- Money for starters
The National Federation of Enterprise Agencies and The Observer survey identified funding as the single largest constraint in setting up a business named by 52 per cent of the businesses. The second ranking constraint, with a mere 14 per cent, was marketing.
How much money you will need to start your business depends on the nature of the business. Some businesses demand very little in the way of equipment. A journalist who becomes self-employed, for example, will probably need a telephone, fax machine, a computer and little else. Consultants are also able to set up their businesses with little or no need for costly investments in technological equipment.
Some of the world's biggest and most successful companies started with virtually no finance - Apple Computers began in a garage with $1,300. Other businesses require investment and financial support long before they can actually begin to sell their product or service. Technical or innovative products may require seed capital - finance for the early stages of research and development. Pilot and naval engineer Clive Linnell is developing a new form of helicopter, the Heli D Wing. Simply getting his innovative idea to 'a proof of concept' prototype requires £800,000.
Planning and monitoring your start-up expenses is complicated. Be careful. As you set up the business it can be quite difficult to keep track of where all the money is going. You may think that your high expenses are caused by the new furniture you are buying, but it may be that your actual running costs are too high. Also beware of hidden costs. These can come in many different guises - connection costs, added extras you don't really need, delivery charges, charges for speedy delivery. It is very easy to underestimate start-up costs when you are naturally enthusiastic and optimistic, but:
- Shop around/or suppliers. There are a myriad of special deals available, many of them targeted at small businesses. It is worth reminding suppliers that if your business takes off they may be able to expect larger orders in the future.
- Control costs. Be clear what you do and do not need. Always bear in mind the customer. 'I have retained a strong mental image of who my customers will be,' says Pentacle founder, Eddie Obeng. 'Buying the furniture and computer equipment, I have actually thought of a particular person who I have in my mind as a likely customer. I ask what he would think of a particular purchase.
'I started out mapping the start-up costs, but found that there were too many variations and additions to do it accurately. Indeed, I have consciously not skimped on things like furniture - I want them to last and to impress my clients.'
- Get details in writing. It is important that you know exactly what you are buying, how much it will cost and when it will be delivered. If you have details in writing you are in a stronger position when your desk or computer fails to arrive.
- Talk to others to discover what hidden costs they encountered. Other people in similar - or even completely different - businesses will be able to tell you the problems they encountered and how they solved them.
As a contingency plan it is advisable to add as much as a third to your estimates. This should cover the additional costs which invariably surface and mean that your finances may be more realistic.
" Sources of support
There are a surprisingly large number of possible sources of financial advice and support. Family and friends and your bank may be the first ports of call, but they need not be the last. It is worth looking into some of the other possibilities as they may offer financing options which are more appropriate to your business.
Government support
There are a great many government-sponsored support schemes, many of which offer financial assistance in the early stages of a business's life. These include the following.
SMART is an annual competition open to individuals or firms with less than 50 employees. It aims to stimulate highly innovative but also highly marketable technology. Entrants with the best commercially viable ideas are awarded up to £45,000 towards the first year's development costs. The most promising winners may be awarded up to £60,000 to take their ideas closer to the marketplace. SMART has been running since 1986 and is administered on a regional basis by the DTI.
SPUR is a scheme to help firms or groups with up to 500 employees in total, to develop new products and processes which involve a significant technological advance for the industry concerned. SPUR offers flat rate grants of 30 per cent towards the eligible costs, up to a maximum of £150,000.
Regional Innovation Grants are available to firms of less than 25 employees in specified development areas. These offer 50 per cent of the agreed cost of an innovation up to a maximum of £25,000.
The Loan Guarantee Scheme (from the DTI) is designed to assist viable small firms who are unable to raise conventional finance due to lack of security or track record. By providing a government guarantee, the scheme encourages banks and other financial institutions to lend where they would normally be unwilling to do so. The Scheme guarantees 70 per cent of loans between £5,000 and £100,000. The guarantee is 85 per cent of up to £250,000 for small firms which have been in business for two years or more. Applications for the Scheme are made through the 20 lenders taking part; these include High Street banks and a number of other organizations.
