Starting a new business with a bad credit rating.

clb776

Hi there,

In a few weeks time I will get some inheritance, and I would like to open a business with it. (approx £20k towards business after paying off current personal debts). I do have a bad credit history (defaults and late payments. I intend to clear all debt immediately, it is going to be a great day!!).

Is it going to be impossible to get a business bank account/pass references/credit checks to even open a business in the first place?

I need to move quickly as I currently rely heavily on benefits, and want to use this money to improve my and my families life, and it isn't an opportunity that will come again. I have struggled to find a full time permanent job since being made redundant a few years ago and now is the time to make something of myself and provide for my family. I do not want to waste my chance.

I am thinking of opening a newsagents, and have seen a unit in a heavily populated residential area, with no other shops around and 2 schools nearby.

pitkin2020

Generally you don't need to pass any credit/reference check to start a business, in reality there are very little in the way of checks.

I see your thinking of opening a newsagent. You don't need a business account but as I suspect your going to want to be able to take card payments you are going to want a business account with merchant facilities, which I am pretty sure they will do a credit check so you may come unstuck there. I would certainly investigate that before signing the lease. You may find you won't get a credit account with suppliers either so will have to pay upfront for your goods.

I would be more concerned with your budget, 20k for a retail venture could be stretching it depending on what the unit you are looking at has. If its completely empty your going to need signage, fridges, shelving, till and obviously your stock plus the fees for the lease and doing all the paperwork.

20k won't go as far as you may think so do the sums get your costs drilled down and ensure you account for everything so nothing is a surprise. With your credit history you probably will struggle to get any finance so you need to account for the first few months at the very least to ensure everything is paid. When you have done your figures go through some scenarios to make sure it still adds up as a viable business, work out the minimum you need the shop to take and is that a feasible amount.

I'm be no means saying its not do able, things can be done cheaply they generally just take longer but you don't want to invest 20k and find you don't even have the funds to get half the stock that is really needed as you won't get the custom.

Best of luck, a newsagent is going to be for everyone long hours especially if your starting without staff but sure it will be rewarding.

paddyrg

Cashflow is key to staying afloat, and £20k is surprisingly little cash. Don't go signing any leases / deals committing you to more than you have in cash in the bank at any time (ie rent, phone, leccy, company car, goods on tick). You need to pay cash as you go and always have more cash than debt. And watch out for overinvesting in stock - if you are going for a newsagent kind of place, you will sink a mint into sweeties maybe, but they have wafer thin profit margins and youe wholesaler is probably undercut by the supermarket down the road.

How about looking at a /service/ as a business? Something like spanking £5k on a window cleaning pole brush system, another couple of grand on promotion, another on a van, and then keep 10k for cashflow as you start to build up business? You need a huge buffer to build up speed in a business, and even £10k may just get you 6 months by which time you have to be turning a profit!

Savvy_Sue

Do you have any retail experience?

Do you have any experience of managing staff?

Do you know anything about employment law?

Have you run a business before?

If you answer no to more than 1 of the above, then I'd say that opening a shop (of any kind) is one of the fastest ways to lose money known to man (or woman).

If you don't answer yes to all of the above, make sure you have a really good business plan, checked out by people who aren't members of your family or your friends.

heathcote123

Savvy_Sue wrote: »

Do you have any retail experience?

Do you have any experience of managing staff?

Do you know anything about employment law?

Have you run a business before?

If you answer no to more than 1 of the above, then I'd say that opening a shop (of any kind) is one of the fastest ways to lose money known to man (or woman).

If you don't answer yes to all of the above, make sure you have a really good business plan, checked out by people who aren't members of your family or your friends.

I would have said no to three out of four of those before starting my business, and I'm making pots of money.

imo, You have to know how to do the job - ie industry experience, but the running a company bit anyone can learn.

Do agree though that without industry experience & 20k burning a hole in his pocket, the likely outcome is that 20k quickly becoming someone elses.

clb776

The money is not necessarily burning a whole in my pocket, but as I am in a situation where I need to find a way to use this money to help me rather than spend it whilst looking for a job to pay for rent etc. Although I do see you point. I will never have an opportunity like this again. I can either crash and burn or it can turn out to be the best decision I made (or I can just tick on by )

I have lots of experience in retail/customer service roles so think I am a good people person which I think is vital for a community shop. My husband also managed a newsagents for some time.

In regards to employment law, I know of certain rights/responsibilities, and can investigate/seek legal advice on things I am unsure of.

