Your small business queries tackled

Steve Pateman and Sally Preston answered your questions

Stephen from Luton says; "I'm looking into starting a business shortly, offering IT support to other small business. I am trying to decide when to give up my full-time job to fully commit to running the business. Do I need a business plan first? Should I wait till I get my first customer?"

Steve says: A business plan is key from the outset and should track the performance of your business and should be revisited at regular intervals to ensure you are staying on track. Taking the steps from conceiving an idea, to testing it and then turning it into a business is scary and challenging at the best of times. If you're looking to start a successful business, the first step is to build a vision and a strategy of how you're going to get there. What do you want to achieve and how are you going to achieve it? How do you envisage your business growing - word of mouth?

The next step is to fully understand and research your marketplace. Who else provides this service and how can you use this knowledge to enhance your idea?

The next step is to pilot this service with a select few customers. What was their feedback? Can they recommend you to a colleague? It is this point where you know whether you should fully commit because the business is at a natural place where it can grow. A final tip would be that you can't underestimate the value of a good bank manager and accountant who understands your vision, your strategy and your business. Their expertise will help you overcome any bumps along the way.

Sally says: You need to ask yourself if you've done your research and do you know your market? Especially your local market - the 30 mile radius of where you are. You need to identify what you offer that's unique and don't leap in blind. Try offering your IT services in evenings and on the weekend - just to put a toe in the water. Start with the small jobs but make sure you do them well, as your reputation is important and you need to keep it up. Think about getting references from your clients for these jobs too.

Jes from Northumberland. I have an idea for a website to provide a service as far as I know it's a novel idea. Is it possible to patent such an idea and any subsequent implementation of it? As I know very little about designing and running a web service such as this, how can I minimise the initial outlay? Are there any common bear-traps for the unwary to fall into?

Sally says: This question raises more questions for me. It's hard to provide this novel service over a website, when you don't know how websites work. You need to know your medium too. So first, research the market and make sure no one else is offering this novel service via a website that you want to offer. You could get a partner who knows about websites and work with them. There are quite a few unknowns in this question for me.

Lynda from Perth wants to know, "why is it that my business account at my bank is being charged for taking cash out at branches when they are not actually handling cash? For example - paying my business credit card account and paying the tax account by giro.

Steve says: The wider question here is why do we pay fees for some transactions on business accounts - where as the same transaction is free for a personal bank account?

We would only charge a 'cash out' fee to customers withdrawing cash sums over the counter in a branch, you should contact your bank if you feel you are being charged incorrectly.

Business accounts are quite different from personal accounts. The volumes and scale of transactions are much higher in business accounts and therefore require greater resource from the bank to service them.

Michael from Basingstoke says "two colleagues and I are looking to start a new business in landscape gardening. We have experience in this sector and we've identified a gap in the market. Two of us own homes and have mortgages. We're all contributing different amounts to the business. We want to limit personal liability to what we have invested in the organisation. And are keen to be democratic about decision making. But since it only seems fair that my colleague investing the most has a big say. I think we should form a Private Limited Company, what do you suggest and why?

Sally says: You definitely need a contract between the three of you. Also be wary of giving the person who contributes the most money to the business, the biggest say in running the business. Money is just one facet of a business, what about who has the most contacts that the business is going to use? You're running a gardening business, who is providing the tools? These are really important questions. And don't forget, you will have to nominate one of you to be managing director as well.

Eddie Mac asks: "Bearing in mind the turmoil in the credit markets and banks' current aversion to risk, will it be a difficult time to finance a new small business?"

Steve says: It's good business for us to support good businesses. Our lending criteria is based on a number of factors, competitive pricing and the customer's ability to repay being paramount. These are consistent principles and remain unchanged by recent market conditions. Any lending decision is made on a case by case basis.

What's interesting is that according to the latest Small Business Monitor (our own independent research of 1,400 small businesses) small businesses are actually quite optimistic about performance growth for the year ahead with over a third (36%) expecting sales to increase.

Jenny from Sheffield emails "I have just created a partnership with a university friend to start an event management business. I do not have a lot of cash to invest until the business gets going. And I don't want to take out a business loan. Do we need employers liability insurance since I'll be sub-contracting freelancers? Do we really need a business bank account or an accountant? And for legal documents like the contract between our company and the client or the contract between my business partner and do we need to get a lawyer to draw the 'template'"?

