Business Insurance: Know the risks

Insurance conceptAs my first year of business in York neared its end I arrived at work one Monday to discover a ransacked office. Cables were ripped out of walls, paper covered the floor and my only computer was gone.

The landlord must have heard the loud cursing and swearing for he was soon easing his balding head around the half-hinged, half-broken door. Being a counsellor he encouraged further ranting so I could “let it all out”. I obliged; only for the exorcism to grow louder as it dawned on me that ‘recent’ files had not been backed-up.

Life in business hit a low point that day but fortunately my office insurance policy covered the theft. A cheque for £1,000 was soon in my hands. However, as you will read later, it was several months before the business was back on its feet again…

Since that burglary in 1990 I’ve bought most types of insurance and learnt much about the industry and how it works (or doesn’t) for small businesses. Whether or not you choose to buy policies to protect your business, there are issues to be aware of and pitfalls to avoid. Here’s some independent insight & advice to help you through the insurance maze.

1. What insurance policies should the start-up business consider?

Even if your business is just you at the outset, it’s advisable to have public liability insurance and employers’ liability insurance (see 3). You may also want your business to be covered for theft, fire and possibly flooding and if you shop around you’ll find policies that cover some or all of these issues within one package.

If your business requires you to drive, notify your insurers so your cover extends beyond personal use. Likewise, if you are travelling abroad, don’t assume an existing personal insurance policy covers you. On this latter point, annual travel insurance for business (excluding USA) is surprisingly inexpensive; even if you are only travelling twice in a year the annual package for business travel abroad may well work out to be best value.

If your business offers advice or if you work in a professional trade, you may also wish to consider professional indemnity insurance; although for many businesses this is not necessary especially at start-up. Finally, some trades (e.g. cafe, shop, hotel) attract specific insurance policies so check what insurance is available before buying a general policy.

2. Can you afford not to buy insurance?

One way to look at insurance is to consider what you ‘must have’ and what you would ‘like to have’. Your ‘must haves’ need to include insurance policies required by law (such as employers’ liability insurance if you employ anyone)  as well as insurance that will protect you in the event of something happening that is so serious, the business folds. For example, public liability insurance provides compensation and legal fees in case of an accident caused by your business activities.

A ‘like to have’ might include Health or ‘Key Man‘ insurance cover. These policies provide cover in the event of illness or death. You have to judge the risk and decide whether you can operate your business without having the cover in place. For the record, as a UK citizen with access to free NHS services I’ve never been a big fan of private health insurance. I have used ‘Key Man’ insurance from time to time and recommend it particularly if other people are dependent on your performance at work and/or the income derived from it.

3. Working from home – does your home insurance cover you?

Increasingly people are setting up in business from home. If this is you, don’t assume the existing home insurance policy covers your business (in any way). Contact the insurance provider to check the home cover details and answer any questions as honestly as you can. You may find everything is covered but if you don’t, you have the option to increase the premium so your business is protected, or review the market to see whether a more suitable (and possibly cheaper) insurance policy is available.

4. Why use a local broker when cheaper alternatives exist on-line?

Whilst the cheaper policies may well reside on-line, I’ve used a local insurance broker ever since I started in business. Brokers provide independent professional advice to businesses and individuals, playing a key role in the identification, measurement and transfer of risk. I also much prefer working with someone I know rather than dealing with a faceless call centre; and critically, when I have made claims I’ve always felt the broker was on my side.

If you’re going to use an insurance broker find one that is a member of BIBA as this means they operate under a code of conduct ensuring customers are treated fairly and in your best interests. However, if price is your only buying criteria then enjoy shopping on-line.

5. Should insurance policies be automatically renewed?

For the most part, policies should be automatically renewed so your business has the necessary protection in place. But there are a couple of points to note here…

I always like the fact my broker contacts me in advance to check that the renewal is required since the thinking is done for me and I have the opportunity to check the suitability and competitive nature of their quote.

Policies such as annual travel insurance don’t have to be automatically renewed especially if you don’t have any plans to go away again. Wait for the next time you travel and make the most of the policy you purchase.

6. Why policy detail matters

No two insurance policies are the same and you typically only discover policy shortfalls when making a claim. Generally speaking, the cheaper the policy the less it covers.

