Use savings or get a loan

S

starting out

Guest
Hi

I am setting up my own independent IT consultancy business and am considering the best ways to fund it at the initial stages, i.e. for the first 6 months while I wait for customers to come on board and pay invoices.

I have two trains of thought
(a) Use existing savings to fund the venture - no major capital outlay required as I can work from home and have all the necessary equipment
(b) Get a bank loan to cover the above period.

My thinking behind (b) is that if my business cannot fund a loan then it is not worth staying in that business, whereas if I was to use my own savings there is a bigger risk of throwing good money after bad in the event things do not work out.

Any thoughts or comments on best approach?

Thanks
 
Savings or loan

I will only reply as somebody who was in the same situation recently.

If it needs correcting then expect from the more qualified on this site.

You have 2 chances of getting a loan without offering collateral or guarantor (none and none at all!).

If the business fails the Bank will pursue these leans.

Don't think the Bank will fund you and carry the cost if things don't work out.

Only use them (and all lenders) for funding as a last resort.
 
Did not think of that

Thanks So for pointing the reality out re getting a loan. While I am fully confident in being able to succeed in my new venture I do not want to risk my own house as collateral or risk a gaurantor's money.

Guess I will break open the piggy bank and invest my money in something that I believe in.

Thanks again.
 
Funding

Tell me to mind my own business (that was me in previous reply), but have you sat down and done a cost forecast?

I presume you could work from home and use some other prestigious mailing address etc. I presume since you are in the industry you have (most of) the hardware already?

On a cashflow payment basis you could request stage payments as work progresses (possibly give reductions for this).

There has to be a risk element, but good planning can reduce this. Invest in what the client can see (phone, laptop, suit, watch etc.), but sit on milk crates at home!
 
Funding

Thanks for the additional feedback.

I have done a business plan including a cost forecast and also projected sales etc. My plan would be to initially work from home and then progress to an office. My main concern working from home would be the distractions around and also not having a prestigious address etc. I am looking at virtual offices and their costs.

Yup already have the hardware, software that I require. The only investment I see is in some addtional software for the specialist area I am going into and also for some additional training)

I am very confident in the venture being self funding. At the moment I have no grand plans for world domination, the dot com downturn and the arrival of my son has helped me realise where the real prioirities in life lie.

My main concern re funding was for the first few months while I build up a client base.

Thanks for the feedback. It is great being able to use AAM to ask questions and get some solid feedback that helps you think things through better or indeed differently
 
Starting out

At the moment I have no grand plans for world domination, the dot com downturn and the arrival of my son has helped me realise where the real priorities in life lie.
Click to expand...

From experience of working from home - sitting in a bedroom/office or similar with your child playing in the other room does not work. You must ensure that the environment you create, no matter how temporary, is very much a business one. Ensure that the child will not be disturbing you when your on the phone etc. In addition to the business plan and financial considerations, may I suggest you also lay down ground rules regarding working from home. They include things like ..... just because you are at home does not mean your available to pop to the shops for milk or unload the dishwasher or fix the light bulb that just blows etc etc ..you get the drift.

Before I set up on my own, I got a bank loan for the eqv of six months salary and put it in account. It was my cushion if anything went wrong. Thankfully five years down the road I never needed to used it and had in fact repaid the bank within the first 12 months. But it was the security that I needed to take the leap of faith and not sound too desperate when I was pricing jobs or putting a value on my time in the beginning.

Good luck - I hope it goes well for you.
 
Software cost

"The only investment I see is in some addtional software for the specialist area I am going into and also for some additional training."

Regards the cost of training: would you be requesting that future clients also purchase this software(license) for whatever system you are working on for them? If the answer is yes then some small/medium software suppliers would consider training you for free, on the basis of future sales.
 
Funding

Hi Potblack

thanks for the advise. Was actually discussing this last night with my wife and was looking at where to locate the "office" so that I can be professional.

With regards the loan from the bank, was that a business or personal loan they gave you. If a business loan what security did you have to provide?

Michael
The area I am looking at is specialising in providing advise on companies securing their IT infrastructure and ensuring that they can be compliant for various standards. While the training is not a necessity for me I would like to complete it so that it provides me with credability. The software is a specialist piece of software for use by myself for auditing clients.

Thanks
 
Personal Loan

I got a personal loan from the bank, my bank manager knew I was in PAYE employment at the time I took out the loan so no security was needed. He knew I was becoming self employed but also knew from past history that if I got into trouble the loan would still be repaid.

Make sure the room that you dedicate as your office does not double as the sitting room in the evening etc. You will need to be able to close the door at night and forget what is on your desk. Lose the playroom or the dining room if you have too. Get rid of all soft furnishings, pretty pictures & fancy knick knacks that may be in the room. Get up every morning at the same time, but on your "work clothes" be at your desk at a set time. Work out what time you will break for lunch etc. Do not use eircom call waiting or answer machine, it sounds very amateurish. Get to know your postman!!! and learn to ignore what is going on outside "your office".

Take advantage of being selfemployed, work all hours if necessary to get a job done but also remember it is then OK to finish up at lunchtime on a Friday. Remember the time you are saving sitting in traffic. People think they have to work all hours to be successful, all you have to do is work smarter not harder.

Finally get the wife on board, Mr Potblack is also Self employed and we both work from home. I answer his phone he answers mine. It sounds like a real hub of industry.

Once again Good Luck.
 
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