Tandem Startup Manual

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 start
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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
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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
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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 liability
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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.
 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
 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.
 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:
 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)
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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.
 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 package
4
. 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

24
 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

26
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

27
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?

28
 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?

29
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.

30
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.

31
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?

32
 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.

33
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.

34
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.

35
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.

36
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

37
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

38
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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