Financing business expansion

Chicken and egg situation here!

Could you email me some more details please Jasper47 and I will read and see what can be done ....

gill@oak-web.com

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Well to convince someone to either finance or join you, you need to get together some figures on how you are doing at the moment, what kind of income you need and what kind of figures you expect to get from your idea.  If you dont want to specify your idea at the start thats fine, but I would need slightly more info than you are providing at the moment.

Gill

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Jasper,

I think you will struggle quite frankly unless you have an amazingly good idea.

It sounds to me as if you need to get your head down and get rid of the debt, rather than trying to take on more. You’ve made the mistake of taking too much one already, I wouldn’t want to keep on going down this route of piling it on if you are already struggling to re-pay what you do owe.

Presumably you are now making money out of the on-line trading? If its not then stop doing it, dont blame a lack of time - things should normally work out even if a small way if they are going to work at all, unless there are significant fixed costs. Would you be better off with some night/weekend work to get rid of the debt? At least you know you will get paid. Also stops you spending if you are working!

In terms of venture capital, they will only be interested in large businesses and want a slice of it - the business would need to be a limited company. Unless its an amauteur investor a VC will typically be looking to invest a bare minimum of £50k-£100k and they would normally have a pre-arranged exit in 3-5 years, and also provide management support. Also the fact you have a full time job is also a big black mark - investors want 100% commitment, a day job wont cut it, and it doesn’t sound as if you are able to support yourself without it. A VC won’t be happy paying you a salary.

Hope that helps,

Regards,

------------------------
James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773

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Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT

Japser you say:

"The main issue is cashflow. Advertising takes a fair budget (approx. £1200 per month) and we average sales of approx. £3k per month. Once stock is replaced we have nothing left for taking a salary or anything like that."

I’m going to stick my neck out here but it sounds to me that the main issue is profit not cashflow - ie you don’t appear to be making much if any money, you are effectively buying turnover on adwords.

Presumably your P&L looks something like this:

Sales £3,000
COGS (stock you have sold including postage) £1,500
Gross Profit £1,500
Less Advertising £1,200
Other expenses £300 (hosting, transaction fees, office costs etc)
Profit not much
Debt repayments XXX
Negative cash flow......

Of course I am making this up, but based on a standard 100% mark-up I would imagine this isn’t far from it.

In heavy debt you are going to be in no position to open a store - you would need to be able to finance around 40% minimum yourself, plus be able to support yourselves for a good 12-18 months without taking a salary from the shop. Even if you COULD get the borrowing, how can you afford the repayments? It’s no good looking at profits you haven’t earned yet - you need to be able to afford the repayments if the shop doesn’t go well for you. You have already experienced how tough retail is with this not going how you expected it to, opening a shop is just the same but probably harder as there is more to go wrong. I should also point out that opening 2 MORE stores within 6-12 months is wildly optimistic. If you can perfect all the management issues to the point of the store run independently and profitably within 2 years I would be impressed, to think you have done so before you have even had your first full annual cycle seems to be a pipe dream.

I would suggest your first priority is to make what you do profitable so it contributes to paying off your debts - this sort of business is always going to be tough, but you should be making a bare minimum taxable profit of £300-600 per month on a £3k turnover before salaries. If you can get it working on-line when perhaps think about your shop in due course, very similar skills will apply to both areas. What is more if you can live off your on-line profit then you have an income when looking to give up the day job and start the shop. You then don’t need to put pressure on the new (and very capital intensive) businesses of having a retail shop. This sort of approach de-risks the whole thing and avoids you landing up with a big debt you cant pay off if you are one of the 1 in 3 people who dont make it within the first 2 years.

Hope that helps – I am being purposefully aggressive here to make you think hard about what you are doing, and if I am wide of the mark apologies in advance, I have misread the situation on here more than once when trying to help people.

Regards,

------------------------
James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773

---------------------------
Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT

I agree with James.  You need to get one business running well before landing yourself with leases and property with a shop and all the costs that involves.

Might I suggest that instead of spending the £1200 one month on advertising you speak to a Web Consultant and get them to check that your site is maxising its potential and traffic is heading your way.

Can I also say, that yes you can obtain finance even with a poor credit history.  Its not ideal as you dont have the choice etc, however, once you feel you are ready ie your existing business is giving you a living, and that your business plan and ideas for expansion are researched then yes talk to someone about it.

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Hi Jasper,

James has offered an amazingly ruthless but frank perceptive appraisal of your situation/dilemma.  I can re-inforce his very thought-train because I have been swept up in the over advertising, over expenses situation myself.  It grabs us nearly without realising; you see good sales for a few weeks and then they're eroded by promotion costs.

I agree with both James and Gill that you should endeavour to curtail such costs.  I do believe with the concept that if we are 'buying' sales, then how good is our company?

On a further note, I, too, had the intention of opening further outlets within 12 months.  Whist I am close, I am by now means in a position to do so.  The greatest issue (in my view) of expanding, is to have extremely trustworthy and competent staff to control the new (or existing) outlet.  Such staff are not easily found.

All the best in your endeavour,

Cheers, Nigel

By the way Nigel, how did you get to the top of the unsponsored listings on google?