Started this with no money...

[matt1983]

Hi guys

This may be a bit long winded but please bear with me,

Ive been running my business in my own premises now for 13 months, i basically started with no real capital and didnt secure a bank loan...i think i started with roughly £500 which was basically for materials and i originally started from a front room in my house.

Business was slow to start with and only now have i seen a pick up in the last 6 months

Im finding at the moment that i take perhaps £2600-£3600 a month in total sometimes a bit more, my outgoings are usually around £2300 a month leaving me with about £400-£700 at the start of every new month in most cases.

I realise this isnt a huge amount but i cant see to get this upto a really health amount no matter what i seem to do, because i dont get paid until jobs are done and most people pay via card it can take 3-4 days before funds hit my bank so im finding that now cash flow is becoming a problem particularly when larger jobs come in.

My question really is, if i took out a small loan of say £2000 as working capital would this enable me to save more? i should have done this to start with but for various reasons i couldnt.

I realise that i need to be making more and not be spending as much but having a new family im finding that i need to take what i do out of the business for my own personal use (which isnt a huge amount only £600 a month)

The business has sucessfully paid me a small wage and has always had month in the bank and has plenty of work coming in in just wondering if because its a new business this is perfectly normal or should i start to worry?

Any help would be a bonus, i realise its a bit vague but its quite hard to explain the situation properly.

 

[MH1]

Why not ask for different payment terms, ie a deposit and the balance on completion?

 

[matt1983]

For the work i do its not really an option, the jobs arent super expensive mostly between £150-£200 each but you do get the odd one at £300-£500...anything above i ask for deposit for materials...the issue is there are quite a few jobs at these prices. My main worry is that even on these jobs materials can be anywhere from £20-£100 a job but obviously if im paying this out first before getting aything back it may be about a week or 2 before i get paid for the job which means ive then lost that from my already unhealthy looking account.

Ive always managed to keep a balance of about £400 in the account its never dropped below this and ive never really had a major problem paying bills both business and personal so the money is obviously there it just seems like im busting my arse off and i cant see any rewards in the way of hard savings.

It may be early days yet though?? like i say im not sure if this is normal for a business that started with virtually nothing.

 

[Mpg]

Can you get credit for your materials. 30 days or something

 

[Birdinparadise]

I think its difficult with cash flow in every business. In mine at busy times I need £6000-£10000 in the bank which is pretty hard to build up during the year, If you are making any money in the cuurent climate you are doing well so feel proud of that. I would avoid a loan if you can because in slow months you still have to find the repayment. I agree with the post above and you do need to secure deposits-most customers expect to pay one, Even on my smallest jobs £150 I get £50 deposit.

 

[matt1983]

I can get credit yea but my fear is that by going onto credit i'll be hit with a large bill after 30 days that i may not be able to pay for, so this way i buy only what i feel i can afford.

If i can turn the jobs around quickly i can have the money in about 4-5 days via card or 2-3 days with cash but im still a few jobs behind if that makes sense, essentially the money i get from the 2-3 jobs previous is paying for materials on the current jobs. So only if i can turn them around quickly will i get upto date.

I just thought that if i had some initial capital id then get upto date with materials because there would always been that initial capital to work from? or am i missing something?
i understand about the repayments on the loan but i cant see any other way of making a good amount of money to get plenty in the bank. Ive upped my prices slightly which has helped and there is no shortage of work.

 

[Mpg]

I can get credit yea but my fear is that by going onto credit i'll be hit with a large bill after 30 days that i may not be able to pay for, so this way i buy only what i feel i can afford.

If i can turn the jobs around quickly i can have the money in about 4-5 days via card or 2-3 days with cash but im still a few jobs behind if that makes sense, essentially the money i get from the 2-3 jobs previous is paying for materials on the current jobs. So only if i can turn them around quickly will i get upto date.

I just thought that if i had some initial capital id then get upto date with materials because there would always been that initial capital to work from? or am i missing something?
i understand about the repayments on the loan but i cant see any other way of making a good amount of money to get plenty in the bank. Ive upped my prices slightly which has helped and there is no shortage of work.

