A total of 526,446 companies were started in 2013* compared with 484,224 in 2012, which is great news for the economy, however business success is not guaranteed for any start-up, and the impact of launching a start up, on your personal life and your finances, can be huge.
Erin Walls, a specialist business advisor for SMEs at Ward Williams Creative says, ‘There is a vast amount of information available on start up finances, but there hasn’t been much focus on the need to monitor the financial and personal pressure that a founder might experience. Here are some tips on what to look out for, and how to manage the financial and personal stress of running a start up:
1. Mind the Financial Gap
In any start up situation there is usually a period of time where the founders have little or no income, as it can take months or even years before the new business is revenue generating, while initial capital investment may start to run out. The founder may therefore need to reduce personal spending, eg by stopping personal pension payments for a period of time and cutting out non essentials such as holidays, gym membership, take-aways and new clothes. You could rent out your current house and live in smaller, cheaper rented accommodation, but always check the mortgage provider approves.
2. Be Objective About Cashflow
Try to step back and be objective about your business cashflow, so if for example you have five potential new business leads over the next six months, don’t be over optimistic and assume they’ll all happen, but on the other hand, don’t assume nothing will come in. Apply this principle to your personal cashflow too. Work out how much you need to earn to provide for yourself and any dependants. If your proposed business brings in £35,000 of revenue in a year and you have overheads and running costs of about £15,000, then £20,000 a year is the most you could earn before tax. If costs go up, could you still survive on £15,000?
3. Keep the Family On Side
Relationships can come under strain when running a start up, with daily money pressures building with every bill that comes in. Is your partner able and willing to support you, or to live on a lower income? If your partner has a variable income or a lack of job stability, then this will create more instability and pressure. Make sure your partner and you are aligned in terms of the goals for the next six months or year and manage everyone’s expectations, sharing both good and bad news as it comes in.
4. Look After You
It can be impossible to stop thinking about the business, even when at home, or out with friends and most people work more hours in their own business than they did when they were employed by someone else. You might find you start to feel exhausted, or are sick more often than usual as the pressure builds and stress takes its toll. Remember that nothing is worth killing yourself over, so take time to de-stress and to keep fit in body and mind.
5. Consider the Implications of a Business Loan
There may be situations where the founder of a start up has to provide a personal guarantee for a business loan. Before going ahead, think about what this might mean to your personal life if the business fails and the loan is recalled for immediate repayment, or if legal proceedings start. Have a ‘worst case scenario’ plan.
6. Look Out for Business Warning Signs
You shouldn’t focus on negatives all the time, but there are some warning signs to look out for that could indicate a large issue:
- Negative cash flow – with no money, you won’t be able to pay your bills and the business will fail
- Lack of new business leads – in the early stages you may receive lots of positive feedback from friends, family and business associates, with people saying they could use your service or product, but if none of this enthusiasm is turning into real paid business after several months, then maybe you should consider that the business won’t work in its current form. It is extremely stressful to operate at a loss, or on a hand to mouth basis.’
Testimonial: Richard Hearn
In November 2003 Richard Hearn of Stoke Newington set up a business called GenerationMe, training disaffected young people and brokering work experience placements for them, leaving a full-time job with a charity to do this. He secured a few employers to host placements and linked up with an education charity to find young people to place. Owing to delays he became a freelance trainer for an apprenticeship provider. His girlfriend agreed to support him financially for three months as his income was variable, but this actually went on for five months. There were lots of good prospects for the business, but they were not translating into paid work quickly enough. Richard says, ‘My lack of financial contribution to the household began to cause arguments, my partner being more objective about the fact money was not coming in and I took it personally at times. I have swallowed my pride somewhat and had a reality check that my training business will take longer than I thought. I am doing more freelance work to boost my earnings and have reduced the time spent on my training company to one or two days per week. In the meantime I make daily savings by small things like not buying lunches and travelling by bus instead of by tube, as small savings soon add up.’