In the current economic climate, with the credit crunch and double-dip recessions now part of the national vocabulary, the financial world is still uneasy, and it can be difficult to find the money to finance a new business idea.
A good business plan is essential if you hope to interest investors. You may have an excellent idea, but unless it can be translated into a viable projection of estimated costs and profits, they are unlikely to be interested. You only have to watch ‘Dragons’ Den’ to realise that it is the entrepreneurs who are best prepared who find success. Your plan should show potential investors and lenders that you have commitment. Work out the start-up and operating costs for the first year, and compare against projected sales, appreciating that a new business may run at a loss initially.
The search for start-up money should begin with yourself, and you should be prepared to use your own savings to begin with. Failing that, it may be possible to approach family and friends, although this should be regarded with caution, as there could be long-term consequences. A legal agreement is recommended even between close family members, and various queries ironed out. Would the loan be either low interest or even interest free? Would the lenders ask for equity?
Previously, banks were the ideal lenders, but in the light of current fiscal problems these organisations are being very canny about lending, even to their own customers who may have both security and a good business plan. Business loans are still available, but a bank may require collateral, either in company assets, or the borrower’s property, which may be prohibitive. Check with the bank to discover what financial help and advice it can offer to new businesses.
A popular means of acquiring start-up finance is re-mortgaging the home. This has various advantages, in that it attracts lower interest than a bank loan, and can be paid off over an appreciably longer period. However, this can be tricky, as the mortgage market is also tighter after the credit crunch, while the risk of losing one’s home should not be underestimated.
There are various grants available nationwide for help in establishing new businesses, sometimes linked to government development initiatives.
One of these is The Prince’s Trust offers help to bright young entrepreneurs under the age of 30, with £4,000 available for sole traders and £5,000 for a partnership.
When calculating your start-up costs, trim your budget as much as possible, for instance by leasing rather than buying expensive equipment (and even a firm’s car) Also allow a reasonable contingency fund for the unexpected crisis.
This article was kindly provided by Champion Accountants, if you would like to contribute to The Startup Magazine, email firstname.lastname@example.org
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