16-07-2007
How to start a business on a shoestring budget
Starting your own business has become all the rage, with many people determined to escape the constraints of regular office life and become their own boss. TV shows such as the BBC's The Apprentice and Dragons' Den have also undoubtedly planted the entrepreneurial seed within the minds of thousands of Britons, but many are under the illusion that, without tens of thousands of pounds stashed away in savings, going solo is simply not an option.
While having your own nest egg to rely on is obviously desirable when starting a business, many high-profile firms started life with very little in the way of finance. Take Sir Alan Sugar, who features on The Apprentice and is believed to be worth around £800 million. He started his business career selling cigarette lighters and aerials out of a van he purchased with his £100 savings. Or the Candy brothers, who started out by purchasing a flat using a £6,000 loan from their grandmother a decade ago and recently hit the headlines with their latest luxury property development overlooking Hyde Park, comprising several flats available for £84 million apiece.
Alan Sugar used his initiative, while the Candy brothers saw a gap in the market and benefited from the generosity of a close relative. But what do you do if you need more than a couple of hundred pounds and have no wealthy relatives to speak of?
Fortunately, there are plenty of places to go for advice and more than one way of securing finance for a new business initiative.
Draw up a business plan
If you're planning on approaching someone to obtain finance, probably the most important thing you can do is to draw up a comprehensive business plan, according to Steve Richards, head of business marketing at the Royal Bank of Scotland (RBS). A business plan "helps somebody get their own head around the things they might need to think about and then, when they make an approach to us, the guy can put some more practical advice behind that", says Mr Richards.
Showing a lender that you have taken the time to sit down and think through your business plan and have isolated and ironed out any potential problems will also help in your bid to secure finance, as it will give the lender confidence that you know what you are doing and have a reasonable chance of success, the marketing head continues.
"It is better really if [people] come in, put a business plan together and really think about what they want," he claims. Within this, a detailed cash flow forecast - "the gap between sales and payment" - is particularly important, "because cash flow is really the key thing to make sure they can fund their business going forward".
"Talking to us about…planning shows that somebody is thinking and is organised around their business," Mr Richards explains. "That gives the bank greater comfort in the fact that they have actually thought ahead about what the challenges are as they go into business."
Lenders offer a whole host of options, catering for people making a simple business loan request - which is dealt with rather like a personal loan - right through to complex businesses which may need more specialist help, such as asset finance.
Putting in your own money
Mr Richards comments: "There [are] a lot of product options, most of which can be individually tailored to the customer's needs. It is about individuals, because the businesses tend to be different. Even within a small locality, everybody comes at it differently. Some of them will have money to invest; others may not have a lot."
Normally, people are expected to be in a position to put at least a little of their own money into a new business, Mr Richards admits, although he reveals that there are options available for those with no savings whatsoever.
"We would normally expect somebody to be making some sort of contribution. Normally that's about their commitment to their own enterprise. Otherwise the risk element all falls in one place rather than shared," he points out. However, some people with no security behind them are able to benefit from the small firms loan guarantee scheme.
Small Firms Loan Guarantee Scheme
This government-backed scheme provides lenders with a guarantee against default and enables businesses to borrow up to £250,000 with terms of up to ten years. The guarantee to the lender covers 75 per cent of the amount of the loan, with the borrower paying a two per cent premium on the outstanding balance of the loan. "The [bank's employees] would see if the customer matched the circumstances and could benefit from the small firms loan guarantee scheme and do something on that basis," Mr Richards adds.
Get informed
Entrepreneurs will almost certainly benefit from speaking to a local business adviser, even if they do not end up borrowing from them. RBS branches, among many others, are used to offering advice to people looking to finance their dreams of owning their own business.
"The guys in the local community understand the local business challenges and also understand the dynamics for a business," says Mr Richards. "Within that locality, they have probably handled a similar proposition before and so they will be able to give really practical advice."
Aside from banks and loan providers, many websites also offer information for start-ups, including financial advice, legal and insurance requirements and ideas for marketing. So even if you don't have a business-related degree and your piggy bank is feeling rather light, don't be disheartened. There are a range of options available for you, and a crowd of successful businesspeople who were once standing where you are now, before they took a leap of faith and changed their lives forever.
Simply Business is a one-stop-shop for start-up businesses, offering a wealth of business articles and a fast, easy quote-and-buy insurance and finance service.
All businesses need insurance, whatever their stage of development. We will provide a range of quotes tailored to your individual needs, and a full support service with consultants to talk you through the different covers you may require for your type of business. Start comparing quotes.
We can also offer invoice finance products to help you improve your cash flow from the start. Find out more about invoice finance on our website or contact one of our consultants on 0800 072 6030.
