Partner Article

Bank of friends and family

Almost three quarters of small businesses in Scotland start with capital of £2k or less.

Cash flow remains the biggest problem for start-ups.

One in five small business owners in Scotland turned to the bank of ‘friends and family’ for start-up capital and medium term loans, and more than three quarters (76%) launched their new business ventures with working capital of £2,000 or less, according to a survey of small business owners conducted by leading debt recovery and credit control firm Yuill + Kyle Solicitors, the firm behind the Debt Scotland website.

Of the 2100 small business owners polled by Debt Scotland, 75% said they had to use their own personal savings as working capital, while 12% said that redundancy money provided their start-up funds.

Only 3% of small business owners polled said they were able to secure a bank loan to get their business off the ground, highlighting the banks’ reluctance to lend to riskier start-ups. As a result, business owners have been forced to look elsewhere for funding to get their ventures off the ground.

When small business owners were asked what the biggest obstacles they faced when starting out were, nearly half (48%) said struggling to maintain cash flow was a chief concern, while nearly a quarter (24%) said access to funding was the main problem. One in seven (15%) said the lack of business support and advice was an issue, while 9% admitted government red tape was holding them back, and 4% had problems recruiting skilled staff.

Stephen Cowan, managing partner at Yuill + Kyle Solicitors and the driving force behind Debt Scotland, comments:

“The challenge of launching a new business is no better illustrated than by the number of business owners in Scotland who are having to rely on friends and family to raise cash, largely because of the void left by the banks shutting up shop.

“It helps that it’s never been easier or cheaper to start a business from scratch, opening up the self employed route to a whole new generation of aspiring entrepreneurs. Businesses are being launched from kitchen tables across the country, as the online revolution has knocked down the barriers to entry.

“Businesses still face the same issues though – top of the list is a failure to get to grips with cash flow. It is essential that business owners follow sensible business practices from day one, to ensure that they don’t over stretch themselves.”

“This includes putting practices in place to avoid bad debt, including good credit control and prompt chasing of non-payers. Knowing your customers is essential. Obtain trade references and if you’re dealing with a limited company try to gain personal guarantees. Invoice accurately and on time, ensuring your customers know your credit terms! Most important of all don’t ‘hang around’, get onto the job quickly – be assured you’ll not be the only creditor in the queue.”

“It’s also paramount that small businesses have the tools to recover the debt via the courts should all else fail, in order to protect their cash flow. If moving things to the next level, who will be responsible in your company for progressing the debt to a debt recovery professional? Can they identify the ‘can’t pays’ from the ‘won’t pays’? There’s no use in throwing good money after bad but it’s a common scenario.”

“Remember, you’ll be entitled to interest and collection costs, in terms of the Late Payment legislation so you may well end up with more cash recovered than you thought was legally due!”

This was posted in Bdaily's Members' News section by VP .