Career Testing
Career Testing
Career Testing
ENTREPRENEURSHIP / AUG. 27, 2016
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Is Building a Small Business in Today’s Economy Possible?

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The dream of many people that are stuck in dead-end jobs is to break away and become their own boss, is it possible? Is it close to impossible today?


The economy is finally on the rebound after years of stagnation. There has been a steady drop in the U.K. unemployment rates since the last quarter of 2013 (roughly 2% from just over 7% to just over 5% in the last quarter of 2015). According to the Office for National Statistics this brings the number of people employed in the United Kingdom to 31.42 million. A visible wage growth of 0.1% has even been observed in the last three months; it might not seem much, but it is something.

Those positive numbers though do not show the extremely encouraging number of new business being founded. Just last year more than half a million new companies, 581,000 were created with a projected 600,000 to be started this year. This trend is due in large part to the increasing number of young graduates forgoing the traditional route of corporate employment to break out on their own. But how feasible is it to start your own business for most people?

Market

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The U.K. is home to 64.1 million people with a gross domestic product of $2.9 trillion. This makes Britain the 6th largest economy in the world. Add to that the buying power of the individuals that were previously unemployed and are currently employed, and you have all the trappings for a healthy consumer economy.

Not just that but the U.K. has recently been encouraging British entrepreneurship with various programs including grants, loans and consultancy for small and startup business. You can find a fair amount of information on U.K. government's website regarding the incentives they offer to new business owners. 

Business Loan

small business loan

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Government-backed loans are for individuals that are over 18 with a fixed yearly interest rate of 6% for amounts between £5,000 and £25,000. The great thing about these programs is the fact that as a loan recipient and new business owner you have access to free mentoring for 12 months. Although you can apply online, you will first need a business plan and cash flow statement.

The startuploans website is chalked full of resources to help you fill out your application. For example, it offers a free business plan and cash flow forecast template. If you are unfamiliar as to what those two items are allow me to elaborate. A business plan is a document presented by potential business owners when they are seeking funding. It lists the basic idea of the business, its goals, the market (customers) you will be targeting and how you intend to reach the aforementioned goals. It also shows the potential investor marketing and financial and sales forecasts.

A business plan is not only important for an investor to get some insight into the company, but it can also be an immensely valuable tool for the business owner. It can help a fledgeling company keep its focus and communicate clearly with anybody involved what they do and how they intend on achieving it.

A cash flow forecast (or statement) is a document or set of documents which explain the projected finances of the business you are proposing. It will show both your expenses and your revenues; that includes income from loans, grants and predicted sales.

All of this can prove to be a huge challenge, especially with all scenarios being seemingly hypothetical. There is an immense breadth of data that you use as a metric when creating both your business plan and cash flow forecast. When creating a CFS make sure you consider seasonal ebbs and peaks of income and try to be realistic with your figures. We would all love to pay ourselves six figure salaries, but the business you are proposing must be able to afford that.

Applying

applying for a loan

Now that you have both a business plan and your cash flow forecast you can start applying for a government back startup loan. First, you need to be eligible for the loan, which you can check here. Some of the requirements have to do with personal debt and finances; other eligibility criteria have to do with residency status and you new company’s status as public or private. Everything is laid out for you on the startuploans website clearly, and you can test your eligibility on the link I mentioned above.

Once you pass the eligibility questions, you can start your application. The process will ask for your personal contact information and of course your business plan and cash flow forecast. It even has a section dedicated to startups that used the government-backed loans and succeeded. Including a brewery named Powderkeg Brewery. Read how he managed to escape his good but uninspiring corporate job to pursue his dreams here.

Not only will the startup loan give you access to a mentor/consultant for twelve months, but you will also have access to a long list of professionals and service providers that offer discounts to government funded startups.

Timing

The British government is incentivizing entrepreneurship, more and more. From cutting down the paperwork necessary to start a business to making it much easier to access government-backed financing. Many British heads of state even believe that small and medium businesses are the key to the U.K.’s post-recession economic success. This is the perfect time if you are thinking about starting a business, the economy is on the upswing; thus the growth that small and medium business will see in the near future will be immense. As the economy recovers the consumer class’ buying power will increase, and customer bases will become more valuable. All of these factors will contribute towards a fertile market for small and medium businesses to grow solid roots on.

Recently the government has even offered various tax abatements for people that are interested in investing in small startups. The program is called the Seed Enterprise Investment Scheme. According to the information on the website, this is to help new business owners making a better investment on their capital than they would from a bank. At the same time, this helps new business owners or startups get the necessary funding.

The other great thing about this scheme is that it protects the startup by prohibiting any investor in acquiring more than 30% of the company. That might not seem like an advantageous deal for the investors, but the scheme protects against loss also as demonstrated by this case study. The hypothetical person in the scenario invests £20,000, receive the equivalent of roughly £12,000 in tax levies. Even though he receives a tax credit, he also retains the £20,000 worth of stocks. If the company goes under and the investor loses his initial investment he can still get further tax cuts as a result of his losses.

No matter what the circumstances, the consumer market will always be competitive. Although you might have a genius idea that will appeal to consumers. First, you have to make sure it appeals to investors. Remember the old axiom that goes: people don’t invest in companies they invest in people.

Are you thinking of starting a startup? Are these tips helpful? Let us know in the comments section below...

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