“Failure is distressingly unvaried,” says David Brackin, founder of online eBay selling website Stuffusell.co.uk. “It’s all about cash. It’s the only thing that matters.”
He likens setting up a business to throwing yourself off a cliff and building a plane on the way down. “It’s thrilling and risky, but it’s also terrifying. Every day you must figure out this: when will my cash run out? The daily cash forecast is vital. If you are not doing this every day, you are neglecting your responsibility to your business.”
Taking time to do this can lead to savings that you might not expect. “When we started out we looked into two couriers. One was cheaper but wanted to be paid within seven days, the other was more expensive but had 30 day payment terms. We went with the more expensive one, it meant the cash we had would go further and it gave us time to work out if we had a viable business. We now go with the cheaper one, because we can afford to.”
Returning to his free-fall analogy, Brackin says that funding on the way down is hard to do, and something you need to avoid. “You need a good story to say why you’re coming out of that dive, so a credible story is vitally important. Raising cash on the way down is also distracting, it stops you from doing your daily job. It’s hard work. If you do need funding, it needs to be done before you jump.”
Raising prices, boosting margins
For Supper Club founder Duncan Cheatle, you've got to look at your business frequently and ask yourself the question: “What would happen if I put my price up by 10%? The consequence may be that you lose 10% of your client base, but may still impact positively on margins.”
Cheatle suggests that only around 3% of early stage companies require funding. “Lots of things can aid sales growth and produce a strong profit margin. If you don’t have enough margin, then business is not possible and you will be unable to grow. If you increase the risk of that business, it will fold sooner.”
There are three things that can be done to increase margins, he explains.
- Put prices up
- Reduce costs
- Launch another product alongside your initial product
The other thing to bear in mind is ‘cost creep’, Cheatle says. “About four years ago we worked with a PR agency that was over-servicing one particular client. Introducing time-sheets gave visibility to this and they were able to take this information to the client to negotiate. The client wasn’t interested so the business was able to move away from that client. It made the rest of the client base more profitable which meant they could also go after more profitable clients.”
Gordon Christiansen, CEO and founder of the Colway Group of companies including Red Box office supplies and London Graphics Centre tells entrepreneurs to never forget the power of the 1%. “If you can increase sales by 1% and reduce costs by 1% it can make a huge difference,” he says.
Raising capital from active sources of finance
Venture Capital Trusts (VCTs) will invest £160m in UK firms next year. “Know the hot button of the VCT before you apply. Often they will only invest in AIM-only, or asset-backed businesses like pub companies or nursing homes,” advises Owen Davies, founder of myhobbiesstore.com. “It’s not easy to pitch for funds. Keep going, sell yourself. It’s you they are interested in.”
“Look to private individuals,” adds Alex Cheatle, founder of TEN Lifestyle Concierge. Most of them won’t think of themselves as business angels. This type of crowd-funding is great. They do it because they believe in you and they just want you to get on with it. They are busy people, they leave you to it. Dealing with this type of funding takes me up to a day a month at most.” Cheatle also suggests that looking at the Enterprise Investment Scheme (EIS) and making your business EIS-eligible. Ultimately, the more you consider and the harder you look, the better the chances of survival – and growth.
Views were expressed at the Finance 4 StartUP Britain Week in a session titled 'Entrepreneurs and Finance' held at the ICAEW Chartered Accountants Hall in the City. The series of events featured talks on crowdfunding, incubators, corporate venturing, financial fitness, exporting, working capital, microfinance, and investing in social entrepreneurs.