Going it alone straight out of university – whether you plan to start your own a business or set up shop as a self-employed freelancer – has risks and rewards.
Sophie Phillipson, founder of student and graduate support site HelloGrads.com, has put together a list of things to think about before taking the plunge into entrepreneurship.
Put your financial security first
Having a full or part-time job could help fund your business and living costs in the early stages. You’ll be able to grow your network and learn new skills, as well as maintaining the perks of full-time employment such as employer pension contributions, paid annual leave and paid sick days.
Flexible working hours are increasingly common, particularly in smaller companies, which could facilitate juggling the two. You could work on your business during the hours you’d normally be commuting, for example. You will need to file a tax return for any money you make on the side, even if you don’t exceed your personal tax allowance.
Small Business Pro is the ideal tool for you when you’re starting your business. It will help with the heavy lifting of managing customers, taking payments, insurance, finance and HR, plus you’ll get a host of personal wellbeing benefits.
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Grow your mentor network
Mark Zuckerberg, who started Facebook at 19 years old, is the exception, not the norm. A 2018 study by MIT found the average age of start-up founders is 41.9 years old, and for entrepreneurs who founded high-growth companies it’s 45. Founders in their twenties were least likely to start a company with a successful exit.
With age comes experience and expertise, and a strong network of contacts amassed over years in industry. Do you have enough mentors and skilled people you can call on for advice? Are you an expert at what you plan to sell? If not, weigh up employment routes against going it alone.
Entrepreneurship can always be part of your longer-term life plan.
Mitigate the risks of failure
Small business survival rates are at 91 per cent after one year of trading, but after five years just four in ten small businesses will have survived, according to data from Ormsby Street.
Think about why your business might not work rather than why it will. CB Insights looked into what caused 101 different start-ups to fail, and the main reason was a lack of market need for the business (42 per cent), whilst 29 per cent ran out of cash. Having a user-unfriendly product, pricing issues and not having the right team were also up there.
You don’t need investment or an exit strategy
Growing a profitable business should be the focus. If you do want an experienced investor involved later on (think Dragon’s Den), you’ll need to demonstrate proof of concept and organic growth.
Perhaps because of the investment climate, many entrepreneurs have an exit strategy before they’ve even incorporated. However, the strongest and most committed business leaders are focused on growth and how to add more value, not how and when to walk away.
Understand the costs
Corporation tax, accountancy fees, insurance, software, business bank account fees, travel and outsourcing are just some of the first year costs you might have to cover.
You can lower many business costs by shopping around, just like household bills. Remember that accountants and consultants don’t need to be based near you and, often, it can be cheaper to use one that’s not based in a big city and therefore with lower overheads.
A good accountant will help you understand how to lower your tax bill by offsetting expenses and help you avoid fines and penalties by missing deadlines.
Not everyone pays on time
Insurance company Zurich recently estimated that more than half of UK small businesses had invoices overdue, which it believes could total as much as £44.6 billion. Restricted cash flow can hurt your business.
If you’re not taking payments upfront, then make it clear how and when you expect to be paid before you get started on client work and be sure to follow up with invoice payment reminders. Cloud accounting software will send reminders for you automatically.
If none of that has put you off…
Then go for it! Nothing ventured, nothing gained. Starting a business when you’re young, burden-free and have nothing to lose makes perfect sense. You will learn more than you can imagine, there’s time to get away with making mistakes, and your student mentality will help keep your start up costs low.
Sophie Phillipson is co-founder of student and graduate support network, HelloGrads.