New IT Business startup

[Chris Bennett]

Good morning all.

I have done an introduction and potentially looking for some help in where I can go for funding.

I'm in the process of putting my Business plan together. I have 2 other people that I want to bring into the Business, they're colleagues from where I previously worked and both know the industry we work in very well too.

Yes there are a lot of IT businesses around, however I've got some very good contacts. I'm wanting to start off with Cable & AV, this then gives me time to build up the Managed service side, again I have some good contacts and know this will grow.

This is the first time I've ever wanted to venture into running my own business, however I do have a strong business acumen and the strength and determination to push the business forward.

My questions are firstly what would be the best way to finance, I'm either looking at a business loan or perhaps some kind of venture capital investment. But what would the experts here recommend?

Secondly I would say I'm 80% of the way there with the business plan, is there anyone around that would kindly and impartially be able to take a look at my business plan and provide me with some advice either good or bad.

Thirdly if you are an investor and would like to know more, please give me a shout. I would be more than happy to go through my business and exactly what I want to do.

Any help and advice, good or bad I've got broad shoulders and can take it.

Thanks
Chris.

 

[Clinton]

I've got broad shoulders and can take it

Great! I like people with broad shoulders. We normally get the narrow shouldered here, the pink princesses, the delicate snowflakes.

My questions are firstly what would be the best way to finance...

Remortgage your house, beg family and friends to contribute, sell your soul.

You say you'd like a business loan and/or you'd like VC funds. Wouldn't we all? Someone else takes the risk with their capital and we get to spend the money. What's not to like about it?

I suggest you read up on what type of projects VCs like to invest in; this doesn't sound like VC territory.

In any case, I have some questions.

How much of money are you investing in the project i.e. cash that you'll be putting into the new business bank account?

How much commitment and what sacrifices will you be making? Investors wouldn't be impressed if you're currently unemployed and want to start a business simply because you see drifting into self employment as your last resort given that nobody is employing you. For example, tell me you're giving up your well paid, full time job. Or that you're selling your house and going to sleep on a friend's sofa. Demonstrate extreme commitment to making your idea succeed. Investors want to invest in missionaries, not mercenaries.

These two "partners" you're bringing in - what cash and what commitment / sacrifices will they be making?

How much do you want, how do you want the remittances staggered and what will you do with each instalment?

What is your exit plan?

The big questions investors ask don't revolve around the quality of your idea because I can guarantee you think your idea is great and that it will make millions. The big questions in the investors' minds are the ones I've asked above.

If I like your answers I will take a look at your business plan and give you some feedback via DM.

 

[James Berry]

Good Morning Chris,

I'd be happy to have a look over your business plan for you and provide some start-up advice
I run a Business Consultancy and outsourcing firm specialising in start-ups and SME's

Feel free to send me a PM and we'll move forward from there.

I look forward to hearing from you

James

 

[Chris Bennett]

Thank you for the replies guys, very much appreciated.

@Clinton - I've read a few posts that you've replied to and think the answers you give are firm and fair.

In regards to finance, if I have to get secured finance on the house I will. Ideally I don't want to do this at the moment if I can get away with it, if not then I will look down this avenue. I've just finished a contract as Head of service for a managed service helpdesk.

Cash and commitment from my 2 colleagues is going to be discussed next week, they will be leaving the jobs they're in to join me. I'm wanting to start this early next year as I've got a couple of leads that I need to follow up on. Where work needs doing early next year. Potentially for a few months I can run the business from home rather then having the expense of setting up a new office somewhere.

Putting money into the business account if I need to do so I will continue contracting and putting money in that way to. From an outlay point of view I will need around £25k this will get vans, tools, however I would be looking for help to pay for a Client Manager to follow up on leads and make sure jobs are completed. This would be someone that can work from home. With a view to meeting up once or twice a week to see what is happening. Setting up a Cloud CRM system so that I can see the leads that have been followed up, but also gives me the free time to start looking at the managed service side of the business.

The one thing I am fully aware of is that the business will not make millions, not for a good few years... I will be lucky if I see £250k in the first year, in the second year I would be lucky if I make £500k this would be my ultimate plan, but under no illusion I'm going to be a Millionaire.

