Starting a new business in debt

PokerFace_2

Hi
After years of working for others I have decided that working for myself is the way forward and plan to start up a telecoms company early 2010. The only thing that I cannot get clear in my head is how to deal with current debts, am I mad to even thinking about setting up for myself? should I hold off until debt-free?

Required

Hello

I can not strongly suggest getting debt free first after what I have been through.

In 2007 I started my own business I had about £3,000 in a loan that I was on top of. I therefore had no money I could put into the business to get it started so borrowed £9,000 from one company and £4,000 from another. I thought it would be fine as the business would be a success and therefore it would be paid back. Unfortunately I had to give personal guarantees in order to get the money. Therefore if the business could not pay I would have to.

Like all businesses it always needed more money than initally budgeted so I borrowed more. Roll on to the end of 2008 and the business went under (people stopped buying) with £28, 000 worth of debt. I have to therefore repay £16,000 of the £28,000.

The only reason I have not gone bankrupt is the financial support of family and friends. If I could turn back the clock I would get debt free first save some money and use that to start the business. If you do this you will find it more enjoyable if sales are slow coming in you will not be under pressure to repay loans.

Tixy

If you set up in business I think that one of the key things is to distinguish between business money and personal money. Make sure you keep it seperate and always keep some aside for business debts and expenses (such as tax, NI, VAT if you are registered). Only pay yourself your 'wage' out of the profits you have made after tax.

You need to work out whether you will be able to afford to pay yourself a wage to your personal money that will cover all your personal outgoings and debt repayments? You also need to consider how you will manage to repay your debts over the first 2-3months when usually a new business will not make any cash to pay yourself with.

Obviously it will help if you pay as much as possible off your debts before you set up in business.
Also work out how much more money you will need to set up your business, start up loan etc. Do not get this from a consumer source (e.g. personal loan/credit card) the business needs to fund itself, so if you need to borrow cash look at a business loan. Try business link website for advice on setting up a business and sources of funding.

Do a detailed pessamistic business plan before you start. And ideally show it to an accountant for their opinion. If not discuss it with people you consider to be business savvy for their opinions.