I do have management experience in the transport industry. (Of a team, not financial).

I do not actually intend on employing any staff for a while, to keep the wage bill low and build up a presence within the community. Me and my husband will each work 7 hour shifts (taking over from eachother) 7 days a week, and at times, together, when our child is at nursery. I wonder who shall get dinner/bedtime? I expect that shall be me! We have spoken about this, and feel this is the best way for the first couple of months at least. No pain no gain right?

I think I am pretty keen on the idea of working/providing for my family, not having a risk of losing my job, of being in control.

I am also scared at the prospect that I will waste so much money, and end up in a worst position than I am in now!

There is no premium for the business, and shall cost me £5000 in first 3 months rent in advance and a deposit, which shall leave me almost £15000 to stock, fit out the shop (i know you can get fridges/displays on loan from companies), pay legal costs etc (I think around £2500??) and then I shall have around £3500 for my own living expenses for 3 months (Is this long enough, will cover my rent, council tax, bills and basic food shopping but no 'emergencys' / days out/extras). The rateable value of the property is £3800.

To me £20000 seems like alot of money, but I know it is not. It will not go very far if I don't keep a tight control.

Thanks for all your replies.

paulwf

This will sound a daft question but please read on...what do you hope to sell in the newsagents? The reason I ask is because the newspaper trade has been in a gradual but real decline for about 20 years, just a week ago the Guardian had an article about how everyone getting iPads and Kindles for Christmas is now having a large and rapid effect on print newspapers as everyone switches to digital subscriptions. You'll be entering a retail sector where your sales are only going to fall, and quickly.

The other reliable seller for newsagents was cigarettes, with all the new government restrictions for retailing tobacco I can't see this being a growth area. As for groceries you'll be buying them from Booker at a price higher than the supermarkets retail them for, some people will use you for convenience but it will be a tin of beans here and a loaf of bread there not a big spend.

That leaves you with alcohol and explains why most newsagents are essentially just off licenses these days. Will you be able to get a license and can you deal with the aggro from underage teens wanting you to supply them with booze?

My parents got out of the newsagent trade 20 years ago when the writing was on the wall. All I see now is people working 70 hours a week stuck in a grotty shop for little return. A sad existence really.

clb776

Who said it would be a grotty shop

I didn't actually know of any restrictions, but now you mention it I do remember reading about them having to be stored out of sight. Is this what you mean?

I am not intending on people coming in to do a weekly shop, I guess I just have to hope that enough people would need a tin of beans and a loaf of bread every now and then! (Doesn't sound like a very good business model!)

Even those without a car can have food delivered from supermarkets for cheaper than the cost of a bus in some areas.

I do think that to be profitable enough to be better off than I am now, I would need an off licence, and I have thought about this when looking at properties/planning. It hasn't been very long, obviously I was not aware of this until I lost a relative. I am all very up in the air at the moment, I will be very angry at myself if I just let an opportunity like this just pass me by! Grrr!

I know of all the cons, I even know that I do not go to a corner shop very often (although I have started as where I live now its closer, and not worth getting in the car to save 20p on a loaf of bread!).

I also know that it is more my husband who is sold on the newsagents idea as he knows some owners who are well off on owning one. However, these are in very very busy areas, with mostly passing trade (drink, chocolate, fags, lighters etc).

We have had another thought which is a fast food takeaway. I have no experience in this, (husband has alot), nor do I like the idea of coming home smelling like chip fat! (although probably wouldn't as its mostly evening hours, so one of us would need to be at home!) I think this is why I was leaning more towards the news agency as I would do that, and my skills would come in handy! I do know that there is a high profit margin on food, and that people will always need to eat! (unless they make an app for that!)

I am not entrepreneurial at all so could not come up with some amazing idea of a business in such a short time. (or even a very long time!!).

I like this website...it keeps me on my toes at times and makes me stop day dreaming and think about things in a different way!

Savvy_Sue

clb776 wrote: »

I do not actually intend on employing any staff for a while, to keep the wage bill low and build up a presence within the community. Me and my husband will each work 7 hour shifts (taking over from eachother) 7 days a week, and at times, together, when our child is at nursery.

OK, so 7 hours without a loo break, 7 days a week (because you are going to need to be open for 14 hours a day!). Lunchtimes are going to be a nightmare if any of the local schools are secondaries. End of school times are going to be a nightmare whatever age the schools serve. Neither of you can be ill. Nor can your child. Either the shop's got to be small enough that you can see what's going on everywhere, or you need excellent CCTV coverage (recording) throughout. When will you get to the cash and carry in school holidays? How will you get stock onto the shelves and serve at the same time?

