Article by Nic Redfern, finance director of Nerdwallet
It goes without saying that the Covid-19 pandemic and the impacts of its associated lockdowns in the UK have immeasurably altered much of our society.
One of the more noticeable effects has been the radical overnight change in business. Many firms have been placed under unprecedented pressure, which has in turn forced business leaders to make difficult decisions. Recent research conducted by NerdWallet underlined one such unpleasant influence; more than two fifths (44%) of UK managers have been forced to make at least one employee redundant over the course of the pandemic.
This figure may not read as a cause for optimism. However, upon inspection of further data, it is possible to observe the beginning of a more optimistic trend led by the dramatic changes in large portions of the workforce’s employment status. Put simply, with the difficulty obtaining new employment, many are taking it upon themselves to create their own work. Consequently, the UK is now in the middle of an entrepreneurial boom.
The numbers back this up, showing a marked increase in company incorporations during the pandemic. For example, in January 2021 there were 16,108 company registrations recorded by Companies House, marking an extraordinary 118% increase on the 7,366 incorporations recorded in the January prior.
This certainly prompts a sense of optimism. However, it should be noted that startups are never guaranteed success. In the last quarter of 2020, Companies House registered 40,212 dissolutions – a 28.7% increase on the same period the year prior. Of course, much of this will be due to the volatile market forces which have placed established businesses under such strain; but it reflects on an increasingly uncertain marketplace, into which startups and scaleups should plan carefully to avoid failure.
Business owners would be well-advised to take a cautious and sensible approach to launching their big idea. Companies who approach the market with a considered strategy and robust plan to scale will feel the benefits most keenly.
Get the basics right
To start, entrepreneurs should establish what their business does.
This point may seem obvious, but many will lose sight of this when rushing to market, and fall at the first hurdle. Individuals should consider what their product or service is, in addition to their target demographic. Even the best ideas will fail if delivered poorly, so this is a make-or-break step for all new ventures; detailed market research is therefore vital.
Further, individuals should have a vigorous understanding of their operational capacity, and recognise what realistic deliverables they can produce under their current capacity. Failing to do so can prove problematic later on, for example, a company overpromising on a large stock order they have no capability to fulfil in time.
After establishing these business-critical fundamentals, companies can contemplate how they will scale this core structure as revenues increase. Staffing priorities is a particularly vital area to get right when scaling – hiring a sales executive when you have little spare supply capacity, or on the other hand hiring more productive staff when you have low levels of demand, are the kinds of common mistakes many fall into without an appropriate long-term plan.
A recent study revealed that the average UK startup costs £5000 just to launch. It is further estimated that firms will spend upwards of £20,000 just to make it through the first year. This isn’t the kind of money most people have resting down the back of the sofa, so entrepreneurs should take stock of their potential funding avenues.
While some will be able to dip into personal savings to fund their venture, it may be more realistic to take an informal loan from a relative or friend. The benefit of this approach is obvious – individuals will likely get highly favourable interest rates when compared with traditional business loans. That said, this option will remain inaccessible to many at the level of funding required to kickstart a business.
Alternatively, entrepreneurs could turn towards the traditional lenders for credit or loans. It must be noted that startups will find it difficult to be accepted for such a loan; most banks will require a trading history before accepting any application. It would therefore be wise to thoroughly consider their options here to avoid draining crucial development time and resources on applications with little hope of being accepted.
Thankfully, there are other routes to funding. The government offers a startup funding scheme with more relaxed eligibility requirements than credit providers, which are a potentially valuable resource for those lacking access to impersonal or traditional credit sources.
If raising your first round of finance is one of the biggest challenges any budding entrepreneur will face, spending it wisely is surely on a par.
Spending money too quickly, or too slowly, investing too lavishly, penny-pinching too hard. Thus, the best approach will always be to keep your scaling strategy in mind and consider your place in the market carefully.
The effects of the pandemic will provide a boost here. The rapid consumer trend away from the high street and towards online retail mean many businesses can consider eCommerce a viable cornerstone of their business plan. This could mean no money wasted on expensive commercial rates and rents, with that chunk of overhead now free to invest on operations and productive capacity.
Further, the remote working revolution has shifted attitudes towards work away from the office and into the home – and many want to stay. This means businesses can look to hire from further afield than their locality, which could mean hiring better talent or making costs savings on wages, depending on the priority of the business.
Evidently, there is an entrepreneurial spirit flowing through Britain. It is certainly an exciting prospect, however also a challenging one, given the economic uncertainty driven by COVID-19. While the benefits for entrepreneurs are obviously, there is great risk attached. Planning an appropriate and robust long-run plan to scale, while never losing sight of the fundamental finer details, will be crucial to any success.
About the author
Nic Redfern is the finance director for NerdWallet UK. NerdWallet is on a mission to provide clarity for all of life’s financial decisions. As an independent financial comparison website, NerdWallet provides consumers and businesses with useful tools and insights so they can make smart money moves. From choosing a bank account or breakdown cover to buying a house, NerdWallet is there to help individuals make financial decisions with confidence. Users have free access to our comparison tables and expert content, to help them stay on top of their finances and save time and money, giving them the freedom to do more.
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