How do I survive until my business is off the ground?

2. Forecast your personal financial needs

When starting your business you will need to make a realistic forecast of your personal financial needs. A personal budget is a plan detailing the personal living expenses you will need to fund from the business or other sources. It should set limits to the amount you plan to spend each month on items like rent, food and housekeeping.

Tracking your personal spending can help you find out how much money you will need to take from the business.

You can now work out how much money you will need each month. If you multiply the monthly figure by 12, and make adjustments to cover one-off spending such as holidays or car tax, you will know how much you need to live on during your first year of trading.

It is important to be realistic. You may need to find other funds, borrow money or ask HM Revenue & Customs or Jobcentre Plus whether you qualify for tax credits or benefits. Financial advisers usually say that the equivalent of 3 months money should be held on deposit for a rainy day.

Some expenses, such as your rent or mortgage, are likely to be fixed, whilst your spending on other items may change from month to month. You need to keep a close eye on the areas where savings can be made - such as leisure or travel. The first year in business is vital, so you may have to accept that a financial sacrifice of some sort is required to keep on trading.

3. How much money will your business make?

You need to identify how much money your business is likely to bring in over the coming year and then how much profit you hope to make.

You can do this by:

• estimating your total income from sales
• estimating your expenses
• working out a figure for salaries and dividends, including tax
• working out the difference between your financial requirements and the amount you are prepared to take out of the business

This will leave you with the amount you potentially need to find from other sources. For advice on what you will need to take into account and plan for, see our guide on how to prepare a business plan.

Profit and cashflow

It may not be easy to calculate exactly how much your business will make in its first year, so it is important to concentrate on managing cashflow rather than profit.

Profit is the difference between the total amount your business earns and the costs it must pay out over the trading period - usually a year. Even a nominally profitable business can find itself in trouble if it runs out of cash.

Cashflow is the balance of all the money flowing into, and out of, your business. It covers actual payments of money, as opposed to what is owed by your debtors or to your creditors. Cash pays the bills and allows trading to continue. The need for cash is even greater if your business is growing and extending credit to more customers.

The main outflows of cash are:

• wages and salaries
• overheads such as rent and rates
• capital spending on plant and equipment
• working capital such as stock and raw materials

If you sell on credit, your cash inflow is delayed until you are actually paid so effective credit control is important. A business that buys on credit and is paid in cash, such as a retailer, is at a great advantage in cashflow terms. Businesses which make sales over the internet can also be cash positive.

Many businesses rely on bank overdrafts and quickly reach their borrowing limits. It is therefore important to think carefully about your cashflow and reduce the need to rely on an overdraft. 

4. Make savings

There are ways you can save money on goods and services, both at home and in your business.

Making personal savings

You may be able to reduce the amount of money you pay out each month, simply by shopping around for services and loans. If you already have personal debts, for example on credit cards or personal loans, seek advice from an independent adviser or your bank as it may be possible to reduce your outgoings this way as well.

There are many ways you can save money on essential goods and services. Many utility companies offer attractive deals when you change to a new supplier. Look carefully at exactly what is being offered - you may find, for example, that you can make savings if you receive both your gas and electricity from a single supplier.

You can also try to reduce your everyday expenses. For example, you could sell your car and buy one that is cheaper to run or use public transport. You could also choose not to update personal equipment such as your laptop or mobile phone until it is absolutely necessary.

Making savings in your business

You could implement simple cost control systems across your whole business to identify scope for savings. You could cut unnecessary or excessive costs, for example, by not heating your premises at night or finding low price suppliers for goods or services. Adopting 'green' practices such as switching off computers when not in use can also save money as well as reducing your carbon footprint. Consider leasing goods or buying them second hand. Consider whether you can save money by running your business from home. See our guide on how to use your home as a workplace.

5. Other sources of income

You will almost certainly have to find other ways to finance your needs during the early days of your business.