This is another way of saying that you might want to re-think the 'no staff' idea.

clb776 wrote: »

(Is this long enough, will cover my rent, council tax, bills and basic food shopping but no 'emergencys' / days out/extras).

I'm glad you're not budgetting for any days out, because you won't have time for any of them!!! However there WILL be emergencies ...

paulwf wrote: »

All I see now is people working 70 hours a week stuck in a grotty shop for little return. A sad existence really.

Even if not a grotty shop, it's darned hard work with little choice about the hours, and the returns are not great. A 'normal' shop can be open from 9 to 5, but a newsagents HAS to open early, and I'm sure they don't all close late for the fun of it ...

clb776 wrote: »

I didn't actually know of any restrictions, but now you mention it I do remember reading about them having to be stored out of sight. Is this what you mean?

There are also very strict age regulations, and it's not unknown for Trading Standards to sent mature teenagers in to ask for cigarettes (and other age restricted items). If you sell to them, or fail to ask for ID, you'll be in court. Plus you may find that further restrictions follow, just to make it difficult to obtain cigarettes. And alcohol's not that different.

clb776 wrote: »

I am not intending on people coming in to do a weekly shop, I guess I just have to hope that enough people would need a tin of beans and a loaf of bread every now and then! (Doesn't sound like a very good business model!)

The problem will be predicting what people want, especially in terms of fresh food, and getting the quantities right, stock control etc. That's the kind of thing you could benefit from learning at someone else's expense: working in the kind of shop you're intending to run and being really keen!

clb776 wrote: »

I do think that to be profitable enough to be better off than I am now, I would need an off licence, and I have thought about this when looking at properties/planning.

Ah, planning permission! Have you checked what category the premises you're looking at fall into? I'm not sure what you need for an off-licence, I know you'd need different for takeaway, and I don't know if you'd need a combination if you wanted to sell hot pasties / coffee / rotisserie chickens from a newsagent, as many of our locals seem to!

clb776 wrote: »

I also know that it is more my husband who is sold on the newsagents idea as he knows some owners who are well off on owning one.

:rotfl: I'm not saying it's not possible to make money this way. I just think it's extremely hard work, and that owners might not want to admit that it doesn't make as much money as they'd hoped.

clb776 wrote: »

We have had another thought which is a fast food takeaway. I have no experience in this, (husband has alot), nor do I like the idea of coming home smelling like chip fat! (although probably wouldn't as its mostly evening hours, so one of us would need to be at home!) I think this is why I was leaning more towards the news agency as I would do that, and my skills would come in handy! I do know that there is a high profit margin on food, and that people will always need to eat! (unless they make an app for that!)

We have some other threads about cafes / takeaways / the wonderful world of catering. Again, it's long hours, for potentially little reward.

And given those long hours, and the fact that you have a small child, I'd say the absolutely KEY thing is that you are both equally committed to whatever it is you decide to do. Because it's going to be harder than anything you've ever done before, and it's going to require longer hours than you've ever worked. To begin with, your child will only ever have one parent at home, the only time the pair of you will have to talk is late at night before an early start: if you're not both 100% committed then it could all go pear-shaped very quickly.

Oh, and I'd draw up a partnership agreement, with unequal shares (so that you have the casting vote!) and I'd pay for proper professional help with this.

Mistral001

I would imagine that in order to become a newsagent, you would have to apply, giving business references and jump through lots of hoops. You cannot just buy newspapers wholesale and sell them - you are an agent. You might have to start the shop selling sweets and stationary and build up a track record before applying to become an agent.

Alternative is to buy a going concern.

pitkin2020

clb776 wrote: »

I also know that it is more my husband who is sold on the newsagents idea as he knows some owners who are well off on owning one. However, these are in very very busy areas, with mostly passing trade (drink, chocolate, fags, lighters etc).

Please don't base your business on this notion. Turnover is vanity profit is sanity. Just because someone can make a profit doesn't mean everyone will in the same industry, if indeed they are making as much as they make. Far too many people quote their turnover rather than their actual profit.

As already said 20K isn't a great deal for such a venture you won't have the capital to learn on the job and 1 or 2 poor decisions could cost you the lot. The decisions could come down to something like stocking the wrong lines.