How do you ‘get going’ when you have a zero asset base?

By Reuben Buchanan, Managing Director – Axstra Capital Pty Ltd

This is a common question that I come across almost weekly as I speak to many business owners and entrepreneurs. Firstly, most entrepreneurs start out this way. You only have to read the BRW Rich List to learn that over two thirds of them started with zero. So yes it is possible.

As someone who has started half a dozen or so companies from scratch, I can tell you first hand that it is not easy. However, irrespective of your business venture, here are some tips on what you can do.

Step 1 – Get Cashflow
You cannot sustain your life (and sanity) with no cashflow. So Step 1 is to shelve your business idea until you get a job of some kind. I know this is not what you want to hear, but if you don’t, you’ll soon be in a world of pain (if you aren’t already).

And no investor or bank wants to back someone who is totally desperate and on their knees. They will definitely be thinking “wow if I give him my money he will probably lose that too!”

So focus all your time and energy on fixing the cashflow problem. It’s not impossible and there are plenty of opportunities out there at the moment.

You can’t move ahead until you do Step 1 – period. But with a good dose of focus and motivation towards your end-goal, Step 1 can be achieved quicker than you realise.

Step 2 – Get a mentor
Your next step is to find a business mentor who has raised capital and built a business from pure start-up stage. At this point you should not have taken your “venture” off the shelf yet. Don’t touch it till you have a mentor. This person will show you how to do it because they have done it before. Don’t try to re-invent the wheel by going it alone.

What does a mentor cost? Nothing. I have had over 20 mentors in my life – many of them multi-millionaires – and I have never paid them anything. They are usually willing to help budding entrepreneurs who demonstrate passion, drive and enthusiasm. You will only need them for a few hrs a month and in return you can either give them some equity in your venture, a percentage of revenue, mow their lawns, wash their car – do whatever it takes to tap into their proven knowledge base.

If they have raised capital before, they will also assist with structuring your offer, how to find and approach investors, etc. They might even know an investor or better still – invest themselves!

Step 3 – Put together a proper Information Memorandum
Now you have cashflow, a mentor and a business idea. Now, you are getting somewhere. What you have to do next is forget about banks for about 5 years. They will not give you money for a start-up. Even if your business was established and profitable, it would be hard to get money from them without property assets, director’s guarantees, first born child, etc.

Your only potential funding source is private investors or Angel Investors. These are individuals who are interested in backing early stage ventures in return for an equity stake in the company.

Your mentor will show you how to write what is called an Information Memorandum.

It’s a 20 page document that describes your business opportunity, the market place, projected earnings, who’s behind it, risks, returns, how much money you want, exit strategy etc. If you want to see some examples of completed Information Memorandums, go to www.wholesaleinvestor.com.au and have a look as some of the ones that are listed there.

In your Information Memorandum, make sure you add that your mentor is on your advisory board (clear it with them first of course!).

 Step 4 – Seek an angel investor or business partner
Seeking out an angel investor or business partner may take some time. However, once you secure either of these parties, you can expect that their return will be in the form an equity stake in your company.

Now because you are a start-up – and if you manage to secure an angel investor – the investor will end up with a fair chunk of the company. This is OK because without their money, your business is worth nothing anyway. So be ready to part with 20% to 50% depending on how much money you want, what they want, the strength of the idea, etc.

Alternatively you could seek out a business partner who owns 50% of the business, and contributes the capital. You own the other 50% and run and drive the business.

Step 5 – Build the Business
All this is going on while you still have your job. So what this means is that you will probably be working more than 40 hrs a week. That’s OK because it’s only temporary – just enough so you can leave your job and work in the business full time. So Step 5 is to focus on building cashflow within your business so that you can work in it full time.

Once again, you will be drawing on your mentor for advice here. Assuming you have the right mentor, they will advise you on what to focus on and how to get the cash coming in the door. A common rookie error for budding entrepreneurs is to chase down the exciting stuff – like international expansion or new product development.

However this is a mistake. In the early stages, you need to focus all your energy and attention to cashflow. Once things are looking good, you can then start to think about expansion, product lines, new distribution channels, extra staff and so on. But at every step of the way, get advice from your mentor. Remember they have done it before so they will guide you along the right path.

Once the business can replace you employment income, you can then leave your job and put 100% of your focus on the business.

Some extra tips: 

  • Be patient: – too many budding entrepreneurs get excited about their idea and they want to do everything yesterday. Don’t fall into this trap – there is plenty of time. And if the opportunity passes – I can assure you there will be another one just around the corner.
  • Don’t be greedy: I see a lot of entrepreneurs fail to secure funding (sometimes for years) because they want to value their idea at millions of dollars. The investors won’t go for this. In the current market they want value for money. So trying to raise $1m for only 5% or 10% of your idea – no matter how great it is – will result in failure. Remember it’s better to own 50% of a successful business than 100% of nothing.
  • Don’t be precious: What I mean by this is don’t get all hung up on this idea. It may not even be a good one! Few successful entrepreneurs make their fortune out of their first venture. It’s usually their third or even their 10th venture before they achieve success. So don’t hang your hat on this idea working. Just think of it as the 1st step of a business journey that will ultimately lead to your success – so stick at it!

 IMPORTANT: This information is general and should not be taken as specific advice. Readers should always seek their own professional advice. For more information, please email enquiries@axstra.com.au

Menu Title