Business Expansion

[andys06]

Hi All

Looking for some advice, myself and the wife have ran a business since 2019 (survived Covid) it was set up as a side hussle/hobby but turned into much more very quickly. We have took over 30k the last two years and it’s looking closer to 60k this year with small profits the last two years and again this year. The business has no debts or credit accounts etc.

But we are looking to expand and have the potential to do this quickly, we are a small independent clothing store that takes our pop up stall to events in the dance sector, we have secured a lot of big events like the world and British championships, events in Butlins, Alton Towers to name a few. We have the opportunity to attend three times as many of these events as we currently do.

I’m looking for funding/investment rather than a business loan, don’t get me wrong I would take a loan as a last resort but if anyone knows of any funding options/investors I would obviously prefer to go down this route if possible.

The forecast for next year is around 100k turnover with over 30k profit I know it’s not millions but it’s a decent little earner for someone to invest in.

We have taken over £10,000 in web orders as well as the events, we’ve had over 94k go in through the bank via stripe/sum up card reader payments.

We have so much potential to build the business so just looking for any help/advice.

Many thanks

 

[DazRave]

How much are you looking to raise and why is a loan such a bad thing?

I feel as though 30k profit isn't much of a return for an investor and on the flip side, why give away a chunk of that 30k forever if it's just a quick cash boost your after?

 

[andys06]

How much are you looking to raise and why is a loan such a bad thing?

I feel as though 30k profit isn't much of a return for an investor and on the flip side, why give away a chunk of that 30k forever if it's just a quick cash boost your after?

The company has never had a debt to its name, my wife doesn’t like the idea of it, she was very much brought up with if you can’t afford it don’t buy it mentally…. I’ve explained to build the business it’s what’s needed, hence funding:investment would be better, I understand 30k next year isn’t a massive amount of money, but the business has a massive potential to bring in much more income and then obviously profit.

We have the events, the customers, decent web sales on top as well.

With the right investment I think I could easily grow the business rapidly and when I say think I know I can, I can literally just operate at more events, we currently do around 48 per year, but the license we hold to sell at these events hold 310 per year, it’s just currently we can’t buy that kind of stock in and need more staff to upscale.

 

[m4hmo]

Nice hobby for now, year 3 and you are looking at £30k profit? across 48 events? With 2 of you working? How long does one event last? 1-3 days?

 

[DazRave]

The company has never had a debt to its name, my wife doesn’t like the idea of it, she was very much brought up with if you can’t afford it don’t buy it mentally…. I’ve explained to build the business it’s what’s needed, hence funding:investment would be better, I understand 30k next year isn’t a massive amount of money, but the business has a massive potential to bring in much more income and then obviously profit.

We have the events, the customers, decent web sales on top as well.

With the right investment I think I could easily grow the business rapidly and when I say think I know I can, I can literally just operate at more events, we currently do around 48 per year, but the license we hold to sell at these events hold 310 per year, it’s just currently we can’t buy that kind of stock in and need more staff to upscale.

If I was an investor and heard that, what I'm hearing is that you don't want to risk putting your own neck on the line but you'd be happy to risk my money.

I assume what you actually need the cash for too, is to be able to pay yourself/quit your other job so you can give this a try full time. Again, as an investor, you'd be using me as a Scape goat to give it a go.

Think again about a loan, if you earn enough back and your as confident as you say you are it will be paid off in no time and you'll still own 100% of your business.

What is there to be fearful of?

 

[andys06]

Nice hobby for now, year 3 and you are looking at £30k profit? across 48 events? With 2 of you working? How long does one event last? 1-3 days?

Yep £10,500 web sales in that as well as the events, most events are one day, around 7 of those are 3 day events.

 

[andys06]

If I was an investor and heard that, what I'm hearing is that you don't want to risk putting your own neck on the line but you'd be happy to risk my money.

