According to the European Commission, Small to Medium-Sized Enterprises (SME) create over 85% of new jobs and represent 90% of all businesses in the European Union. Clearly, small businesses are an important part of the worldwide economy and are indispensable to the people and communities they serve.
Running a small business can also be a great way for individuals to get creative, be more fulfilled, and derive greater job satisfaction. If you’ve been thinking about breaking the mould and starting up your own business, then this guide is for you.
First we discuss what makes a small business small, and unpack some of the terminology. Next, we explore five great small business ideas, before finally offering five pieces of advice to anyone wanting to establish a small business for themselves.
There is no universal definition of what constitutes a small business and the parameters vary from country to country. As one might expect, however, there is a substantial overlap. The factors taken into account to determine whether a business may be labelled “small” generally include the number of employees of the business, the annual turnover, the assets of the business and — in some cases — the industry within which the business operates.
It is the combination of these factors which contributes perhaps most significantly to the nebulous nature of the term. For instance, when most people think of small business, they imagine a sole trader: a local florist who employees 7 people, or perhaps a small incorporated law firm with 15 staff. On the contrary, a mining company that has 150 employees may still be considered a small business; what matters is the context. This is particularly the case in the US and China, where the industry that the business falls within plays a more important role in the definition. Some businesses within the same broad industry in the US have different standards applied to them, further complicating the matter.
There are features common to all small businesses, even if there is no clear definition. In particular, small businesses employ huge numbers of people, are the majority providers of day to day services, and as the President of the European Commission, Jean-Claude Juncker has said, are the ‘backbone’ of the economy.
A broader umbrella term that has come into international use in recent years is Small to Medium Enterprise (SME). When people use the term SME, they mean small or medium-sized business, so a ‘small business’ is simply a type of SME. In many instances, the terms are used interchangeably; the difference between them is, for the most part, negligible. Indeed, much of what is said above regarding small business applies equally to SMEs.
In the European Union, there are three subcategories under the SME label:
The United Kingdom generally follows the European standard for determining SMEs, having no strict standard of its own.
SMEs are almost always privately owned, meaning they are not publicly listed companies. The legal structure of SMEs may be one of numerous types, including a sole proprietorship (also known as a sole trader), a partnership, an incorporated company or even various forms of trusts.
Generally speaking, the larger the SME (such as a medium-sized business as defined by the European standard above) the more likely it is to have a more complex ownership structure, such as an incorporated company with multiple shareholders. In its most simple form — that is, a sole proprietorship — the proprietor may have registered little more than the business name itself.
Financing of SMEs can take various forms, including traditional bank loans, family loans, private or venture capital investment, leasing or hire-purchase agreements for business equipment, and even indirect forms of finance such as invoice or rent discounting.
Small business finance can often be difficult to obtain, especially when the business is new. This is because lenders such as banks will often deem an unproven business as too great a risk. Additionally, while a business is in the early stages of its life, its assets are likely to be minimal, meaning there is little for the bank to recover losses against. Often lenders will want to secure the loan against other property such as real estate. Of course, this is very risky for the business owner because if the business fails, they could lose their home as well as their business.
Owning your own business has many advantages, not least of which is the freedom that can come with it. Being your own boss, having the ability to choose your own work hours and the fulfilment of creating something yourself are all great reasons to consider it. Of course, much of this depends on the nature of the business. If you’ve been dreaming of the opportunity of starting out on your own, here are five great ideas to get you inspired.
If you’re good with people, have a passion for food and beverages, and love the service industry why not consider opening a bar or club? Location is an important factor here – you don’t want to open up in a place where the market is completely saturated. On the other hand, bars and clubs do well when they’re located in lively neighbourhoods and not out of the way. Remember, people want to go to venues where they feel like they are in the thick of the action. If you can offer better food, drink and music than your competition, then what’s stopping you from succeeding?
These days, there’s a huge market for written content, particularly in the online arena. If you’re good with words and know how to put together engaging, original content, then this could be the one for you. There’s good money to be made in copywriting, or if you’re more interested in something you can put your name to, pick an interesting topic and start a blog. The best part is you can work from anywhere, as long as you have a laptop and an Internet connection.
