How to start a business

First, the good news. There is no shortage of places to go to get money. Peer to Peer Lending, Crowdfunding, Angel investors, Challenger Banks are all avenues to explore. But, how much do you need? That’s the real question, and not knowing the answer is why most start-ups fail. They run out of cash.

Of course, you won’t really know how much you need, but you can have a financial plan to get to stage one and work out how much you need to get there.

Don’t mix up guess work with estimating. When you work on your financial plan, make sure you do plenty of research. Ask lots of questions from people in business and check prices on the web.

And make sure you think about taxation, whether it be VAT, PAYE and NI, personal and corporate tax or business rates.

Once you have a figure, you’ll need to fund it. You’ve got some money of your own, possibly from a redundancy or life savings but don’t just plough this in. Most people do, then run out of money and go cap in hand to friends and family. This is definitely not how to do it.

Once you’ve worked out how much you need, use your money to leverage your other investors. ‘I’m putting in 50, will you put in 100’ sounds much better than ‘I’ve spent 50, now I need another 100’.

And with a proper financial plan, the other investors and particularly friends and family can make an educated decision rather than an emotional one.

Most people that start a business hate paperwork. It just gets in the way of getting on with it. 

You’ll want to keep costs down so you might, for example, do your own bookkeeping, but make sure you are clear on how you will contribute most. If you can contribute most value by working on your product or selling, don’t use your time on things others can do cost effectively.

If I asked you to give away your profit for your new business you’d think me crazy. So, why do so many businesses give away too much equity at the start of their enterprise? The three common stages of development are:

• Start-up: Seed
• Launch: Series A (normally the first round of external funding)
• Develop and grow: Second stage, Series B

So, make sure you retain enough equity to for all the stages, otherwise you might finish up as a minority shareholder in your own business.

Next step: