How to Start a Serious Business With £2,000

Introduction

How to Start a Business

The following scenario will match many of you exactly, but will not match the rest of you. However, you should all be able to take something from it, I hope!

Many of us think about starting a business at some stage in our lives and what most of us have in common is a lack of start up finance. This article is about getting a business of the ground with £2,000 (a minimum figure in almost every case). Much of this article looks at the Internet as a facilitator of building a business on a tight budget and rightly so. The Internet has a vast and transparent infrastructure of business experience that anyone can tap into at this present time (but not forever). There’s information, advice, tools, experts, mentors, chat rooms, and lots of businesses cutting fees to the bone in an effort to hang-on-in-there. So, if you have what it takes (someone’s quote, “if people knew what it would take to be successful most people would not bother”).

I Don’t Have £2,000

If you do not have finance to start a business, put off your plans until you save enough. Only borrow money if you do not need to pay it back until you reach sustained profitability. Having to repay debts at an early stage will not only wreck your cash flow, it will probably mean a major diversion from your original plan if you start chasing for ‘quick bucks’ to satisfy creditors. Borrow from close relatives, they should know you well enough not to expect it back!

Spend Money to Get More Start Up Money

The idea of this article is not to run a successful business on £2,000, but to use £2,000 to get you in a position where further finance can be obtained i.e. business angel, friends & family and even your bank manager. How? By showing them the feasibility of your business, and preferably how you have also been able to start your business.

When you work out your Business Plan and you discover that you need £20,000 to fund the next stage of the business, the overriding thought is to put the business plan in the bin as it does not fit your expectations and:

a) cut costs from the start up Cash Budget

a) go ahead anyway and deal with it as you cross that proverbial bridge,

b) go back to the day job, and put off starting your own business for another ten-years.

What you can do to get the £20k is to seek external funding. To improve your prospects of getting your finance request to as many people as possible you will need to spend some of your own cash (from the £2,000). Don’t look at this as wasting money, sourcing funds has never been free. A bank will charge you an overdraft arrangement fee, and plenty of interest on top of that too.

While we are on the topic of banks, it is unlikely that your bank will lend you what you need unless you, or someone, have genuine security to offer: home equity, life policy, fixed/floating charge over existing profitable company etc. Offering the bank your new stock as security will not work, and the resale (book value) of most stock is a fraction of the actual cost: its like buying a new car – it starts depreciating drastically before the ink dries on the delivery form. It is also unlikely that a bank manager will allow even secured lending where the business idea lacks feasibility. Having advance orders is only a plus where the cost of producing the orders fits within the cash flow targets.

Business Plan (BP)

No BP, no finance. Poor BP, no finance. Unrealistic BP, no finance. Naive BP, no finance. Your BP says, ‘this is what I know about my business, myself and my future’.

When looking at BP’s the financier is sometimes quoted as saying, “I use the ‘50% rule’. I take 50% off the projected income, and add 50% to the projected costs, and if the BP still stands up it has passed the first stage”.

So, if you have any doubt your ability to write a targeted BP that is a working blue print for your enterprise, pay someone to do it. There are probably more people per capita who know how to write a BP that at any other time: the Internet entrepreneur being responsible. This does mean that £500 can get you a ‘professional’ BP. The key to choosing who will get your £500 is in how many questions you are asked: the more questions asked the more targeted the BP will be. If you fill out a form online with multiple choice questions the result may be (sure to be) too general.

Visit our article explaining how to write a Business Plan and see a working example.

Business Angels (BA)

With the age of the Internet comes accessibility to those with money. Not the venture capitalists (who deal in millions of pounds) but the business angel. The BA will look at financing deals of up to £100,000, with £50,000 being the average. The BA is likely to be a businessperson in your area, and quite possibly in the same type of business you are starting. A local group of BA’s may club together and all take part of the risk, with one of them (who knows most about your business) keeping a close eye on your business development.

