Cash, getting to the get-go and then getting going
So you’ve had an idea about starting a business, you’ve gone through the ‘fear of failure’ stage, the ‘it’ll all be perfect’ stage and the ‘my best friend said do it/don’t be mad’ stage.
Be assured; if you have not gone through those stages, you are unusual and possibly deluded.
And if you have not gone through these sleep-depriving stages, and you come to us at Smorgasbord, we often recommend that you either read The Mom Test by Rob Fitzpatrick or look at the 20/20 Ideas Box process that I developed to help for some of our clients. Drop me an email if you would like a free copy of it.
So you now know why you are going to do this business. This new baby of yours may not be the driving passion that you have always wanted to act on, but you are going to do it.
Actually, it is not all that important why you want to get going; it is just essential that you do. Don’t get me wrong, I buy into Simon Sinek and his thoughts about how you need to know and understand your passion in order to lead and deliver, but we do not all start as a driven, passionate soul; some of us just want to create a something, get going and get growing.
Next, you need some sort of plan. Actually, two types of plans working together; a plan for the business and a plan for the cash. You notice I do not use the term ‘Business Plan’ and ‘Cashflow’ because these can be seen as loaded terms, full of complexity, and frankly scary to some people.
I have written before about the seven questions you need to answer in a business, and to me, that is really what a business plan is. Keep asking a small number of questions of yourself and you will come up with the plan for the business. Then write it down in a way that people who do not know you or your business will understand. The cash plan is all about understanding that it is not simply cash that is important in a business; it is the flow of money in and out of the company over a time that leaves cash in the bank at the end of each month.
Once you know what, how, and when you will do things, and you know how much cash you might need to do those things, you might need some help with the money required to get you going and get you through the first period.
There are many ways of funding a business; the bank of mum and dad, self-funding, redundancy reserves, savings, peers, crowdfunding, angels, banks. You can also do some clever things with intellectual property and company pension schemes; the list is endless, and you can go and ask Google [or us] if you are interested.
The funding source I am often involved with is the Government-backed Startup Loan programme. Like many government initiatives, it is not perfect. But unlike many government initiatives, and we could all name a few, it does seem to deliver cash to businesses when they need it in a low-touch, cost-effective manner.
Let’s look at the facts.
If I were to go to my bank for a loan or an overdraft to start my business, they would almost certainly expect you to support the loan with some form of collateral; a charge over your house or similar. If they do commit to you, after quite a lot of time and paperwork, the interest rate they charge might be in the region of 3-4%. All good, provided you can get there in the end. This is lower than the Startup Loan interest rate, which is 6%.
But here’s the thing.
A Government-backed Startup Loan repayment on £25,000 at 6% interest is less than £30 per month more than a £25,000 loan at 3.7%. And the Startup Loan is unsecured and comes with complimentary advice and a year’s mentoring.
It is also a relatively painless process; I do not have to put my house up as collateral [if indeed you own a home in these difficult times]; I get help along the way, free mentoring for less than £30 per month.
I have been involved with managing, advising and finance in several different businesses and have no axe to grind. I always say pick your partners carefully.
If you are going for external investment of any kind into your business, always ask yourself ‘what does he bring apart from the money?’. And if you want to go for a loan of any kind, pick your loan provider carefully.
If you want to talk to anyone about any of this, give us a shout at Smorgasbord.