Making your own way

In case you don't already know, this week is Enterprise Week - nothing to do with the Star ship; more to do with celebrating those brave folk who boldly go where no business person has gone before in an attempt to create their own empire and a living. Just like exploring outer space, there is nothing easy about running your own business. Getting start up finance is challenging; the hours are long and the red tape and cost of employment can be paralysing; never mind keeping on top of the main job that is keeping the lolly rolling in.

UK are doing it for themselves

Despite the challenges, we are a nation of small businesses. There are around 4.3 million small- to medium-sized firms in the UK and they employ 22 million people - around half of those working - and they generate more than half the UK's turnover. If you've got the entrepreneurial bug look out for a number of events, such as debates, competitions and conferences, being held this week around the country. (See www.enterpriseweek.org for details). You can find out more about setting up your own business from the governments Business Link service at www.businesslink.gov.uk, Revenue & Customs (www.hmrc.gov.uk/startingup/index.htm), Federation of Small Businesses (www.fsb.org.uk) and from the high street banks. You could also contact your local Chambers of Commerce.

Capital issues

Many businesses need capital to get started. Even if you don't need money for expensive plant and machinery, you will need finance for marketing and possibly running costs. When you write your business plan, you should include financial forecasts showing how much money you will need and how long for.

Credit card or bank loan?

You may have enough to fund your new start up from your own savings but if this is not the case, you will need to try other sources. If you are not looking to raise a fortune, this is where a cheap credit card can come in handy. You get protection for purchases made, payments are cheaper than a business cheque and it helps with cash flow. Nationwide offers 0% for purchases for nine months on its Classic Visa credit card, while Marks & Spencers Money & More gives 0% for 12 months. Tesco Personal Finance recently launched a business credit card. There's an annual fee of £25 and interest rate on purchases is 13.9% but there is a reward scheme that gives a discount on petrol and the interest-free period is 56 days.

Keeping it in the family

You can ask family and friends for capital but remember you are asking them to take a risk and they may not be as excited about your great idea as you are.

Banking on it

Borrowing from a bank either through an overdraft on your business bank account or through a loan is the most common way of raising finance. The banks will ask you for a business plan, security from business assets or a personal guarantee. Its best not to use your home as security to avoid losing the roof over your head. If you need to buy a property to run your enterprise, you will need a business mortgage and business insurance to cover your equipment, premises, stock and business interruption.

You will definitely need a business bank account and this is where is it important to use your entrepreneurial skills to pick a supplier that offers value for money. Research commissioned by Alliance & Leicester Commercial Bank said that businesses could save between £3,500 a year to £41,000 by switching bank account. The main things to look at are the interest paid on credit and transaction charges. The banks charge for money going in and out; and they charge different rates for cash and non-cash transactions such as direct debts. Online and telephone accounts are usually cheaper and some banks such as Lloyds Bank, waive transaction fees a limited period for new clients.

17 November 2006 © Moneyextra.com

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