You have worked in the roofing and insulation trade for some time but want to be your own boss. You have the tools, a van and some work lined up. But you’re concerned your money won’t stretch, given all the purchases and initial drop of income that inevitably happens when you start your own business. So, what should you do?
If you plan properly, having a small budget shouldn’t be a reason to not set up a business. But be warned: if you don’t have a pot of cash to support your new business, then you and your family will need to be prepared to give up some luxuries in the short-term.
Could you go without a summer holiday for the next few years? If not, perhaps rethink whether the possible discomfort and initial sacrifice of being self-employed is for you.
When I started out, I didn’t want the pressure of a bank loan, so I had to make some sacrifices to fund the business. I cut my salary, put my social life on hold and any profits I made in the early days were put straight back into the business.
Taking the time to build a solid financial foundation for your business will give it the best chance of being a success. If you want to be your own boss but have a small budget, here are some strategies to help you get started.
Consider renting, not buying
However big your business ambition is, when you’re starting out it is inevitable that you will need some equipment to help you get started. Whether its tools, equipment, or transport, it’s worthwhile considering the cost of renting rather than buying. This could free up cash that can be put to better use elsewhere or simply held in reserve for unforeseen emergencies.
Renting could also mean that you have access to better equipment earlier. I found that by having the best equipment from the outset, I was able to get a lot more done with fewer people. If having better tools means you can get more jobs done, then the extra money you are making could easily offset the additional cost of leasing.
You may also be given the option to buy at the end of the lease for a reduced price, something that is well worth considering
Turnover is vanity, cashflow is sanity
When you’re starting out and trying to build a loyal customer base, the temptation could be to spend all your time on the road going from job to job to get the money in. It is vitally important that you also set time aside to do the bookkeeping, so you have a clear understanding of the money coming in and out of your business.
Making spending decisions based solely on your turnover figure – that is the money you take from sales – will mean you are storing up problems for later. What if a tax bill arrives and you don’t have the money to pay?
Instead, a good cashflow forecast that you update monthly, or weekly in the early days, will show you income and future expenditure, giving you a clearer picture of the books.
Make sure your forecast includes not just your suppliers, rent and start-up costs, but also big lumpy payments like your annual corporation tax, quarterly VAT, accountancy charges and other large ad hoc payments. These are particularly important because, if you have not set aside money, you may well not be able to pay them when they arrive unexpectedly.
Set a payments policy that works
Did you know that more than one in five insolvencies are the result of businesses not being paid on time? Making sure your customers know how and when to pay you is a fundamental for your business.
When setting a standard payments policy, be sure that your prices will not only cover your own costs, but also includes a profit margin. You will need to tell customers about your policy, so you may want to ask them to sign it before you start the job and, as it will be the same for everyone, keep it displayed on an online page.
How long are you willing to wait to get paid? Late payments are a curse to small business and there are many strategies to combat their effect (you can read more in my last article ‘How to combat the late payment culture’, RCI November 2018 issue, page 26).
The fact is, the longer you wait to get paid, the less likely that you will. With trade customers, consider setting your payment terms as early as possible and get as much up front as you can. You may even want to offer bonuses for early and up-front payments.
With private customers, get people to pay a deposit, pay on completion and never give credit.
Work ‘on’ and ‘in’ your business
If you’re long-term ambition is to grow your business and start taking on employees, make sure you take the time to set the strategy, promote it properly to potential customers and ensure it is moving in the right direction.
It is important to keep up with industry developments as well as what your peers are doing, if you are going to be competitive and win new business.
Becoming too inwardly focused could mean that you miss out on commercial opportunities, or, worse still, you fail to spot broader issues that pose a real threat to your business.
A small budget should be no reason to shy away from starting in business, but you have to work hard to make the most of it and use it frugally. Keep focused on your strategy to keep moving forward, make sure your customers know how to pay you, and pay close attention to the books to avoid failure. With determination and drive, being your own boss could soon be a reality.