I assume what you actually need the cash for too, is to be able to pay yourself/quit your other job so you can give this a try full time. Again, as an investor, you'd be using me as a Scape goat to give it a go.

Think again about a loan, if you earn enough back and your as confident as you say you are it will be paid off in no time and you'll still own 100% of your business.

What is there to be fearful of?

 

[andys06]

No it’s not about that at all, my wife and in fact all her family have never had a loan, never had a credit card or anything like that, she was raised if you can’t afford it don’t buy it, I can’t just disrespect how she was raised and feels about borrowing so this is my comparison with her, I would get a loan tomorrow but she doesn’t feel comfortable and the whole point of doing this together is so we are happier working for ourselves, so I’m not going to do anything that she really doesn’t want to do.

We are both already working full time and both already quit our other jobs two years ago and taking a wage, the money is to buy new stock and upgrade a few things so we can make more and faster.

It’s not just me thinking it would work I have the numbers to show it, 94k has gone into the bank from a business that takes more cash than bank/card payments, £10,500 in Web sales, card payments etc, I haven’t just plucked these figures out of thin air these are facts, for someone to invest you are right we would lose some of the company, but my wife would feel better not being forced into something she doesn’t believe in and I know with investment I can achieve much higher turnover and net profit.

 

[Mark T Jones]

I'm a weird type of finance broker who believes that you shouldn't borrow money unless you have a very clear, researched, plan & purpose. (there are a few of us, but the other type make more noise).

That plan should also show the most appropriate way to 'borrow' money. In non-business parlance, raising equity is essentially borrowing in that your investor will want their money back, with a hefty margin. They will also want to 'interfere' in various ways.

You might find an informal investor in you local gold club, church or PTA group who will drop money in on a whim. Failing that, you will need to go the formal route, which will involve pitching, due diligence and legals.

TBH, this looks to me like bootstrapping is your best answer.

 

[pentel]

We have took over 30k the last two years and it’s looking closer to 60k this year with small profits the last two years and again this year.

The forecast for next year is around 100k turnover with over 30k profit

Are these profit figures after you have both taken a suitable wage and paid all expenses including vehicles etc?

How much are you looking for someone to invest?

 

[andys06]

I'm a weird type of finance broker who believes that you shouldn't borrow money unless you have a very clear, researched, plan & purpose. (there are a few of us, but the other type make more noise).

That plan should also show the most appropriate way to 'borrow' money. In non-business parlance, raising equity is essentially borrowing in that your investor will want their money back, with a hefty margin. They will also want to 'interfere' in various ways.

You might find an informal investor in you local gold club, church or PTA group who will drop money in on a whim. Failing that, you will need to go the formal route, which will involve pitching, due diligence and legals.

TBH, this looks to me like bootstrapping is your best answer.

Hi

I have actually done a fair bit of research and forecast and currently turning that into an expansion BP as we speak.

 

[andys06]

Are these profit figures after you have both taken a suitable wage and paid all expenses including vehicles etc?

Yes That’s net profit. We have premises as well which have all been taken out.

 

[Mark T Jones]

Hi

I have actually done a fair bit of research and forecast and currently turning that into an expansion BP as we speak.

That should form the basis of your funding proposition.

The challenge you are giving an investor - before they even start on financials, shareholder agreements etc - is that they are clearly buying into an emotive set-up, which is already deadlocked in disagreement.

Sort your strategy first!

 

[BGS]

That should form the basis of your funding proposition.

The challenge you are giving an investor - before they even start on financials, shareholder agreements etc - is that they are clearly buying into an emotive set-up, which is already deadlocked in disagreement.

Sort your strategy first!

What exactly are you looking for from an Investor? And what are you offering in return?

 

[Duke Fame]

Yes That’s net profit. We have premises as well which have all been taken out.

You could get an investor, There are business angels events (much like Dragon's Den) where you will find all sorts of people looking at businesses large and small.

For a £30K investment, how much equity are you giving away?

