Tag Archives: start up

Start-up Businesses Using a Smorgasbord of Funding

Back in August we had a look at the Global Entrepreneurship Monitor (GEM) research which tracks entrepreneurship across Europe. One of the findings from the GEM research was that there was a mismatch between where people planning a new business thought they would get their funding from and where they actually sourced funding.

The University of Surrey have done a new study on SMEs in conjunction with the accountancy firm Kingston Smith. As part of this research they looked at where start-ups got their funding from and how sources of funding changed as businesses grew.

In the GEM research 47% of people in the pre-start-up phase expected to fund their venture themselves. The University of Surrey research has found an even higher figure with 72% of people funding start-ups out of their own pockets. The University of Surrey report suggests that this is partly down to a scarcity of funding and partly down to mistrust of the banks. The report found attitudes towards the banks from small businesses “ranges from disappointment to contempt”. Small businesses are therefore actively trying to avoid engaging with the banks.

However, the University of Surrey report did find that the banks still have a role in start-up funding with 28.2% of businesses receiving funding through bank loans. It is important not to see start-up funding as an either/or choice. While 57% of start-ups reported having raised their finance through a single source, 24% had two sources of funding and 11% had three sources of funding. So what we begin to see is a picture of start-ups using their own money to found their business but supplementing this with a bank loan, angel investors, credit cards or other kinds of financing.

The University of Surrey research didn’t just ask businesses where they got their funding from during their start-up phase but also where it was coming from once they were established. They found that nearly 70% of SMEs were bootstrapping their businesses. That is that they were growing their businesses through re-investing profits. However as with the start-up funding many were supplementing this through loans, invoice factoring and income from other activities. As these businesses grew the report found they became more likely to start accessing traditional bank funding. In part this could be down to them having exhausted other sources of capital but also because the banks tend to be more willing to lend to established businesses. As with start-ups growing businesses do not tend to rely on single sources of funding, indeed they tend to diversify more as they grow with 32.9% of growing businesses having 3 or more sources of funding compared to 17.8% of start-ups.

So whether you are in the planning phases of a start-up business or are trying to grow one into an established SME it is important not to focus too heavily on the success or failure of a particular funding type. Successful businesses tend to be getting funding from a range of sources and to diversify these sources as they grow.

Startup and SME Funding

Start-up and SME Funding Sources: University of Surrey - Success in Challenging Times

What is an SME?

Over the last year there have been a lot of accusations flying around about SMEs (Small and Medium Enterprises). Articles have been written denouncing the SME term and claiming that large corporations don’t understand how to talk to small businesses. Meanwhile the UK’s small business sector has been compared unfavourably with Germany’s Mittelstand sector which is at the centre of their thriving manufacturing and export driven economy.

While the UK government has been very focussed on start-ups they have also recently begun to focus more on SMEs. The Business Secretary has announced plans to accelerate the growth of SMEs and has launched a showcase of British manufacturing to coincide with the Olympics.

While there is growing focus on the importance of the SME sector there is one very large fundamental problem with it. That problem is that even with the UK government there is not a single definition of what a small or medium enterprise is. For the purpose of Research and Development Tax Relief HMRC define an SME as a business with not more than 500 employees and an annual turnover not exceeding £100 million. However the rest of the UK government does not use this definition. For the purposes of collecting statistics the Department for Business defines SMEs as companies with less than 250 employees. For accounting purposes Companies House defines a small business as employing less than 50 people and a turnover under £6.5 million and a medium business as less than 250 employees and a turnover under £25.9 million.

To further complicate things other parts of the UK government use the EU definition of an SME which goes:

  • Micro Business = less than 10 employees & turnover under £2 million
  • Small Business = less than 50 employees & turnover under £10 million
  • Medium Business = Less than 250 employees & turnover under £50 million

So depending on which definition you use an SME could have anywhere between 50 and 500 employees and have a turnover between £6.5 million and £50 million. One thing that virtually everyone agrees with is that SMEs account for more than 99% of all UK business and that they employ over 12 million people. This is a vital part of the UK economy and a vital part of growing the economy. One way to get a handle on how to encourage SMEs may be coming up with an accurate definition of what they are.

You can get your business off the right start with our Free Company Formations and Start-up Accountancy Services.

3 Reasons Why Young People Should Not Start Their Own Business

The job market for young people is pretty dire at the moment. Graduates are struggling to find meaningful employment. Working for free for months on end has now become a standard requirement for many entry level jobs.  For those already saddled with student debts this is often simply not an option. For many young people these are fairly desperate times.

People from all over the political spectrum are coming up with the same solution. Young people should not invest their energy in getting a traditional corporate job. They should start their own business and create their own job instead. People on the political right see this as an exciting new era of individual capitalism. People on the left tend to see it as the only viable option and as a way of building new communities.

At the same time that the political debate is agreeing on the need for young people to start their own businesses they are being incentivised in this direction more than ever. The Princes Trust have been funding businesses for young people for years. They have now been joined by prizes sponsored by Shell, initiatives from Virgin and a range of government loans.

