While people may be tempted to pluck numbers out of thin air when it comes to working out initial costs, there is no science in determining the amount you need as it really depends on the type of business you’re looking to start and that’s why it’s crucial to have a detailed business plan.
I cannot stress the importance of knowing your product or business inside out – we’ve all witnessed the car crashes on Dragons’ Den when nervous entrepreneurs scramble around to find the right figures. If you have a friendly accountant you can turn to for help, do it. Number crunching may not appear to be the most glamorous part of starting up a new business but it’s certainly one of the most important. My advice is if you’re absolutely serious about your venture and believe you have something strong, don’t attempt to do it on a shoe-string. Cutting corners now will only come back to bite you further down the line and may jeopardise what could be a great business idea.
Once you have a solid business plan, you can determine the best route of finance for you. If you do secure a bank loan, you’ll likely be expected to show that you’ve also invested in your own business as it’s all about sharing risk in these early stages and investors want to see evidence that you are fully committed.
If you decide the bank isn’t for you and opt for angel investors, do bear in mind that they will charge you a higher interest or demand an equity stake. For any new business owner, retaining as much interest in their own business as possible is crucial, so think very carefully before agreeing to give a chunk away. Whatever you do, don’t go down the loan shark route no matter how attractive their offers may appear or how willing they are to help.
When I launched my own business I was careful to use my own money to get it off the ground as I’ve always been of the mantra that you want to start off with the least debt possible. But however you go about securing that initial funding, make sure you have enough to cover you for a minimum of 6-9 months.
The mistake many start-ups make at this point is to underestimate just how long it will take to get up and running. Enthusiasm, focus and commitment count for a great deal but they will not magically make everything simple. While there are naturally elements you can’t prepare for, trying to be as realistic as possible certainly helps.
Once you’re over the initial hurdles, it’s likely you’ll be looking to grow your business. After all, businesses can rarely stand still. Unless you’re planning to keep your business on a small scale, or are running a largely service-led company, you will need further funding and the simplest way of securing this is to re-invest. Taking a punt on yourself could well be the best bet you ever made.
When people see the first flash of cash, they’re tempted to take it but don’t empty out the pockets. A short-term sacrifice is almost always needed for longer-term gain. Some people may prefer to secure further funding from the bank – and this may be the way forward for some larger businesses – but it’s worth remembering that this loan is likely to come hand in hand with caveats and they may require you to have physical assets as collateral.
As well as investing money, businesses need to be nurtured and grown through various other tools such as marketing, networking and word of mouth. For new businesses, the key is getting the name out there and building the foundations of a solid reputation.
People often have an idea of what they want their business to look like and this dream should not be forgotten; don’t change your idea as you go along as you run the risk of losing your passion for it and potentially losing all your money.
As you go along it helps to have someone you can emulate or turn to – someone who has been in your shoes before and can offer you advice. It also helps if you can learn from someone else’s mistakes rather than make those yourself!
Creating a successful business is undoubtedly hard work and will become all-consuming but if you have passion and a real vision then you’re already halfway there. Remember, those who can, do; those who can’t, teach.
Carl Lamb is Managing Director of Almary Green and founder of the business. Previously, Carl spent 13 years as senior consultant with Equitable Life. His expertise covers all areas of investments, pensions and protection for both individuals and businesses. Carl holds the prestigious G60 pension qualification and is a Chartered Financial Planner.