When buying insurance, find out what it does and does not cover by reading the accompanying blurb and asking good questions of the agent. Consequence questions such as ‘If XYZ were to happen, would I then be covered..?’ can be very revealing and will help you to get best advice and avoid making basic assumptions at the point of purchase.

7. Do you want to work with public bodies?

If you plan to tender for work (or seek framework listing) with public sector organisations such as local authorities and central government expect to be asked for higher than normal levels of public liability and employers’ liability insurance. You may be required to have professional indemnity insurance cover too.

Unfortunately, this added insurance cost is no guarantee of any public sector work but you have to decide whether the risk is worth the reward. For me, such public sector policies discriminate unfairly against small businesses and hinders their growth. The ability of the public sector to source locally is also adversely affected.

8. Always know your policy excess

Insurance policies typically include an ‘excess’ statement’ – the amount you will pay in the event of making a claim. Excess amounts are commonplace particularly with car and home insurance and protect the insurance company from small claims. However, you also need to be satisfied that the excess amount is set at the right level for your business.

9. Why health and safety is such a key issue

In a world increasingly ruled by health and safety policies and fear of litigation, it is essential you know how your business impacts upon the public. It is wise to complete an office/site risk assessment (legal requirement if you employ 5 or more people) and ensure good practice is followed at all times. For example, if people trip over loose floor cables in your office or at an exhibition/off-site event, you may well be liable if harm is caused.

Public liability insurance might provide financial cover for such events but you don’t want to be put in a situation where negligence can be proved.

10. Always consider Business Interruption/Consequential Loss

The burglary in 1990 taught me some hard lessons, not least that it’s the consequence of a loss rather than the loss itself that can really hurt a business. Losing the data cost me months of work time and clients and so from that point forward I always chose ‘business interruption/consequential loss’ when buying office insurance cover.

Several years later the same York-based business had grown substantially and occupied several offices in the city centre. Unfortunately, the offices were also close to the Ouse river and the infamous wet autumn of 1999 caused chaos. For days we had over a foot of water in our car park and ground floor office space.

Thankfully, the insurance company and loss adjuster were on our case quickly and a sizeable sum was provided to cover asset damages. However, since we were also covered for consequential loss, the company claimed against all the issues arising as a result of the flood. The final payment was 10 times the size of the one for asset damage.

Key Learning Points: Assess the risks to your business and ensure you have the necessary cover in place to protect you should the worst happen. Be diligent with all insurance purchases and make sure you buy what is best for you and your business.

 

Please note, the advice offered in this article is only based on my personal experience and some of the advice may not apply in different countries. Always consult a professional before buying any insurance policy.

 

Show off when the show’s on

Attention Bullhorn Megaphone Sends Warning MessageExhibiting at events and shows can be a highly effective way for small businesses to promote their products and services.

Just like the hitchhiker, you put yourself right in front of passing potential customers, waiting for someone to take interest and stop by.

Attending exhibitions is fun – and if you get it all right, it can also be highly profitable; over the past 25 years I’ve spent thousands of hours on stands around the world. But it’s not always a bag of laughs and just like all other promotional activities you have to accept you may not recoup your costs.

So if you want to exhibit what should you do to maximise the marketing opportunity, make best use of time and minimise the financial risk? Here are my top ten tips:

Top 10 Tips for exhibiting

1. Profile attendees

Before making the decision to exhibit anywhere find out about the audience being promised by the organiser. Ideally you need to know both the profile and volume of attendees, so request details. Then ask yourself what proportion of the delegates fit your target customer profile? In my experience, I’ve found small events (100 – 250 delegates) offering a high proportion of people who fit my market to be more effective than large events that offer a small proportion of the people I am targeting.

2. Cost the risk

As part of your preparation, work out the full event cost (include promotional materials, travel, accommodation, equipment hire and all stand costs). To calculate the ‘risk’, consider how many sales (at an average sales value) you need to make in order to breakeven. However, also bear in mind that there is typically a lead time for sales to be concluded so don’t plan for people to necessarily order at your stand. If your gut tells you the costs outweigh the benefits be cautious about committing.