So while there is increasing consensus that young people should start businesses, and increasing funding if they want to do it, should they?

3 reasons why young people should not start a business

  • You are likely to fail. Even on conservative estimates 30-40% of start-ups are unsuccessful, over 50% of companies don’t make it past 5 years.
  • You probably already have thousands of pounds of debt to repay. Can you really afford to take on more, especially if you fail?
  • If you do fail, and need to get a job, you will not have the relevant experience and internships with blue-chip companies that box ticking HR drones will be looking for. You could end up in a worse place than where you started.

If you have come out of school or university and there are no jobs to be had then starting your own business may be worth investigating. With the various competitions and loans currently available you are even likely to be able to raise some funding. But if you are going to go down this route than you need to do so with your eyes open and be aware of the risks.

Company Profile – BeeARTisan

We are involved in creating thousands of companies and we try to keep in touch with as many of them as we can. We have decided to launch a new series of blog posts to highlight some of the more interesting and creative companies who use our services.

Opening our series of company profiles is BeeARTisan. BeeARTisan have already attracted an impressive amount of press coverage with their range of bespoke wedding gifts. They have been featured by a number of wedding websites, events and magazines including Conde Nast Brides. They have also built up a substantial social media following and now using the website we built for them as an eCommerce platform.

Nicholletta who founded BeeARTisan managed to fit answering some of our questions into her busy schedule.

BeeARTisan The Company Warehouse Customer Profile

The Company Warehouse: To start with could you tell us a little bit about yourself and your career background?

Nicholletta: I used to work as a litigation paralegal. Since I was entering my new, current, phase in life with my baby it was time for a change and to start working towards creating a business by turning to my more creative, hands on side.

The Company Warehouse: How did you get the idea for your business?

Nicholletta: My inspiration came from a beekeeping course that I did in High Wycombe.  Becoming a beekeeper as a hobby was fascinating and there was, and there is, still so much to learn from beekeeping. Aside from bee husbandry I have even to learned how to tackle woodworking skills that I never knew I had!

The Company Warehouse: How would you explain what your company does to a potential customer?

Nicholletta: BeeARTisan creates exclusive and bespoke keepsake wedding favors, discerning quality little gifts for the guests. We put pure honey into personalized containers. We have various ranges using materials like 9ct gold, glass, papyrus, brass and terracotta. Because all of the containers are personalized they can double up as guest place holders for wedding banquets or parties.

The Company Warehouse: What have been the biggest challenges and successes in your business so far?

Nicholletta: The biggest challenge without a doubt is finding the best way to showcase to future customers the high quality product BeeARTisan is committed to create.  I believe any new/small company starting out finds this the biggest hurdle to begin with, in simple terms to become known, to become established.  Once a business passes that initial hurdle the hard work does not stop. The business will want to keep proving its worth and for that it needs to focus on its competitive and creative edge. You feel successful when an order is coming in since it is the confirmation, that yes the business has a great product to offer that is in demand.

The Company Warehouse: What advice would you offer to other new business start-ups?

Nicholletta: Starting a new business is hard work, no doubt about that. Be prepared to work all hours of the day to get to where you want to get. Also be prepared to listen to feedback and fine tune your product till you get it right. Be prepared to take calculated risks on budgeting.

The Company Warehouse: Where can customers buy your products?

Nicholletta: BeeARTisan showcases its creations at top established Wedding Fairs in the UK, where orders can be placed.  The next Wedding Shows that are coming up are The National Wedding Show and the Asian Wedding Exhibition.  After that we will be featuring in the ‘Glow’ exhibition in the Bluewater shopping centre. Of course orders can also be placed by visiting BeeARTisan’s website which provides detailed product information and photographs.

Business Coaching for Start-ups: Part 2

Growing Business Start-upsIn our last blog post we looked at how business coaching can be used to help companies develop business plans and raise funding once they are established. However as we discussed with Paul Green, one of the biggest obstacles new start-up businesses face is often getting their initial round of funding.

As well as interviewing Paul Green, who generally works as a business coach for established companies, we spoke to Colin Wilkinson of Incubation UK. Colin operates as an investor rather than a business consult. He picks companies he is interested in and gets personally involved rather than charging a fee for offering advice. Colin has worked with a number of award winning start-ups helping them to revise their business plans and raise funding. An example of one of the businesses that Colin has recently been involved in is Three Sixty Entertainment. They needed to raise £2.7 million to launch their company but had only managed to raise £85,000 in 2 years. Once Colin joined them he helped them to rewrite their business plan, re-asses funding needs and access new sources of finance. As a result they managed to raise the funding they needed with a few months and won an award for start-up of the year. They managed to do this even though it was November 2008, only a couple of months after the collapse of Lehman Brothers virtually stopped business lending.

Colin Wilkinson of Incubation UKWe spoke to Colin about why he is able to secure funding for businesses and how this is applicable to start-ups generally. As with the advice we got from Paul Green a lot of the areas that Colin stressed are about business planning.