There are a number of options open to you. You could:

• use savings - make sure that you have an emergency rainy-day fund which should add up to 3 months spending
• start up a business while retaining your existing employment - using your spare time to run your business
• release equity from an existing asset - for example, trading in your car for a cheaper one
• sell unwanted assets to create income - many people have things that they do not use or want that can be sold at auctions, online or private sales
• get a loan from your family and friends. In most cases people who borrow from family or friends do not pay as much interest on such loans. However, be aware of ill feeling that may be caused if you are unable to repay on time
• seek finance from a low-cost fund managed by a local enterprise agency or community organisation
• borrow against future income by selling debts owed to you to a third party
• get an overdraft or loan from your bank. Remember that the overdraft or loan will have to be repaid, and the interest rate may be high. See our guide on different types on finance and how to apply
• use leasing or hire purchase to fund fixed assets such as vehicles or equipment
• seek investment from external sources in return for a share in your business
• take on a second or part-time job - this will provide a useful source of income but it is important that it does not distract you from your priority of running your business 

6. Prepare a financial plan

Once you have gathered together all your key financial information such as estimates, overheads and expenses you can produce a financial plan.

The first step is to draw up a budget - a plan for spending and saving your money.

You should:

• prepare budgets showing the level of sales and profits you expect to achieve, and the costs involved in doing so
• estimate your total sales
• prepare monthly or weekly cashflow forecasts (which should be regularly updated), looking ahead 1 year - overheads such as rent can be accurately predicted
• make sure you will have enough money on the day to cover each payment

Once you have drawn up your budget, it is important to stick to it so you don't risk overspending or running out of money for essentials. The key to budgeting is maintaining simple but good records. You will need to keep track of where your money comes from and where it goes.

7. Find support

Most businesses need assistance at some stage in their development. This is especially true of businesses in the early days.

There are a number of sources of help, including:

• start-up schemes run by local enterprise agencies and others
• Welsh Government business start-up programmes run by local enterprise agencies across Wales, including self employment, business start-up, graduate support service and high potential starts programme. These are EU-funded and free to the person starting up a business
• schemes for young starters such as Shell LiveWIRE and Prince's Trust
• schemes for starters aged 50 plus, eg Prime Cymru
• schemes for women starters including Women in Business, and everywoman
• schemes for starters from ethnic minority communities including the African Caribbean Business Network and the Asian Business Network (ABDN)
• financial advisers
• accountants

Bear in mind that you will almost certainly have to pay for the specialist knowledge and advice from financial advisers and accountants.

It is a good idea to have an accountant for your business. Although having an accountant is an additional expense, it is a good investment. For more information, see our guide on how to choose and work with an accountant.

The Prince's Trust is an initiative to help young people to succeed in business. The Trust offers advice, opportunities and financial assistance. Another body that helps new businesses is Shell LiveWIRE. This organisation aims to encourage young people aged between 16 and 30 to start up their own business.

If you have been receiving Jobseeker's Allowance for more than 6 months and want to get back into employment by starting your own business, contact Welsh Government Business Information on 03000 6 03000. Rydym yn croesawu galwadau yn Gymraeg / We welcome calls in Welsh. They will refer your enquiry to a business start-up provider who specialises in providing guidance and support, whether you are pursuing the self-employed route, business start-up route, are a graduate or are seeking advice to set up a high potential growth business. If you are over 18, you may qualify for the New Enterprise Allowance. You can find information on the New Enterprise Allowance on the GOV.UK website.

You may also be entitled to Working Tax Credits. These are payments to top up the earnings of working people on low incomes, including the self-employed. You can find out about Working Tax Credits by calling the HMRC Tax Credits Helpline on 0345 300 3900.

If you find that your business is unable to pay the taxes it owes to HMRC, contact the HMRC Business Payment Support Service. Their team will review your circumstances and discuss temporary options tailored to your business needs, such as arranging for you to make payments over a longer period. You can contact the HMRC Business Payment Support Service Helpline on 0300 200 3835.