what do you live on, when you start a business?

toasterman

I'm sure this is a silly question, but I can't find anyone with a real answer.

I've got a business idea, and I think it could be a success.
It won't make me a millionnaire, but I think it could earn me a living.
It's got low startup costs, no other staff required at this stage, and little equipment needed I don't already own.

I've never run a business before though, so I'm reading a lot online.
I've lowered my outgoings as much as possible, have no plans for a holiday in the next few years, no children (or plans thereof), and have accustomed myself to spending pretty much nothing day-to-day wherever possible.
I rent, so I won't be in danger of losing my house if (worst case scenario), it fails.

I have belief in my business, but no emergency fund really.

I'm currently claiming jobseeker's allowance, and housing benefit, but the second you attempt to run something yourself (even if it's not yet earning any money), all your benefits stop if you're not making yourself available for full time employment with someone else.
If I sit on my !!!! and do nothing, and continue looking for jobs that aren't there, my benefits continue, but it's driving me crazy sitting here all day reading job websites.

So I guess this is the question.. if the average new business makes no money in it's first year, how does anyone afford to live during that period?
Do people start with savings of <enough to live for a year>?
At a push I could probably live for about 1.5 months on my savings, and I'm not sure I could earn enough within this period to survive.

Most places I've been reading tell me not to get finance unless absolutely necessary. Someone I spoke to yesterday though who runs a (seemingly successful) business, told me to get finance for everything and that you shouldn't start a business with your own money.

I'm looking at part-time work to earn me enough to live, while giving me time to work on my business. However, I'm worried this looks unprofessional as someone wanting to buy from me might not be able to contact me.

Any tips/advice?

natashasprite

I am soon going to "completely" set up my business but have been working part time in the build up to it in order to survive - you get to a point when you know it will take off and that is when you fully start your business. Just be aware most businesses rarely make PROFIT in their first year but they tick over so you have survived.

I would not worry about looking unproffesional if you have another part time job because you do not have to tell clients!If they cannot get hold of you provide other means of contact and use the phrase that "you have been really busy"...

Pee

If you were unavailable, through working a second job, clients would assume you were working with other clients in your business.

I doubt very much that you will get finance without giving guarantees.

mumof2nanof2

Have you considered working tax credits? As long as you spend over 30 hours a week getting your business up and running, you qualify. It's how I got my business off the ground without having to borrow too much.

DCodd

Put a message on your answerphone/voice mail something like this:

Hello, I will be out of the office today [insert date] I will be returning [insert time] please leave a message with your conatct details and I will call you back, alternatively e-mail at [insert e-mail].

Change this message each day.

Then they will think you are out on Business.

chickmug

My accountant used to say "Who Dares Wins" - the SAS motto.

I have started off more than one business but have had enough money to live for however long it took to get into profit. Some businesses just require living costs but, like in my case, needed £10's of thousands of other money to set things up.

However I know others some of who have taken the SAS motto to heart and who have borrowed from credit cards and taken out personal loans for up to £20,000'ish. I know those who have been sucessful and those who have failed and who owed quite a lot of money with no way of paying ity off for many many years.

So if you are very brave, very arrogant, 100% very sure of yourself and your idea go for it but self employment is very very scary at times.

TCM_3

Hi Toasterman

Does your job centre have any start a business schemes? This way you can still get your benefits for a certain length of time and there may even be grants available to you. When the benefits stop go to working tax credit as someone has already suggested.
You would be able to take "drawings" from you business to give you enough to live on and to cover your rent etc just keep accounts of everything even if you think it is daft!

Self employment is not a picnic in the park at the minute, long hours, dedication and a day off does not exist anymore let alone a holiday! However, on the plus side, you are your own boss and if you are a grafter you may as well graft for yourself and reep the rewards yourself.

For small businesses and self employment, money is tight, scaringly tight and the banks which are meant to be helping us out aren't. But if you are determined enough, go for it but have a plan B incase it doesn't work out!

Have at look at the Join in if you're self employed and work from home thread on the DFW board.

Good luck with what you decide to do.
T

slipp_digby

Afraid there is no easy answer to this. With any venture there is a degree of risk which is why people are so unwilling to lend money to start up businesses.

You can increase your chance of success through good planning, and keeping your overheads as low as is practical.

Perhaps your contact should clarify how they 'financed' their business without taking on personal debt, or securing them against personal assets. There are many peoples on these boards who ask this regularly. I cant think of many scenarios where the owner would not need to invest their own money, even just for working capital.

I know from experience having started a consultancy/service company with very limited overheads that it still took over 6 months to get any decent income from it. Without support from my family I simply wouldn't have been able to do it.

One of the key problems is that the best tax position for a director/shareholder of a ltd company - low salary and high dividends paid out of profits - means you wont have enough to live on month to month at any stage, so you are always dependant upon the company being in profit so you can take dividend payments as well. Not so bad once you are established, but a nightmare during the first 12 months.

Hope it goes ok for you (if you decide to take the plunge)

paulwf

If your line of work is for example business to business with Mon-Fri 9-5 hours you could work part time evenings and weekends, just be careful not to overdo it. Even if you have to work hours when you want to be contacted with some jobs this isn't a problem thanks to call diversion, email, mobile internet and other modern wonders.

There's also a big difference between drawing a few hundred pounds a month to live on and raking in thousands of surplus cash. IMHO it is good to be drawing some money, so many business owners seem almost proud of the fact that they don't take any money out of the business and don't seem to be looking to make it profitable...I can't see the point in that!

toni999_2

Hi toasterman,
I was in exactly the same situation a couple of years ago, and I agree, there was very little encouragement from the benefits office. However, you can still continue to get help from the government while you are starting up - you will be entitled to working tax credits if you predict a low income for the time being, and because you are on tax credits, will be able to get housing benefit and council tax benefit too. I suggest your first port of call is the Tax Office - hmrc.gov.uk I think - despite most people seeming to think the opposite, if you are upfront with them from the start, they will let you know everything you are entitled to. They seemed more than happy to help me, and offered advice on everything that you can calim for on your first tax return too. Second port of call would be, I suggest, Business Link. Both organisations were invaluable to me at that time - the help is there, you just need to ask for it. Hope that helps. Toni

toasterman

A big thanks to all of you. You've certainly given me lots more things to think about.

I guess the plan for a few months has been to find a job, live as I'm living now, and use funds from that to start my business.
The issue has been I've not been able to find anything outside the sector I was employed within before, and as I left in slightly spurious circumstances, have tried not to get employment back within the same sector.
I don't think anyone would find out, I'm just still slightly unsure how to explain leaving a reasonably-well-paid job with nothing else to go to, without sounding like a loony.
Despite that, I'm not even getting as far as having to explain it, because although I've updated my CV a lot and made it searchable on all the big sites, and applied for a few things that required less experience (or in some cases no experience at all), I've still yet to get anything more than a phone call confirming my contact details.

Thanks again for all your help, and good luck to anyone else out there who is struggling at the moment.