Advanced Diploma inBUSINESS STARTING UP

MODULE 4: Business Planning

Financing your business needs careful planning. Initial calculations will include all your

foreseeable setup costs. Picture your workspace and everything you'll need in it in detail -

equipment, stock, computers, phones, furnishings, flooring, lighting, signs, promotional

material, etc. Cross off the list anything you already have. Are there any items that can wait

until you start to get income from the business? Add the cost of everything else - this will be

your set up cost.

You'll also need a fund to cover on-going costs until you build up your cash flow. It's worth

having a plan in mind for how to fund possible expansion once your business is running well

and you see the opportunity to build it up. If you don't have good knowledge of accounting,

it's a good idea to get help from a professional accountant or financial manager.

Borrowings

The ideal situation is to have your own money to invest. You are the one with the strongest

belief in and commitment to your idea and the confidence that you will generate a return. You

may not have the spare capital to cover all your set up costs, but you will need some of your

own finance to invest. If you need to approach a financial institution, most will not lend to

anyone who isn't prepared to risk some capital of their own. You may find the same with

personal contacts. Your capacity to borrow from financial institutions may be dependent on

how much of your own money you can raise as they often base their lending limit on this

figure.

Sources of borrowed capital

Family and friends are often helpful with financially supporting the setup of a small

business. Be clear about the risks, outline your repayment plan and consider whether

they can afford to lose the investment.

Business contacts can also be approachable and willing to lend especially if they know

your credentials, work ethic and trustworthiness. They may also help with guidance

and mentor.

Business angels are professional investors who often play an active role in managing

the business as well as providing finance.

Financial institutions: For a small business loan, a local credit union or community

lender could be your most cost-effective option and are often easy to approach. High

street or nationwide banks are another options. It's much easier to approach an

institution that you already have a relationship and track record with. Instead of a loan,

you may be able to manage with an overdraft facility, which means you're only paying

interest when you're in minus balance. You'll need to prepare a comprehensive and

credible business plan if you intend to approach a financial institution.

Microfinance/Crowd funding: This is a relatively new phenomenon but is really taking

off. People with money to invest are effectively coming together and forming 'people's

banks'. It's the silver lining to recent notorious behaviour among the traditional banking

sector which many are disillusioned and reluctant to engage with. You pitch your idea,

post it on an online platform and if investors like it, they choose to lend you the finance

you need. You may be supported by one source or many and it is centrally

administered with clear rules, repayment rates and schedules.

Credit card: If you think you'll just need some short-term financial borrowings and your

credit limit allows, this could be an option. Before you decide on this source of finance,

be aware that it's quite an expensive source of money that you need to think carefully

about. But if you're confident you'll be able to repay borrowings quickly it could save

you a lot of time and trouble preparing an application for a financial institution.

Equity: You may choose to put equity into your business using assets you have, for

example by taking or increasing a mortgage on your home. Before you commit to this

option, consider the long-term consequences. If, for one reason or another, you decide

to close the business will you be able to continue to repay the mortgage? Think through

every possible scenario and check the small print from your financial institution. Putting

in some of your own equity includes any equipment you may already have that you'll

use in your business, like a computer. Value your equipment and include this in your

figures if approaching a financial institution. You may know someone who's willing to

invest equity in your business. This means they will own a percentage. Think carefully

about how this will work and be clear before you make an agreement whether he/she

has a voice in the running and decision making and when and how the equity is to be

repaid.

Grants: Finally, research how much funding may be available to you through grants -

from government departments, state agencies, local authorities, private foundations

or non-profit organisations. Some grants are repayable, some partially, some not at

all. Check all the rules, regulations and timescales. If you've been unemployed, you

may be entitled to special tax incentives or allowances for rejoining the workforce or

starting a new business - check your entitlements with state bodies.

RECOMMENDATION:

If you have no previous experience or knowledge of seeking finance we strongly

recommend that you seek advice from an accountant or financial planner.

In any economy, and especially in one trying to recover from a downturn, small new

businesses are the seeds of hope and change. Entrepreneurs are the vibrant lifeblood that

pulse new life into a sluggish field of commerce and slowly turn it from surviving to thriving.

Though exciting, it can also be challenging and isolating while you plan your new business.

Surrounding yourself with a good support system is invaluable. You'll need the support of

family to understand the demands on your time and, probably, your preoccupation in the early

stages.