3. One simple message works best

When creating stand promotional material, keep everything simple and easy for people passing the stand to understand. Whilst you should make your stand attractive, it’s a common mistake for exhibitors to overdress their space and fill every inch with information that conveys different messages. If people passing your stand are confused by what you offer, they will continue walking and no inquiries or sales will result.

4. Provide incentives for stand visitors

Give people an incentive to visit your stand. You can either provide an inexpensive ‘giveaway’ such as pens/sweets, a product trial or a free entry raffle draw and/or offer discount for orders placed during the show. By rewarding visitors with a special offer (exclusive to the event) you increase the goodwill between you and the customer and improve the chances of an order being placed there and then.

For reference, in my experience, the average order time can be several months after a show taking place yet all the costs have to be met in advance. Offers that lead to quick sales are great for cashflow.

5. Create movement and interaction

Stands that look dull and boring don’t attract visitors. But if you can create movement or include an activity that creates curiosity and interest, people are far more likely to stop by. And nothing pulls in people like a crowd. By way of example, the SimVenture team has exhibited at the annual IEEC event for a number of years and in 2012 the team felt an interactive element was needed to maintain interest levels.

Cards used for 'SimVenture Play your Cards Right'

Cards used for ‘SimVenture Play your Cards Right’

A game based on the theme of ‘Play Your Cards Right’ was created and throughout the event’s 3 days we were inundated with requests to participate. The show was a great success on all levels.

6. Build rapport with people

Treat people who pass or visit your stand as you would like to be treated. A common mistake (and a pet hate) is the exhibitor who asks one question of the innocent passer-by to get their attention and then spends the next 10 minutes telling them all about their wonderful gizmo. Give the poor souls who take interest in you a chance to talk about themselves by asking questions and listening to the answers. Building rapport with people through questioning and listening creates confidence and helps you understand how your product/service fits with the customer’s needs.

7. Gather contact information

Ensure you collect the contact details of everyone who takes an interest in your products and services at an event. Without the data you can’t follow the inquiry up at a later date or inform people of future offers. Record the information electronically or use a pad and pen – if you know your stand is going to be particularly busy create a simple system so stand visitors can record their contact details for you!

8. Wifi

Since event attendance means you are out of the office it’s almost inevitable that you will need to access your website or email whilst away. If you rely on email or website access then check with the event organisers that they offer free Wifi as part of the package. If the organisers want to charge an exorbitant fee (and some do) consider investing in a mobile phone with Personal Hotspot access.

9. Follow-up

When the event finishes and everyone goes home, it’s time for you to go to work and follow-up all inquiries. It’s important not to be too pushy and certainly don’t pressure people into anything; but a short personal email to thank people for their interest is a good place to start.

10. Evaluate

Finally, wait two or three months to fully evaluate the success of any event. Whatever you do, don’t sign up to exhibit again until you have completed the review. Waiting a couple of months allows you to be completely objective and means you can properly assess the overall financial position of the show. It’s quite possible that your costs outweigh sales at first-time events so be careful not to judge matters purely on financial performance.

Key Learning Points Use exhibitions to promote your business and reach new customers. Plan and prepare carefully and think through the whole experience from the customer’s viewpoint in order to maximise your chances of event success.

Top 10 websites for entrepreneurs

ToptenFor the past 2 months I’ve conducted some basic research to establish the best websites that help people start and stay in business in the UK. Over 500 individuals (who work in an advisory and business support capacity in academia, public as well as the private sector as well as people running businesses) were asked to provide feedback on the single question ‘What are the really good websites you recommend people use?’.

The purpose of the exercise was to start work to clear the fog of information. There are hundreds if not thousands of websites claiming to provide support, information and advice to entrepreneurs. Such duplication and fragmentation is confusing and only undermines what is really credible. So what did the research uncover?

Findings summary

In total, respondents recommended nearly 100 different sites. No single site stood out completely from the crowd but the final count provided a conclusive top 10.

Whilst no locally or regionally focussed website received a high enough number of votes to make the top slots, two universities that serve thousands of students (Birmingham & Bristol) were recommended as popular portals since they provide high quality information and signpost students to external websites that add value.

