Let's Talk #DARBiz: Financing

A collaborative effort between SpeedontheBeat.com and DefineaRevolution.com, "Let's Talk DARBiz" was created with those entrepreneurs in mind. If you've ever wanted to start up your own company, we've got you. Today, Ali Golds, a UK-based writer and successful businesswoman in her own right, shares some tips for financing. So, without any further ado, let's get into it.

Being your own boss, running your own business, and being responsible for your own success, is one of the most amazing things you can do. The satisfaction of knowing that you, and you alone, are responsible for the achievements of the day; that the money in the bank has come from your hard work, and your happy clients are happy as a result of your applied skills and knowledge, is immeasurable.

So how do you get from an idea to a fully-fledged business? How do you take those skills, that knowledge and experience and turn it all into cold, hard cash? How do you take that first step into the unknown and come out the other side with a top class product, compelling brand and clients who love you?

As a seven-business veteran, an experienced start-up coach specialising in business development, and best-selling author of How To Be Your Own Boss As A Single Mum, as well as regularly consulted on business matters by a wide range of companies and founders, I’m going to show you. I’ve worked with start-ups run by teenagers right through to those in their 70’s and in every industry you can imagine, from artists and musicians, to bookkeepers and writers, via hairdressers and carpenters. There’s no challenge I haven’t encountered either myself, or through my coaching, and I’ve been round the block more than a few times.

I've experienced heady highs, and I've experienced the lowest of lows. From owning fancy houses and fast cars, to facing bankruptcy due to failed ventures – I've been there and done it. But do you know what? I wouldn't change a thing. Ridiculously wealthy or totally broke, I love being my own boss; making my own decisions and designing my own future. The heartbreak has been worth it and, as we go through this series, you’ll see why my passion for start-ups is unrivaled. After all, knowing that the business you've created, whatever it may be, has helped and supported others, is humbling. And feels pretty good too.

Over the next four weeks, we’re going to look at the practicalities of starting a business, the marketing, the finance, and then how to get it off the ground. I’m going to share my time-tested hints, tips, tricks and solutions with you, plus there’ll be lots of opportunities for you to ask me questions about your own business – or to make suggestions for other articles you’d like to see.

Enjoy the journey!
Starting a Business: Finance

Today we’re going to look at finance: sourcing it, planning it and managing it. Around the world, a mass of hearts sink… Yeah, I get it, the numbers side of starting a business is always the bit that founders fear most. They love the income potential (don’t we all?) but figuring out cashflow, profit and loss, and even doing the invoicing and paperwork each month, brings most of us out in a cold sweat. After all, entrepreneurs are doers and usually focused on getting their product or service to market and finding as many clients or buyers as they can, so the finance stuff can come a very poor second in terms of our priorities. Not good.  

Sourcing finance
Most start-ups can get off the ground with little or no inward funding; use of a home office, computer, phone and our own skills costs nothing (along with using free marketing tools in the first instance) but some businesses need stock, premises or expensive pieces of machinery and these can’t be found for free.
The first thing to say is that buying everything a start-up needs brand new, isn’t the best option. With a limited budget or access to funding, money is going to be tight and this means that every penny spent has to be justified. When I started my first business back in 2000, a furniture making operation, we needed a lot of machinery. We shopped around and looked at a number of different options, finally settling on a third-hand machine which was 4 years old, and another piece that quite frankly belonged in a museum. However, it did the job until we could afford to replace it.
Secondly: you don’t need to borrow money to get your business started. There are all kinds of ways that you can find cash to get things together, from taking a second job, raiding your savings and accepting investment from friends/family (make sure that this is a business arrangement, with an agreement in place for repayment) through to selling off unused items, which is my personal favourite. Every time I started a business, and told my kids of my plans, I heard their bedroom doors slam shut as they realised I was going to comb the house for stuff we didn’t use. And there’s always loads of stuff isn’t there? I’ve lost count of how many times I’ve sold and rebuilt my shoe collection over the years but it’s always been for a good cause. Try to steer clear of borrowing money from anyone if you can, even friends and family. I’ve heard too many stories of how this can go wrong, so if you must do it make sure that you have made very clear that this is for your business, that businesses can fail, and that you’ve agreed some kind of timescale for repayments so that everyone knows where they stand.
Thirdly: check out any form of free money i.e. grants and freebies. I’ve mentioned free marketing before, and this is an investment into your business albeit not an official one, and there are many other things that you can find for free that will help your business get off the ground. In the UK there are a range of grants for start-ups, rurally based organisations, and growing businesses and these can be sourced via websites such as UK Business Grants. In the US, try www.grants.gov. Fourthly: if you’re keen to find investors, and think your business will stand the intense scrutiny and the strength tests, then crowdfunding is the way forward. There are lots of different crowdfunding websites but they all recommend that you already have 30-40% of the funding you require in the bag before you start the process. I would always recommend taking expert advice on this. You can, of course, borrow money to start your business. From banks to funding circles, to government organisations such as Startup Loans (in the UK), everyone wants to lend you money. Please think very carefully before doing this; it puts a whole new level of stress on any business, particularly a start-up, and I don’t recommend it. That being said, if you think it’s the right thing for you – and your accountant or other financial mentor agrees – then good luck to you.
Profit & loss and budgets
It’s important to have clarity on the long term financial health of your business, and budgeting will enable you to keep a tight control on how much you spend, and give you an indication as to how much income you need to bring in to your business. It is, of course, ideal if income exceeds expenditure but in the first few months (and some start-up experts say years) accept that this is unlikely. I don’t recommend starting a business that takes years to become cash positive, let’s be clear. The reason that you have started up on your own is that you want to make money, so waiting for a year or two to make some is not going to cut it. However, do expect to reinvest much of your profits back into your business during the first few months, and make this a habit moving forwards. It’s a good habit to get into if you want to build a business that will grow.
Cashflow is the lifeblood of your finances. If you don’t have any cash, you aren’t going to go very far with your plans. In the next, and final, part of this series I’m going to tell you that without clients you won’t have a business at all. Clients, of course, bring in the cash that you need for cashflow. You get the picture.
Monthly cashflow forecasts should consist of expenditure (individually listed) and income (stream listed). They are a great tool, as they give you a snapshot of how your business finances will look at any given time, and show you where extra help will be needed if you don’t have the monies required to pay the bills.
Always be honest when compiling cashflow forecasts. It can be tempting to gloss over problems, and over-estimate income but the only person you’re kidding is you. I always recommend over-estimating expenses and under-estimating income for cashflow purposes; that way you have a buffer just in case things don’t go quite as you might expect one month. However, that being said, your income budget will be the basis of your sales targets so if you keep up with your business development activities every day, you should be in a good position.
Organising your start-up finances
Once you have written your plans, and know how your cashflow will pan out, you will need to open a dedicated bank account. This makes it much easier to organise your finances, particularly when it comes to the end of the tax year and you need to send in your annual accounts.
I always recommend an appointment with an accountant for all new start-ups, just to understand what you will need to collate and how best to do that to save you time and money. Things have moved on since I started my first company, and there are now loads of online solutions for bookkeeping purposes, from Xero to Quickbooks, which will reconcile your bank account with your invoices and payments, as well as give you an instant overview of the financial health of your business. I would recommend checking these out too.
Any questions? Let me know! See you next week!

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