The idea of starting a business could sound very exciting, but it’s not always very easy especially if you don’t have the initial capital to keep you going. As the new kid on the block it is easy to think the world is your oyster and to dream of customers lining up to buy from you because you’re so good at what you do, but many times it takes months to get the first client and even about a couple of years to break even.
But you’re tough and resilient and you will get to the finish line. However, the business needs money to run and money is not coming into the business. If anything, money seems to be finding every possible way of going out of the business. You begin to worry inwardly. You’re having a cash flow problem.
This is very common problem among many new businesses. Established businesses cannot survive without cash. Several of the companies I worked for during my 25 year career as a management accountant experienced a cash flow problem. But there are ways to get around this problem.
Assuming you already have a comprehensive business plan and you’ve set a realistic goal for your business, and also assuming you know the legal structure of your business, let’s look at how you can secure funding for your startup and remove the cash flow problem.
The Lean Start Up
The reality for many business start-ups is that the owners will have to put capital into the business from the outset. In stark terms that means dipping into your personal savings or putting your redundancy payment into the business. Because you are the new kid on the block, with no trading history, the banks will be loath to lend you money.
What steps can you take to make the best possible use of your investment?
Review Personal Expenditure
It is highly unlikely that you will be in a position to pay yourself a salary in year 1. While you are building your business, you will need to keep discretionary personal expenditure to the bare minimum.
That means reviewing all your subscriptions for newspapers, magazines, sports clubs etc. It also means foregoing a foreign holiday for a year or two. Can you save money by reviewing your private health insurance policy? If you have a mortgage, can you save money, by re-mortgaging your home?
If you are trading in the services sector, you may require staff. There are benefits to employing your own staff, but for a start-up there are also disadvantages. You are committing yourself to paying either a weekly wage or a monthly salary, in addition to employers PRSI. You will have to deduct income tax and PRSI from employees’ wages and pay it over to the Revenue Commissioners, under the PAYE Modernisation Scheme.
During your first couple of years in business you are going to experience fluctuations in demand. An alternative to hiring your own staff, is to use agency staff. Recruitment agencies such as Adecco, CPL, Eden Recruitment, and Jobs.ie all supply agency staff to a wide range of sectors.
Phone Costs (Landline & Mobile)
When you are working from home it is tempting to think you will need a landline and a mobile phone. In my view, this is an area where you can save money.
Firstly, consider moving your mobile phone from a personal account to a business account. You get more services for your money with a business account. Secondly, Vodafone business accounts include the use of a virtual office number, which alleviates the need for a separate landline account. Check out the range of plans available to you from Vodafone and Three Ireland.
If you are setting up a limited company, it pays to shop around for an accountant. You will need an accountant to prepare annual accounts for return to the Companies Registration Office, and corporation/income tax returns to the Revenue Commissioners.
Many accountants in practice also offer payroll services to clients. Be clear in your own mind what services you require of your accountant, and how much it will cost. As your business grows, you may need the services of your accountant when applying for a business loan, or asset finance. Take the time to find the right accountant for you and your business.
One way of saving money on accountancy fees is to prepare your accounts to trial balance. Your accountant can then concentrate on completing the regulatory work for you.
Cloud accounting packages such as Xero, Surf Accounts, Sage, and the Big Red Cloud are relatively inexpensive to use. Unless you have a complex business model where you need to use multi-currency or stock control you will get good use out of the more basic packages on offer.
The first 12 – 24 months in business can be daunting. It takes time, effort, and resilience to build a successful business.
As a business owner, you have got to be prepared to put capital into a start-up business, if you want to realise your dreams of financial independence and a comfortable lifestyle.
If you minimise discretionary expenditure and keep a proactive eye on your business costs you will be able to make the best use of the capital sum you have invested in your business. You also need to develop a mindset of getting good at saying no to people. Be prepared to bargain with people.
It is important to remain positive. Put your energy and focus into building your marketing and networking activities. Then you will ultimately build your sales pipeline and customer base.
I wish you every success.