Theo Paphitis' top business tips

Business guru Theo Paphitis has been finding out how small businesses are faring in the economic downturn for Panorama.

Panorama: Credit Where It's Due will be broadcast on Monday 23 February on BBC One at 8.30pm.

Here the Dragons Den star gives his top tips for running a successful business.

RULE 1: REDUCE THE RISK

I am a great believer that the risk should reflect the reward. My whole business philosophy is based on a risk-reward ratio. But it's got to stack up. If it doesn't, don't do it. You might as well go to a casino.

If you think you've come up with the business idea to end all business ideas, there are just two things you've got to ask yourself: what are the risks, and what are the rewards? I am the most conservative person you will ever come across, and that's because I'm good at reducing risks while leaving the potential rewards high.

You've got to make sure that you've got all the information and you know more about what's happening than the next guy.

RULE 2: DON'T FOOL YOURSELF

If you have a business idea, honesty is very important. I'm fed up hearing people say, "Everybody I have asked thinks my idea is fantastic." People say they believe in their ideas. That's because they have conditioned themselves to believe in them. You have to be honest with yourself about what you are doing.

Then you must ask yourself how commercial it is. "Everyone is going to want one," they tell me. Well, I don't want one, so not everyone wants one. "I have given this to 20 people and they all said they would buy one." How much did they pay you for it? "Nothing." That's why they took one. "I have done my market research," they say. No you haven't, you've given things away. Beware of all these ways in which people delude themselves.

RULE 3: LEARN TO LET GO

It's very difficult for an entrepreneur to let go. It's very hard to sell a successful business. People sometimes hold on until the business has no value at all.

You must be able to create something and then sell it at exactly the right time. That's really hard. I still find it hard. You've put so much of your life, your body and soul, into something you have created and nurtured - and then you have to let go.

And there is always a right time to sell, because any business goes through ups and downs. Admittedly, at times like now when there is not a great deal of cash around, you might prefer to wait and sit tight, but the principle remains the same.

RULE 4: KNOW THAT CASH IS KING

Cash flow is king. Profit is sanity. Turnover is vanity.

A lack of cash is like a heart attack for a business. If you can't pay the rent you shut down, just like you would if your heart packed up. You're finished. If you can't pay the wages, it's all over. Don't be without cash. You can live without profit for a while, but not without cash. It's very basic and simple advice.

RULE 5: EMBRACE CHANGE

The retail environment is changing very rapidly at the moment, partly because of the internet, which opens up a vast world at the touch of a button. Internet selling means that you don't need to pay vast high-street rents and employ lots of shop assistants. You can eBay trade. You can have a lock-up and keep your products there. It's fantastic - everyone can be a shopkeeper. The amount of business being done on the web now is shifting the balance of power. The internet has unshackled the business world.

RULE 6: USE COMMON SENSE

It might seem blindingly obvious but business is all about common sense. In fact, business is 90% common sense. I apply common sense in all my business dealings.

But common sense is not common. If it were, everyone would have it and everyone would be able to do what I do!

RULE 7: MAKE DECISIONS

One of the things I preach to all my staff is never be frightened to make a decision. If one of those decisions turns out to be wrong, then identify it quickly. Deal with it if you can. Don't let that bad decision cause the business to bleed to death. And if you can't deal with it yourself, scream as loud as you can so that your colleagues can hear you and realise you're in trouble and ride to your rescue.

There's no shame in asking others to help you. The shame is in keeping quiet, trying to cover up your bad decision. Rest assured, it will come back to haunt you. Helping each other is what teamwork is all about.

RULE 8: WEIGH UP THE OPPOSITION - AND YOURSELF

You must never underestimate the strength of the opposition. You only have to look around the high-street, where some of the biggest names - household names at one time - are no longer with us.

One of the problems for these high-street giants is the nature of their tiered system of management, where strategy and communication often get misinterpreted and lost en route to their rightful recipient - a bit like Chinese whispers.

RULE 9: START SMALL

If you're an entrepreneur and want to start a business, start small. You can start a business on your own or just with a partner or assistant. It's only when you take on your first member of staff that you're more than likely to encounter other problems. All of a sudden you're managing the people as well as the businesses.

But remember, just because you have a good business idea that looks like it's going to work, it doesn't mean you've suddenly acquire staff-management skills. Legislation is now so watertight - as well as being complicated and restrictive - that you have to consider everybody's feelings and requirements.

RULE 10: GET YOUR STAFF ON BOARD

In any business I buy, I get as many of the staff together as soon possible. The first thing I ask store managers when addressing them at such an event is who they think is the most important person in the business.

I'm never surprised by the answer, it's always the same - the customer. Not so, I say. Then they point to me. Wrong again, I say. Eventually, I have to tell them the answer - and I point to all of them, the workforce. They are the most important people in the business.

Motivating staff is not just about making them feel wanted. Tangible rewards are equally important, if not more so. Incentives go a long way to help staff focus on the work they do.

RULE 11: CAPITALISE ON OTHER PEOPLE'S IDEAS

I'll let you into a little secret - despite having made a fantastic living from my business ventures, I've never had an original idea in my life.

Always remember that because something is innovative or uses leading-edge technology doesn't necessarily mean it's going to make pots of money. Many inventions that were thought to be technologically brilliant and ideas that seemed to have enormous merit never made their inventors a penny piece.

Just as the road to hell is paved with good intentions, so the road to bankruptcy is paved with good ideas. There are many good ideas put to us on Dragons' Den that we don't invest in purely because they ain't going to make anyone any money.

RULE 12: TURN YOUR DREAMS INTO REALITY

There's not much difference between a fantasist and a visionary. We all have dreams and without dreams in business I don't believe you can be successful. The trick is to turn those dreams into reality.

And you have to have passion for that dream. It's got to be something you're going to enjoy, otherwise it's highly unlikely that you will achieve your goal.

You must not however, fall into the trap of ignoring the facts and deficiencies in your idea. That's where a lot of people trip up - they lose sight of the bigger picture and ignore the failings of the idea.

Making £100m is easy. Making your first £1m is the difficult part. You have got to be passionate about your idea. It is imperative that you have an idea you really believe in, and you also have to be absolutely determined you can make it work. But if you don't attempt to do it, it will never happen. Don't let your idea be the one that got away.

Panorama: Credit Where It's Due is on BBC One on Monday 23 February at 8.30pm.