Financing your business
Jun 26 2007 By Evening Gazette
Every year, thousands of people decide to set up their own business. This guide looks at some of the points you need to consider.
A good business idea
A good business idea could be an invention, a new product or service, or an original idea or solution to an everyday problem. It might also be a gap in the market that you can fill.
A business related to the work you do already.
An interest or hobby that you can turn into a business
Whatever your idea is, you need to be sure that it fits with your needs as an individual, as well as being a viable business proposition.
Questions to ask yourself
What is it that you will personally bring to the business in terms of relevant experience and expertise?
Is there a market - a need for the idea, and customers who will pay for it?
How big is the market, and how will you reach it?
Who will be your main competitors?
What is special about your idea, making it different from similar products or services already out there?
How will you fund your idea?
What might go wrong?
A tried and tested business model
Some self-starters choose a well-trodden path - such as buying an existing business or rights to a franchise - which can carry fewer risks than going it alone.
Points to consider:
It is usually easier to get finance.
A market for the product or service will have already been demonstrated.
A business plan and marketing method will be in place.
You should have valuable experience to draw on.
Many of the problems will already have been discovered and solved.
A franchise comes with financial support too.
You may also wish to consider the following:
Some businesses that are up for sale may be experiencing difficulties.
Make sure you fully understand the reasons for selling, as you may need to invest quite a bit more on top of the purchase price to give it the best chance of success.
The rights to a franchise or to sell particular products or services may be expensive.
With a franchise, there may be a particular way to run the business that you have to stick with.
For more details of acquiring a going concern, see our guide on how to buy an existing business.
Taking control and changing your lifestyle
For many people, the biggest attraction of setting up a business is the independence provided by being your own boss and the chance to have the lifestyle you want.
Starting a business can offer a career with built-in independence and flexibility.
Being your own boss can give you the choice to work more convenient hours - such as working around your children's school hours and holidays.
You will be able to choose to do some professional development or training.
You will be the one in the driving seat, making the decisions that enable you to lead your chosen lifestyle.
If your business takes off, the payoff in financial and lifestyle terms can be huge.
You may find that you have to work longer hours.
You may find it difficult to separate work and home life, especially if you run the business from home and this can put extra demands on your family.
Some business owners suffer stress when things are not going so well.
You should be prepared for the loss of perks such as pension schemes, holiday pay and sick leave.
Going into business full time
The kind of business you've chosen - or your individual circumstances - may mean that you want to take the plunge and jump straight in full time.
You can devote all your time and enthusiasm to your business.
You can react to new developments as they arise.
If your business depends on a gap in the market or a new idea, time will be of the essence.
You will have to manage without an income while your business gets off the ground. If you decide to go into business full time you have a few options to help you over the early days:
Live off your spouse or partner's income - however, it can be hard to live off one salary if you've been running the household on two.
Use your savings - if you've been putting money aside for a rainy day, this could be it. Ask yourself: if you have enough to cover your living expenses and fund your business? For how long? Will you have anything to fall back on if your business fails?
Get a loan - banks will often help new businesses with a loan. However, they can be inflexible. You may have to pay back the loan immediately if your business fails, and there will be expensive penalties if you don't make agreed repayments.
Use your home as capital - if you have capital in your house, you could use it as security. However this is risky, your house may drop in value and if you cannot keep up repayments, you risk losing it.
Borrow money from family or friends - you can save a lot of money if your friends and family don't charge you interest. But if your business doesn't work out, it could put a big strain on your relationship with them.
Going into business part time
If your business allows, you could decide to work on it part time, fitting it in with your current job or other responsibilities.
Then, when the business is robust enough or circumstances change, you can move over to it entirely.
You can still earn an income while you're getting your new business off the ground.
Technology such as answering machines, the internet and email make it possible to communicate out of hours when you're not available in person because you're doing your other job.
It can make it easier for you to juggle your other commitments - such as childcare - by allowing you to choose when you work.
However you also need to consider:
It can be difficult to manage the extra hours you need to put in.
Putting in very long hours can be stressful and tiring. There won't be time for much else.
It could take much longer for your new business to take off.
You'll have to pay tax on both incomes if you continue with your other job.
Many people who set up their own business decide to work on a part-time basis to enable them to balance their home and working obligations.
Some people decide that the safest option is to continue with their current job setting up their business.
Legally you don't have to tell your employer that you are setting up a business, although there may be a clause in your contract preventing you from doing other work.
You might want to ask your employer for more flexible working arrangements.
These could involve reducing or re-arranging your existing working hours.
The Start-up Service at Business Link has been designed to ensure it delivers direct and meaningful support and is tailor made to meet the needs of your business.