After working in other people's restaurants for many years, Matthew has decided that now is the right time to open his own restaurant. What advice would you give him about starting out alone?
It is very easy to set up your own business, but hard to make it a profitable success. There are many crucial commercial, financial, and taxation issues to consider. Many businesses start up every day and 33% of them will fail in the first year. Only 25% will go on to make profits. People fail for many reasons: they may not be suited to being their own boss; the business may not be commercially viable; and not enough attention may be given to start-up planning.
For you to succeed you will need: confidence in your abilities; a sound commercial idea; a full understanding of the market in your chosen location; a thorough business plan; and adequate financial backing.
You should, therefore,
start with yourself and question whether you have the determination, commitment and self-discipline to make it succeed through all the ups and downs.
Are you also prepared to work very long hours for no immediate benefit? If the answer is "yes" then you need to prepare your plans and do all your research so that you fully understand every aspect of your chosen market. Your offering has got to stand up to and compare well against the competition both on quality, price and service.
Once you have fully researched your idea, you need to make sure that you have sufficient cash resources to finance the whole business. This will involve preparing some projections of the new business and calculating the expected cash-flow. This will then show you how much investment is needed at the start to finance the initial purchase and any costs of turning your chosen location into your dream.
The cash-flow will also reveal the amount of additional working capital needed in the business. At the outset the finance will come from yourself and borrowing from bankers or investment from other sources such as friends and family.
For you to be able to borrow money from a bank you will need to convince them that the business is viable and that it can pay any interest and make the capital repayments as they fall due. They will also look for some kind of security for any loan.
This process will involve writing a business plan, which should contain a written explanation of the new business and how it is going to operate. It should also set out your future prospects along with strengths, opportunities, weaknesses and threats. All your assumptions will be supported by the detailed financial projections that you had already prepared in calculating the finances needed.
Finally, you will have to choose the exact legal form that your business should take. For example, you could trade as a sole trader or a limited company. The individual circumstances of your business will determine which is best. You should also appreciate the taxation effects of your chosen legal form.
- Objectively assess whether you are the right type of person to run your own business.
- Conduct research on your chosen location so that you know what your customers are going to be like.
- Prepare financial projections for three years, including a cash-flow forecast.
- Calculate how much finance you need and where you are going to source it.
- Prepare a business plan to explain in detail how the business will operate.
- Decide with professional help the correct legal structure for your business.
Deciding to run your own business is a major decision and needs careful consideration and a lot of hard work.
It is therefore vitally important that you enjoy what you are about to embark on.
If you do not enjoy it, your
chances of success will be reduced.