Last year a record 608,000 businesses were launched in the UK1. With start-up capital, advice and practical support more accessible than ever, the idea of running your own business can be an attractive prospect. And with pensions offering diminished returns, an increasing number of people are looking at building a business as a potential nest egg for their retirement.
However, there is a flipside. Starting a business is one thing; ensuring it survives and thrives in a competitive economic environment is quite another. Figures from the Office for National Statistics indicate that more than half of new businesses fail within the first five years. And while the buzz until recently was all about ‘unicorns’ (high growth start-ups, technically those valued at $1 billion or more), so-called ‘cockroaches’ – businesses designed for resilience to grow slowly but steadily – are now considered by many to be the more sensible investment.2
So what steps should you take to give your business the best chance of becoming a source of income in retirement or perhaps even a legacy for your children?
Before embarking on the dream of running your own business you should consider the implications carefully.
The Pros and Cons
While the prospect of working for yourself may be appealing, the reality is likely to be very different from the idealised scenario you may have played out in your head. It is essential therefore to weigh up the pros and cons carefully.
Pros may include:
But these could be outweighed by the cons
Skills and Abilities
You should also assess as objectively as possible whether you have the necessary qualities and business skills required to succeed (it may help to speak to family, friends and colleagues in this respect). These are likely to include (but may not be limited to):
While it may be possible to compensate for a lack of skill in a particular area by getting outside help, you will need to factor the cost of this into your business plan, as well as any potential loss of control.
Having weighed up the pros and cons and assessed your abilities, the next step is to choose an appropriate business idea.
Many people dream of coming up with that ‘one big idea’ which will make them millions. In the digital era, innovative and disruptive businesses such as Facebook and Uber tend to capture the imagination (and the headlines), due to the stratospheric nature of their growth. The reality is that these are the exceptions rather than the rule and the more prosaic business ideas tend to offer the greatest chance of success.
It may be that your current occupation lends itself to branching out on your own. Alternatively, a hobby or an interest you are passionate about outside work might ignite a profitable business idea.
The absence of a good idea need not curtail your business ambitions. There are a number of other ways into business:
In making your choice you need to consider not only whether the business is viable in and of itself, but also whether it is likely to satisfy your personal and financial goals.
For some people owning and running a business is all the stimulus they need; for others success is its own reward. If you intend to grow your business to sell in the future, a scalable concept may be paramount. If you hope to pass it on to your children, the potential longevity of an idea becomes a key factor, and their own interests and capabilities should be taken into account.
Having settled on the right idea, planning can now begin in earnest.
Set out short and long term goals: Make sure you have a clear idea of what you want to achieve in the long term, then break this down into manageable objectives as the basis of a business plan.
Research the market: Arm yourself with as much information as possible about your potential customers, your competitors and any similar products and services in the market.
Develop your business model: Stress test the profitability of your business model – be conservative when forecasting.
Create a business plan: This should include your mission statement (the purpose of your business), your objectives (what you want to achieve), your strategy (how you intend to achieve it) and your budget (what it will cost).
Secure finances and funding: A well-developed business plan and budget could greatly improve your chances of securing funding. Finance may come from personal savings, bank loans (subject to application and approval), crowdfunding, an angel investor, cashing in your pension, or a combination of any of these.
Whatever funding route you choose, you should consider getting professional advice before committing your (or anyone else’s) cash to the project.
This article has been provided to Lloyds Bank by external/third party contributors and contains their views as of May 2016 and should not be relied upon as fact and could be proved wrong. The information and opinions may not be accurate after this date. The views expressed may not reflect the views of Lloyds Bank plc.
For access to advice from a Private Banking and Advice Manager, you’ll need at least £250,000 in savings, investments and/or personal pensions and/or a sole annual income of at least £250,000.
Find out more about eligibility and fees
Get in touch with one of our Private Banking and Advice Managers.
No charges for the initial meeting to discuss your individual circumstances and objectives.
No obligation to take any of our services or products.
Before any services or products are provided to you we will explain what advice we can give and what products and services this covers, and any advice or product charges that apply and agree these with you.
You can call us to arrange an appointment or ask a question.
Lines are open Monday to Friday from 09:00 to 17:00 (Tuesday and Thursday until 19:00) and Saturday from 09:00 to 13:00. Excluding Bank Holidays. Call cost may vary depending on your service provider.