Launching a trade business on a shoestring budget

For many plumbers and heating engineers, running your own business is a dream you want to turn to reality. It may be that you already own a van and have the equipment you need, but you are concerned that you don’t have the money to keep you going. What should you do? Lee Murphy, founder of Pandle, the cloud bookkeeping software for small businesses and the self-employed, offers some strategies for success.

Having a small budget should not stop you from setting up many types of business if you plan properly. But if you want to be your own boss and don’t have large sums in the bank, then you and your family need to be prepared to make some personal sacrifices in the short-term.

When I started out, taking a loan wasn’t an option. I wanted full control over my business and the direction it was going and did not want the added pressure of having to repay the bank. Instead, I took a reduced salary, put my social life on hold and any profits I made in the early days were put straight back into the business.

Would you be prepared to go without a nice holiday for a couple of years, cut out spending on hobbies, and spend the bare minimum on food and clothes? If not, perhaps rethink whether the possible discomfort and initial sacrifice of being self-employed is for you.

Taking the time to build a solid financial foundation for your business will give it the best chance of being a success. If you want to launch a business but have a small budget, here are some strategies to help you get started.

Consider renting, not buying
Whatever the size of your ambition, when you’re starting out it is inevitable that you will need some equipment to help you get started. Whatever you need – tools, transport, maybe stock – it’s worthwhile considering the cost of renting rather than buying, freeing up cash that can be put to better use elsewhere or simply held in reserve for unforeseen emergencies.

Renting could also mean that you have access to better equipment earlier. I found that by having the best equipment from the outset, I was able to get a lot more done with fewer people. If having better tools means you can get to more jobs done, then the extra money you are making could easily offset the additional cost of leasing.

You may also be given the option to buy at the end of the lease for a reduced price, something that is well worth considering

Turnover is vanity, cashflow is sanity
When you are starting out, the temptation could be to spend all your time on the road going from job to job to get the money in. After all, it is important to build up a strong base of loyal customers from the outset.

A lesson you don’t want to learn the hard way is that it is equally important that you set time aside to do the bookkeeping and keep track of the money coming in and out of your business.
Your turnover figure, otherwise known as the money you take from sales, will give you skewed view of your finances. So, if you simply look at the money you have in the bank you will over-estimate how well you are doing.

Instead, a good cashflow forecast will show you income and future expenditure, giving you a clearer picture of the books.

In the early days you may want to update your cashflow forecast weekly to avoid overspending.
Make sure your forecast includes not just your suppliers, rent and start-up costs, but also big lumpy payments like your annual corporation tax, quarterly VAT, accountancy charge and other large ad hoc payments.  These are particularly important because, if you have not set aside money, you may well not be able to pay them when they arrive unexpectedly.

If you use cloud accounting software then there should be a cashflow tool. Pandle, for example, gives real time cash reporting and forecasting so that you can easily spot current or future problems and react.

Remember: many businesses that go under are not loss making, but simply have run out of cash and cannot pay what they owe.

Set a payments policy that works
Did you know that more than one in five insolvencies are the result of businesses not being paid on time? Making sure your customers know how and when to pay you is a fundamental for your business.
Having a standard payments policy that customers are asked to sign before you start the job will help you should payment problems arise further down the line. It will be the same for everyone, so a standard note on your estimates, or a link to an online page.

While it can be tempting to cut prices to win clients, there is a real risk that you end up working all hours for no money at all. When setting a pricing strategy, as well as covering your own costs, make sure it also includes a profit margin.

You will also want to consider how long you are willing to wait to be paid. According to the Prompt Payment Directory, many business owners simply stop paying themselves when customers drag their feet on bills. With trade customers, consider cutting your payment terms, say from 28 days to 14 and you may even want to offer bonuses for early and up- front payments.

With private customers, get people to pay a deposit and never give credit.

Work ‘on’ and ‘in’ your business
If you’re long-term ambition is to grow your business and start taking on employees, make sure you take the time to to set the strategic direction of the business and ensure it is moving in the right direction.

It is important to keep up with industry developments as well as what your peers are doing, if you are going to be competitive and win new business.

Becoming too inwardly focused could mean that you miss out on commercial opportunities, or, worse still, you fail to spot broader issues that pose a real threat to your business.
The 2008 financial crash taught me this valuable lesson. At the time I was working in my first business in building renovations, and I was so focused on getting the job done that I missed the oncoming finance crisis. It was the end for that business.

As you scale up, you will want to dedicate more time to your role as company chief executive.

A small budget should be no reason to shy away from starting in business. Keep focused on your strategy to keep moving forward, make sure your customers know how to pay you, and pay close attention to the books to avoid failure. With determination and drive, being your own boss could soon be a reality.

Lee Murphy is the founder of Pandle ( the cloud bookkeeping software specifically for small businesses and the self-employed.

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