One example of an external website that serves the needs of thousands of users  is run by the Northern Ireland Business Enterprise Agency ‘Advantage NI‘. From ‘Business Profiling’ and ‘Bootcamps’ through to ‘Market Synopsis’ and ‘Export Support’, this site looks comprehensive, highly applicable to a wider audience and well worth a visit.

Also of note is a new website co-founded by Peter Bailey and David Friel, both from Loughborough University. Entrepreneurhandbook is a comprehensive portal of the main UK websites that support ‘startups’ and budding entrepreneurs. A key selling point for the site is the way it references other information sources in an easy-to access manner.

Making the Top 10

Respondents noted favourites for different reasons. As you will see, the top 10 includes a mix of the creative and inspiring as well as some that simply focus on robust factual data. Of note is the fact bank websites received little more than a sniff of appreciation from respondents, although HSBC and Lloyds were complemented for their ‘Start-Up’ Guides.

Equally noteworthy was the sparsity of interest in ‘crowdsourcing’ sites and specifically ones that help people raise funds when starting in business. Seedrs for example is dedicated to helping people raise start-up capital as well as signposting investors to new businesses. The site is doing great things. Will sites like this become future favourites?

Interestingly, whilst the research asked for recommended websites, many respondents were also keen to suggest social media content and great YouTube videos. Since I received so much data on this subject I’m going to publish a separate Blog Post in a couple of weeks highlighting the great material that’s out there.

But for now, here are the top 10 sites in order of popularity. Please note this is only a top-line survey and more robust research is needed on a regular basis to help provide the definitive list; however, I hope this post kick-starts thinking and helps you to find, recommend and use credible and valuable information more quickly.

1. Startups.co.uk

Definitive website providing an array of relevant information all presented in an easy to access and digest manner. From ‘what business to start’ and an on-line forum to advice on IT purchases and franchise creation, it seems this detailed site has data on everything the entrepreneur needs to get going.

2. Entrepreneur.com

Whilst some of the information on this US portal may not be UK relevant, the interactive nature of the site combined with its powerful blog and commitment to answering ‘How to..?’ questions gets it to the No.2 slot.

3. www.gov.uk

Whether it’s information about a specific type of business to start or advice on trademarks, copyright and IP , this is the place for the facts. Don’t expect stunning graphics but the navigation is straightforward. You’ll also find links to all other relevant government sites.

4. HMRC

Surprised me that two government sites should make the top four, but clearly good things are being done to make every detail about tax (PAYE, VAT, Corporation Tax, NI, Self Assessment etc.) and finance easily available. You can even register as a user on this site.

5. Smarta

Use the site to get advice, see films of successful entrepreneurs talking about their journey and/or access the organisation’s ‘Business Builder’ (chargeable); this site combines information with highly innovative and valuable services for the entrepreneur.

6. StartupDonut

Comprehensive portal of information, advice, guidance and ideas on everything linked to business creation and management. The availability of free document templates and provision of an event diary makes this site a must for any budding entrepreneur.

7. Shell LiveWire

Linked to the Oil Giant, this site is highly credible. Annual awards event and 4 * £1,000 monthly prizes marks Shell Livewire out from others. I was a beneficiary of this organisation 20 years ago, so can only endorse all their work to date.

8. Cobweb

Cobweb researches, publishes and continually updates a range of practical publications and information services for small and micro business owners, business advisers and enterprise practitioners and small business funders.

9. StartupBritain

Organisation that seeks to unite entrepreneurs behind a single cause. Information about local events and provision of supplier offers tailored to the entrepreneur’s point on the journey makes this portal stand out and thus achieve top 10 status.

10. Stanford Technology Ventures Program

Perhaps the best global source of on-line information for educators. The ‘Entrepreneur’s Corner’ provides archive content from the STVP which includes a vast array of film content on just about every subject linked to entrepreneurship.

 

Final thoughts… 

Hopefully you can ‘hitchhike’ virtually around the recommended sites and use as well as share new-found information with the people with whom you work and support.

Thank you to everyone who took part in this simple survey; if the resultant information has brightened your day or made your life a little easier, then please let me know or leave a post below!

As I suggested earlier in the article, since there are so many websites providing information in this field, it’s really important to continually work to cut through the fog so the best stuff can be discovered and shared. So may be this is an annual task…

Look after the pounds & the millions will look after themselves

Salespeople regularly offered me lifts back in the eighties. It’s fair to say I enjoyed the banter and their cars went faster too.

