The costs of starting a business are rising, with the average entrepreneur needing to secure some £94,000 in order to get their venture off the ground.
This is according to new research from Opinium, which surveyed 250 micro, small, and medium-sized firms. It found that so-called ‘micro’ businesses cost an average of £41,458 to start, while small firms required an initial cash injection of £103,816.
The survey also considered the ways in which entrepreneurs are funding their new businesses. It found that firms financed through bank loans tend to be have a higher initial outlay, with average start-up costs of almost £128,000. Of those entrepreneurs that have borrowed to start their business, 42 per cent have been forced to take a further bank loan since its launch.
Despite the high cost of starting a business, Britain’s entrepreneurs seem to be in good spirits. Separate research, conducted by YouGov, has found that one in four Brits aspires to start a business – and of those, some seven per cent plan to do so in the next two years.
Finance remains one of the most significant stumbling blocks for the country’s wannabe business owners. Much has been made of the banks’ continued unwillingness to lend even to viable firms – so what are the options for those who are looking to start or expand a business?
Friends and family and personal resources remain amongst the most common sources of finance for new businesses. Many of the world’s best-known companies were started on a shoestring, with money borrowed from relatives or scraped together from savings. This can be a cheap and effective way to get your business off the ground – but it is important that you treat these transactions as professionally as you would a bank loan. If you are borrowing from friends or family, make sure that you and the lender understand the terms of the loan. Will you be paying interest? Will they expect the money back on a specific date? Consider drawing up a written agreement to help minimise the potential for conflict later on.
There is a sense amongst many entrepreneurs that it is simply not worth bothering with the banks. Many don’t even get as far as filling in the loan application, because they are convinced that they will be turned down. Don’t be scared of approaching the banks for a loan. If you have a viable business plan and sound financial projections, it may still be possible to find finance on the High Street.
Banks, however, are not the only institutions giving loans to business. The boom in so-called ‘alternative finance’ has meant that business owners now have access to a range of new funding sources – many of which offer better terms than those demanded by the banks. Peer-to-peer or ‘crowdsourced’ lending, for example, enables businesses to borrow from individuals. Small sums of money are ‘packaged’ into loans to viable firms, which then pay them back in the same way they would a business loan – except they tend to be much cheaper. Peer-to-peer lending is an exciting growth area that could have significant implications for businesses that are sick of the banks.
Finally, if your business has already begun trading, you might also choose to investigate some of the many products that allow you to free up cash from your sales ledger or invoices. Factoring and invoice discounting can provide you with between 80 and 90 per cent of the face value of your invoices in a matter of hours. Under a factoring arrangement the factor will even take responsibility for collecting your clients’ payments – leaving you free to run your business.
Starting a business isn’t cheap – and times are tough for those who rely on the banks. But with a bit of imagination it is still possible to find the funding you need.
New research reveals one in four Brits want to start a business, Startups: http://www.startups.co.uk/new-research-reveals-one-in-four-brits-want-to-start-a-business.html