Erin Walls, a specialist business
advisor for SMEs at Ward Williams Creative, looks at the important personal
considerations that need to be made before going into business.
There are more UK businesses being launched than ever before, with
526,446 companies established in 2013 compared with 484,224 in 2012. London and
the South East have seen the most entrepreneurial activity, with 136,936 new
businesses launched in London alone last year.
This is great news for the economy, but inevitably not all those businesses
will thrive and survive and it is important to consider the potential personal
costs of starting up.
Erin Walls, a specialist business advisor for SMEs at Ward
Williams Creative says, ‘There is a lot of buzz around start-ups at the moment.
You can find lots of tips on start-up finances, but you also need to consider
the personal cost of starting up a
company of your own.’
Walls has the following advice:
·
Consider the impact of financial
insecurity
New businesses can take anything from a few months to a few years
before they start making revenue and initial seed capital or investment may not
last that long, so there is usually a period of a few months at the very least
where the founders have little or no income. This can be difficult for those with
a family who may need to reduce personal outgoings. Personal pension payments
could be frozen for a while and non essential spending could be cut, eg on
holidays, gym membership, take-aways, new clothes. Those living in a large
house could consider renting this out and living in smaller, cheaper rented
accommodation, but would need to check the mortgage provider approves.
·
Be realistic about personal cash
flow
When the finances become stretched it’s hard to remain objective.
Be realistic when looking at business cash flow, for example if you have five
potential jobs over the next six months, don’t be totally optimistic and
account for them all coming in, equally don’t assume you’ll win none of them.
Be realistic about personal cash flow too. Work out how much you need to earn
once up and running, to provide not just for the business, but enough to live
on and to provide for any dependants.
If your proposed business will generate about £35,000 revenue in a
year and business costs are about £15,000, then you can only hope to earn
£20,000 a year and there will be tax on that.
What if costs rise as they always do, can you live and provide on
£15,000?
·
Manage everyone’s expectations
It’s said that most arguments between couple are about sex or
money and many relationships come under strain during the start up process as
money and pressure become daily issues.
If your partner supports you, how long are they willing for the household
to live on a reduced income? If your partner has a variable income or a lack of
job stability, then maybe this isn’t the best time to start up. What is your
partner expecting the situation to be at the end of six months or a year and is
it in line with your thinking? It is really important to manage everyone’s
expectations.
·
Watch your stress levels
When you work for yourself there is no one above you on the
ladder; the buck stops with you, which many people find stressful. Most people
who run their own business, even those that are successful, say that they never
turn their business mind off, even when at home, or out with friends. Lots of
people think running their own business will allow them flexibility to do the
hours you want, but in reality most people work more hours in their own business
than they would as an employee. Some people find that as the pressure builds
they start to become unwell or fall sick more often than usual. This is a sign
that the stress it taking its toll and nothing is worth killing yourself over,
so it is essential to find a way to de-stress and to keep fit in body and mind.
·
Consider the implications of
personal guarantees for business loans
Sometimes giving a personal guarantee for a business loan is
unavoidable when you are in a start-up situation, but before you sign your name
on the dotted line you must at the very least consider the implications to your
personal life if the business fails and the loan is recalled for immediate
repayment by you personally, or if legal proceedings start. What if that happens?
·
Learn to spot the warning signs
of business failure
Be aware of the signs of failure. Obviously you need to be
positive and we all hope things will work out, but there are some signs that
clearly signpost a big problem:
·
Negative
cash flow. If you don’t have cash you will be unable to pay debts and the
business will become insolvent
·
Lack of
pipeline – When you start out, many friends and connections will generally be
positive for you and say they will help, or know someone who would want your
service or product, but if after a few months no one is following through and
you have no work lined up, then that pretty much tells you that the business
won’t work. If you continue, you will be working at a loss, or on a day to day
survival basis and that is hard and stressful and not a nice way to exist.
Case study: How Richard Hearn
adapted his business development
Richard Hearn of Stoke Newington left a full-time job with a
charity in November 2013 to set up a business called GenerationMe, training
disaffected young people and brokering work experience placements for them. He
set up a pilot scheme with a few employers on board to host placements and
connected with an education charity to source young people for placement.
There were delays along the way, so he began freelancing as a
trainer for an apprenticeship provider, but this work was limited and sporadic,
so his girlfriend agreed to support him financially for three months, but this
crept to four and then five months. There were a lot of potential developments
that Richard was confident could lead to an income, but they were not coming
off quickly enough. Richard comments, ‘My lack of financial contribution to the
household began to cause arguments, my partner being more objective about the
fact money was not coming in and I took it personally at times.
'I have swallowed my pride somewhat and had a reality check that
my training business will take longer than I thought. I am doing more freelance
work to boost my earnings and have reduced the time spent on my training
company to one or two days per week. In the meantime I make daily savings by
small things like not buying lunches and travelling by bus instead of by tube,
as small savings soon add up.’
No comments:
Post a Comment