We opted for a limited company, as it offered us the best solution in terms of protecting our personal assets and reducing our tax liability.

Of course, you need to appoint the aforementioned advisors, certainly a lawyer and probably an accountant. They can facilitate the setting up of a company, and give you other useful advice. Having a sympathetic bank manager also helps! You can set up a company on the internet, and this may be a perfectly viable option for someone with the required financial background. There is so much to think about, such as registering for VAT, various deadlines from the Inland Revenue, Companies House and other official bodies. These are hassles that for the most part are best taken care of by someone else, leaving you freer to get your business off the ground. It need not be expensive.

Things went well at first. My wife went down to the HQ for a four-week induction and accreditation course. (Oh yes and by then we had handed over our £25,000 franchise fee.) She returned raring to go, and we began marketing our business.

How you market is crucial. One of the advantages we felt of going the franchise route was that we would be given a lot of marketing support. This was true up to a point, and will certainly depend on the franchise you choose. We had some professional telesales work done, and that led to a few prospects, and we had access to field support, but mainly we got work through our personal and business contacts.

This brings me to another crucial point. One important thing to consider before going into business is how big your network is. Do you know lots of people who would be potential clients or customers? Or is it the kind of business where you open a shop, advertise a bit and hope the punters come through the door? For most businesses though, you start by selling to those you know, and you try to build your network. Note that ‘selling to those you know” doesn’t mean strong-arming friends. Anyone you know, even casually, especially through your previous employment if it’s related to your new business, is a potential client. And there are many ways to build your network. We joined the local Chamber of Commerce, and through contacts there got a place in a local Business Networking International chapter (a breakfast club), which has been invaluable to us. My wife has joined several women in business groups. There are endless ways to build your networking circle, and most of them are pretty fun. Trade associations, if you are a member, are excellent too.

By February 2004 we were beginning to get some clients, and we were in fact one of the best performing franchisees. I was beginning to seriously think about giving in my notice, which I did in April.

And it was about then that problems began to surface with the franchisor. There were regular monthly meetings of all franchisees, but none of the problems that would very quickly bring down our business were apparent. Things seemed to be normal. The first inkling we got was when the head of the direct marketing company mentioned in passing that the franchisor had not paid its share of the marketing bill.

To cut a long story short, at the beginning of July, we received an email saying effectively that the plug was being pulled on the franchise operation. What we hadn’t realised (it was not clear in any of the discussions we had with the franchisor, nor was it pointed out by our legal advisor) was that our agreement was not with the franchising company, but with another company to whom they had given the master franchise. Without any warning (there was apparently no written agreement between these two) the company revoked the master franchise and all our agreements became null and void.

Yes, there were problems with the franchise operation. With a few exceptions (ourselves included) the franchisees were not performing, and the revenue coming in was well below projections. There had been frantic behind the scenes efforts to remedy this (of which the franchisees were not privy) but in the end the plug was pulled.

Many franchisees were simply cut loose. A few, including us, were invited to continue as “partners” but on much less favourable terms. Some did, but we decided that we had enough experience and resources to go it alone. Call us mad, but that’s what we did.

We wound down our first company, which had been formed specifically to operate the franchise, after exactly a year’s trading (at least it was nice and neat) and in October last year we formed a new company for our new venture.

Touch wood, it’s going well. We already have some household names as clients, and we are slowly expanding. We have big ambitions for the company, including taking it international, but we are going one step at a time.

Despite the problems we encountered, starting a business is one of the best things we have done. One thing I would say is that I wish we had done it sooner. We wanted to wait until we were no longer directly responsible for our children, but in hindsight I would have valued the extra time working from home would have allowed me to spend with them.

Make no mistake, running your own business is hard work. We are both often to be found at our desks on Saturdays and Sundays. But we also have lots of freedom, including deciding what kind of work and clients we want to focus on. We are doing what we want, how we want, and that is worth a lot of sacrifice.

The best piece of advice I can give anyone who is thinking about starting a business is to spend at least six months researching it, and to get as much advice as possible, from the obvious sources like lawyers and accountants, but also from people in the same field who have been down the road you plan to take. If possible, research your client base, and find out exactly what they would expect from your type of business – and then offer it. Having adequate financing in place is also crucial. You need money to live on of course, as well as cash to run the business. Calculate how much you need – then treble it. If you’re profitable sooner, great. If not, you need to be able to withstand cashflow setbacks. Of course you will pay all your bills as soon as they come in, but no one will ever seem to pay you promptly!

The main thing is to have fun. People who can turn an enjoyable hobby into a viable business are very lucky, but very rare. For most of us, we have to find the fun amidst the worry and stress that running one’s own business invariably brings. But if you are not happy and enthusiastic to be striking out on your own, why put yourself through the hassle? In many ways, the key to a successful business is attitude.

Anyway, I must dash now and finish writing our employee handbook. No, we don’t have any staff yet, but the day is coming soon, and it pays to be prepared! Another good business adage!