8 Strategies For Starting a Small Business (Without Going Broke)
Starting a business when the economy is in recession, or just crawling out of it, can be a nightmare. Back in 2014 The Telegraph reported that 50% of all new businesses don’t survive beyond five years. The situation hasn’t changed much since then, with the Financial Times last year calling the economic recovery “underwhelming”.
But starting up in a bad economy isn’t necessarily the kiss of death – business giants including Hewlett Packard, Microsoft and Burger King all started up in downturns! So what’s the winning formula? Below are eight great actionable strategies to get you up and running and keep you afloat during those tough early days.
1. Keep the Day Job
If you already have a job, it’s worth trying to launch your new business in your spare time – that way you have a steady income to cover your day-to-day costs. Gallup research conducted in 2014 showed that just 38% of one-year-old small businesses were the main source of income, while 51% of two- to five- year old businesses were the main income source, suggesting that many people ease gently into running their business full time.
Be careful, though. Creating a business while you continue to work as an employee can cause issues; you certainly need to watch out for conflicts of interest. Entering the same industry as the company you work for can lead to bad feelings and may well constitute a breach of contract. Ensure that you understand any restrictions before you press ahead.
2. Start From Home
Some of the biggest business costs are associated with renting or buying an office, so unless you’re planning a business that absolutely has to have its own space, it’s worth starting out from home.
There are huge potential benefits to working from home – no extra rent, no need to buy office equipment apart from really necessary items, flexible working hours, fewer distractions and greater productivity, not to mention a better work/life balance.
There are potential downsides, of course; particularly loneliness and household issues conflicting with your work. You also have to be able to project a professional business image, which can be difficult with family life going on around you. You need your own space to make it work.
You may also need to check whether there are any rules relating to business activity in your home – rental properties and flats sometimes have restrictive clauses attached to the contract or lease.
3. Start a ‘Recession-Proof’ Business
Some sectors remain resilient even in a recession – consumers spend money on these areas regardless. Nothing is truly ‘recession-proof’, but certain industries fare far better than others including food, IT, health, security, and education.
Pet grooming, apparently, actually becomes more popular in a recession – which suggests another lesson: in a downturn, people aren’t just after bargains; they may want to comfort themselves with luxuries too.
4. Do Your Research
Your business needs a unique selling point (USP) to differentiate itself from the crowd. Before you start out, you should research your potential market, what competitors are out there, what they are offering, and what you can offer that is different and better than what’s already on the market. A USP can be as simple as targeting a specific niche, demographic or location in a well-established market, or be something more game changing.
The starting point on your quest for a unique offering could be to identify something that you find you need but which you can’t currently obtain. However, if there’s one hard and fast rule, it is to be realistic about how much people need what you plan to offer.
5. Check For Hidden Expenses
There are all sorts of unseen expenses that people often overlook when starting a business, ranging from the interest rates on credit cards to high bank charges, utility bills, and insurance.
All of these can be cut or reduced by shopping around. There are a ton of comparison websites out there – for example, MoneySavingExpert has a guide to all sorts of potential savings including the cheapest business gas and electricity deals, the best business bank accounts, office phones and broadband, business insurance, and more. This is Money also has a business bank account guide, as does Money.co.uk.
Furthermore, look at your contracts regularly, because new customers nearly always get the best deals and older customers, sadly, get neglected. While being a loyal customer for decades may help your credit score, according to the experts, the impact is minimal and will vary between lenders – just don’t chop and change too often! The big caveat is not to switch accounts if you’re applying for a mortgage.
6. Create a Marketing Strategy
While you’re a new business, a marketing strategy only needs to be a basic plan identifying how you’ll go about making people aware of your product and its value, how you’ll provide the project or service, and how you’ll price it.
Be careful not to overestimate how much a service or product is worth because you’re enthused by it, and keep your prices firmly rooted in reality. Also, stick to goals you are certain you can achieve – don’t over-promise just to gain custom, because what you’re likely to gain in the long run is dissatisfied customers and a shoddy reputation.
7. Plan for the Long Term
This is the ‘keeping yourself afloat’ element of the strategy, which includes setting goals and targets for various milestones to ensure you’re making the progress you need.
Maintaining a tight grip on the financial side of things is important – you’ll have to get your head around cashflow projections, accounting, budgets, overheads, taxes, and any other necessary evils.
Your bank’s business advisors may provide free help, and there is a government-backed online guide here that sets out the full range of debt and equity options. Aim to create a broad customer base, respond quickly and efficiently to customers, and keep track of your market, because it will be changing constantly.
8. Don’t Panic!
This is something that should be engraved in large, friendly letters on every small business owner’s heart. Keeping yourself balanced could be as simple as getting positive support from friends and ensuring that your family are happy with your plans.
You should also have a reserve of cash to support your business in its early stages – not only for financial security, but also to stop you from making decisions under pressure. With solid preparation, a lot of hard work and a little bit of luck, the world could be your oyster!
If you plan well and don’t let your spending run ahead of your income, there’s no reason why you can’t succeed as an entrepreneur today.
To sum up, successful small business startups need to:
- Move into the market carefully
- Consider working from home
- Look for a type of business that can weather recessions
- Research target customers and markets thoroughly
- Drive down expenses
- Have a marketing strategy
- Plan for the long term
- And don’t panic!
Do you have any more tips for starting a successful business in a recession? Let us know in the comments section below!