It takes a little self control but every time you put on credit log into your internet bank and transfer the amount you have just saved into a savings account that you have set up. That way you wont be caught out and you still have some extra if you need it.

I have 3 accounts 1 business and 2 savings. 1 savings account used for my VAT and the other for my personal tax. That way I dont get caught out. Its horrible at first but then it feels great just to transfer the money i owe to HMRC without any panic. I even save a little more that I need so I get a small bonus each quarter and each year.


At the moment your learning good stock control if you have a surplus of cash there may be a temptation to order too much with the "Well I'll use it at some point" attitude

 

[matt1983]

Well thats what i didnt want because ive been tempted to order a few extra bits that i dont really need but its a case of 'it'll be ok because i dont need to pay for it until end of the month' but i actually stopped myself doing that because i didnt want to get into debt especially with my main supplier.

I kinda do have a setup with them at the moment where i can be an order ahead so i dont have to pay for the initial order until i place a new one in which case i have to pay off the previous, they are very flexible.

It doesnt do anything for my finances though, i still cant seem to make enough money to save it seems to come in and go out on various things sometimes unexpected things like broken parts for a machine etc

I dont take a proper wage really as i personally dont see any benefit from the money i take it goes to pay the bills and thats it i have nothing left over to really spend or save myself which is the worrying part.

As its only been 13 months though i dont know if its too early to be worried about this sort of thing because ive gone from nothing to sustaining the business and paying for stuff comfortably even though im not really saving anything

 

[Williams lester]

Have you had a chat with your accountant about this, they may be in a better position to make suggestions regarding this as they will have had a closer look at the books.

Also have you put aside enough for your tax and NI for the year?

On a quick examination of your posts, if there is no shortage of work and you are constantly busy, then your prices may still be too low. You may be better off doing less work for the same money if you make an increase in your prices, and having spare capacity should more work come in.

 

[Bri]

Dave is right, your fast becoming a busy fool. With what youve got and built up consolidate on that, IMO dont borrow any money in the situation youre in it will get swallowed up quickly and you'll be back to square one. Youve already stated you spend on unecessary items for the business, then stop that immediately. How do you balance your workload? The way it looks youre either badly organised or extremely busy, e.g.you probably do this anyway, but split the day up into one high value job, and three or four low value jobs that you can complete at once. Not knowing what you do its harder togive a definitive solution but form one of your posts 20.00 for parts 200.00 to invoice is not a bad mark up. Also with a young family to support are you claiming the right benefits,working tax credits etc may tide you over until you get the business on track. Youre going in the right direction after 13 months, tighten up on those outgoings.

 

[MH1]

For the work i do its not really an option, the jobs arent super expensive mostly between £150-£200 each but you do get the odd one at £300-£500...anything above i ask for deposit for materials...the issue is there are quite a few jobs at these prices. My main worry is that even on these jobs materials can be anywhere from £20-£100 a job but obviously if im paying this out first before getting aything back it may be about a week or 2 before i get paid for the job which means ive then lost that from my already unhealthy looking account.

Ive always managed to keep a balance of about £400 in the account its never dropped below this and ive never really had a major problem paying bills both business and personal so the money is obviously there it just seems like im busting my arse off and i cant see any rewards in the way of hard savings.

It may be early days yet though?? like i say im not sure if this is normal for a business that started with virtually nothing.

As other's have suggested, it sounds like you are busy but not making any real money, hard to say without more details.

I had an old colleague in a similar situation hence my original suggestion, he claimed no-one would pay in advance, I proved him wrong one afternoon, he sold payment on delivery terms, I sold 100% payment up front and got 30% higher orders for him, plus I sold at 20% higher prices than he was using.

You can be too close to a problem sometimes to see an alternative way to doing things, where someone not so attatched to your way of doing things can see a better way.

Many years ago I started a cheap phone call service for a door to door team, the phone company had always wanted to do this but had no money to pay the salesmen so had never tried it. When they mentioned it I got round the problem by charging an administration fee plus an extra £30 for the first months phone calls.

The phone companies management couldn't understand how I came up with a soloution within a couple of seconds when it had eluded them for years, end of the day the client has to pay, it's just a question of when and how.

I wouldn't recommend taking out a loan.