Preparing For Business
Robert Browning is a chartered accountant formerly in public practice, with many years' experience of advising small businesses. He is based in Ware, Herts.
Before you embark on any business venture you must prepare the ground. It is important to cultivate an image which will leave a lasting impression on the people you deal with. This chapter sets out the important elements of the preparation necessary for success. They include:
- choosing your name
- opening your bank account
- employing your staff
- equipping your business
- getting your message across.
CHOOSING YOUR NAME
If you have already started your business you may well have decided on a name. This may be your own name or one you have given it. It is a good idea to choose the name with care. Your future marketing may be helped or hindered by the name you choose.
For example, let us suppose your name is John Nelson, you live in Brockenhurst and you are starting a business as a printer. You have an infinite number of options for naming your business. Here are a few:
- John Nelson Printers Ltd
- J N Printers Ltd
- Nelson Printers Ltd
- Brockenhurst Printers Ltd
- Masterprinters Ltd.
Now consider some advantages and disadvantages of these names.
‘John Nelson Printers Ltd’ immediately identifies the business with you. This is useful where the people you deal with know you. If they do not know you then ‘J N Printers Ltd’ is just as good. ‘Nelson Printers Ltd’ also identifies you and is shorter and easier to remember whereas ‘Brockenhurst Printers Ltd’ lets people know where the business is situated. Unless you later move but cannot find premises in Brockenhurst! ‘Masterprinters Ltd’ is a description of what you do but does not say who or where it is.
Imagine also your business expands in the future and you wish to move your works or open another branch in, say, Winchester. The identification with Brockenhurst then becomes a liability as Brockenhurst is no longer the home of the business.
So you see it is worth taking a little time in deciding what your business name is going to be. And remember to check with Companies House that the name you want is available. For full details of requirements you may need to refer to the Business Names Act 1985.
OPENING YOUR BANK ACCOUNT
It is essential for a business to operate its financial transactions by using a bank account. This has a number of advantages:
- It is a permanent and independent record of your transactions.
- It provides a place to put your money until it is needed.
- It enables you to get rid of excess cash if you are in a cash business.
- It allows you to pay the people you owe money to conveniently and efficiently.
- It enables you to secure a loan or an overdraft when this is necessary.
- It gives you access to a range of other services.
Banks, like any other business, are keen to get more customers. If you are starting a new business there is every chance that most banks will be offering generous terms for you to join them. For example, they may offer free banking for the first twelve months of trading. This will normally be only if you remain in credit, that is if you have some money in your account all the time.
Bank managers are human despite what some people may say. They are in business to make a profit just as you are and they want to see a sound business idea before they think of risking their money.
So if you are going to see a bank manager make sure you have done your homework first. He is interested in what you are going to do, where you are going to do it and how much money you are going to need to carry it out. These objectives must be clear in your mind.
Questions you should have answers to
- What will happen if your idea doesn’t work?
- What will happen if you do not get the sales you expect?
- How much money will you be putting into the business?
- How much do you expect to take out regularly to live on?
Be the master of the facts and give your bank manager the confidence that you really know what you are talking about.
Opening a company bank account
As with most things these days you will have to complete a form. This will probably be in some detail as the bank will be contracting with the company and not you as an individual. They must get all the information they can.
General information required will normally be:
- name of the company
- company number
- registered address, telephone number, etc
- date of incorporation
- date of financial year end
- approximate expected turnover
- names, addresses, and details of directors and secretary
- address where the account will be run from (if different from the registered address) and where statements should be sent
- number of cheque books and paying in books required.
In addition the bank will require a bank mandate (see Figure 01). This document will specify that on a certain date the directors held a meeting of the board and decided to appoint a particular banker. It also decided that the signatories were to be, say, any two of the directors and the secretary. This mandate would be signed by the chairman of the meeting. It would also contain specimen signatures of the people designated to sign on behalf of the company.
Once these formalities are completed the bank will open the account for business transactions.
Case study: Harry changes banks
Despite his reputation with his bank he finds they are not particularly interested in his management company as shortly he will not be a part of it when the tenants take over completely. In the interest of the new shareholders he contacts all the well known banks and secures a suitable account with an interest bearing deposit account attached and minimal charges for a minimal number of transactions. It is ideal.
EMPLOYING YOUR STAFF
You will recall that earlier it was seen that all the people who work for a company are employees. That includes the directors and the secretary. However, a new company may find it necessary to employ a member of staff, if for example the principal director feels he must be out selling and working and needs someone by the telephone to take orders and messages and do some office work.
The most important consideration is to pick the right person for the right job. Any employee incurs some basic costs including:
- wage or salary
- employer’s National Insurance contributions
- possible commission or overtime.
You must therefore make sure the company can afford to pay such a person. And if so how much.
Deciding who you should look for
Some other considerations to take into account are:
- Is there a real job to be done?
- Could a temporary do it?
- Prepare a job description detailing the duties of the job.
- Decide where they are to come from. It could be a recruitment agency, advert or simply a suitable member of your family or a friend. (Remember that you must not discriminate on grounds of sex, race or marital status in advertisements, interviews or job descriptions.)
- Do they need to drive?
- Do they need any training?
Now when taking someone on you should be careful to start the relationship properly. You must:
- Tell the tax office when you take on an employee. You should get a P45 setting out the tax details of any previous employment from your new employee. If this is not produced complete a Form P46 and send it to the tax office instead.
- Present the employee with a contract of employment, ie a written statement, setting out the terms upon which they are employed.
Understanding the contract of employment
It is possible to make a contract with an employee verbally but there would be no permanent record so you would be well advised to make it in writing. It should contain:
- 1.An offer of employment from the company.
- 2.An acceptance of that employment by the employee.
- 3.The pay rate.
