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Five Greatest Ideas for Financing Your Business • 43

A guru once did a planning session for a couple of guys who wanted to run a
pub as a sideline. They did their business plan and asked for his opinion. The prof-
itability and cashflow was pretty good. 'What would happen,' said the sage 'if the
sales turnover were half of that?' They went away adjusted the costs and came back
proving that they could still break even or make a slight profit if sales were halved.
'Now halve it again', advised the guru. 'What!' said one of them, 'If we want to
break even at that level of sales we would have to empty the ashtrays ourselves.'
'Exactly,' said the guru. They emptied the ashtrays for three months while the busi-
ness got up to speed and delivered the business plan.

So concentrate on your cashflow and be realistic to pessimistic about income
and returns. Incidentally, some people duck the issue of overestimating sales simply
by never writing down a forecast. That doesn't work either.

Idea 29 - What kind of trader are you?

Try not to spend too much time worrying over the status of the trading company
you are setting up. Normally it is pretty straightforward. If, for example, you are
going to put a lot of capital in and hire a load of people you will want to be a limited
company. Otherwise you will want to be a sole trader or partnership. You have to
check the tax situation - see don't economise on tax advice Idea 93- and decide ac-
cordingly. A partnership can be very tax efficient if you are setting up a business that
involves your partner in life. A partnership also gives you the opportunity to raise
money by bringing in another partner who puts in capital to buy himself or herself
in.

If you are a sole trader, just about your only source of funds is your banker or
possibly your friends and family.

The choice for raising funds is much wider if you are a limited company, but
there is more paperwork and expense involved in keeping up with the red tape.