This may sound straight out of Dragons Den but all the questions they ask on that show are relevant. For instance, if you are selling 50% for £30k then you are valuing the business at £60k. An investor will either look to be involved so you need to be clear what you are looking for i.e. what expertise are you seeking to expand your business? What's holding it back now. OR do you just want £30k and no help, in which case, the investor will be looking for a return and with interest rates increasing, they will want to see it grow and an exit plan so how will the investor get their money back.

We live i a world of tax and if there is a change of govt (or even with the current lot) there may well be a a hike in corp tax so BORROWING THE MONEY WILL BE CHEAPER.

 

[andys06]

That should form the basis of your funding proposition.

The challenge you are giving an investor - before they even start on financials, shareholder agreements etc - is that they are clearly buying into an emotive set-up, which is already deadlocked in disagreement.

Sort your strategy first!

Yes hence why I'm
Doing the expansion BP currently.

 

[andys06]

What exactly are you looking for from an Investor? And what are you offering in return?

Honestly open to ideas and different investment with the right person company, I feel I’ve a strong business currently with the right investment it can be upscale quickly. I think ideally an investment so I can upscale and attend more events straight away for a percentage in the company or takings etc.

 

[andys06]

You could get an investor, There are business angels events (much like Dragon's Den) where you will find all sorts of people looking at businesses large and small.

For a £30K investment, how much equity are you giving away?

This may sound straight out of Dragons Den but all the questions they ask on that show are relevant. For instance, if you are selling 50% for £30k then you are valuing the business at £60k. An investor will either look to be involved so you need to be clear what you are looking for i.e. what expertise are you seeking to expand your business? What's holding it back now. OR do you just want £30k and no help, in which case, the investor will be looking for a return and with interest rates increasing, they will want to see it grow and an exit plan so how will the investor get their money back.

We live i a world of tax and if there is a change of govt (or even with the current lot) there may well be a a hike in corp tax so BORROWING THE MONEY WILL BE CHEAPER.

Yes I completely understand what you are saying and I think I’m open to have different discussions with different investors, depending what they can offer/bring to the table.

On my own I can only realistically keep at my current output but I can see potential for so much more, hence asking for any advice etc.

 

[Paul Kelly ICHYB]

@andys06 please bare in mind that investment can be seen as a type of loan that you never stop paying back. That person will always be taking x% of your profit, so you will always be paying for their funding.

Getting something like a government backed startup loan (which you might not qualify for) could get each of you £25k each at 6% for up to 5 years (with mentoring included) is a way you can budget for things whilst expanding.

 

[Mark T Jones]

I think it's all been said, at least until you have a clear proposition to get feedback on.

In the meantime, can I suggest you watch a few episodes of Dragons Den, paying close attention to the questions the Dragons ask (often repeatedly).

Tearing the product apart and witty asides are the comedy element - the business content is nearly all contained in those questions...

 

[Duke Fame]

On balance,
If you just need funding, get a loan it will work out cheaper for you.
If you need a partner to share the workload, that is a different proposition.

 

[DazRave]

If your wife doesn't like borrowing so much, I assume she's never had a mortgage either?

As others have said, an investment is a loan you will pay back forever. Perhaps explain the differences between an investor and loan as the pros of a loan clearly outweigh the investment in this scenario.

 

[Socio South West]

@andys06 It sounds great... but as the business grows you are going to want/need to earn from it.

Coupled with that, more shows almost by definition means more travel, more expense hence lower margin.

This is soon eating into the margin left over from 100K turnover you are aiming at - Is there enough for you AND an investor?
The investor will have priority on the payments out.

I agree with others who have said that a loan may be a better way to go to achieve this expansion.

