A Guide on How to Survive Your First Year of Business
Do you think running a business will be easy? Being your own boss, setting your own schedule, and following your dreams seem amazing in theory. But there are obstacles all business owners must overcome.
The first year of running a business full-time is one of the hardest.
While you think everything may come easily, important information such as financing, taxes, marketing, and profit/losses are factors not everyone has knowledge of or can handle.
There is a way you can make your passion or hobby a business reality. But you should be educated before taking the first steps and finishing your first gruelling year of entrepreneurship. Here's a guide to surviving your first year of business.
Choosing the Right Business Entity
When starting your business, the first task is creating a business entity.
Creating a business entity in the UK is complex and each entity is different. The entity you choose depends on the type of business you have -- and will make a significant impact in the long run.
Here are the most common business types:
Public Limited Company
This is a corporation that's open to the public. Anyone can buy shares in your company's stock.The individual's financial liability is based on one sum, which is their investment. If you decide to form a PLC, you need to have allotted shares of at least ?50,000.
Private Company Limited by Shares (LTD)
This is one of the most common types of business entities.
This company cannot be owned by the public.
The sale of company shares is handled privately and the ownership consists of a non-government ownership (NGO) or a small number of shareholders. Still, an individual is only liable to the extent of their shareholding in the company.
Company Limited by Guarantee
The company status is reserved for small and non-profit organizations. This type of business doesn't have shareholders; rather, a group who act as guarantors. These companies have to have 'limited' in their name but there are exceptions.
Unlimited Company (UNLD)
If the company goes into liquidation, there's no restriction on the amount shareholders have to pay. Regardless of their investment, shareholders are financially responsible for the company's formal liquidation.
Limited Liability Partnership (LLP)
An LLP is treated as incorporated bodies. In order to form an LLP, each partner has to have their own business. They're responsible for their sole business, rather than the LLP as a collective.
Additional Business Entities
While these entities are major businesses, they may not apply to new businesses. These include:
Community Interest Company -- Using profits and assets for the good of the community.
Royal Charter -- Granted power by the monarch.
You're Working Lots of Hours
If you want your business to succeed, break off of the '9-5' mentality.
Successful entrepreneurs recommend business owners work 14 hours per day and seven days a week, especially during their first year of business. Some entrepreneurs even recommended 18 hours a day.
The reason why is because there's no one else helping you.
That first year of business should be dedicated to your business only. And when you discover the tasks involved with running a business, you'll understand the necessity of those 14-hour days.
Another entrepreneurship myth is once you start seeing success, you can slow down.
Once you start slowing down, your business will slow down. Even when you're able to hire employees and have enough revenue coming in, you'll have to work just as hard to keep the success coming.
You'll Experience A Lot of Failures
30% of businesses fail after two years of being active. With this statistic, it's easy to become intimidated.
This doesn't mean you won't succeed. Owning a business takes lots of planning, funding, and flexibility. But it also takes preparation when experiencing failure.
In this case, 'failure' doesn't mean going out of business. It means other hurdles that could make or break your business. Here are some common hurdles business owners endure during their first year of business:
Breaking into a heavily saturated market is difficult.
The competition runs fierce. Chances are, the customers you're trying to draw in are already devoted to a competitor. How do you stand out from the competition? How do you market yourself to be bigger and better?
Competition is a necessary part of any industry, but you need to find that secret path between fitting in with the competition while not forcing yourself through.
What happens if your business isn't making a decent profit? This is a common issue most businesses face in their first year of business. But you should always have a back-up.
Did you save before starting your business? Did you take a loan for this reason?
Making good financial decisions is also key to the success of your business.
Instead of releasing multiple products, create a couple of solid products that are easy to create and won't become a financial burden. Instead of hiring a large staff, work independently or hire one other person to assist you.
Expanding Too Fast
If you become successful after your first year of business, you're probably ready to expand.
However, you should take baby steps. Do the first steps you did when first starting your business: create a business plan, finance, and conduct market research.
If you don't take as much care toward expansion as you did when you first started this business, your expansion won't be as organized or profitable. Therefore, it could pull down your whole enterprise.
New business owners will be shocked when they understand the complexity of their taxes. When tax season comes around, will you be confident you'll be prepared?
The easiest way to file your taxes is with the assistance of an accountant or a tax preparer. These professionals do cost money, but you'll be more comfortable knowing your taxes were filed correctly.
But if you decide a professional is outside of your budget, you need to do enough research to make sure you're filing correctly. This means studying your form, an accurate accounting strategy, and different tax deductions.
Are You Ready to Conquer Your First Year of Business?
Owning a business is a large role. Your first year of business will be the toughest hurdle to face.
If you need financial assistance, Merchant Money has financing and loan options for businesses of all sizes. If your new business is based in the UK, look through our business loan options.
Contact us to get a quote.