How to set-up a small manufacturing businesses

2 years ago

According to industry publication The Manufacturer, the UK is the 11th largest manufacturing nation in the world, making up 54% of UK exports and directly employing 2.6 million people. Starting out in manufacturing means you are entering into a dynamic, fast-paced but hugely rewarding industry.

Whether your new manufacturing business is going to be in furniture or food, there will be lots to consider at this early stage.

 

What’s the big idea?

It’s essential to think through the concept before you start. What will your product do that other products already on the market can’t? How will it be faster, tastier, quieter, more comfortable, more eco-friendly…?

You should also do your research and see if there is a competitor out there already offering a very similar product. You can search for a patent to see if a similar patent to the product you are developing exists or if you can buy the licence to produce it.

A SWOT analysis will help you look rationally at the viability of the business. You can draw this as a simple axis, and note down your thoughts under each heading. Let’s say you want to set up a small manufacturing business selling scented candles. Your SWOT analysis could look like this:
Strengths

  • Good relationship with local retailers who may be able to stock the product
  • Point of difference: Unusual ingredients sourced from India
  • Good ecommerce website and social media activity

Weaknesses

  • Reliance on overseas suppliers
  • Weight of product, makes postage expensive
  • Lack of storage in home environment; premises expensive

Opportunities

  • Develop complementary products like soap, diffusers, toiletries
  • Sell overseas
  • High demand for scented items in the home

Threats

  • Competition from supermarket chains and department stores
  • Saturated market
  • Could cost of ingredients go up?

From this you can put together a business plan. This is crucial if you want to try and get funding for your business in the form of a grant, business loan or through an investor.

It will help you clarify your idea, spot potential problems, define your objectives and measure your progress.

Your business plan should cover:

  • An executive summary
  • Background to the business
  • Description of the product and how it will stand out
  • The market, the competition and your target audience
  • Sales and marketing
  • The team
  • How you will make and distribute the product
  • Realistic sales and cashflow forecasts
  • Financial requirements

 

Who’s on the team?

Many small manufacturing businesses get by with just one person making the product. But as you grow you will need to build a team around you.

  • People to make the product
  • People to research and develop the product
  • Sales and marketing people
  • Admin staff, human resources and legal experts to make sure you comply with regulations

 

Some of these people will be on permanent contracts, and some you can outsource. For example you might use a freelance designer to create your logo, branding and to create stands and marketing collateral for trade shows.

 

Taking people on means being aware of the rules and regulations surrounding employment. You must:

  1. Decide how much to pay. Your employees must get at least the National Minimum Wage.
  2. Check if they have the legal right to work in the UK.
  3. Check if you need to apply for a DBS check (formerly known as a CRB check) if applicable
  4. Get employment insurance – you need employers’ liability insurance as soon as you become an employer.
  5. Give your employee a written statement of employment if you’re employing someone for more than 1 month.
  6. Let HMRC know that you are registering as an employer
  7. Check if you need to automatically enrol your staff into a workplace pension scheme.

 

Where will you make and sell your product?

Location is so important. When just starting out, many small manufacturing businesses have set up in the home environment or in the garage – an approach that certainly worked for Mattel, Apple and Harley Davidson.

This certainly helps to keep costs down; something to consider if you’re running the business alongside your full-time job at first while you develop the product.

However, it may be clear from the outset that you need to get business premises. You will need to think about:

  • how easy it will be for skilled staff to get to you
  • whether it is set up for manufacturing your type of product
  • easy links to road and rail so there are no barriers to distribution.

 

What equipment do you need?

It’s a difficult balance between getting good value tools and equipment, and investing a bit more in something which will help you get the job done quickly and to a high standard. You might get a higher price for something with a more professional finish, even though it took you the same time to produce as a cheaper product.

So ask lots of questions if you buy equipment second hand. Are there any guarantees, what’s your course of action if something breaks? Do you have a backup? Is the item guaranteed?

 

Health and safety in the workplace

The equipment you use has an important bearing on health and safety in the workplace. The Health and Safety at Work etc. Act 1974 states that, “Employers and those in control of workplaces, have a general duty under the Act to ensure so far as is ‘reasonably practicable’ the health, safety, and welfare of all their employees, and anyone who uses the premises.”

You must abide by the guidance on:

  • Ventilation
  • Temperature
  • Lighting
  • Cleanliness
  • Space
  • Seating
  • Drinking water
  • Sanitary and washing facilities
  • Rest and eating
  • Workplace safety.

And don’t forget the essential insurances. Some brokers offer manufacturing insurance, which groups them together in one package and covers:

  • Stock and raw materials cover
  • Factory and buildings cover
  • Public liability cover
  • Employers’ liability insurance.

 

How are you going to manage the money?

You are going to have a lot of costs:

  • Premises costs including rent and utilities
  • Stock and raw materials
  • Marketing, for example setting up and maintaining an ecommerce website
  • Postage and packaging
  • Salaries
  • Tools and equipment.

This means you may need funding if you are really going to make a go of your small manufacturing business. You could consider a startup loan or other forms of funding like a bank loan or business finance.

If you start going to trade shows you might find investors interested in your products or other businesses with whom you can partner who will help you find the funds needed to get your business off the ground.

You will need to get organised from day one with online accountancy software like Sage One. This will allow you to keep an eye on cashflow and save time by automating processes like generating quotes and invoices. Complementing it with Sage Payroll means you can ensure that your salaries are paid correctly, on time and in compliance with HMRC.

It will also help you generate and submit your various tax returns on time:

Corporation tax. This is due nine months and a day after the end of your financial year.

PAYE, deducted from your employees’ wages and paid monthly to HMRC.

VAT, if you are over a certain threshold (and you can register voluntarily).

Because it’s cloud-based software you can work collaboratively with your accountant and benefit from all their early-stage advice without having to travel to formal meetings. You can also login online from anywhere – very useful if you’re travelling overseas to drum up interest in the new product or visiting suppliers. Sign up for a free trial and see how it helps streamline the processes in your small manufacturing business.

 

Getting the word out through sales and marketing

It’s not enough to just make your product. You need to sell it too!

You need to think about the channels you are going to use. If you brew a craft beer, you may start out with local pubs and beer festivals, then expand your distribution to include the rest of the country and overseas. You will need to complement this with a strong social media presence to create a buzz around the business.

Other products may be more suited to online sales, like the 3D-printed Makie dolls. If you only sell online, you need to make sure you have a delivery service you can rely on – you don’t want customers being let down and leaving negative reviews.

Your website can be quite simple. Make sure you have good imagery of the product, positive words from customers and an easy-to-use shop. Don’t forget an option for people to sign up to a newsletter, then you can keep front of mind and encourage them to buy your product again.

There are lots of options when it comes to marketing. You may want to go for a traditional print ad route, or you may want to invest in Google AdWords or Facebook advertising, which allows you to reach a very targeted audience. Remember to measure results – if you find something that works and generates sales, keep doing it.