Last time we went through how we going to structure and run your business, as well as the different options you will have when setting it up financially. This puts us in the perfect position to complete the finance part of our one-page plan.
What I have assumed (for you!) is that by the year-end, your run rate will be 16 billable days work per month, so pretty full! You are working on an average rate of £250 per day.
You are not diluting your income by using anyone else. You are going to be stringent on costs, and you are going to keep your costs at 20% of turnover; and finally, whilst you will “upgrade” to a value business in due course, in Year 1 you are going to organise your net earnings to support yourself and, if applicable, the family.
If you need external finance to launch your business, then realistically you have three main options, in addition to any government grants or funding schemes which are specific to your locality (your local Business Link is the best place to research this).
- “FFF” – This is short for Founders, Family, and Friends. This represents the logical starting point.
- The Banks – The government introduced a new scheme in 2008 to stimulate lending to small businesses, which has a partial government guarantee. If for any reason you are not eligible for this scheme (known as the Enterprise Finance Guarantee or EFG Scheme), you will probably have to provide security (e.g. guarantee probably supported by a mortgage over your home) to obtain either working capital finance or asset finance.
- The business angel community – there will be one or more business angel communities in your locality, as they do not usually like to be more than 2 hours away from their investments.
Below I have set out my top tips on dealing with banks and angels:
Top Tips for Dealing with Banks:
- You need to prove your ability to service the debt (plus interest) with something to spare
- They will be looking for security when lending to young businesses
- They will fund assets and working capital
- They will very rarely fund people and salaries
- They will have concerns re risk and reward
Top Tips for Dealing with Investors:
- Exit Strategy is often their No. 1 priority
- Return on investment is critical
- They will be looking closely at the potential of your business
- They will also look closely at the management
- They will not fund the owners’ lifestyle
Next time we will look at the main reasons why businesses fail and how you can avoid them. In the mean time, do get in touch should you have any questions.