One of the first things you can do to help make wise decisions is to work with a mentor who

will listen to your ideas and plans and give you objective feedback. The business landscape

is constantly changing and an experienced opinion is reassuring. In every country,

government departments and state agencies make a lot of resources available to innovative

new businesses to help get them off the ground. There are many forms of aid. Before you

think about applying for financial help, you'll need a robust business plan that shows your

research, budgets, strategic, operational and financial planning, forecasts and timelines. (See

sections 3.2 and 3.3)

The stronger you are from the beginning, the better your chances of growing steadily.

Wherever you live, there is plenty help available to start-up companies. Make use of all

assistance you can.

1. Mentors

A mentor is an experienced businessman or successful entrepreneur who is willing to give

back by advising and guiding people who are about to embark on a similar path. The advice

from someone with experience can be invaluable in helping you avoid mistakes, market your

business effectively, plan wisely and grow a competitive business faster.

You may want a mentor just for a specific area of expertise or for general guidance. It could

be someone you know or admire who has the time and interest in sharing his expertise.

You may be offered help free of charge or for a modest fee. Many local government enterprise

agencies also offer a low-cost mentoring scheme. In some business communities, large

businesses and universities offer skills-based volunteers to smaller businesses. Check for a

program like this in your area.

Before you develop a mentoring relationship, research whether he or she is a suitable match

for you and your area of business. You'll need to have full trust in his or her skills, abilities

and experience. As he or she will be a confidante as well as an expert adviser, you need to

have good personal chemistry and trust him or her to not to share any element of what you

discuss with any other party.

2. Business networking groups

Once you've set up your business, one really good way to kick-start trade is to join a business

network or local Chamber of Commerce. A network group is a small number of business

people who work collectively for the good of everyone in the group. They take any

opportunities they can to recommend you and you do the same for them. Many businesses

thrive on these leads alone. There's probably a choice in your area and joining costs vary.

Some are focused on specific sectors; check whether they suit your business before joining.

Once you've been in business for a while, you may decide to form your own network group

with people who can be of specific benefit to each other. See more in section 4.4, Building

your business network.

3. Government departments and state agencies

Wherever you're located, government departments, state agencies and local authorities that

are focused on enterprise offer many forms of aid to small businesses:

Advice and training

You may need advice in a specific area or on how to go about one aspect of setting up your

business. Your local agency should be able to point you in the right direction.

Many organisations offer low-cost training to increase skills and equip entrepreneurs with up

to date knowledge of the market, technology and rules and regulations about starting to trade

in your sector, for example on health and safety regulations.

Grants, subsidies, loans

You may be entitled to a start-up grant for your business. Grants come in many forms and

under many different criteria. Research whether you qualify for any funding. Finance may be

repayable or partly repayable and you'll need a detailed business plan to apply. There may

be subsidies for adapting your premises or for buying equipment. If you've been working as

a homemaker and are returning to employment, check whether you're entitled to a back to

work allowance or qualify for training programs.

Local state agencies can also be a source of funding for new businesses. Many provide loans

or loan guarantees or take equity in the business.

Workspace

Inquire whether there is any subsidized workspace in your area, sponsored by a state agency.

This is usually a communal space with many units and shared services that enable small

businesses to make the break from working at home but still wouldn't have the turnover to

rent commercial premises. It's a great way to have an affordable professional space, make

contacts and feel camaraderie among others doing the same thing.

4. Professional advisers

During the early days of your business you'll do as much as you can yourself and keep costs

to a minimum. As business and cash flow increases and steadies, you may be too stretched

to manage everything yourself and wise to outsource some expertise to professional advisers

or consultants, such as an accountant, legal adviser or IT consultant. If you do decide to

spend money on a professional service, don't base your choice just on qualifications.

Experience and client list are more important.

Ask others you know in business for a recommendation; check if they have expertise in your

area of business; make sure you get a competitive quote and be clear about what it covers.

5. Crafts councils

If you intend to set up a business in a creative field, like craft making or running craft courses,

craft councils are a very valuable source of help and support - for advice about training in a

specific skill, lists of suppliers of materials, craft outlets and contacts for people practising the

same skill. They can also keep you informed of any events where you can show your products

and network with others in the crafts industry.

6. Libraries, citizens information centres

Avail of as much free help as you can by borrowing or ordering books and CDs from your

local library. Citizens' information centres can often save you an expensive consultant's fee.

They store a vast amount of information to do with rights, entitlements, responsibilities and

bureaucracy.

7. Central statistics office

As a CSO holds such a large bank of information, you'll need to know what you're looking for

but you could find statistics here to help with your market research. They keep records on

economics, demographics, income & spending patterns, social activities and much more.