Now you've made it this far, it's time to talk money!
There are a few options when it comes to funding your project: You can either do it on your own, with a business partner or try and raise funds from banks and investor. Whichever way you choose, you must have some funds of your own, first to show commitment, but also to be able to retain a higher percentage of your business.
Having a partner has Pro's and Con's, but it's certainly a good way to share both the stress and financial burden. See more on this topic in my article 'Do you need a business partner?'.
Part 4
Financing
Own savings
The moment you start dreaming of opening your own place, must also be prepared to start “power saving”. Power saving means cutting all expenses that are not essential (meals, clothing, going out, moving back in with your parents - ouch!). You can find many articles on this subject, but realistically a couple on £25k a year, should be able to save around £10K in a year.
£10K is a good start.
Borrowing
Your first port of call should be what some people call the “3 F’s round”, which stands for family, friends, and fools.
You must make sure you entertain the possibility that things may go wrong. Even with friends and family it is better to write things down.
Credit Cards
Some entrepreneurs jokingly refer to this as “the credit card round” where every single card is maxed out and the founders are literally just hoping for the best. This is a very expensive way to raise money, but sometimes it’s the only alternative and may work if you don’t require huge amounts of capital.
Personal unsecured loan
If you have a good credit score (you can check it here for free: https://www.experian.co.uk/consumer/experian-credit-score.html), most banks will allow you to borrow up to £15K without any guarantees, at fairly low interest rates (at the time of writing between 3% and 3.5%) that you can repay in up to 5 years. Personally, I would rather go down this route before asking friends and family.
If your funds don’t go far enough you will have to consider borrowing money from a wider array of organizations and people. But in order to do this you will need a strong business plan and be able to show your idea has got legs and will be able to generate enough income to repay your debts (and create returns in the case of investors). To see more on creating a business plan, check out my previous article, 'How to open a pizzeria on a shoestring: 3. Business Plan'.
Bank
A bank will be able to lend you money if you have convincing business plan. They will also look at your experience in the field, whether you have successfully run other businesses in the past and your personal finances. Interest rates will be high however, so it is important to remember this.
Professional investors or angels
These people invest professionally. They will take a look at your business plan but will invest on you as a person just as much as being based on the numbers. Investors are likely to look at your growth potential, at whether the business is scalable and how quickly you can do it. Do your research in advance to find out who they are and what other investments they have made. Maybe watch a few episodes of the Dragon’s Den for good measure. Instead of charging interest they will ask you for some equity in your company and this isn't always a bad thing as they will bring expertise and know how.
Crowd funding
Websites like crowdfunder.co.uk or crowdcube.com to give you a chance to showcase your ideas and raise funds from standard people. In some cases, you will need to give equity away, in other cases you can offer perks and privileges based on the contributions or donations you are given. This may work well if you are known in your community, maybe you worked at a local pizzeria for a long time or ran a market stall and now you want to move into permanent premises.
Grants
Grants can range from local initiatives to government funding, as well as private funds across the country. Some may be offered by Government organisations, but thousands of other schemes exist and are provided by banks, the European Union (in the past) and other large, as well as smaller, organisations. If in doubt, consult your Local Enterprise Partnership. You can find more info here.
Some grants will come with conditions like employing a certain number of people in the area and some restrictions on what the money can be spent on.
Your current boss
Providing you always had a good relationship with your employer, your current employer may be happy to invest in you - there is no harm in asking! After all, entrepreneurs know the feeling of wanting to set up your own business and provided you do not represent a threat in the form of direct competition, they may be willing to either expand and give you the reins or a percentage of the new business, or just invest a chunk of money in return for some equity.
Check out the next blog post of this series: