financial implications of a business gone bottoms up

conman

hey people...

I've been tinkering with the idea of starting a business for a while now,at this stage i am trying to cover all angles and how i should approach it.. I have a hell of a lot of research has been done, and units viewed.. What I need to tackle is what sort of a company i create (sole trader, ltd etc) and the financial implications if Its not a success..

all advice is good advice, as so many of you have created companies before, im sure some of you have ran into problems and/or looked at this stage in detail.. but for me, this is my first forae into the possibility of it going wrong, and where does that leave me.

so, a few permutations of what i can do to set up financially..

I could get an angel investor, VC, a loan from the bank, and bonds, or all or some of the above.. I can set up as a plc, a sole trader, partnership and so on...

I need to know the best way to set up a service with high set up costs (and relatively low running costs),
and id like to know where does it leave me financially (with banks,investors etc) if it doesnt take off...

thanks in advance..

C

conman

I heard recently that a LTD company has no longer got limited liability, is this true?

my thoughts on it is that you are asked to guarantee your loans personally as part of the contract, but there is no change in the definition of the company type.

patftrears

conman wrote: »

I could get an angel investor, VC, a loan from the bank, and bonds, or all or some of the above.. I can set up as a plc, a sole trader, partnership and so on...

I need to know the best way to set up a service with high set up costs (and relatively low running costs),
and id like to know where does it leave me financially (with banks,investors etc) if it doesnt take off...

Anything with high set-up costs will be very difficult to get funding for.
Sole trader you are liable for all debts.
Limited company you have no liability for the debts.

If banks loan money to the company they take a hit if things go bad.
Investors buy part of the company and take the hit if things go bad.

conman wrote: »

I heard recently that a LTD company has no longer got limited liability, is this true?

my thoughts on it is that you are asked to guarantee your loans personally as part of the contract, but there is no change in the definition of the company type.

Not true.
If you sign a personal guarantee you are personally responsible.

conman

patftrears wrote: »

Anything with high set-up costs will be very difficult to get funding for.
Sole trader you are liable for all debts.
Limited company you have no liability for the debts.

If banks loan money to the company they take a hit if things go bad.
Investors buy part of the company and take the hit if things go bad.


Not true.
If you sign a personal guarantee you are personally responsible.

Thanks Pat, I am planning to get a few investors and or bonds, and a loan myself from the bank, but i have a very comprehensive business plan, so hopefully that should help in aquiring funds. Also, I am looking for businesses to buy into it signing a gaurantee to buy a contract for services at a certain price, hopefuly with this i can gain some startup capital

thanks again for your reply

soddy1979

First things first. If you're thinking of setting up any business, you don't want to use that username.:D

Seriously though, if you think that the investment will be highly speculative. That is very high risk, very high return - then your best port of call will be either a business angel or VC.

It would be quite difficult to issue bonds, which have a relatively low return compared to equity investments if you or the investors consider the company highly speculative.

With equity investors you really need to do your homework. I suggest you do thorough market research, economic research, proper sales forecasts (don't pluck figures out of thin air, seriously think about how you get to each revenue/expense figure) & stress testing.

Lastly, your investor needs an exit opportunity. A VC doesn't want to be your life long business partner. They want to be in for X amount and out for XXX amount in a certain number of years. It's your job to show them that highly profitable exit opportunity. And be prepared for them to pick holes in every aspect of your plan.

conman

soddy1979 wrote: »

First things first. If you're thinking of setting up any business, you don't want to use that username.:D

Seriously though, if you think that the investment will be highly speculative. That is very high risk, very high return - then your best port of call will be either a business angel or VC.

It would be quite difficult to issue bonds, which have a relatively low return compared to equity investments if you or the investors consider the company highly speculative.

With equity investors you really need to do your homework. I suggest you do thorough market research, economic research, proper sales forecasts (don't pluck figures out of thin air, seriously think about how you get to each revenue/expense figure) & stress testing.

Lastly, your investor needs an exit opportunity. A VC doesn't want to be your life long business partner. They want to be in for X amount and out for XXX amount in a certain number of years. It's your job to show them that highly profitable exit opportunity. And be prepared for them to pick holes in every aspect of your plan.

Thanks Soddy.

Ive been extensively researching my product. I've contacted over 120 of similar enterprises worldwide, about 15 of them were willing to give me a lot of information, and every one of these are very positive and shows a very consistant pattern of development and success. Im in the process of talking to Irish companies that are in the same line of business but with a completely different product, hopefully i can gain some more statistics there to complete my research..

With all this info, I can hope to show fairly realistic projections and forecasts. I do understand it takes a lot of convincing and understanding to persuade someone to invest in an idea, but this is what i hope to do. thank you for the info you provided, ill bear it in mind, especially with giving a VC and exit strategy.

and with regards my username, haha... that was my online gaming name..
yea, it needs to be changed, especially in this forum

soddy1979

A couple of things to bear in mind from your investors perspective. Investors look at investments basically in two ways - Risk & return

You have to be able to offer them a higher return for the same risk they will face with an alternate investment or the same return for a lower level of risk.

Regarding the bond market, issues are always yield driven, and higher risk = higher yields. For example, lets say you see that current long term interest rates are 3.33% (which they are on government bonds at the moment) , so you decide you will issue a ten year bond with an annual 3.33% interest payment. Let's say the market (ie. your investors) then looks at your company and decides it's much riskier than 10 year government bonds and wants a 10% return on their investment (this 10% is known as the required yield). If you go looking for a 1,000,000 investment you will only raise 582,000 euros - you will still need to pay 33,300 per year for ten years, and 1,000,000 euros back when the bond matures.

