Brian Chernett
Last week I wrote about the qualities you’ll need to make it as an entrepreneur – beliefs, taking action, developing positive habits and drive, all of which come from within. This week it is the resources that come from external sources that I want to consider.
You will bring into your new enterprise your existing knowledge. This may be relevant and up to date or need to be updated and it may be based on objective truth or, more likely, on your perception of the truth. Is that a good enough basis on which to run your business? In some cases, it may be but, much more likely, you will need to do your research to supplement and confirm what you already know. The more the risk involved in the venture, the more necessary it is to do some good research. You will need to understand the market you are entering, what the competition is already doing and what margins they are making. It may also be necessary to test the acceptance of your product or service in the market before launching it, especially if it is new or unfamiliar.
Do you have all the skills that are needed to get the business on its feet? If you do not, and in most cases you will not have, where will they be sourced? How will your own skills complement those of your partners and the team you may be recruiting? Can any of the skills be subcontracted and used ‘on demand’?
Will your business need premises? Many service businesses begin in the founder’s home but not all businesses can do that. Is there a suitable starter unit available? Will you need specialist premises like a factory or a shop? Will you need to accommodate a team of people from day 1? Location may be critical and the premises should be as suitable to your requirements as possible and as your budget permits.
On the thorny topic of financing your business there are a number of options.
- Self financing using a mixture of capital invested in the business and what is known as ‘sweat equity’, time given to the business without payment which can be reflected in shareholdings for a later return. If you are working with business partner(s), it is sensible to agree shareholdings and to have a clear understanding of how the business will work reflected in a partnership agreement. Consider paying for legal advice in this area.
- Investment using savings, property, remortgage and money from relatives who will not be active in the business are all common approaches to financing a business. If you plan any of these approaches, be sure you have a good business model and the passion to implement it successfully. Again, consider paying for legal advice in this area.
- Banks are still lending but at a price. They will want to see a good business plan that shows how their repayments will be made and will probably want to take security for any loan that they make. Be sure you understand how that security can be used by the bank. The potential for losing a substantial asset, maybe your home, is an area that you need to understand in detail before signing the agreement. Always be honest with the bank and communicate with them even if things are not going well. Their interpretation of silence from clients will always be pessimistic and they may choose to act on that.
- Finding funding from business angels or other external investors. The key here is to find someone that you can relate to as they will want a stake in the business and probably a seat on the Board. As they are often investing their own money, they will want good information flow and may choose to be active in the business. They will also be looking for an exit plan with profit. If you find the right investor, you may gain skills and knowledge that are invaluable.
- You will hear of businesses where the owner financed them using credit cards or similar sources of credit. My strong advice is to avoid this method of funding as the interest rates will be punitive and the risk, for most businesses, will be far too high.
Finally, your business will need support from a number of sources. To upskill quickly, there are many courses available, sometimes with subsidy, to transfer knowledge. Some Government Agencies, like HM Customs and Revenue, offer excellent courses the basics of business such as understanding taxation and tax returns.
Business advisers can be found through resources like Business Link and also through local networks. They can provide specialist help or consultancy to help you deal with immediate issues facing the business.
In the longer term development of the business and yourself as an entrepreneur and business owner, consider finding a coach and/or mentor who can help you to find your own solutions and to help you build confidence in your own abilities. Such services need not be expensive and should pay back in better business decisions and growth.
Brian Chernett is founder of The Academy for Chief Executives (ACE) – He has 43 years’ experience as managing director of private and public companies, including subsidiaries of Booker Bros McConnell, the Landmark Group, and several other major companies. Find out more at www.chiefexecutive.com.
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