Starting a new business is impossibly exciting. You probably fall asleep thinking about it - in fact, your dreams are likely fuelled by it. But you know - all the planning in the world can be undone by one, single, daft mistake.
We're not trying to be alarmists - but we've got to keep it real: your start-up could fail before it even gets off the ground.
We've funded hundreds of start-ups, and chatted with successful entrepreneurs from various walks of life. They always say the same thing - that there are big mistakes to be made with funding.
Here's what we know about that, to help you get on the right track.
Mistake 1: Not having a clear financial objective
Pick a number, any number. In fact, DON'T just pick a number.
If your mindset right now is "I need about £100k to get started", or "I need around £250k to get through the first three years", you're not on the right track.
You need to know exactly how much you need - then you should add a 10% margin for overspend. Now, we know what you're thinking - How can I plan my financial objectives so accurately?
We recommend you plan per milestone. What we mean is - plot how much you'll need to get to your next business milestone. This allows you to easily budget, and it's also a great way to keep your vision clear.
Mistake 2: Taking out an inflexible business loan
Not all start-up loans are created equal. It's important to remember this.
The best start-ups loans have three key features:
- a low interest rate;
- a fixed interest rate;
- no early settlement fees.
With these three features, a loan becomes affordable.
The most important point is number #2 above. A fixed interest rate means the amount you will pay for the loan is set in stone. It's unchangeable. This allows you to budget for the loan and include it in your cash flow forecast. It removes any guesswork.
As your start-up grows, you might wish to repay your loan early, too. If that proves to be the case, no early settlement fee will make doing so affordable.
Mistake 3: Not having a Chartered Accountant
Accountants are worth their weight in gold - or tax. Specifically, what they save you in tax.
Most start-ups fail because they don't manage their finances properly. They under-budget, over-spend and don't pay attention to their cash flow.
Most importantly of all, they can advise you on the most tax-efficient structure for your new business. For example, in the first year of trading, it might be more tax-efficient for you to be set up as an LLP, and convert into a limited company in year 2.
Take on a Chartered Accountant to keep your accounts in check. It'll be worth it.
Sponsored post. Copyright © 2018 Nationwide Corporate Finance