Steve says: Employers Liability Insurance is only required for when you have employees, not sub contractors who are external and independent to your business. If unfortunately something went wrong, you would have the right to claim on the sub contractors public liability insurance and my only recommendation is that when you appoints these sub contractors, she asks for confirmation, or even a copy, that they have public liability insurance in place.

When you set up a partnership the only body you will need to contact is the Inland Revenue. You and your partners are classed as self employed and are therefore required to contact the tax man individually be it directly or via an accountant.

One of the main reasons for businesses failing is poor cash flow management and through the use of a business bank account you are able to isolate and manage your business finances effectively. Yes a separate personal account could also enable this but then you would miss out on all the additional benefits which offered to start ups.

Legally, the company and its partners do not have to appoint an accountant to submit their tax returns or even draw up their year end accounts. However, the rules around tax returns for partnerships are very complicated and would recommend that they seek advice/guidance from an accountant. Your bank can sometimes recommend an accountant to provide this support.

Legally, you do not have to have a lawyer draw up the customer contracts or your partnership deed/profit sharing arrangement however, it is always better to be safe than sorry especially for something that is so vitally important.

Sally says: It's a false economy turning yourself into a jack of all trades and a master of none. Get an accountant to do payroll, VAT and you're accounts. Don't skimp on documents and contracts. These contracts are most important in the event something goes wrong, so its important to get it right. As for a business bank account, there is no harm in getting in touch with a few different banks and talking about what you need.

Working Lunch asks: Making sure you have enough cash in your account to pay bills, suppliers and continue trading is a crucial issue for small businesses. What advice can you give someone starting a new business to make sure they don't run out of money early on?

Steve says: As with any business you would consider working with, we want our customers to demonstrate financial experience and capability, a strong understanding of their business and insightful knowledge of their competitors and their marketplace. Through an understanding of our customers' experience and their business vision we can then work with the customer to identify the best next steps that meets both our needs be it in the form of a loan or any other facility.

Deciding about the amount you want to borrow is about knowing the cashflow dynamics of your business and then building a financial plan around it to understand how much you can afford, how much you need and when. It is also worth incorporating any potential pitfalls your business may encounter, enabling you to forward plan and manage your cashflow in both the best and worst case scenarios.

For example, if you own a corner shop and the government decides to close down the school two roads along or if they change the parking restrictions outside your shop - how will this impact your business? Your accountant and bank manager can help you with this planning and the future management of your business.

One golden rule is never to think of cash coming in as profits, you still have to meet the costs incurred in achieving your sales. You can run a very profitable business and still have cash flow problems, especially if one or two major customers delay their payments to you.

Good financial management will avoid cashflow crises. Early and regular dialogue with your bank can make a huge difference. Good business with good management will always be able to access competitively priced finance.

Sally says: Cashflow is really important. You can manage your costs really well, but cashflow problems come up because you are depending on other people doing what they say they will do, ie. Paying you on time! When you have a cashflow problem, you'll find that it will be worse than your most pessimistic prediction You should start, not just a rainy day fund - but a very rainy day fund and save as much as you can afford in it. Also - make sure you chase your clients so that they pay your invoices.

Working Lunch asks: When things start to go wrong, when should a business start talking to their bank?

Steve says: Many businesses experience challenges at one stage or another for a variety of reasons from poor cashflow management to issues outside of the businesses' control. From our perspective, we benefit from retaining and helping our customers to grow so it is in our best interests to help support our customers, especially when they are in difficulty. Within our bank we have a team of business managers who provide a service for those customers experiencing difficulties, providing extra help when they need it most.

An example I can share is when our specialist team helped turn around the fortunes of a country pub. The owners had several years in front of house management, but this was their first big step of running the business as a whole. Initially things were going well however, after the initial hype of their opening had faded they began to suffer cashflow difficulties and after struggling for some months decided their only option was to sell up at a significant loss.

At this point our specialist business managers became involved providing additional working capital whilst introducing the management team to an outside consultant to an experienced hospitality specialist. The consultant made several recommendations including slimming down their menu and increasing their prices a little as they had little immediate competition.

The opinions expressed are those of Steve and Sally and not the programme's. The answers are not intended to be definitive and should be used for guidance only. Always seek professional advice for your own particular situation.

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