So You Want to Become an Entrepreneur

So you want to be an entrepreneur……?

There are many ways of becoming an entrepreneur and there have been many books written on how a particular individual made their fortune.  No one can tell you how to get going because it happens in many different ways.  It may be something that you have dreamed of and worked towards or you may have spotted an opportunity you’ve been on the lookout for or perhaps an unexpected opportunity arises and you decide to take it.  You may have invented something or have created some cutting edge technology.  You may simply have started your own business from scratch.  Perhaps you are a senior manager in a subsidiary or division of a much larger business that wants to divest (sell off) your bit and you decide to bid for it yourself. Or you and your colleagues are so fundamental to the success of a part of a business that you can force the owners to sell to you.  Alternatively, your are instrumental in turning round a failing business and you engineer Buy Out from fatigued investors. Your first steps may be quite deliberate or you may find circumstances coming together around you.  However you start your journey you find yourself propelled into the parallel universe of the entrepreneur.

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So, you’ve found yourself with an opportunity so the one thing you need is money.  Money is of central importance in the entrepreneur’s world and money will be constantly in your life in one way or another for the rest of the journey.  You are going to be seeking it to buy or fund your business, generating it as you grow your business, paying it to suppliers and employees, to advisors (accountants, lawyers, brokers, PR companies) and to banks or shareholders as interest is paid and loans or shares are redeemed.  Meanwhile you will be trying to get your hands on as much of it for yourself as you can.  This is real money.  It’s spendable cash.  It can make you and it can kill you.  It is the first and most stark difference from being a manager in a large corporate organisation.

There is no world of corporate politics, no huge corporate structure, no endless budget setting meetings and games played.  Hitting your own objectives and targets while caring little about your peers has no place in this world. An organisation where treasury is done elsewhere and the bank account represented as a loan from Group is alien here.  You are no longer safe.  You are flying the plane, the controls are in your hands.  You will still concentrate on making your sales and profit targets and producing great product but you have to concentrate on your balance sheet as well with a continued eye on working capital and most of all on cash.

In our parallel universe money is illusive, plentiful, running out fast, being paid out in wads to shareholders, not being paid by customers, demanded as deposits, tantalisingly out of reach, unavailable to you personally to meet next years school fees, dizzyingly in your bank account, borrowed to the hilt against your house, all dependent on where you are on your rollercoaster and not necessarily in any particular order.

Getting money and being prepared…..

Sometimes a business can be started on a shoe string and grown profitably generating cash but most entrepreneurs need money upfront and often lots of it.  Even if you don’t need much to get going, if you are going to be anything other than a mom and pop outfit, you will probably need to get your hands more at some point.  You can use savings or borrow against assets such as your house but unless you are very wealthy, sooner or later you will need to access cash from elsewhere to grow your business and that will lead you into the realm of Corporate Finance.  From now on money is known by different names, e.g. finance, funds, funding, cash but it’s all the same.

Whatever your starting point, when you need to raise finance you need to be prepared.  For that, you need to be able to demonstrate to whoever you want to give you money that you know what you are doing.  Having said that, funding has been raised before now where an entrepreneur has not been properly prepared at the outset, so it can be done.  However, in that event, the commercial, technical or market proposition must be extremely compelling to incoming investors or your lack of preparation will kill the deal.  The greatest likelihood is that the organisation will be kicked into shape by its advisors.  When that happens the process takes longer, there is greater risk of the deal not being done and there is a great deal of pain along the way.  One or more people may be pushed sideways or have to be replaced and they may be your friend(s) or it may even be you. By the way, you may well have already experienced significant unnecessary pain even to get this far.

The level of preparation that you need to do is progressive depending on source and magnitude of funds being raised.  The reality is that you need to do less for your bank than for a Venture Capital or Private Equity house.  A Stock Exchange listing on AIM (Alternative Investment Market) requires even more and a full listing on the London Stock Exchange, even more still.  Having said that, there is an optimum level of preparation which will give maximise your chances of accessing funds whether a simple bank overdraft or getting a slot for an Initial Public Offering (IPO).

Small growing businesses rarely have the resources to be able to employ a full time accountant let alone a Finance Director, and the CEO and other management may not have a management qualification between them.  For those companies, the growing pains can be severe especially if management are completely unaware of what they need to do.

The next article looks at the first steps to being prepared to raise funds.