If you have the entrepreneurial spirit and nerves of steel, then starting your own business may be one of your goals in life. However, understanding and assuming the risks involved in such a venture, needs to be known and explored as a part of your plan.
For me having my own business is no longer a goal. Sort of been there and done that.
Which is not a bad thing or negative in anyway. It was a good experience, and one from which I learned volumes.
Far be it from me to dissuade someone from following their dream and having their own business. It is just at my age and station in life, I have fulfilled that dream.
Owning and operating your own company is not just a lot of work, but very rewarding in many ways. It is something I look back on fondly, but do not look forward to again.
There are many factors to consider when starting up a business or company. Are you going to be a service based industry, or a product based industry?
Do you need to hire employees, or can you begin the business by yourself?
A few other questions to ask:
* Location, where will the business/office/company be based?
* What outside help do you require, such as a bookkeeper or accountant?
* Do you have a business model?
* How will you fund the business, where does the money or capital to operate come from?
There are many other questions to address, but that last one, where does the money come from to start a business come from is a biggie.
If the company is just you, a one-man or woman, operation, and you are working out of your home, you may only require minimal financial backing.
However, if you are looking at something larger in scope, you could require thousands of pounds to get the company off the ground.
And you also have to have an idea of when the company may begun to turn a profit, as that will aid in knowing how much money you need, and for how long.
Failures
Let’s start on a sour note or negative, and from there we will move not just forward, but to the positive.
Did you know that half of all new start-up companies fail within five (5) years. That is a sobering fact!
The disclosure of this fact is not meant to put you off starting your own business, however, if you know why some business fail, you can work this into your business model, and use it to your advantage. Knowing why something failed gives you information and knowledge to insure it doesn’t happen to you.
How’s that for a spin !
And one of the reasons businesses fail, is lack of funding, and not turning a profit quick enough before funding runs out.
Back in the “credit crunch” this affected many companies. Banks tightened up their lending, and so businesses could not continue to operate as they had no access to cash/loans to continue to operate.
A couple of years ago, the SME Trading Director at insurer RSA, David Swigciski said, “The UK is a great place to start a business, but survival rates are low. The recession has had an unsteadying effect on small and medium enterprises (SMEs) and we need to work hard to rebuild their confidence.”
Some “barriers” that companies may experience are how the banks lend money, and the taxes a business will have to pay.
These all need to be factored in when starting up a company.
Common reasons why a new business may fail are:
* Not having a proper business plan: You need a good model to base your business on, look at your competitors and see how they are doing.
* Know your market and competition: This ties directly in with a business plan or model. Know your market, who will you sell to, and also who is your competition. Learn from their mistakes.
* Regulations and licensing: Know what government bodies may regulate the industry you plan to be in. Are you responsible for VAT, and what other taxes will you need to pay. This all needs to be factored into your operating expenses and model.
* Costs: Not anticipating how much money is needed, and for how long, until the business can support itself.
These are just a few reasons why a new business could fail.
So How Much Money/Capital Do You Need To Start a Business?
How long is a piece of string?
Not to answer a question with a question, but much money you will require will depend on the nature of the business and many other factors, such as when the company can show a profit.
If you start a business as a sole trader with just you doing the work and working out of your home, then obviously you will need less capital then say opening a shop.
You’ll have rent to pay for the shop, stock will need to be purchased, and you may have employees to pay.
If you are feeling adventurous, you could go into the malt whiskey business.
According to experts, it can take an initial investment of up to £5 million, years before a profit is seen. You cannot even begin to sell the whiskey as Scotch until it has been in Scotland for three (3) years.
And if you wish to sell some high end single malt whiskies, it can take 10 or more years.
Jim Swan who is a whiskey consultant has said, “Once you’re selling everything you make, it’s a licence to print money.”
However, you have to get to that point in time first.
He goes on to say, “An entry level single malt whisky [from an independent distillery] might cost £45, with a profit of £15 per bottle.”
“And once people are spending money on more expensive whisky, then you could be looking at 90% profit per bottle.”
As to how much you may need to start a new distiller, Mr. Swan states, “There’s no point in even thinking about it unless you come up with at least £5m.”
“And then you need money to keep you going until the whisky is ready.”
It can cost up to £250,000 a year to keep things going. If it takes you five years to begin selling your product, that’s £2.5 million, before you begin selling anything.
The Founder of Kingsbarns Distillery, Douglas Clement said, “Most investors want a return in three to five years. The trouble with whisky is that they won’t see much for about 10 years.”
Investors need to be in it for the long haul.
Mr. Clement built the distillery up, and then sold it, he has since stayed on and works there.
He went on to say, “This project for me personally was never about profit. It was about taking my idea for a whisky distillery by the home of golf and the area I was born and raised, and turning it into a reality.”
One interesting thing the distillery does to make some money is give tours and has a gift shop.
This is a good model for other businesses that may not turn a profit immediately. Find other ways/sources of income/revenue until the big profits can come in.
Where Do I get The Cash?
There are many ways a new business can get the funding it needs to begin operating.
* Personal savings and money: As the owner of a business you can use your own personal savings and money to fund the company. In some instances people use their own personal lines of credit. This can be risky, if the company folds, you are still in debt.
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* Banks: You can borrow the money from a bank or even a crowd funded lender. Again, this can be risky as you the owner may be asked to guarantee the loan. If the business folds, once again, you owe the loan.
* Investors and capital venture firms: Think of this like the Dragon’s Den. You pitch your idea and ask people to invest in the business, while offering a percentage or return on their money later on.
* Grants: In some instances, and depending on the nature of the business, there may be government or private grants available. These can be difficult to receive.
As you can see, there are a few different ways to get money to start a business. You need to keep in mind, for many of these as the owner of the company, you can be liable and responsible for any loans or debts.
It isn’t easy to start-up a new company, and it is risky, but it can be done. You just need the motivation, ambition, and also the capital.
,If you have the entrepreneurial spirit and nerves of steel, then starting your own business may be one of your goals in life. However, understanding and assuming the risks involved in such a venture
This article by Jon Emge was syndicated by the Personal Finance Syndication Network.