Good thing about doing what I do, I make some for good contacts with staff and potentially I know some of them will move over to me if I can prove the Managed Service section of the business is working. Same with Cable & AV. Again something I have knowledge in and not afraid to get my hands dirty.

However now I'm going to show the side of me that doesn't really know much and that is me about to ask.

What do you mean by Exit plan?

@James Berry - Thank you and really appreciate your offer. I've got a few things to finish off and would like to drop you a PM and get you to take a look when I've finished it off.

Thanks again to you both. Really appreciated.

Chris.

 

[Chris Bennett]

P.s. The £250 & £500k is before deductions, so again I know I'm not going to be making a lot of money after deductions, however this really is the start that I need to push the business forward.

 

[Clinton]

The one thing I am fully aware of is that the business will not make millions, not for a good few years...

So eventually you see your business generating millions. I rest my case

To answer your question, the exit is probably the most important part of your business plan as far as investors are concerned.

If you don't have an exit plan how is the investor going to cash in his shares? You're thinking a lot about getting the money in. He's thinking a lot about how he's going to get the money out.

You need to worry about what he is thinking ...and address that.

Ideally I don't want to do this at the moment if I can get away with it...

Investors won't be impressed with that answer, I'm afraid. It shows hedging your bets and wanting to risk someone else's money rather than your own. That's a big red flag. I have walked out of investment opportunities immediately on hearing that the entrepreneur had access to capital but was choosing to not use it.

 

[Chris Bennett]

So eventually you see your business generating millions. I rest my case

Smart arse

I know the business won't make Millions for a good few years as I know it's a competitive industry. I would love it to make millions and have something decent to leave my boy when I come to retire.

In regards to the exit, for an investor are you asking how he will be paid out once I'm up and running after a set time? As I say this side is new to me, so if you have any links you can point me to it would be appreciated. I'm doing my best to research as much as I can before stepping into that very big pond.

In regards to secure funding, I'm not saying I wouldn't do it. I just need to make sure that my family are safe. I have a boy who is nearly 4 and a wife to look after. So I have to consider them to. If an investor said I need to put my house up as Collateral to get this business moving then I will do so.

I would say I know the IT industry well and I would never go down without a fight. Not by any stretch. I'm the kind of person that once the fire is lit...like now. I go for it and never give up, even if it means I'm on the road a fair bit too, to make sure I'm driving the business forward. That and I have an amazing wife who also wants to help drive this forward.

 

[Clinton]

In regards to secure funding, I'm not saying I wouldn't do it. I just need to make sure that my family are safe.

If I put on my investor's hat, here's what I think: If the safety of his family is at risk he would work even harder to ensure the business is a success. So, yes, I'd like him to start by remortgaging his house.

If I have a choice of investing in somebody who has put himself in a position where he has to succeed vs somebody who would simply like to succeed but looks like he doesn't really have that much faith in himself, which one do you think I'd go for?

if you have any links...

When you see underlined text, try clicking on it.

 

[Chris Bennett]

This is the kind of information I'm needing. Thank you.

The thing is I don't want things sugar coated, I just need the simple facts. I know this isn't going to be an easy venture, however myself and the other 2 that will be working with me want to make sure it works.

Like I say if I need to put extra money in I will do some more contacting to start pushing things along. I'm just getting to a point where I've worked for several companies and all they do is look after themselves and I know this may sound cheesy however I want give the customer a different experience.

I shall have a look at the links.

 

[Mark T Jones]

Try start up loans. Job done

 

[Chris Bennett]

Try start up loans. Job done

Problem is, Start up loans will just about cover the cost of the equipment I need to buy, Van and Insurances. Won't cover the cost of paying for the small team I need to put together.

Chris.

 

[Clinton]

This is the kind of information I'm needing. Thank you.

I wrote an article on this topic for this forum's sister site. It covers how investors decide to invest in a business. If you're ever suffering from insomnia, you can cure it by reading the article.

 

[Mark T Jones]

Problem is, Start up loans will just about cover the cost of the equipment I need to buy, Van and Insurances. Won't cover the cost of paying for the small team I need to put together.

Chris.

Use HP/lease for equipment

Phase your growth.

