Matthew Newton Wealth Management Ltd

Senior Partner Practice of St. James's Place Wealth Management


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Archived article
Tree sapling

Growing pains

05 November 2014

Starting a business doesn’t have to be a step into the financial unknown

Many people dream of being their own boss or turning a passion into a profession. But for those brave enough to turn this dream into reality, the decision can prompt difficult questions about their finances. Have I saved enough to make the business a success? Can I maintain my lifestyle while it gets off the ground?

A recent survey of new business owners conducted by BlackRock has revealed that people are right to have such worries. While many cite being able to draw an income from their new business as a measure of success, only three in five are able to do so in the first two years after launch. Income, it would seem, is key to the survival of a start-up business.

The BlackRock survey of over 400 UK business owners who had started a business in the last five years also revealed that, whilst often being a lifelong dream, 79% of people actually spent less than a year planning it. A mere 1% confirmed they had spent over four years planning all aspects of their business.

The survey also revealed some interesting, if not entirely surprising, insight into the source of start-up capital and how it varied by life stage. Across all age groups, savings and investments were the most common sources of funding. After that, those aged 25–44 relied on family, while those in the age brackets of 45–54 and 55+ used a lump sum from redundancy to make their start. An inheritance was also a common source of capital for those in the oldest age group.

Two-thirds of those surveyed needed to use additional sources of income to support them in the formative years of their business. One in three younger business owners had to use a salary from another job to support them and their family. Among those in the middle age bracket, 25% had to rely on other sources of income. Between a quarter and third of all those surveyed were also drawing an income from savings, emphasising the importance of an effective investment strategy to underpin any new business.

The challenge of insufficient income when they established their new business meant that half of the 45–54-year-olds had sacrificed holidays, social time and new clothes to alleviate the pressure. One in three over 55-year-olds had also been obliged to cancel holiday plans.

The final question posed by BlackRock was what advice the business owners would give to anyone who was considering setting up their own business. Tellingly, two-thirds placed this simple wisdom at the top of the list: think carefully about how you will support yourself financially; saving as much as you can before starting the business was also high on the list. Wisely, older business owners also counselled budding entrepreneurs not to ignore the other aspects of their finances.


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