Surviving Start-up

Leaving full-time employment to start a business is daunting. It’s the start-up period that we discuss the most, before the revenue has caught up with your overheads and you can start taking dividends from the profits. The two big variables are obviously how much money the business is generating, and how much money you need to get by.

Nearly everyone needs to draw money out of the business on a monthly basis. It’s factored into the cash flow forecasts and we make sure that the business can afford the drawings that the owner needs to make.

It looks very different for different people however: I’ve talked to one London-based prospective franchise partner who had a £4,000 monthly mortgage repayment, and therefore needed to draw £6k out of the business each month. Another was lucky enough to have an understanding and well-paid spouse and could afford to not take anything out of the business for the first year. That’s a £70k difference in Year 1 that’d need to be accounted for, generally by a larger initial capital injection or start-up loan. By no means impossible, but very important to know.

Most banks will ask for personal budgets to ensure that the drawings you’ve forecast match up with your actual monthly expenditure. They might also ask for bank statements to confirm that too.

Some top tips:

• Reduce your personal costs wherever you can. For the first year or two of having a business, things can be tighter than when you had a well-paid job. If you can maybe push back that exotic holiday by a year, not commit to big expenses, and get buy-in from your family that’ll take a big strain off the business and allow you to really make up for it in later years.
• I’ve written before about Side Hustle vs. Deep Dive, and reducing your drawings by keeping your main job while you run the business isn’t something we’d recommend, for lots of reasons. Let me know if you’d like me to send you that email over if you missed it.
• Be really transparent. We know the pressures of managing a growing business and are careful to ensure that we never put partners under undue financial pressure. We’ll have very honest conversations to ensure this is the right opportunity for you.
• I’m not an accountant, and this is not financial advice, but it’s good to know that if you’ve put money into the business personally, that the business then owes you that money, and it’s sitting in your Director’s Loan Account. You can take the money out of the business as loan repayments, which means you’re not taxed on that amount.
• Not financial advice – but a lot of business owners might pay themselves a basic salary up to the Personal Allowance threshold (currently £12,570pa), and then top that up with dividends from the profits once the business is profitable.
• Leaders eat last – I’ve completely repurposed a quote from Simon Sinek there, but as well as being metaphorically true in terms of leading teams, it is also practically true when ensuring everyone is paid and okay before you can pay yourself.

There are huge potential upsides to starting a business; in the satisfaction of building something special and making a difference as well as the financial returns that come later on. For me personally, and our amazing group of franchise partners, this more than makes up for the sacrifices,(much reduced) risk, and hard work in the start-up phase, but it’s a very personal decision.

This isn’t something you’ll find on our public-facing website etc, but we have also been working on a different funding model which halves your capital requirements, gives a guaranteed monthly drawing and reduces your risk slightly further. If you’d like to find out more, do get back to me and I’ll be happy to share.

Best wishes, Ben.