Cash 'not needed' for a successful start-up

You don’t need to be rich to launch a successful business and a commercial dream can be turned into a reality with less capital than ever before, the UK’s entrepreneurs have revealed.

Speaking last month to researchers for Microsoft, small business owners confirmed that personal funds remain the number one financial route to setting up a company.

Consulting a bank manager is marginally more popular than asking family and friends for start-up funds, while just 6 per cent of entrepreneurs are in business today thanks to special grants.

Although eight out of every 100 small business owners claim their company was born out of a fund approaching £20,000, surprisingly, almost a third set up with less than £10,000.

Even more positive for budding business owners was the revelation that 17 per cent of today’s entrepreneurs started out with no capital funds whatsoever.

The entrepreneurs responding were all located in the UK, and ran anything from micro companies, typically employing no or a small number of staff, to expanding firms employing 49.

Clare Barclay, head of small business for Microsoft said: “Small companies are the heart of this economy so it is great to see that it is becoming possible to start your own business with limited capital.

"However lack of funds is also one of the biggest reasons why small firms fail. Due to this, careful financial planning is vital to success.”

Freelance professionals in the UK’s creative sectors yesterday said they were concerned the auspicious findings could potentially oversimplify a serious business barrier – access to finance.

Gill Taylor, a freelance marketer told Freelance UK: “Money is the one issue that the government should address for start-ups if it is serious about encouraging higher rates of company formation.

“Most self-employed people need a chunk of cash to see them through the first few months, so either hard cash, which could be payable back interest free or a reduction in other costs, such as council tax, for an agreed period of time, would be good.”

In the first few months of setting up her company, Contract Marketing,Ms Taylor recalled an experience that contrasts those of the entrepreneurs interviewed for Microsoft.

“The financial insecurity was my biggest problem setting out as a freelance professional. Sitting at my desk at the start of the month with a zero on the spreadsheet, not being quite sure how I was going to pay the mortgage was quite scary,” she said.

“I made sure I had a buffer of capital to keep me going which was enough, as it turned out, though only once I had sold my BMW!”

Microsoft’s research shows finance is an ongoing test of small companies’ wisdom, yet exactly half, post-start-up, said investments in technology directly boosted their overall profitability.

Mark Hillman, a freelance graphic designer, agrees that the financial pressure on owner-managers intensifies after the company has been formed.

He told Freelance UK: “People who think they are fit for self-employment should make sure they can handle the pressure of being a one-man band. Make sure you have fully weighed your personal and financial situation. It’s no good diving into the deep end if you can’t swim.”

Debbie Staveley, a freelance PR consultant, said not having a fixed income is the most common complaint she hears from early-stage business owners.

Setting up her Bristol-based company,bClearCommunications, was less taxing thanks to Business Link-backed Brave, the enterprise agency, which gave advice on ‘setting up’ and offered free and “useful” sessions with a lawyer and an accountant, she said.

Self-employed marketer Gill Taylor echoed the benefits of using professional advisors, during the planning stages of a company, right up to the first few months of business.

“My business coach has been extremely helpful - although I appreciate that generally this type of support is not financially viable. My accountant and my personal financial advisor have been vital, she said.

“Freelancers do struggle with the financial side [of self-employment], whether it be failing to put money aside for tax or failing to keep proper detailed records of their finances for accounting purposes. These seem to be the biggest headaches I have found from talking to other freelancers.”

Meanwhile the Microsoft research shows over a quarter of respondents (26 per cent) said that their firms became immediately profitable.

Around 10 per cent became profitable within six months of operation, while 15 per cent said their venture became profitable within the first 12 months.


28th June 2006

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