Bring in one of your employees as shareholder/investor

Look at cheaper ways of doing it

 

[Chris Bennett]

Well I'm still awake and looks like I would certainly be looking down the Financial Investor route. 4-6 years would be a good time to establish the business and to grow the managed service sector.

I have worked out my Year 1 costs and what my annual costs are going to be. I'm also as mentioned before up for contracting too to bring in extra money for the business and to promote the company to the next level.

So what specifically would a Financial Investor be looking for?

I really am wanting to push this and do what I can, not only for myself but also the 2 business partners that I want to work with too.

Chris.

 

[Chris Bennett]

Use HP/lease for equipment

Phase your growth.

Bring in one of your employees as shareholder/investor

Look at cheaper ways of doing it

There really isn't a cheap way of doing it, if I go cheap I reduce the quality to the customer, I'm not sure what background you have, however if you know cable & av and managed services sector then you would know that you have to guarantee the work you do.

My intention is to bring 3 people on board, I need one of them who is a Cable & AV engineer, the other is to manage the office and make sure jobs are booked in. My intention is do consulting work and also to follow up on leads to continue a steady work stream.

Chris.

 

[Clinton]

So what specifically would a Financial Investor be looking for?

I'm going to let some others post in the thread now.

I don't have answers to the questions in my first post yet and, in any case, I've got a very busy few days ahead and have to avoid getting into writing long guides here about raising finance. So, sorry, but all the best.

 

[Mark T Jones]

I have worked out my Year 1 costs and what my annual costs are going to be. I'm also as mentioned before up for contracting too to bring in extra money for the business and to promote the company to the next level.

So what specifically would a Financial Investor be looking for?

I really am wanting to push this and do what I can, not only for myself but also the 2 business partners that I want to work with too.

Chris.

I'm not as experienced as Clinton in dealing with investors; however some of what they are looking for would include:

- What have you contributed to the business, financially or otherwise?
- What specific skills and experience are you bringing to the table (that they can't simply go out and employ)?
- Can you demonstrate that you are the right person to run this business, both day-to-day and to deliver the dynamic growth they will require?
- How do your cashflow projections stand up to stress-testing?
- What will their return be (dividends, Consultancy fees, exit/sale of shares) - and when

Additionally they will want varying degrees of involvement within the business and ongoing feedback.

Finally, when putting your prospectus together, remember that hard, quantifiable facts trump assertions, promises and waffle by about 100:1
-

 

[Chris Bennett]

Well I appreciate the information so far. More than happy to answer the questions.

So when you have a minute to read through here are the answers below:

If I can re-mortgage then I will do this to help funding, the other 2 guys coming in, one is going to be the Lead Cable & AV engineer, so his commitment will be to continue bringing work in through key contacts and along with myself following up on leads. The 2nd person will be managing the office, introducing ISO standards to the company to make sure that we have lean processes to continue on the right track. I have a meeting with them this weekend where monetary discussions will take place. At the moment it's on myself to finance the venture.

I work on a contract basis at the moment, so I am able to focus on this venture and providing services to customers too.

In regards to funds, I need around £300,000 this will see me through the first year, I don't need any major infrastructure as there are a lot of CRM/Cloud applications available to use that I don't need a major network setup to support managed service contracts. Certainly for the customers that I would be supporting as they don't need any kind of datacentre support.

Now I'm not sure how this would be given to me, I'm presuming it would be quarterly. I would like to say that after the fist year I could be self sufficient in this, however I know things could go wrong and at times it could be slow. But I am determined to make a success of this and for the business to prosper. Even to a point where I could actually look to invest or buy another business in the same industry to take mine to the next level.

In regards to exit plan, then I would be looking to buy the investor out certainly within 4 years. Ideally I would like to do this as soon as I possibly could.

 

[Mark T Jones]

Well I appreciate the information so far. More than happy to answer the questions.

So when you have a minute to read through here are the answers below:

If I can re-mortgage then I will do this to help funding, the other 2 guys coming in, one is going to be the Lead Cable & AV engineer, so his commitment will be to continue bringing work in through key contacts and along with myself following up on leads. The 2nd person will be managing the office, introducing ISO standards to the company to make sure that we have lean processes to continue on the right track. I have a meeting with them this weekend where monetary discussions will take place. At the moment it's on myself to finance the venture.

