I made £4000 in a year from my first business.

It was a product called ‘Splat Card’- a student discount card. I would spend all summer negotiating discounts with night clubs, entertainment venues, fast food, you name it.

Then when term time came, I would sell the discount card for £5 each, initially at Coventry and Warwick University.

A picture of Tom Smith running his first and only product based business, Splat Card.

There were three people in the relationship; the seller (me), the buyer student, and the retailer offering the discount.

I sold 800 cards in the first year and it was my only real taste of running a product-based business, but it was hard. I was 21, so I cracked on with it, but running a business like this wouldn’t be suitable for a lifestyle business.

For the purpose of this post:

If you sell something physical = a product-based business.

If you sell a service, something not tangible = a service-based business.

After that business I have sold advertising, offered marketing services and fitness programmes, all service-based businesses.

Goal of a lifestyle business

The goal of a lifestyle business is for your business to support the life you want, which means running a low-stress business model, but not all business models are created equally. Here are some characteristics that make great lifestyle businesses:

  • Financial predictability – You are not having feast or famine months, there’s a level of predictability of the sales you can generate, ideally with a recurring element.
  • Lower risk – The higher the risk, the more stressful it’s going to be. Risk can be subjective and everyone has different tolerances. Ways to reduce risk include requiring little start up capital or debt, having experience in the industry, building the business alongside your job and you’ve proven people are willing to buy your service.
  • Smooth cash flow – No large unpredictable costs, or long customer payment terms so you are able to receive customer payments on time, pay your suppliers on time and to be able to proactively save for tax, with out having to scrap around trying to find the money each month.
  • High margins – The higher the margin, the more flexibility it gives you. If you have high costs every month, it is going to create a lot of pressure in your business.

Why service businesses make great lifestyle businesses

I love service-based businesses and believe they can make great lifestyle businesses:

  • No investment in stock or inventory, i.e. buying 5000 discount cards to only sell 800.
  • Very little start-up capital is needed; you don’t need premises or staff, you can just start selling.
  • You deliver on a 1-1 basis, you can offer a good service, get feedback, get reviews, and then move on to the next one.
  • Huge margins, if it’s just then you could easily have 70, 80, 90% profit margins. Meaning every £1, you would be keeping 70p-90p before tax.
  • It’s easier to build up recurring, predictable revenue.

That’s what helped me leave my job in practice and set up Every Cloud Accounting.

I saved up £4,000 for initial cash flow. There were very little set-up costs. Insurance, software, and a practice licence, less than £1,000. Since then, I have been doing all the delivery, trying to offer a top-class service and getting Google reviews on the way. The business has extremely high margins, roughly 80% + in the first year.

To follow the journey see: Every Cloud Accounting results

Downsides of a service business

For a balanced argument, there are always going to be negatives, so here are the downsides of running a service business:

  • To expand, you typically have to do it through labour, i.e employing someone and it can be labour intensive. With that comes the challenge of managing people!
  • You will be doing all the delivery, if you’re selling a product you will be a bit more removed.
  • It’s harder to grow into a big business.
  • A service business is typically not unique and could be perceived as ‘boring’ and steady.

I am a huge advocate of service-based businesses; I love running one and also love working with service business owners.

It’s easy to take your business model for granted, but this is way easier than trying to sell 800 discount cards. I ended up running the Splat card business for 3-4 years, tried scaling to 20 universities and increasing the price to £10 (wow), but you still have to sell a lot and the business never really got going.

It was a great learning experience, but not a great business model.

If you run a service business and would like to work with an accountant who knows exactly what you’re going through, book a discovery call today.