 

[Ozzy]

Hi @andys06
There has also been some good answers above so don't want to repeat anything already said, so just commenting from an investors perspective it does have a feeling of lifestyle business without enough return to excite an investor. An investor will put the money in and expect you to earn them a good return back and they do not want and do not expect to have to do any of the work to achieve that, that is down to you to get them their profit shares. When you take on an investor one way of looking at it is that they own you, you work for them and if you don't live up to their expectations you may lose your business.
I know it's been said already but what you are looking for isn't much money, boring on your mortgage is the cheapest option to liquidate some equity and you don't end up in someone else's pocket.

If you are looking for someone to help you grow the business and roll their sleeves up and pitch in then that is a different thing altogether, a business partner. If that is what you want then you need to think about why on earth would someone bother? I intentionally worded it that way to help you get into their mindset, with so many options open for these people why should they get involved in your business over someone elses.

 

[The Resolver]

A first step, if not yet done, is to draw up a business plan. You need to show that your business model works and why, that it is upwardly scaleable, what steps are needed (and at what cost) to expand to how many more shows per year. Further you need to address whether there is a ceiling on sales and I guess these days how you would cope with another pandemic that put a halt on shows. You need advice on how much you ought to be prepared to give away in shares . You also need to have a Investor Agreement to regulate the relationship (as well , of course, of a Shareholders Agreement ready to be signed and not open to amendment.)

You perhaps could also examine whether you can undertake some level of expansion without investment or loan, For example, do you have a credit line from suppliers or do you pay up front? If the latter maybe as a customer regularly increasing its orders they can give you a period of time to pay on the basis you increase your orders. If the need is more to be able to take on more staff to cover more shows, then why not hire per show rather than full time to begin with and expand show by show ensuring you make a net profit per show.

Whatever route you take please come back here and let us know how things work out. I hope it all works out well.

 

[m4hmo]

Why can't you continue you grow organically? Why can't you wait? At least you will know the business has more longevity over the next 24 months? Make that £30k profit and reinvest?

 

[Duke Fame]

No it’s not about that at all, my wife and in fact all her family have never had a loan, never had a credit card or anything like that, she was raised if you can’t afford it don’t buy it, I can’t just disrespect how she was raised and feels about borrowing so this is my comparison with her, I would get a loan tomorrow but she doesn’t feel comfortable and the whole point of doing this together is so we are happier working for ourselves, so I’m not going to do anything that she really doesn’t want to do.

We are both already working full time and both already quit our other jobs two years ago and taking a wage, the money is to buy new stock and upgrade a few things so we can make more and faster.

It’s not just me thinking it would work I have the numbers to show it, 94k has gone into the bank from a business that takes more cash than bank/card payments, £10,500 in Web sales, card payments etc, I haven’t just plucked these figures out of thin air these are facts, for someone to invest you are right we would lose some of the company, but my wife would feel better not being forced into something she doesn’t believe in and I know with investment I can achieve much higher turnover and net profit.

So, what is the annual turnover? If you are both taking a proper wage (say £30k each) £94k turnover isn't a lot unless the margins are fantastic?

The other side is if yo are averse to a loan now, what happens when the investor wants to leave. They say, my £30k has done wonders for the company, the profit has increased 5x, I wish you all the luck and I'll sell you my shares for £150k. Unless you are sitting on that money, you will need to borrow it personally.

 

[fisicx]

Stop taking a wage - work for free at these events and use the money as the investment to build the business.

Or sit down with your wife and explain the realities of life. Almost all business use loans of one type of another. Borrowing money means you have the cash to invest. As long as you make more than the repayments you are winning.

How would your wife buy a house, car etc? Without a credit history it could affect your chances in investment as investors will check both your financial health. Having a credit history is a good thing. No credit history can be a red flag.

 

[Duke Fame]

So, what is the annual turnover? If you are both taking a proper wage (say £30k each) £94k turnover isn't a lot unless the margins are fantastic?

The other side is if yo are averse to a loan now, what happens when the investor wants to leave. They say, my £30k has done wonders for the company, the profit has increased 5x, I wish you all the luck and I'll sell you my shares for £150k. Unless you are sitting on that money, you will need to borrow it personally.