Are you a social media aficionado? Do you know what makes an impactful Instagram or Facebook post? Do you have your finger on the pulse of trends and the latest thing? If this sounds like you, a social media consultancy could be just the thing. Social media seems to be riding an endless boom, and more and more businesses are turning to it in their marketing strategies. The popularity of social media extends well beyond traditional private businesses, with numerous public figures and even not-for-profits in on the action. There are lots of opportunities to make positive environmental or social impacts. If you’re a lover of social media, why not get paid to be on it all the time?
It might feel like the smartphone app market is already saturated, but the truth is, new apps are being released all the time. Let’s face it – people want to be more productive while doing less and the right app can do just that. Or maybe it’s a gaming app? Entertainment is important too and there’s always room in the market for a unique gaming idea. With quite literally billions of smartphone users worldwide, and nearly 200 billion app downloads in 2017 that app idea you’ve been sitting on could be the next big thing.
Do you have an eye for aesthetic? Maybe you hate your current job but have a budding interest in photography? With the rise of social media giants like Facebook and Instagram, the value of good photography has never been more potent in the public consciousness. These platforms have created whole new markets for photo and video content; people want to show off by sharing those amazing photos from their wedding or birthday party. As businesses increasingly promote themselves on social media, so grows the market for capturing corporate events as well. With a bit of investment in skills and some good gear, you could transform your passion into a profitable and fulfilling vocation.
Writing a business plan is the number one piece of advice that people should take heed of before starting a small business. It is time-consuming and takes work, but the rewards far outweigh the effort. A good business plan will canvas all the topics in the following tips and acts as a roadmap for how the business will get from A to B. It can also help you to understand if the business is viable at the outset before you’ve committed. If you don’t know how to write one, there are many good online templates/guides for doing so, such as this here.
This tip might seem obvious to some, but you’d be surprised how often people commit themselves to something without having all the information. A good lawyer and accountant can advise you on the most suitable legal structure for your business, the options for financing the project, whether there are any legal regulations you will need to comply with and your tax obligations. They can help you take the steps to actually establish the business, such as by setting up a company. A lawyer can also help you get the right agreements in place with suppliers, staff or other stakeholders, in order to avoid disputes. Being prudent and thorough at the outset can help you to avoid unnecessary headaches and expenses later. For more information check out the video here.
Don’t be fooled – starting your own business is hard. Ask any successful entrepreneur and they’ll tell you they didn’t get where they are without putting in the hours (and likely that they failed at least once too). While it’s important to be positive and optimistic, remember that nothing really great comes easy. Be proactive by making contingency plans for if and when circumstances don’t transpire the way you want them to, and be realistic about the time and effort it will take to get where you want to be financially. If you manage your expectations well, you’ll put yourself in a better position to avoid burnout and maintain stamina for the long haul.
Take the time to really think about what costs are going to be involved in running your business. Remember, it’s not just labour and the products/materials you sell – ask yourself, what on-going bills will there be such as insurances, licence or permit costs, professional association membership costs etc. (This is an area where professional such as a lawyer or accountant can assist). Take the time to work through the numbers properly so that you are clear on your break even point, and what sales you’re going to need to do to make the venture worthwhile. Some simple maths can really help you to grasp the bigger picture.
Being able to manage people well is not only extremely difficult, but it’s also an incredibly valuable skill. Why do think it is that executive managers get paid so well? When a small business is starting out and your profit margin is thin (if it even exists yet) it’s imperative that you get the most out of your employees. There’s a fine balance to be struck between maximising your productivity on the one hand, and making sure your employees feel appreciated, challenged and that there are real prospects for advancement on the other. Read a book on management – you won’t regret it.
For further advice and lots of great articles, check out our blog here.
It seems that more and more these days, people are really looking for freedom and autonomy, while furthering their creative passions. Owning your own business can be a really great way to balance these things into a fulfilling, challenging vocation where you get to be the author of your life. There are so many great opportunities out there, and with the online world at your fingertips, it’s never been easier to jump into the business of your dreams.
If you’re still confused about where to begin with starting your own small business, don’t worry. There’s a lot to learn and it’s no secret that starting a small business is hard. It takes lots of time and effort to be successful. If you’re keen to learn more or need some assistance, get in touch with us and we can help you get on your way.