Adventures in Micro-Businesss: When should I take on an employee?

Each month Professor Russell Smith answers your queries

Q. I am a self-employed designer and my business is getting very busy. Are there any rules to help me decide when to take on my first employee?

A. The classic mistake would be to think only about the design work rather than the business overall – don't assume that hiring another designer should be your first step. Start by looking at all areas of your own activity and seek to contract out things that you don't need to do yourself. For example, contract out monthly payroll calculations to your accountant and engage an independent bookkeeper for a few hours per week to handle your "paperwork". Freeing yourself up to do more design work should make your business more profitable. Consider hiring another designer only when you are almost at the point of having to decline work but you must be sure that you can win enough business to keep a second person fully occupied.

Q. Is it the best policy to have my business bank account at the same bank where I have my personal account?

A. Business banking is all about having a good relationship with the bank manager so that you can call upon services, such as an overdraft facility, when needed. For that reason, most new business owners start by opening a business account at the bank where they have a personal track record. Having said that, business banking is very competitive, so don't be afraid to switch your business account if you can get a significantly better deal elsewhere. But the key phrase here is "significantly better". Do chat with your current bankers before you switch – they may have some flexibility and offer better terms to match the competitor. Business bankers want to sell you products and services and so treat your bank as you would any other supplier.

Q. I would like to start a business but have no sales experience. Where can I find out more about how best to market my proposed business services and products?

A. A good starting point would be the "sales and marketing" section of the Business Link website (www.businesslink.gov.uk). Apart from a good overview of marketing, the website also has an interactive link to help you identify new sales channels (routes to new customers) and a comprehensive selection of case studies that describe how other business owners tackled marketing challenges.

Q. After several good years my business is starting to struggle. What are the most important things that I should do in order to turn this around?

A. Start with an immediate visit to your accountant. You must look at reducing costs and improving the profitability of sales. It would also be important to look at whether you can improve the credit terms from your suppliers and also ensure that customers pay you on time such that you avoid problems with cash flow. If you have a range of products and services then you must be ruthless about dropping poor performers and pushing those that generate profit. Taking a reduced salary from your business may be necessary as a temporary measure but this is not a solution. Although it may be unpalatable, ask your accountant to give you an opinion as to the viability of your business. It is better to cease trading than get into financial trouble.

QUESTIONS PLEASE

Send your questions to Russell Smith at independent@businessboffins.com. Selected questions will be answered each month. Answers are for the general guidance of owner-managers only; always seek professional advice. Professor Smith is the founder of Oxford-based Business Boffins Ltd which, in collaboration with Oxford Brookes University Business School, delivers support programmes to small businesses nationwide. Independent and Independent on Sunday readers can enrol on the university-accredited programme at a discounted rate; see www.businessboffins.com/independent.