London bound, one bright weekday morning, I was hitching a lift onto the M1 when a passing car jammed on its brakes and pulled over ahead of me onto the empty slip road. The smart-suited driver from Leicester was going my way. Within 2 minutes we were doing 90+ in the outside lane of the motorway.

Achilles heel

Proud of his shiny motor car, my twenty something companion also loved his job in sales. I forget what he sold, but he was quick to share his salary status – £20k plus perks. In 1984, that was gearing up for ‘loadsamoney’.

Being 18 and unemployed I distinctly remember being impressed by my flash friend, but it was his brutal honesty that really appealed. Having spent 15 minutes bigging himself up, he then declared in a slightly depressed tone that he was practically broke. He was good at earning money. He was even better at spending the stuff.

Put yourself last

Entrepreneurs who excel at spending money on themselves typically don’t last long in the job. Fast cars, designer labels and posh restaurants undoubtedly make us feel better; but they are all unnecessary costs especially in the early days of running a business.

Richard Branson may now spend every sixth week on his own private island in the Caribbean, but it certainly wasn’t always that way. For several years he lived on an old barge and drove a car that regularly ran out of petrol, such was his desire to keep the money in the business where it was really needed.

It may feel counter intuitive, especially if you’re employing staff, but the secret in the early days is to put yourself last when it comes to spending money. If you look after the goose, the golden eggs stand a much better chance.

Does money motivate?

Stacks of studies have been compiled that examine the question ‘What motivates entrepreneurs?’ If this is an area of particular interest you’ll find lots of scholarly research right here.

But if detailed analysis doesn’t float your boat and you want some quick definitive answers from practising entrepreneurs, then the following short film may appeal. Produced by ‘Tech Cocktail’ the results clearly suggest that successful entrepreneurs are motivated by such things as people, ideas, following dreams, making a difference, creativity and achievement. In the film you’ll find that the ‘money’ word is hardly mentioned.

So when it comes to money, successful entrepreneurs it seems are patient, unselfish and self-disciplined. Moreover, they are motivated by deeper needs and are able to defer reward rather than seek instant gratification (a subject worthy of its own HHGE blog). This attitude of mind makes businesses more sustainable over the long term and ultimately, as a bi-product, also makes the entrepreneur far richer.

Key Learning Points: Careful cost management is essential for any start-up business. Entrepreneurs who are prudent with their own spending in the early days and are motivated by deeper needs, are more likely to be financially successful in the long-term.

 

 

 

 

Figuring out pricing

Many start-ups wrongly copy the hitchhiker when it comes to pricing. An outstretched thumb works by the road, but a finger in the air almost always plucks financially flawed figures.

Pricing products or services (especially the first time) isn’t easy, but considered calculation based on some key principles can make all the difference between business success and failure.

Using the following fictitious example throughout, this article seeks to highlight what needs to be done to price goods effectively.

Kay has started a business making specialist waistcoats and wants to sell them online. She is not confident about setting a price for the garments and is worried about being too expensive or too cheap. How does she price the waistcoats?

Know your ‘costs of sale’

It’s vital Kay knows what it costs her to make the waistcoats. Known as ‘costs of sale’ this information makes business and sales planning as well as pricing decisions much easier. After a bit of calculation she works out that the materials to make each garment cost £15 and it takes her less than half a day to make a waistcoat from scratch.

Kay is surprised at the inexpensive costs and thinks that by setting a price of £30 per garment she will be making £15 profit per garment – a 100% margin! But then she realises that the £15 profit in half a day has to also cover her own salary; and then there’s all the other bills such as energy, website costs, phone bills and bank charges etc. Before she does anything else Kay decides to work out her total costs each month.

Know your overheads

Kay discovers that including her salary, phone bill, energy costs etc. (but excluding all material costs to make the garments) she is committed to spending £2,000 per month on her business (these are her overheads). She reasons that she works 20 days a month which means each day costs £100 before she makes anything! Armed with this information, Kay is a little more confident about setting an appropriate price to make a profit. She scribbles the following information down on a piece of paper:

Waistcoats made in a day = 2  / Total Sales Value = (Price * 2) ?