I work on a contract basis at the moment, so I am able to focus on this venture and providing services to customers too.

In regards to funds, I need around £300,000 this will see me through the first year, I don't need any major infrastructure as there are a lot of CRM/Cloud applications available to use that I don't need a major network setup to support managed service contracts. Certainly for the customers that I would be supporting as they don't need any kind of datacentre support.

Now I'm not sure how this would be given to me, I'm presuming it would be quarterly. I would like to say that after the fist year I could be self sufficient in this, however I know things could go wrong and at times it could be slow. But I am determined to make a success of this and for the business to prosper. Even to a point where I could actually look to invest or buy another business in the same industry to take mine to the next level.

In regards to exit plan, then I would be looking to buy the investor out certainly within 4 years. Ideally I would like to do this as soon as I possibly could.

Whilst this is infinitely better than most of the investment threads on UKBF, I'm afraid it is still vague and woolly

You need to be hard selling your proposition to investors, based around their requirements.

Investors know full well that there are variances and fluctuations, but they will expect you to have researched your plan (including detailed cashflow projections) to the extent that you can answer questions with confidence, and that you can mitigate at least most of the foreseeable unforeseeables.

it isn't a piece of homework; investors won't mark it out of 10, they will base an initial decision on whether or not to pursue your proposal on the back of the plan.

 

[Chris Bennett]

This is one of the reasons for asking the questions, so that I can make sure that my business plan is water tight.

I know how I want things to be, but I don't know what investors are looking for. A reason for the help to take a look at what I currently have detailed. At the last place I worked, the Cable & AV side was busy in the school holidays, which is where I would say 60% of the work came from. Others were from network relocations and new offices.

I'm aware it's not homework, I know the business. I just don't know what an investor requires in order to make the decision.

I have always worked for an established business, I have put working processes in place and I'm able to do that now. I know from a procedural and a strong understanding of the business area. The strength and determination of being able to do this for myself, colleagues and most of all my family.

 

[Clinton]

@Mark T Jones is very modest. I couldn't have put it better than he did in this post above.

Re something else Mark pointed out - you need to be sharp on your cashflows, projections, numbers. Everything needs to add up!

Now I'm not sure how this would be given to me, I'm presuming it would be quarterly.

Stages and milestones will be agreed in advance. You keep meeting performance targets and you'll keep getting the next lot of funding. If you fall short or fail to deliver - or, worse, don't keep them updated with all the detailed reports they expect - don't be surprised if investors want to renegotiate terms, do some restructuring or mess with liquidation preferences.

Even to a point where I could actually look to invest or buy another business in the same industry to take mine to the next level.

In regards to exit plan, then I would be looking to buy the investor out certainly within 4 years.

All wishful thinking. Fuzzy. Not good enough. Where are you going to get the money from to buy out the investor? Based on your current cashflow projections, and plans for dividends, how much will you be taking home in the first year, the second year, the third year and the fourth year? If the plan shows you taking a total of £105K over 4 years, and investors figure you need £25K a year to live on, you are effectively saying you are hoping to buy out their share with your spare £5K.

See what I mean about numbers adding up? "I would be looking to buy the investor out..." is meaningless drivel - posturing - if you have no clear plan as to where the money will come from for such buy-out.

Send me the business plan if you want and I'll have a look at it (and read the thread again). There may be some positives that you're not highlighting enough eg. your two partners are leaving full time jobs to help build this business. That counts for a lot. (But as an investor I would certainly not be impressed if you were doing some consulting on the side and running this as a part-time business.)

 

[Chris Bennett]

@Clinton - Thank you for the above. I'm in the last stages of finishing the business plan off.

Part of the business will be to provide consultancy services for potential customers. So will be part of the business. This is something that won't happen until I've got the cable & av side built and running. Once I know this is running I can then start to move onto managed service sector.

I totally see where you're coming from in me wanting to buy the investor out. If I've done my figures right, which I would say I have... Well I hope I have. I've worked out a set monthly target which I want to stick to, I know the people I want to bring on board and they know the industry as well as I do. So I would be determined to meet them monthly targets.

Thanks
Chris.