Balancing act for setting out in business

Despite the torrid economic times, almost 130,000 plucky entrepreneurs were willing to have a bash at luring cash-strapped consumers to part with their coffers in the last three months of last year, according to the British Banking
Association. The number of start-ups was only about 4% lower than before the crunch kicked in in 2007.

Normally, experts expect the level of entrepreneurial activity to dry up as a country's economic health declines, but that didn't happen. Now, as the nation crawls out of the downturn, we are seeing a surge in the number of start ups.

State-backed lenders NatWest and RBS say they have opened start-up accounts for 100,000 new businesses over the past 12 months, and the rate has now picked up to 2000 per week.

In part, this is because funding is not a crucial issue here. Entrepreneurs tend to use their own cash, or borrow from friends and family and put in "sweat equity", rather than take out business loans. And while unemployment levels remain high, it looks like increasing numbers of Britons are branching out alone.

In the capital, the biggest growth sectors for start-ups were legal, accountancy and consultancy firms and retailers: 26% more accounts were opened for the start-ups in these areas this June than last, according to NatWest. Construction, which has been battered during the recession, saw 13.2% more individuals open new businesses.

The statistics also suggest there will more hotels and restaurants around London: the number of fledgling businesses in the hospitality sector rose 9%.

Peter Ibbetson, chairman of small business at NatWest, says the figures "tell us that confidence is there and entrepreneurs are seizing opportunities despite tough market conditions".

If you too are keen to launch a business, here's how to get started:

The business idea

The best way to clarify your start-up idea is to set out a business plan, especially as this will be useful if you need to approach any individuals or firms for financial support, now or in the future.

A business plan should include an executive summary — an overview of the business, a description of the market and how you will cater for it, a marketing and sales strategy, your business credentials (and those of staff, if applicable), your operations — from premises to IT systems — and financial predictions.

The free advisory group Business Link has an easy guide to each of these aspects on its website

Entrepreneurial drive

Researchers have pinpointed the qualities that help entrepreneurs succeed, including self-confidence and passion for a product; being able to work independently and with initiative, being open-minded about advice, plus demonstrating perseverance and commitment.

But the everyday reality will boil down to working hard — probably without a salary for some time — and being able to cope with lots of admin.

From the first day, you will have to make complex decisions about the nature of your business with the tax man, such as whether to be self-employed, a sole trader, set up a partnership, or franchise.

This will affect your tax payments as well as the financial records and accounts you keep, your personal liability if the business fails, the different ways the firm can raise money, and management decisions.

Then, depending on the nature of your start-up, there could be VAT, payroll, import/export and other finance issues to organise. It's worth looking into the decision with the help of an accountant and/or solicitor.

Sorting out finances

In a poll of 350 small and medium-sized enterprises (SMEs) in London, nearly half said they were unaware of crucial financial details such as their break-even point, while 45% said they didn't have efficient ways to chase unpaid invoices.

The poll found smaller SMEs in particular were "putting themselves at risk" by
failing to adopt adequate financial
management systems.

Matthew Perkins, senior adviser at
Business Link London, which carried out the research, warns that organised finances are crucial for SMEs to survive.

"Sound financial management should be the bread and butter of every business, especially during these economic times," he says. "As we head into the recovery period, understanding where your money is, following up unpaid debts and knowing what your profit is are all vital to keep in the black and head for growth."

Budding start-ups can get information on www.businesslink.gov.uk/london, or by contacting a business adviser on 0845 6000 787.

Entrepreneurs in the capital can also receive free advice and hear about possible funding opportunities through the London Development Agency (LDA). For example, the LDA is currently asking firms to bid for a piece of a £14 million pot to fund projects that will help other SMEs boost their environmental performance.