Lessons from a founder: 5 Ways to a Successful Strategy
31st October 2019
Focus on a Founder: Jacqui Gilbert and Frances Brandon
4th April 2021
Co-Director of Staffords, Steve Ellis, spoke at our last Building the Basics of a Business event about the financial aspects of starting your venture. He offers nine pieces of practical advice to anyone who is in the early stages of a start-up. Staffords are Chartered Accountants who serve a range of businesses in and around Cambridge, from start-ups and individuals with small investment portfolios to large professional partnerships and companies with a turnover of £10 million. Steve’s top tip is to stay focused on the big picture and have controls in place to take care of the little stuff. If that can be monitored and checked quickly you shouldn’t ever need to look at the detail. Read on for more valuable advice …
ONE
Is Your Idea Patentable?
If not (or until granted) get NDAs signed when discussing your idea. Even if it is patented, you still need to get NDAs or collaboration agreements signed to protect anything new. You’ll probably need to get some form of protection otherwise investors are going to pick holes in the longevity of the business, because what it sells could be copied. If you are a regular watcher of Dragon’s Den you will see this type of question come up regularly. Although your proposed trade or activity may not be B2C in nature, you’ll still be expected to know how you can protect what you do from being stolen, copied or reverse engineered.
Before you even get to the stage of approaching funders, know the size of your potential market. It’s one of the first building blocks you’ll need for your business.
TWO
Be Realistic
Many decisions, certainly for initial investments, are unlikely to be based on 10-year projections. Institutional investors will want to be presented with investment payback or exit routes within five - possibly fewer - years. It’s worth telling your private investors (HNWs or friends and family) that most early stage companies are quite likely to need more than one funding round, so ask - are they prepared to invest more than once? Often when these sales projections are converted into profit & loss accounts, they appear to suggest that you can double turnover each year, despite only having the overheads from running the business in an office in your back garden. Be Realistic.
THREE
Know the Market
Before you even get to the stage of approaching funders, know the size of your potential market. It’s one of the first building blocks you’ll need for your business. CUTS or University Investment funds have their own grants to assess this specific question, or they can advise you how to access some small-scale initial funding from other sources if they can’t assist you directly. If your idea or technology is within the scope of one of Innovate UK’s current funding rounds they also offer small scale grants which are designed for market assessment purposes and often don’t require the more formal application and proof of spending that their larger grants do. You can also check with any trade bodies applicable to your business sector to see if they have funding for early stage companies.
FOUR
Cash is Still King
No matter what format this may take in the current world, cash in whatever form is still going to determine whether you sink or swim. Getting sales agreed and money in the bank will enable the survival of your business and will also provide reassurance to investors.
The overriding rule for success is that you need to get the right people on board
FIVE
Use a Team
Are you good at HR? Do you know how to draft legal agreements? Have you got the ins and outs of IFRS and UK GAAP locked in and ready to go? Chances are, probably not. The overriding rule for success is that you need to get the right people on board if you cannot do it internally – just make sure your advisors avoid jargon and acronyms and take the time to explain things in plain English.
SIX
Have Champions for Change
Unsurprisingly, if you’re not interested in the details of something, then human nature is to avoid it. Assign someone to pick up and implement your new systems – they can be in charge and champion the cause. Most people are averse to change, particularly if it wasn’t their idea, so you will need a dedicated person to see the change through.
SEVEN
Communicate
If you need to make a change in your business, then discuss it among your newly acquired team (and its champion!). Make sure to communicate before you start any changes – and try and do it in a clear way. While email is good, a phone call or face to face is better. Communicating via a call or a face to face conversation allows for any misunderstanding to be corrected in real time – and will avoid decisions being made based on advice that has been understood in two different ways. The combination of written and verbal advice works best.
EIGHT
Funding – Where’s the Cash Coming From?
It’s clear you can’t start selling from day one – so where will the cash come from? This will depend on the amount you need. Loans are tricky to obtain, particularly for very new businesses with no credit or sales history. Grants are a good option if you fit the bill for one of the grant bodies, but bear in mind that most grants are not 100% funded so some level of cash from a third party source will be needed. Something to note - the total amount paid out is often capped to a percentage of the overall expected value of the grant cash (Innovate UK for example is 85% capped). The remaining grant (with IUK the final 15%) isn’t released until an Independent Reasonable Assurance Report is filed with them following the end of the grant, so this could leave you further out of pocket and be a nasty sting in the tail of the grant process. Equity is by far the most common way to fund a business. Whether it’s friends or family, institutional investors or part of the UCEF (although note again that in the longer term, further UCEF investments may need to be co-funded), they are all likely to want to know what they can get back and when. Friends and family may be the least demanding in terms of timescale, but may be the hardest to manage should things go wrong. At the other end of the spectrum are institutional investors who may require board representation, regular meetings and exit planning. They often charge a fee for this management process too.
NINE
Use Tech and System Checks
From an accounting perspective it pays to use various programmes to manage your business, such as Receipt Bank, Bank Feeds, PAYPAL, XERO, STRIPE - just don’t expect to ‘set it and forget it’! It’s important to review these systems to ensure they are collecting the correct information with no gaps or glitches and monitor them to make sure they are interpreting the information in the correct way. The most common checks should be done alongside filing something with HMRC or Companies House. If you are using online software even the companies themselves admit that occasional glitches (mainly in the bank feeds) can happen.
If you’d like to find out more about Steve Ellis and Staffords visit staffords.uk.com