Core Business Assumptions – One of the things that Colin stressed the most was the need to do your research. He talked about the need to have solid figures outlining exactly what you are going to sell, who you are going to sell it to, for how much and how often. This research can come from having worked in a similar business, or from suppliers, or from people in the industry your new business is going to be part of. Whatever the source of the figures they need to be accurate, and take account of all costs, as well as sources of revenue. These figures can then be used to test the core assumptions behind the business and establish the likelihood that it can be successful. Colin also emphasised that while you need to be able to show that the core business is going to work, being able to demonstrate the potential to scale the business is equally important. So for instance opening one shoe shop might be great for you but is unlikely to be exciting for a large investor. Being able to demonstrate how you could grow the business will get them excited about the potential return on their initial investment.

Credibility – When approaching potential investors or suppliers it is important that you appear credible. Having done your research properly and being able to show this through the confident presentation of figures is vital. However the people involved in the business can also be important. Showing that you have experience in the industry you are starting your business in can be valuable. Where this is not possible you may need to find people who do have credibility in your new industry to work with you. Colin spoke about the possibility of getting an established figure in your sector to join your company as a non-executive director thereby lending credibility to your board.

Networking -  When we spoke to Colin he kept coming back to the importance of doing your research properly. He emphasised that the research phase is a great time to start establishing your network of contacts through suppliers and established industry players. Getting your name and business known will help to open doors to investors and make it more likely that they will take a meeting with you. It also means that you are more likely to know which doors are worth opening and who you should be focussing on meeting. This is another area where having someone with industry experience on board can help. Experienced figures within a particular industry will know how to approach their peers and what to say to them.

Elevator Pitch – The Elevator Pitch is a well known business technique. It is based on the idea that getting a meeting with the right investor or supplier can often be very hard and so you need to be able to make a convincing case for your business quickly. An elevator pitch should sum up your business idea, and what makes it unique, in the time it takes to go up a few floors in an elevator. When we spoke to Colin he recommended that people really ought to have two pitches prepared. The first he called ‘waiting for the elevator pitch’. This is the first 10 seconds which will get your foot in the door and make people want to hear more about your business. If this is successful then you can go into your full elevator pitch which should last between 30 seconds and 2 minutes. Being able to sum up your business in this short a time shows that you know what you are talking about and have put some thought into it. Again it is a way of establishing credibility and making a good impression.

Throughout the conversation that we had with Colin he emphasised that all of these areas are interlinked. You are unlikely to be able to do a convincing elevator pitch if, for instance, you haven’t done your research properly. Similarly he did not say that it was essential to get outsiders involved in your business but that they can help to point out potential problems and opportunities for your business as well as adding credibility. If you are going to look for a business coach or mentor then Colin recommended that you look for one with experience within your particular sector rather than a generic coach. Above all he emphasised the importance of talking to as many people as possible, business coaches or not, to make contacts and gather ideas.

Using Opensource Technology to Save Money (Guest Post)

open-source-softwareStarting a company is no small feat. Although ‘entrepreneurialism’ is something we’ve become more familiar with in the UK – thanks in part to its TV popularity through shows like Dragon’s Den and The Apprentice – the reality is that starting a company is still a difficult task. However, although it is still difficult, the advent of the internet and the increasing popularity of opensource software has made it possible to cut down on many overhead costs – something every start-up company welcomes.

If you don’t already have an office package on your computer – for handling spreadsheets, word processing, presentations and databases – then you don’t necessarily need to rush out and purchase Microsoft Office, or any other commercial package. There are plenty of excellent opensource packages out there which are fully compatible with what your clients will use – Open Office is one excellent example.

Similarly companies can save a few hundred pounds using open source accounting software. GnuCash is a popular option for new businesses which allows companies to track income, outgoings, bank accounts and stocks. It also monitors the accounts payable and can import data from other financial accounting programs such as Quicken and MS Money as well as export the data to spreadsheets. As with your office software package, the saving is only a few hundred pounds, however this is a large amount in a cash-strapped start-up.

Phone calls are one of the biggest expenses to most businesses. If you are running an internet connection in your office you will most likely already have a phone line but this doesn’t necessarily mean that you need to make all of your outgoing calls through the phone line.

Opensource VOIP software such as that from Skype allows you to make free calls for PC-to-PC users and cheaper calls if you are calling PC-to-Phone. This is particularly cost-saving if you are calling customers or clients in other countries.

It is worth investing in a decent headset in order to improve the call quality and testing it out before making any calls to clients or customers. This and investing in a strong internet connection will ensure better call quality, something that’s always welcomed by any company.

So if you are thinking of biting the bullet and starting your own company – or if you have done so already – opensource software offers a number of great ways to save money, at little or no inconvenience to yourself.

Jennifer is a part of the digital blogging team at cashzilla.co.uk who work with brands like Skype. For more information about me, or to keep up to date with the latest in finance news, check out my posts at cashzilla.co.uk or visit my Twitter account, @cashzilla.

Guest Blog Disclaimer