SURVIVING THE HURDLE YEARS

Understanding and handling finance is no easy feat for Start Up Businesses in the first few years, Linda Pearson reports.

When you start up a business, be prepared for knock backs and possible failure. Even entrepreneurs such as Sean Quinn, Denis O’Brien and Michael O’Leary have weathered many storms to make their ventures a success. Therefore, it’s not just important but essential to be prepared for these potential hard hitting drawbacks when you take the leap and leave your monthly salary to become an entrepreneur. However, there are plenty of measures you can take to ensure you don’t fall at the first hurdles.

One of the most important measures is controlling your finance to ensure that you are estimating costs accurately and then keeping them under control. It will also ensure, among many other things, that you are charging and paying the right price and paying bills when they are due.

Accesssing Start Up Finance

Funding for small businesses comes primarily from State Agencies and the private sector. These include Credit Unions, Enterprise Boards, banks, venture capitalists, Enterprise Ireland and Invest Northern Ireland to name a few of the most commonly used. Accessing the right amount of funds to start a business can be difficult but if you have a clear business plan it will make the process easier. Eibhlin Curley, Assistant CEO, Dublin County Enterprise Board, offers some advice about accessing finance and recommends that a business plan is key to getting things done and making your business a success.

“The first thing start-ups need to do is develop a business plan because no matter who they are asking for business finance they need to have a clear idea and clearly explain what the business is and what the proposition is in terms of their business model and how they will make money. Whether they’re approaching a bank, credit union or an enterprise board for finance they need to have a well prepared business plan,” explains Curley.

She also says that there are numerous options and supports available today and “it’s a case of shopping around and getting the best interest rates and deals.”

Understanding Finance

Many businesses fail to use a proper financial control system despite being encouraged and informed of the importance of doing so. There are many key areas that will need constant attention. For example, monitoring cash management requires a careful look at cashflow forecast for the previous, current and following months. Then you will have more of a chance of anticipating difficulties before they happen.

“Cashflow is a major issue for start-ups. In the first few years there’s a lot of outgoing expenses in terms of setting up the business and buying basic equipment whether that’s just a laptop, furniture, or putting in phone and fax lines. Then there’s all the marketing and business costs. The money is flooding out and what often happens is they underestimate their outgoing costs and overestimate what they think they will sell. So they find themselves in huge difficulty in terms of just making ends meet. That’s why the business plan and doing financial projections are so important,” advises Curley.

“You need to estimate how much money you will need in terms of start-up costs and ongoing costs. Try and keep your costs as minimal as possible. There’s no point spending a fortune on furniture and a flash office because until you actually start getting sales or else you’ll rip through all of your savings and investments at the start. By doing as much preparation as possible in terms of cashflow they can anticipate in advance when the peaks and troughs of their business will be. That will help stabilise the business,” continues the assistant Chief Executive.

Basically, if you have a realistic business plan from scratch you are off to a good start. It will lead to a proper financial control system which in turn will help the smooth running of the business. However, you will need to update the business plan as trends change in your market and business moves forward.

Also a business should have an exit strategy from the start. Then they will know where the business is going in the long term. If they are looking for venture capitalist or business angels, they will want an exit route so they can get their money back, so it’s vital they are prepared for this.

People need to meet other people who are running businesses and find out from them for example who is a good graphic designer or book keeper. It’s about finding out how people who have done this before have succeeded or failed,” commented Curley. Mentoring can also be extremely helpful in helping you over the ups and downs of business. It is another example of the range of supports out there for start-ups.

Avoiding The Pitfalls

“Constantly keep on top of the finances. You can’t expect that your book keeper is your financial manager because they’re not. They have lots of different clients so the promoter needs to have an understanding of their accounts on a weekly, monthly and yearly basis rather than finding out at the end of the year that they have been making big losses. So people starting out need to know about all aspects of the business. You might have come out of a large corporation where you had a specialised job but now you need to know about all areas,” explains Curley.

Also, there’s only so much one person can do on their own as the business expands and workload mounts. If your business is to grow successfully you need to take on more people and delegate responsibilities either by hiring these people as employees or sub-contracting out work. Therefore, building a team is advisable if the business is expanding and becoming unmanageable for the founder or small team that currently runs it.

“Building a team is important because no one can be an expert at everything. You need to have an understanding of what’s going on but you definitely need other people with an expertise in an area that you don’t know enough about. With a team of people the likelihood of success is much greater; two heads are better than one and you will have more eyes and ears that will be looking for opportunities,” continues Curley.

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