Total Cost of Sale = £30 / Total Overheads = £100  (Total costs per day = £130)

Breakeven Point

Kay immediately sees that if she sets a price of £65 per waistcoat and makes and sells 2 a day she will breakeven! Then she realises she could set a higher price and make more money. But will anyone buy waistcoats priced at £65?

Competitor Research

Information, Kay tells herself, brings power and she immediately searches online to see how comparable waistcoats are being priced. She discovers that garments are available from £50 upwards and those of similar quality are typically around and above the £75 mark.

Kay concludes that if she prices her waistcoats at £70, they will be affordable to the customer, competitively priced and will ensure she is selling at a profit. The information gleaned from the competitor review has also helped her to promote the waistcoats so that prospects feel (rightly) that they are paying a very reasonable price for a first class high quality garment.

Most importantly, Kay feels she has a robust formula for working out future prices which means she can much more strategic in her thinking and thus construct meaningful forecasts and plans. In addition, she is more confident and informed about her wider business finances and now understands the fundamental relationship between costs, prices and sales figures.

You can read more about this subject on a number of good websites. The ‘Inc’ site is particularly useful and provides relevant pricing tips and advice. Likewise, if you are running a creative business, this financial information should prove very helpful.

Key Learning Points: To price effectively you must first work out your total cost of sales and overheads. Once you know your breakeven point and have researched competitors, you will make informed & confident decisions about pricing strategy.


Bootstrapping: My way on the business highway

BootstrappingshoesFailure has a wonderful capacity to reveal opportunities that otherwise remain hidden.

Disastrous ‘A’ Level results in 1984  forced me to take a gap year. Whilst I envied friends destined for university, part of me delighted in the chance to step off the education treadmill.

Suddenly I was making choices, dealing with consequences and relying less on others. I quickly found a job (earning a pittance) in a Cumbrian hotel and subsequently worked at a field centre, school and finally an office. And hitchhiking became a way of life. Yes it made travel between places and jobs affordable but I realise now how it chimed perfectly with my new independent lifestyle.

And if like me, you thrive on responsibility and enjoy control over your own destiny, you are probably far more likely to want to start a business one day without being financially dependant on others. In other words, you’ll probably want to ‘bootstrap’ your business.

I left university in June 1989 with a degree and a four figure overdraft. But by working every hour (as a security guard of all things) at events such as Wimbledon and Ascot I managed to get myself back in credit and even put some money aside for starting my first venture that autumn.

Bootstrapping

As a result, I was able to ‘bootstrap’ my business and I didn’t have to go ‘cap in hand’ to the banks. It certainly never crossed my mind to go down the investment/angel route probably because their services were far less prominent 20 years ago. As an aside, I am somewhat sceptical about the amount of money and effort universities in-particular put into ‘high growth’ support services – I believe this issue is more driven by available public funding rather than real  business demand, which is completely the wrong way round.

By bootstrapping the first business I was also able to start as a sole trader. This meant I wasn’t subject to complex and potentially expensive partnership or Limited Company agreements and my tax situation was much more straightforward too. And of course, being a sole trader meant my finances were kept completely private unlike – limited companies that must submit their accounts every year for public scrutiny at Companies House.

As a bonus, this also meant there was no one telling me I had to write the dreaded ‘plan’. This lean approach to start-up has been researched and written about by academics, among them Colin Jones from Tasmania who has posted relevant materials on the following useful website: http://www.teaching-entrepreneurship.com/lean-startups.html

Bootstrapping like hitchhiking keeps things simple and you just have to rely on yourself. You get out what you put in but of course when things go awry there’s only you to sort them out.

This might sound scary but the highs in almost every business case I’ve ever known outstrip the lows. And importantly, as you travel along this route so your horizons for what is possible in your life expand almost exponentially.

But whilst going solo has real merit, it won’t take long before you’re having to work with other people. Whether you work with external partners or hire staff, opportunities to grow your business will present themselves and it quickly becomes impossible to do everything yourself.

Key Learning Points: Bootstrapping a business gives you complete control and means you are not answerable to any external funder/investor. This simplest of routes not only makes life easier but it also means you benefit from everything you put into your work.