To put a plan before a BA you can pay a fee of up to £500. The fee is not refundable and you may not get helpful feedback from some BA’s. Therefore, ensure that whoever you use you get feedback as a condition of your fee to them. Advice from this source should be about how to improve your chances of success and not a report listing all the bad points. Using a BA will get your plan in front of those with available finance, industry experience, and if they do decide to run with it you can expect their vast knowledge to help you along the way. As with all finance there is a cost: the BA may want 20 – 40% of your business (in addition to your fee) and you will have to weigh up whether their £20,000 and experience can give the added value to the business that will still leave you with the profitability to make it worthwhile. The best place to start for a UK entrepreneur is the British Venture Capital Asso (BVCA)

Suppliers Can be Angels (in disguise)

Suppliers want to sell goods. You want to sell goods. So what’s the problem? The supplier will not give you six-months credit to stock your new business, and why should they. Well, lets give them some reasons to:

On the incentive side

a) You will take some slow moving goods,

b) You will give the supplier equity in the business,

c) You will sign a contract to use the supplier’s goods for 12, 24 months,

d) You will undertake to gain more outlets for the supplier (not locally though)

e) You will market the supplier’s other goods through your outlet,

On the trust and capability side

a) You will provide the supplier with monthly management accounts,

b) You will keep the supplier informed of all major moves and issues,

c) You will show the supplier how the business is growing,

d) You will ensure that the first thing you do when profitable is repay the supplier

There is no set way to approach a supplier, but you will improve your chances if you have a good business plan, are confident of success.

So Far!

£500 on a business plan, and a similar amount for the business angel, leaves you with £1,000 and enough advice and planning to move forward.

The Office and Bits

Lets assume you have a PC and somewhere to sit at home. The first thing to do is to get a dedicated telephone number: there is little financial reason not to, and the benefits are huge when answering in your company’s name when responding to incoming calls. Add an answer-phone to the list: most people will forgive an answer-phone, but an unanswered telephone is fatal. I have heard many arguments for caller display as an alternative to renting another line but the problem with this is that the majority of business callers hide their telephones ID. A PC with a fax and answer-phone is perfect (if you can configure it).

Invest in a laser printer. You can use this to provide just about all of your stationary to a high standard. Use coloured plain paper, as this will compensate for the black laser output but remember many tones of grey are available. Get your business cards printed professionally as the cost is low considering what you get. This, with office bits & pieces, should come to about £250.

Visit our article Office Equipment and Office Supplies to help.

Customers

Getting customers is one of the, if not the, hardest disciplines in any business. I have a simple way of dealing with sales: pay someone to do it. You are unlikely to be able to afford Dedicated Sales Staff & Commission Sales, unless you offer commission only (and many sales-people will accept this with GREAT products).

The Internet has opened up many companies to those who seek to sell them products and services. Corporate web sites have contact information and in many cases the names of those you need to contact. Sending unsolicited emails is wrong from my point of view, however, sending a specific email in order to seek business development is, I believe, OK. I have no objection to such emails landing on my PC as I want to be aware of things that affect my business. But, don’t persist if I don’t return your message or send me updates of your companies latest press release: that’s spam!

One of the good old ways to tap into a reasonable sales capability is to use a telephone marketing company. This is not the same as telesales, this is about making appointments for YOU. Making appointments are far easier than direct selling and do not have to be about sales. They can be for any number of reasons: partnerships, collaborations, sub-work, research. For example, the marketing company can make appointments with businesses that would benefit from working with you by asking “we want to make an appointment with your business development manager to discuss how we can reduce…, provide you with…, increase your…,” and so on – no need for sales to be mentioned at all. The Internet has allowed competing companies to talk together and agree mutual strategies.

With the £750 left from the budget I suggest you find a marketing company that will provide you with a test run for £750, at, say, no more than £25 for each appointment. Over a few weeks (NOT days) this will give you 30 appointments, but ensure that the marketing agency is targeting, and only targeting, the type of customer you have assessed in your business plan. This option is one of the most effective ways to provide sales leads, but is so under used that you will find £750 enough of a temptation.

Pay a deposit, say, £250 and expect 10 appointments, then another £250… if the marketing company dose not want to do it that way find one that will! Do as much research as possible about your customers as the more that you know about them, the more targeted you can expect the marketing company to be. Finally, successful business owners are never shy about complaining when the service they pay for is not the service they are getting: act early and always stay in control!

Visit our Marketing for more information on how to get customers to your business.

Watch Out!

Business advisers all have their favourite aspects of what a successful business needs to do to get started, but one fact is definite above everything else: half of new business start ups will not be trading in three years due to a million possible reasons. This means that it is crucial at all times to know where you are, where you are going and how you are going to get there. Will your business stand up to your financial and operational model and provide the stable organisation and profitability you planned for. This last point almost means that you have to Business Failure as in many respects you will use your business figures to cut your losses. It is not only bad businesses that fail, but many of the best ones as well: know when to quit, don’t ruin your and your family’s future prospects by hope alone. Just come back stronger next time!

Source:http://www.bizhelp24.com