- 4.Anything else that makes up the terms.
If the contract is in writing it must contain:
- your company name
- the employee’s name
- the job title with a brief description
- when the job began
- the place of work
- the rate of pay and when it will be paid
- the hours of work
- details of holidays, public holidays and holiday pay
- details of any pension scheme
- details of sick pay and how it is calculated
- the length of notice to be given by both you and your employee.
The employee must also be given the name of the person they should report to if they are dissatisfied with a decision or have a grievance.
As an employer you are required by law to deduct tax and national insurance from an employee’s pay and account for the collection of it to the government. You must also broadly pay equally to any employees carrying out similar work or work of equal value. And you must pay statutory sick pay or maternity pay if it is due.
You must operate the PAYE system. The tax office will send you complete details of how this works.
There are many pieces of legislation relating to the employment of staff which are too numerous to cover in detail here. They include the discrimination laws, health and safety, minimum wage, maternity, part time work and employees leaving for whatever reason.
The subject may seem daunting but generally speaking you can employ whoever you want to and get rid of them if they are incompetent. But you must be reasonable and give them every chance to explain their actions.
EQUIPPING YOUR BUSINESS
There are three aspects to think about when considering the equipping of your business.
Deciding what equipment you need
This will depend on the type of business. If you intend to manufacture, machinery will probably be specific for your needs. If you are starting a service business you may only need office equipment. There are some types of equipment which will be common to all businesses, eg your telephone and your computer. And your transport is very important.
Deciding where to get your equipment
Make sure you buy the right equipment for your purpose. There are many suppliers of all types of equipment so make sure you get the best deal. Decide whether new or secondhand equipment is more suitable. Be careful not to be caught up in any long term agreements with suppliers.
Deciding how to pay for the equipment
There are four ways to consider:
- 1.Purchasing outright. This may mean using the company’s own money or borrowing it from a bank for the purpose. If you do the equipment belongs to you and will show as an asset on your balance sheet. However, you may be using money you can ill afford.
- 2.Hire purchase. This is a way of borrowing but the asset will not belong to your company until the end of the hire period. In all other respects it is the same as buying outright. Your asset will show on your balance sheet and the amount outstanding to the hire company will show as a liability.
- 3.Leasing. When you lease the asset does not belong to your company. It remains the property of the leasing company. It is a useful option when money is short.
- 4.Contract hire. This is a type of leasing normally used for, say, a fleet of vehicles where the actual vehicles are not specified but the use of an agreed number is. The hire price may well include maintenance as well.
The equipment your company uses may have an impact on your customers. An efficient telephone system will give your customers confidence, but an answerphone usually means you do not have the resources to employ a receptionist. Your car will usually say something about you, but if a car is too big or expensive it may indicate rashness in your purchase beyond your means. Decent office furniture may be more efficient but more expensive.
Weigh up your means and your needs and try to select a level of standard and price which is within your capability.
Case study: Diamond Designs opts for new equipment
Business has been brisk since the opening of the workshop and with the little money they have accumulated and the prospect of increased business Hannah and Usha decide to buy some new equipment. Most of what they have been using to date was the equipment they used for their hobby and it is not hardy enough for the commercial world where it is in constant use. Workbenches and specialised tools are expensive and to fund the complete outlay is beyond their means. They decide to replace their existing equipment with new. They contact the hire purchase companies for the best deal and intend to fund the deposit with their own money. They prudently keep their old equipment as a backup.
GETTING YOUR MESSAGE ACROSS
It does not matter that you have formed your company, opened your office, bought your equipment and stocked up if you cannot sell your wares. Your customers must know why they should come to you rather than your competitor. And this implies that you know precisely what you are trying to sell and where your market is. If not you don’t really deserve to succeed.
Coca Cola have developed a means of selling which consists of continually putting their product before you on television, radio, hoardings, videos, advertisements and sponsorship. You are aware what their product is and what it is for. It is an excellent formula for success, but it is horrendously expensive.
Your job is to find a way of doing this for your product which is much cheaper.
Choosing your marketing method
There are a number of alternatives:
- mail shots
- press releases
- personal contact.
These will not produce sales unless they are specifically targeted to the potential buyers. And most of them will take longer to materialise than you hoped.
You can give an impression of your business in other ways than direct selling:
- Your car is always clean.
- Your letterhead is eye-catching and informative.
- Your telephone manner is welcoming.
- Your invoicing is efficient and correct.
- Your image is consistent.
- Your delivery is when you say it will be.
All this helps to create in your customers’ mind a caring, thoughtful and efficient business.
What is the return for all this effort?
It should help your customers to identify your products or services. It should create a desire for them. It should spark them into action and it should improve your reputation.
It may take some time to build this but it is a long term strategy. Customers like consistency of performance.
Case study: Dean increases his sales
For some time now Dean has appreciated that he needs to spread the word about his business to a much wider audience. He plans an advertising campaign. He consults an advertising agency for ideas. They advise a corporate image which is recognisable whatever activity he undertakes. They help him design a logo which will appear on all his products as well as his letterheadings and all his advertising material. He decides to target all the ‘do-it-yourself shops and all the motor dealers in his area with security products for the home and for the car. His new logo is striking and the enquiries begin to come in.
ACTION POINTS AND REMINDERS
- 1.Make sure that the name you have chosen will be suitable when your business expands.
- 2.Check with Companies House that the name you want is available.
- 3.Have you received concessions from your bank as a new business customer?
- 4.It is as well to meet your bank manager as soon as possible.
- 5.Are you contemplating any employees? If so, obtain the employer’s starter pack from the tax office.
- 6.Will you need to buy any equipment? If so, how will you pay for it?
- 7.Consider what you want your company image to be.
- 8.Think about how you could improve your corporate image.