How to set up your own company

Thirteen per cent of the redundant bankers passing through Penna Meridian, the City of London outplacement agency, decide to strike out on their own.

Linda Jackson, Penna Meridian's managing consultant, says many of them stay in more or less the same line of work, for example as independent IT consultants, freelance economists, or interim managers.

Others seize upon redundancy as an opportunity to start their own company doing something completely different, often pursuing a long-held ambition.

One organises skiing holidays, one manufactures baby food and another has become a freelance stuntwoman.

Fulfilling a dream may seem romantic, but the reality is likely to be tough. 'Starting a company takes a lot of money, a lot of resources, and a lot of energy,' says Jackson. 'It isn't a soft option.'

From the outset, it is wise to secure conjugal support. A partner who objects initially to forgoing a steady income for a dream of organic infant purees is unlikely to become more enthusiastic if faced with setbacks and production problems.

'Discuss the idea with your partner. Ensure you have their buy-in,' recommends Jackson.

Having enlisted the support of your nearest and dearest, you will need to assemble a detailed business plan.

Helena Boas, a former analyst at Merrill Lynch Investment Managers who set up a lingerie company, said former financiers should do this personally.

'If you can write a business plan yourself, it is a huge advantage, both in terms of saving money and being able to talk about the plan during investor presentations.'

Boas says preparation is key to getting the plan right. 'Do more and more research, as much as you possibly can', she advises.

Adam Honey, another former Merrill Lynch analyst and now managing director of Mountain Leap, an organiser of ski chalet holidays, says: 'Think for a long time before you act and put those thoughts into a well structured business plan. Use friends who are accountants and bankers to review them for you and ensure that you have several dispassionate views.'

Many successful entrepreneurs consciously follow the example of others. Boas says she was inspired by Brent Hoberman, co-founder of lastminute.com.

Others take advice from those who have been through it all before. Honey was assisted by an old friend who had developed a leading a ski company that was sold to a PLC. 'It helps if you have someone with experience on board, who's done it from start to finish,' he says.

Both Honey and Boas needed capital to get started. Boas was looking for 250,000, Honey for 60,000. Both used family and friends initially, but looked further afield as their businesses grew.

Boas says: 'The first round of funding, in September 2000 was from my immediate family. The second round, in June 2001 was from a more extended circle of acquaintances.'

She recommends organizations such as VCR Business Angel Club, a network that puts entrepreneurs in touch with private investors.

Steve Gardner a self-employment advisor at Penna Meridian, says raising money is easier than people think. 'In most cases, if people have a got a really good idea and they are passionate about it, they can get the money from somewhere.'

Gardner advises looking to family and friends, banks, business angels and schemes like the Prince's Trust in the UK, which offers grants to young people.

Venture capitalists should only be used as a last resort, says Gardner; they want their money back quickly, and at a high rate of return.

Life is easier for independent consultants, who have less need of start up capital and can act as sole traders.

Sasha Scott, a former trader at UBS Warburg, left banking in 1999 to run a company offering diversity workshops for people on the trading floor.

'It's very easy to set up. People get concerned about the bureaucracy, but I'm neither a limited company nor VAT registered,' she says.

Scott says maintaining a strong sales pipeline is key to success as an independent consultant. Sales leads take between 9 and 12 months to come to fruition and a balance is needed between maintaining a pipeline of new work and working to pay monthly bills.

Gardner at Penna says cashflow can be a major problem for the self- employed: 'You expect the money to come in month one, but it may not come until month four,' he warns.

As a result, Gardner says 40% of businesses fail in the first two years.

But for those that don't fail, self-employment can be highly rewarding.

Honey says: 'I've always loved the mountains and now I can spend 75% of my time in Chamonix helping people to de-stress through physically active holidays.'

Lingerie has brought Boas similar satisfaction: 'I'm working harder now than I was before, but it's a lifestyle, not a job that I go into every day.'

Further reading:

The Lloyds TSB Small Business Guide - Sara Williams, pub. by Penguin.

High Income Consulting - Tom Lambert, pub. by Nicholas Brealey.

The Business Plan Workbook - Colin Barrow, pub. by Kogan Page.