BANKING ON SUCCESS THE DO’S AND DON’TS TO HELP NEW RETAILERS SURVIVE AND SUCCEED
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BANKING ON SUCCESS A retailers’ relationship with their bank is without doubt one of the most important they have as a business. It is true whatever the size of the business. When first starting-up, the bank you choose to work with will need to be convinced of the business plan but can then provide invaluable support as Amanda Bell, Head of Business Banking at TSB explains. Ask any entrepreneur to explain where the inspiration for their business came from, and they may well describe a light-bulb moment stemming from an observation made as a customer. As consumers, we know what’s on offer in the market, and once in a while we notice something that could be done better, faster, easier, or offered in another format or at a different price-point. It is certainly true that a start-up business can sink or swim on the strength of that initial idea. Knowing how your business will stand out in a crowded retail market, and why customers will choose you over the competition, is crucial to assess the viability of your potential business. It is certainly amongst the first questions that the business banking team at TSB will ask on talking to an aspiring entrepreneur. The USP - unique selling point - you’re seeking need not revolutionise the market as sometimes a familiar service in a new location or better service, may give you the all the differentiation you need.
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Having developed your idea and weighed up the likely competition, you might think that you are ready to quit the day job and commit to the venture. It’s easy to get caught up in the excitement but you also need to think about the practical side of running a new business. In this preparatory stage, it is crucial you understand what the business’s costs will be. Just as important is the timing of payments. Cash-flow insolvency, running out of money, is a frequent killer of new retail businesses, so cash is key. Those starting their own business all-too often underestimate their outgoings and can be too optimistic in assessing likely sales in the business’s infancy. Be realistic about the income and expenditure in the early life of your business. If you have previously worked for a large established business, make sure you have realistic expectations of what a much smaller business can deliver. The terms it can negotiate with suppliers, for example, will not be the same as those of a larger business. Sales do not immediately translate to cash; suppliers may not be as generous with credit and will quite possibly demand prompt or advance payment. You should also ensure your business can continue trading for a period of time in the event that income streams, however cautious your forecasts, do not materialise on cue. Be prepared in case this situation arises as if it does, you’ll need to be able to react quickly.
The first interaction the business will have with a bank is likely to be when opening a business bank account. There are a number of questions that a new business should ask before choosing a bank, and the importance of each will depend on the nature of venture. An introductory offer or period of free banking may be persuasive for a business anticipating a period of time with minimal cash coming in. The ability to bank online, to make cash deposits in branch, to provide card payment services and to access overdraft facilities are other services you will want to ask a potential bank about. Another question you should be thinking about when choosing a bank is how soon you will be able to access finance or growth capital. Once the crucial first year to 18 months of trading is behind you, you may require new funds to help you grow. More often than not a young business will seek this funding from the bank with which it already has its business bank account, and so it is sensible to think about your future credit needs upfront. However, there are other alternatives out there such as crowd funding. You may have had outside help in interrogating the business plan at an earlier stage but for many ventures, it is only when seeking new capital for growth that a detailed look at the assumptions, intentions and expectations for the business will be tested and evaluated. It is generally during this phase that a start-up business will grow its relationship with its bank. The lender’s business banking team will be useful here, as it will have previous lending experience with other businesses operating in the same space and will have seen what works in a particular location and market. Your business plan is a living document, and should never stay still. It is advisable to review the plan every six months, and challenge the assumptions built into it using the track-record gained since the last review as well as considering the ever-changing consumer trends. As your business grows, the challenges it faces will change. Frequently revisiting your plan to anticipate the early tests it will face will give your business its best chance of succeeding.
TOP TIPS FOR STARTING YOUR NEW BUSINESS: • Think about what will make your business stand out from the crowd. • Understand your costs and cash flow – both incoming and outgoing. • When choosing a bank, think about the services and support you’ll need both now and in the long term. .
“REGULARLY REVIEW YOUR BUSINESS PLAN AS NOT ONLY WILL THIS HELP YOU STAY ON TRACK, IT’S ALSO A USEFUL FOUNDATION WHEN THINKING ABOUT DEVELOPING YOUR BUSINESS”
Starting your own business is hugely exciting and with the right preparation, extremely rewarding. A little time spent on ensuring all the i’s are dotted and the t’s are crossed at the outset will pay dividends as your business grows and flourishes.
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