Sorry if that sounded aggressive, it's just not very clear and you will need to ensure you have clarity in your business plan.

I'd be looking at that and wondering how you pay yourselves, pay the venues etc as well as a wage. If you are taking cash , that needs to be on the books nobody wants to invest in something that may get a call from HMRC.

The other point I made stands, your investor will want to exit at some point. They want to exit with a decent return so you will need to find that money to pay off your investor so i suspect you will need to be borrowing.

 

[Mark T Jones]

Hi @andys06

I know it's been said already but what you are looking for isn't much money, boring on your mortgage is the cheapest option to liquidate some equity and you don't end up in someone else's pocket.

This may or may not be the case - it depends entirely on the nature of the borrowing requirements.

What comes back to - guess what? - projections.

 

[Duke Fame]

This may or may not be the case - it depends entirely on the nature of the borrowing requirements.

What comes back to - guess what? - projections.

It does and also borrowing in a personal capacity means the interest is not tax deductible.

 

[The Resolver]

The other side is if yo are averse to a loan now, what happens when the investor wants to leave. They say, my £30k has done wonders for the company, the profit has increased 5x, I wish you all the luck and I'll sell you my shares for £150k. Unless you are sitting on that money, you will need to borrow it personally.

FIrstly, the investor cannot force the company or OP to buy. Secondly, the OP would hopefully by then have seen the sense in a Shareholders Agreement with provisions for a frorced sale (but not forced purchase) on a declaration of a wish to sell and at a price set as fair by an indepedent valuer.

 

[Duke Fame]

FIrstly, the investor cannot force the company or OP to buy. Secondly, the OP would hopefully by then have seen the sense in a Shareholders Agreement with provisions for a frorced sale (but not forced purchase) on a declaration of a wish to sell and at a price set as fair by an indepedent valuer.

Yes, the key is the shareholder agreement and of course, a reasonable clause would be subject to independent valuation.

The point I was making was that come exit, the other investor will be looking for their return and if the value of the company is not available in liquid funds, there may be a far bigger borrowing dilemma to come.

 

[Porky]

Don't want to sound harsh but I wouldn't go near this from an equity perspective A) No decent ROI potential B) Business Driver has no real skin in the game C) Not sure how i would get an exit

The OP needs to just go for it, get a loan end of to scale up IF the business plan stacks up.

Its either that or he remains bootstrap and simply reinvests profits as he goes, or if lucky friends family send some cash his way but its certainly not an equity play IMO

 

[Paddy @ Hatch]

Hi All

Looking for some advice, myself and the wife have ran a business since 2019 (survived Covid) it was set up as a side hussle/hobby but turned into much more very quickly. We have took over 30k the last two years and it’s looking closer to 60k this year with small profits the last two years and again this year. The business has no debts or credit accounts etc.

But we are looking to expand and have the potential to do this quickly, we are a small independent clothing store that takes our pop up stall to events in the dance sector, we have secured a lot of big events like the world and British championships, events in Butlins, Alton Towers to name a few. We have the opportunity to attend three times as many of these events as we currently do.

I’m looking for funding/investment rather than a business loan, don’t get me wrong I would take a loan as a last resort but if anyone knows of any funding options/investors I would obviously prefer to go down this route if possible.

The forecast for next year is around 100k turnover with over 30k profit I know it’s not millions but it’s a decent little earner for someone to invest in.

We have taken over £10,000 in web orders as well as the events, we’ve had over 94k go in through the bank via stripe/sum up card reader payments.

We have so much potential to build the business so just looking for any help/advice.

Many thanks

Hi Andy,

Sounds an exciting time. You could think about Crowdfunding. You can either offer up equity or you could offer a product in exchange for investment. How much are you looking to raise?

I can put you in touch with the Crowd Academy who can advise.

Thanks,

Paddy