Mystified about how to set up and run a business? Join the club! In this series of blog posts, I will discuss my top tips for start ups. Some people like to keep all their cards close to their chest and don’t give anything away for nothing. I’ve never really been one of those people. I’m all for sharing information, which was not always possible in my previous profession as a lawyer due to client confidentiality. Law can also be extremely competitive, especially in a large commercial firm, so some people can be reluctant to help their colleagues develop both as a practitioner and in their professional career as a lawyer. During my journey as a business owner thus far, so many people I’ve met along the way have passed on some pearls of wisdom which I have gratefully received. I’m paying it forward, as a way of giving back to the community that’s given me so much support.
There is a lot of ground I’d like to cover, so this is the first blog in a series of posts on this subject. I’d going to start by covering the topic of money, which is something that’s close to everyone’s heart. After all, we need to make a living in some way! Below I’ve set out 10 business principles related to the subject of money.
1. Income can flow from several different streams
Don’t feel that you have to derive income from solely one source. Businesses can be multi-dimensional. It’s perfectly normal to generate income from several different avenues these days. At Anita’s Garden, I have the potential to earn income through sales in my boutique plant nursery, advertising, hosting workshops, giving talks and my consulting service. My initial impression was that I was being pulled into too many different directions and it made sense for me to focus on supplying customers with just one product or service. But the more I thought about it, the more I realised that I might be wrong. I’m still developing and defining the nature of my business, but Anita’s Garden contains two distinctly different components. As discussed in a previous post, Anita’s Garden exists as a place, a physical organic urban homestead in Auckland which people are welcome to tour for gardening ideas and inspiration. Anita’s Garden also exists as a business which provides a range of gardening-related services. The different dimensions to my business are inextricably linked and complement each other Earning income is not necessarily a straight forward process. Hearing about or using one service can lead to a consumer considering to engage the business in other ways. That’s how marketing works. Revenue can generated more effectively when all of these elements work together in harmony.
2. It’s not just all about the money
The sole purpose of a business is not to merely make a profit. A business must exchange something of value with customers, such as supplying a product or providing a service. The primary purpose of my own enterprise is to educate people about how they can grow their own food so they can reduce their grocery bills and improve their overall health. You may find that you have many facets to your business that don’t seem to generate income directly. I spend a lot of time writing blog posts and publish a free gardening newsletter every week. I also spend a lot of time answering questions from people via email and on social media. This is very similar to a law firm. As a lawyer, not all the time you spend at the office is billable. There are many tasks you spend a lot of time on which cannot be charged to clients, such as time recording, billing, pitches to potential clients, writing newsletters and drafting presentations to existing clients on a range of legal topics. You can’t charge for everything. But on a closer analysis, some of these activities do generate income indirectly as they are classic methods of business development. These types of PR help to build a strong client base. These activities have also made me more marketable as a brand ambassador, as businesses are more likely to work with a promotor that can market their brand effectively through many different channels.
3. Deal not just in cash, but also in kind
You don’t have to execute all your business transactions in cold hard cash. Think outside the box. This is especially useful when first starting out and funds are limited. Offer to swap services with a specialist consultant in lieu of payment. If you’re acting as a brand ambassador, accept gift vouchers from the businesses you are promoting instead of money. Trading one thing for another is advantageous from a fiscal perspective.
4. Sometimes you need to spend money in order to make money
Some business owners are reluctant to give away stock for free or at promotional rates, especially in the early days. It’s true that inventory is precious and has monetary value. But you’ll find that the more you give, you the more you will receive in return. Even if you don’t believe in God, this is a fundamental principle of marketing. For example, if you run a competition, you’ll start receiving more followers and likes on your Facebook page. Social media works exponentially. It’s always slow starting out, but the more followers you have, the more other people will discover your page and then they will start following you. The rest will follow. Trust me on this one.
The exception to this principle is when it comes to advertising. This brings me to my next point.
5. The best advertising is often free
Don’t bother paying for advertising, at least in the beginning. When I first started out, I went to the effort and expense of printing flyers for my business and distributing them around our neighbourhood. This was a complete flop. I’m sure most householders didn’t even bother to read my leaflet and it went straight into the bin. Social media should be your primary marketing tool. It’s free to have a Facebook page, install Snapchat, set up an Instagram account, be on Twitter and even create a website. Make the most of all of these mediums to promote your business. They work and they're free.
6. You don’t need to invest a huge amount of capital upfront to start a business
I started from scratch. As a former lawyer, I’m risk adverse by nature. I didn’t want to assume responsibility for a bank loan which I might default on repaying if my business went pear-shaped. Start small, but think big. Click here to read my previous blog post on this subject.
7. Develop a fee structure for your business
Depending on the nature of your business, this is no easy task, especially if you’re working in an obscure industry or providing a novel service like me. The question I’m currently asking myself is what on earth do I charge for consulting on garden design and development? Figure out how to quantify your work. Are you going to charge by the hour or per project? Will you apply a standard rate or will you put a value on projects on a case by case basis? Law firms generally charge clients by the hour, which is broken down into six minute billing segments. However, this may not be the most appropriate model for your business. Even within the legal field, there has been a shift away from charging for time actually spent working on a file towards an overall budget or outcome-oriented fee structure.
8. Don’t forget to pay tax!
Remember to keep accounting records and file an annual tax return. As your business grows, you may need to hire an accountant. For now, I’m able to keep my own records, thanks to studying Accounting at school and lots of extra tuition from Dad who was a Chartered Accountant.
Be honest about your income and expenditure. It’s always tempting to understate income and overstate expenses. There are clever ways that you can minimise the amount of tax you have to pay but it’s probably best to seek professional advice first. Don’t break the law! You never know, you might end up being audited by the IRD. That’s a scary proposition for an auditor’s daughter.
9. Remember to re-invest in your business
This takes me back to the subject of Accounting, which I studied at secondary school (I had no choice in the matter, as the daughter of an accountant). To understand the principle of retained earnings, let’s consider law firms, which are often in the corporate structure of a partnership. Partners of a large commercial law firm in London might have a PEP (profit per equity partner) of £1.6 million, but I doubt they take home the entire amount. While I was working as a lawyer, I can’t exactly say that I’ve discussed this issue with the partners. But for the sake of the survival of your business, it’s not a good idea to withdraw all your profits.
Extending this principle and as stated above, if you’re given vouchers or gifts from companies, pass them on to your followers. It might be tempting to pocket promotional materials, particularly if funds are tight. Handing them down the line to your followers is great PR and will generate an even bigger client base. In doing so, you’re essentially re-investing in your business.
10. Don’t expect to jump straight from your day job into a successful, profitable business
It is totally unrealistic to expect a seamless transition from your day job to a profitable enterprise. Often people start working on a business on the side while they are employed. This is possible if you have civilised working hours, but if you are a lawyer at a large commercial firm, you will find that you simply don’t have enough spare time to pursue another avenue in parallel with your legal career. There is a solution. Dedicate yourself to your day job and try to progress as far as possible within your firm. Save hard. When you walk away from the financial security of your day job, you will at least have some funds behind you to finance your start up.
Watch out for my next blog in this series of posts on top tips for start ups.