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Exceeding expectations in your first financial year

Written by Ryan McChrystal on Thursday, 05 February 2015. Posted in Growth, Finance

For many businesses, the first year is often fraught with problems. But for others, those initial 12 months are more fruitful than they ever could have imagined

Exceeding expectations in your first financial year

For many start-ups, the first year can be fraught with difficulties. Often, this is down to cashflow and fundraising problems but challenges around personnel, IP protection and market differentiation can all play a part too. Make no bones about it, starting a business can be tough. The stats back this up: 50% of businesses fail in the first year.

But many of these fledgling start-ups can be prevented from hitting the runners. Whether it’s doing a bit more research or a being given a better steer on funding, with some basic preparation and a little bit of luck, that 50% could be dramatically decreased. We hear from four companies that beat the odds.

Rags to riches

Nottingham Car

Nottingham Car launched in 2010 with around 12 vehicles to its name. With so few cars in its 20,000 square foot showroom, it looked as though it had gone bankrupt before it even started. However, due to the hard work of founder Charles Sumner, it become one of the largest showrooms of its kind. It currently turns over an average of £300,000 a month and last year it turned over £3m in total. However, it was the success of year one that set the pace.

Sumner, who has been in the motor trade for over two decades, started Nottingham Cars with very little seed capital. “It was barely enough to cover our overheads,” he says. “In difficult times when bank loans are hard to secure, especially for a business like ours, I just couldn’t get any financial help.”

The company has benefited from two separate loans from Nottingham-based First Enterprise Business Agency (FEBA) to help fund its phenomenal expansion. The first ELEM loan of £20,000 allowed Charles to invest in essential stock, while the second loan of £50,000 was used to convert an outside storage area into much needed additional showroom space. Sumner also had friends willing to lend a hand.

From day one, his financial ambitions were “basically survival”, he says “I was aiming for a turnover of around £50-60,000 per month but by the end of the first 12 months we had turned over more than £1m, which is phenomenal.”

When Sumner saw a gap in the market, he went for it. “I followed supply chains of other companies back to the supplier and found a small percentage of cars which were being disposed of, despite their high mileage.” These cars weren’t too old, perhaps 2007 at the oldest, and were fully serviced. “These vehicles could actually be sold to the public at a low cost, which is what we did.”

While doing this he was exploring the other market of high-value cars. “I was exploring all angles, exploiting all the gaps.”

Many businesses fail in the first 12 months because they have no idea about financial management. “In business you need flows coming in from many, many different angles. What we did – and continue to do – is reinvest everything and plough it back into the business,” says Sumner.

Going global

BaseKit

For Juan Lobato, CEO of website building platform BaseKit, success is about so much more than financial performance. “Success is being able to point to BaseKit’s operations in 26 countries worldwide, acknowledging over 40,000 new customers a month and becoming the world’s fastest-growing website editor in the hosting industry.”

During Lobato’s first year, the aim was to attract the attention of outside investors. “We aimed high, targeting well-known accelerator programmes. However, we surpassed our initial expectations by securing over £10m in funding from leading European venture investors Eden Ventures, NESTA and Nauta Capital by 2011.”

The most crucial factor was the process of identifying the main accelerator programmes and tailoring our approach to each of them, without compromising the substantial growth BaseKit experienced at the time. “Had we not identified and worked towards each of these, we would not be in the position we are today.”

BaseKit faced the challenges common to many SMEs in its first year. Unpredictability of circumstances made it very difficult to plan, while initial expenses became difficult to deal with. “We addressed these issues through a commitment to understanding its audience and working to emphasise the importance of its services to other growing businesses, allowing it to expand,” explains Lobato.

In those first 12 months he learnt the value of regular discussions with customers and partners, of regularly stepping back and analysing our progress, and of identifying and planning for the best chance of investment cannot be overstated. “For attaining financial success it is also important to keep both eyes on the prize. The range of valuable accelerator programmes across numerous industries could also be vital to the success of your business early on.”

BaseKit is currently expanding into new industries and regions. From the creation of valuable partnerships in Asia, through to its expansion into the American market, it is looking to expand its international presence. “This is supported by our increasing focus on telecommunications, where BaseKit is partnering with high profile companies to offer its services along with other amenities that start-ups require,” says Lobato. 

No place like home

Freedom Homes

Kemi Egan co-founded Freedom Homes with Laura West in 2010 when both were homeless and living out of the office of their last failed business. “Even though we were in the middle of a recession, there were still successful people making it, so I thought I must be missing something – it can’t be that hard,” says Egan. She went about reading every book and attending every conference she could find to learn as much as possible. Within 12 months, Freedom Homes had a portfolio of around £1m and had raised over £500,000 of private finance, surpassing the pair’s comparatively modest goals of £2,500 gross cashflow per month coming in from properties and raising £100,000.

The main driver for the success was Egan and West’s willingness to do whatever it took to triumph. “Being an entrepreneur is about living five years of your life like no one else will, so you can spend the rest of your life like no one else can,” says Egan. “Step one: we had no revenue stream, therefore we needed one. We had nothing else to lose; we were on our arses in the office, so we trekked around the country, researching different areas to find which areas had the biggest income. We’d all like to live in those Victorian homes in central London but the fact is those people that do struggle to pay their mortgages. So we settled on Lincolnshire.”

With help from one of her clients from the previous business who had a few properties, some cash, and total confidence in their venture (he didn’t know they were living in the office) they were set. “From there, once we had some track record to show what we were doing, it came together really, really quickly. It was about nine months into that year that we actually realised what had happened. I was still homeless, but I had eight properties,” says Egan. “It was a completely incredible trajectory.”

Despite her quick success, she doesn’t believe in get-rich-quick schemes. “There’s nothing that will transform your life in 20 seconds, except working really hard, doing the right thing and trying everything and anything to get you where you need to be.”

 

Teaching an old dog new tricks

W1 Self Storage

W1 Self Storage has only been operating for just over eight months but already it has surpassed where founder Oren Barrie thought it would be by the end of the first year. It is the only business of its kind in such a central location in London. The problem with being a pioneer is that it’s often difficult to tell how well received your business will be. 

“We’ve converted the lower level of a car park in Mayfair – 50 yards from Oxford street – into self storage. We always knew there was a high demand for self-storage, it was just a question of seeking out that demand,” says Barrie. 

“Our biggest problem was letting people know that we were here because, being in Westminster and being below residencies, we’re not allowed to put signs or banners outside,” he says. “We did a lot of leafleting to residential and business properties, but we also did a lot of work making sure we were easily accessible online. I may be of the older generation that doesn’t necessarily understand all of this stuff but I know enough to know that 90% of our marketing budget should be spent on social media and SEO.”

Barrie isn’t really a fan of business plans, nor does he like outside pressure. “Everything we do is funded internally; we don’t have any bank borrowing, meaning we don’t have anyone telling us what to do and we don’t owe anyone anything.”

Being in business for so long, Barrie has a sixth sense for what will succeed and what will fail. “With my 30 years experience, I guess that most of my decisions are based on gut feeling. And my gut feeling told me W1 Self Storage couldn’t fail. Storage is such a massively expanding industry and to be able to put a facility within central London, I can’t imagine any problems.”

With this in mind it is no wonder Barrie is so confident about the future. “I’m not young any more so I don’t want to build an empire, but if things keep going as they have done done, by the end of the year we’ll be making a lot money.” 

About the Author

Ryan McChrystal

Ryan McChrystal

In a previous life McChrystal wrote about asset management in the Middle East. A history and politics graduate from the north of Ireland, he now focuses his efforts a little closer to home. 

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