Finding the money
As you probably know, few businesses can provide a decent income in the first year of trading. If you keep costs to a bare minimum you may be able to turn a good profit, but you'll find that you need most if not all of that money to re-invest in your business to make it grow. We are constantly facing that problem. The more money we put in, the faster our business will grow, but we really need to draw a salary out of it now! One solution to this problem is to borrow a lump sum to either get things started or push forward growth. If your idea is solid and proven then this might well be a good strategy, but don't forget to calculate interest payments into your margins.
Lets say you want to buy 100 pairs of jeans which cost £5 each. You need an initial investment of £500 so you take out a loan. You find you can sell to customers at £10, and it costs you £1 to sell each pair, eg on eBay. You are left with £4. But, you also need to repay the loan interest. If your interest was 5.5% then you are paying £27.50 a month extra, or 28p per pair of jeans in the first month and more as the months go past. Provided you can sell the jeans relatively quickly then you can still turn a good profit. Also beware of VAT! Many suppliers quote prices without VAT, so when you come to pay you realise the jeans cost £5 + VAT at 20% which = £6 a pair.
You should do all of these calculations before you borrow the money. Don't just borrow a lump sum to get started. Borrow only what you need at the outset, as paying back the loan might hinder further growth.
Ideally you will be able to the invest the £500 from some of your own income. I started my eBay business with about £50 of my own money and grew it from there. But, I hardly withdrew any salary for the first 3 years and invested all of my profits straight back into the business. Now after 5 years I am expecting to see an annual pre-tax profit of £14-£16,000.
Getting established
It is soooo tempting to invest in lots of things. Office space, office equipment, signs, logos, stationary, web designers etc etc. Spend as little as you possibly can to start with, and be satisfied with a 'soft launch'. If your business is PR or marketing then yes you probably do need a big launch with everything perfectly finished. But, for most businesses you can start with what you've got and then grow and improve. You can design your own website for free using software like google sites. You can promote your business on Facebook, Twitter, Google + and Pinterest.
A key part of your business plan should be asking 'how will people know about my product / service?' If you are offering something locally then you might want to invest in marketing materials, eg flyers and/or online adverts. If you are starting a website then you may need to pay for online adverts such as Google and Facebook ads. But, plan your investment carefully and figure out what your money is likely to get you in return.
Write your business plan
You know you need to do it, but it can feel like a real chore. Writing a basic business plan is an essential aspect of being prepared. Write if for yourself rather than for an external agency such as a bank. I now have a 3 month business plan which is an ongoing document that I never really view as complete. I make small alterations to the plan as I'm going along, and of course write a new plan every 3 months. Your first plan needs to take a longer term view and also needs to make some financial predictions.
You don't need to have a complicated structure. Set out your idea - what you want to do, why, and how. Think about why this business is needed in this area. Think about what skills you can bring to the business. Include an assessment of the finances for the first year: include all possible costs and a prediction of the income. Include a 'SWOT analysis' in which you list all the Strengths, Weaknesses, Opportunities and Threats for your business.
Remember to keep referring back to your plan to see if there are small adjustments you need to make and to measure how far along you are in your plans.
A key part of your business plan should be asking 'how will people know about my product / service?' If you are offering something locally then you might want to invest in marketing materials, eg flyers and/or online adverts. If you are starting a website then you may need to pay for online adverts such as Google and Facebook ads. But, plan your investment carefully and figure out what your money is likely to get you in return.
Write your business plan
You know you need to do it, but it can feel like a real chore. Writing a basic business plan is an essential aspect of being prepared. Write if for yourself rather than for an external agency such as a bank. I now have a 3 month business plan which is an ongoing document that I never really view as complete. I make small alterations to the plan as I'm going along, and of course write a new plan every 3 months. Your first plan needs to take a longer term view and also needs to make some financial predictions.
You don't need to have a complicated structure. Set out your idea - what you want to do, why, and how. Think about why this business is needed in this area. Think about what skills you can bring to the business. Include an assessment of the finances for the first year: include all possible costs and a prediction of the income. Include a 'SWOT analysis' in which you list all the Strengths, Weaknesses, Opportunities and Threats for your business.
Remember to keep referring back to your plan to see if there are small adjustments you need to make and to measure how far along you are in your plans.
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