You've made the mental leap from life as an employee to being your own boss, but now you need to work out the finances carefully...
So you have decided to abandon the search for a new job and become your own master. Your first task is to produce a budget to establish how much money you will require. Expenditure is usually easier to estimate realistically than the income.
Before this task can be started you need to make some basic decisions. Usually they are governed by what you can afford. If you see yourself as a one man band for the foreseeable future it may be appropriate to operate as a sole trader. However if your ambitions are to get started and then grow the business, a limited liability company may be the best solution.
You very quickly realise that you need specialist advice. It is fairly easy to obtain good quality advice without having to spend very much money. Business Links which are part of the Regional Development Agency, established in most areas of the country, are a mine full of good advice for anyone wishing to start a new business, where the advice is usually free.
If you consider an accountant or solicitor would give you mental comfort, make sure you chose carefully. Small traders often give a first class service at a reasonable cost and having been there themselves are familiar with the does and don’ts for a small business. When all is said and done, you are hoping clients will provide work for you as a small trader.
Do you intend to set up an office from home or does the budget and ambitions stretch to a small office to get you going? This type of question is often answered by the amount of money available to provide the necessary working capital. There are the set up costs to consider and the lag between doing the work and getting paid. Producing a first year cash in cash out forecast, referred to as a cash flow forecast, is essential to enable you to work out how much money you will need to allow you to get started.
Finding the cash
Where will the money come from? The redundancy payment will be a great help, but may be insufficient to provide the funds needed for the period up to the point where the money flowing in equates to the money going the other way Knowing when money is likely to be run out is crucial. One good basic rule is that when working out the cash in/cash out forecast it is sensible to include a reasonable contingency. Banks are not so good a bet as they were for providing working capital and like the borrower to provide security for the risks they take in lending to start-up companies. Relatives can sometime come up trumps.
Many businesses fail even though they are busy and making good profits, due to a shortage of cash. The old adage of “cash is king” strikes home at an early stage to most up and coming entrepreneurs.
With this in mind cash conservation is essential. It is usually preferable to rent or lease rather than buy. A reduced fee in exchange for cash up front can be of assistance. Negotiations with established suppliers to extend the payment periods all helps.
The trick is not to allow the decision to start your own business to drag on too long. The longer the time taken to decide, the quicker the redundancy fund shrinks.