Financing your business

The positive cash flow effect

In Chapter 1, we looked at what market place our future businesses would be likely to operate in, and I said that I believe the domestic is the best one to tackle first. The main reason for this is that you will have what is often referred to as a ‘cash business’, one where your clients settle their accounts as soon as the job is completed.

This means that you won’t have to wait for months for your money, which is good news for your cash flow, thus creating positive cash flow.

However, this doesn’t mean that you’ll be earning your target income from week one, or possibly even year one. As with all business, things take time to develop. During this initial development period you will need enough money available to cover:

• your personal survival income
• your business running costs.

Of course you may be very lucky and your circumstances may be such that you don’t need much survival income and you have estimated that your running costs are going to be near zero. But if you’re like I was when I first started, and had too many bills and not enough cash, then you will need to work out how you’re going to have enough working capital available to tide you over what may initially be a financially difficult period.

Working capital can come from a number of sources:

• savings
• a loan
• other income.

Other income could be anything from renting out your spare room to taking a paid parttime job. Try to have at least three months’ survival income available to you before you start. If you don’t have it, then you could consider starting your business as a part-time operation while keeping your main job. This way you can save enough money to enable you to go full time at some later date, hopefully in the not too distant future.

From experience I can tell you that nothing is worse than whittling away the early hours of the morning lying awake worrying about how you are going to make ends meet, when you should really be resting preparing for another hectic day.

Obtaining funding for your business

If you’re planning to approach a bank for finance you will have to have a well thought-out business plan with which to impress them. But don’t despair if they won’t lend you any money.

During my presentation my bank manager appeared to be very enthusiastic about my ideas. But did he give me an overdraft? No. I had what I believed to be a fairly sound business plan. I had over £40,000 equity available in my property, which I was willing to let the bank have a charge on if they felt they needed to. I had an excellent credit history and had never had as much as a letter warning me I was overdrawn. But when the day came and the moment arrived the bank would not give me any credit. I still managed to start my business and as soon as I was well enough established I changed banks.

When the bank told me I couldn’t have an overdraft I was stuck. I had no way of financing my business other than to put my initial capital expenditure on a credit card. While this method isn’t really to be recommended as the best way of starting your enterprise, it did work for me. In the first few months I put all my major expenditure on my credit card, which I then began to pay back from earnings. In a way it’s more flexible than a bank overdraft as you have some control over how much you pay back each month. However, this is not to be recommended. I would advise you to avoid taking this route if possible. I know of at least one case where someone did this and the results were disastrous.

Clearly the best way of financing your business is to have enough cash in the bank without having to borrow at all. But if you don’t, and you want to start, then you’ll need to look at all the different ways of financing your new venture.

• Bank loan.
• Bank overdraft.
• Loan from another source.
• Income from another source, for example selling something you already have in order to finance your venture.
• Using your credit card to finance some or all of your initial essential purchases.

Alternatively, you could find ways of reducing the amount of money you need to have available by offering only those services that you can offer without any need for further capital expenditure. This is probably the most sensible approach, however it does mean that your business may initially comprise you cycling round your area clipping hedges using clipping shears. If this is what you have to do, then do it. There’s nothing wrong with this approach. And as soon as money starts flowing into your business you could start expanding your services.

Sales and marketing launching strategy

We look at sales and marketing and ways of launching your businesses in more depth in Chapter 6. The time that you’re planning to start your business will determine when you should begin your pre-launch strategy. If you’re planning to start almost immediately, or have already begun, then you should have a look at Chapter 6 now to give you some ideas and help with planning a sales and marketing strategy that will make starting your business as painless as possible.