Dabko

Limited companies aint what they used to be. Banks are now wanting personal guarantees for everything from a credit card limit increase to tempoary over drafts (as little as 500!)
Sole trader to get started, save on the limited company paper work, and then when things get going, incorporate the ltd.
Best of luck with it conman.

conman

Dabko wrote: »

Limited companies aint what they used to be. Banks are now wanting personal guarantees for everything from a credit card limit increase to tempoary over drafts (as little as 500!)
Sole trader to get started, save on the limited company paper work, and then when things get going, incorporate the ltd.
Best of luck with it conman.

thanks...

the situation i am in currently is:

this venture has a high set up cost (over 500,000),
I am open to bringing in others more experienced in business start up to get going.

If i set up as a sole trader and it goes poorly, im in trouble.

If i set up as a ltd company and persuade some VC's, angels etc onboard
in addition to a smaller bank loan for myself, then i have a sense of security,
as 100,000 loan to the bank is easier to pay off than a 500,000 loan. (not saying i would ever get a loan of that size, just hypothetically speaking).


I am very confident of business idea working, as i percieve there to be a rather large demand for it, however these are incertain times both for opportunities and risks. So i need to look at the "What If" scenario.


all the advise above has been great thus far tho

patftrears

conman wrote: »

thanks...

the situation i am in currently is:

this venture has a high set up cost (over 500,000),
I am open to bringing in others more experienced in business start up to get going.

If i set up as a sole trader and it goes poorly, im in trouble.

If i set up as a ltd company and persuade some VC's, angels etc onboard
in addition to a smaller bank loan for myself, then i have a sense of security,
as 100,000 loan to the bank is easier to pay off than a 500,000 loan. (not saying i would ever get a loan of that size, just hypothetically speaking).


I am very confident of business idea working, as i percieve there to be a rather large demand for it, however these are incertain times both for opportunities and risks. So i need to look at the "What If" scenario.


all the advise above has been great thus far tho

VC won't go near €500k to small for the amount of work required.
Also €500k you could fund 5 small web companies, as these have lower start-up costs. They also have a global market, while the risk is higher yu have 5 chances of success.

When raising money you are also competing again other companies for the cash.

soddy1979

Hi Patftrears, Conman.

500K would definitely be available as an investment from a venture capital fund. In fact it goes much lower than this.

The critical point has been indicated by Patftrears, and that is that you are competing for investment with other businesses. As such, you must ensure your businesses risk/return profile is both superior and watertight.

Best of luck Conman,

Soddy.

DubTony

patftrears wrote: »

If you sign a personal guarantee you are personally responsible.

And you'll get damn all from the banks without one these days. If they'll lend at all that is.

conman

Thanks Pat, Soddy..

To raise the sort of money quoted, I will be looking at utilising a few different forms of raising capital, so 500k for example wont be required from any one source.

But if i get this off the ground, It should make a tidy profit, I think i can sell the proposal, I believe i can find angel investors that are looking to work in the certain market that i wish to operate in... The Enterprise board offer a service to pool the 2 sides together, which is rather helpful.

soddy1979

Hi Conman,

Another thing for you to note. When approaching angel investors, be sure you have a good valuation on your business. There are a number of techniques you can use to achieve this.

If you have a bad idea of what your business is worth you will either be laughed at or relinquish too much equity, most likely both.

Regards,

Soddy.

conman

soddy1979 wrote: »

Hi Conman,

Another thing for you to note. When approaching angel investors, be sure you have a good valuation on your business. There are a number of techniques you can use to achieve this.

If you have a bad idea of what your business is worth you will either be laughed at or relinquish too much equity, most likely both.

Regards,

Soddy.

ok mate, ill bear that in mind...

i seen an example of what you are talking about on the dragons den the other night

patftrears

soddy1979 wrote: »

Hi Conman,

Another thing for you to note. When approaching angel investors, be sure you have a good valuation on your business. There are a number of techniques you can use to achieve this.

If you have a bad idea of what your business is worth you will either be laughed at or relinquish too much equity, most likely both.

Regards,

Soddy.

If your business has high start-up costs, low running costs. I'll assume it needs the investment to get started trading. So with no trading figures or customers valuation is going to be very difficult.

conman

patftrears wrote: »

If your business has high start-up costs, low running costs. I'll assume it needs the investment to get started trading. So with no trading figures or customers valuation is going to be very difficult.

i suppose potential/expected worth is what i will have to preach, as i will be approaching them to get the business off the ground. I havent done research on this aspect of my business yet, so im yet to educate myself on how to calculate its worth and so forth

soddy1979

patftrears wrote: »

If your business has high start-up costs, low running costs. I'll assume it needs the investment to get started trading. So with no trading figures or customers valuation is going to be very difficult.

I completely agree, it would be very difficult.

However there are methods used to value venture capital investments where a company has not begun to trade (for example there is a technique using combinations of probability theory and time value of money theory).

Call_me_Al

conman, 10years on since 2009, did you get your business off the ground? How have things been for you.

Hope all is well

Zombie thread is 9 years old. Conman is well gone. Thread closed.

The Gloomster!