Start up advice needed.

pnelly

Hi,
I am attempting to start a business which supplies materials to the construction industry. In my effort to raise finance I am faced with 2 options, borrow the money or look for investment. Can anyone advise me as to which is the better option?

jimmii

Not really enough information to go off. In some cases investment is better in some cases borrowing is better. It really depend on what you need and how much it's going to cost.

Is there any expertise you need at all? If there is you can look for investment from someone in that area. If you are on your own it can be very beneficial to have a partner it just makes everything easier.

pnelly

I have no experience in business at all. I have access to advice from former owners of a similar company but in this regard they couldn't say a preference. I can start for 50k or so but would be reluctant to go ahead without some cushion in case of cash-flow issues. An investor with experience might be the way to go. Thank you for the reply.

jimmii

Seems like an industry where you will definitely need experience and contacts. What do you in tend to differently from people already in the market? I would imagine itll be a tough one to crack.

pnelly

jimmii wrote: »

Seems like an industry where you will definitely need experience and contacts. What do you in tend to differently from people already in the market? I would imagine itll be a tough one to crack.

Not so, the materials I want to supply are in big demand. The current suppliers have such a back-log that smaller jobs are left waiting for supply far longer than they want to be. There are some differences in what I will do but will not describe them on a public forum. I can cut installation time for the trade in question by 15% + with my planned system. With wages shooting through the roof in construction at the moment, 15% less translates into a nice few €. I have expressions of interest from 10 construction firms so far. I am waiting to hear back from revenue about whether the proposed company can qualify for EIS.

jimmii

Wow sounds like you've found yourself a nice little position! Sounds like it would be a good idea to bring in a partner who can bring funds but also bring the experience. Theres always going to be things you come across that will surprise you but someone with the experience will hopefully be familiar with it already. Good luck!

pedroeibar1

Bluntly, you have no hope. By your own admission you have an idea (unproven, a concept), no money and no sector experience or knowledge. You add two other negatives – (A) “I have access to advice from former owners of a similar company but in this regard they couldn't say a preference” and (B) “I have no experience in business at all”.

With regard to (A), all advice from those people would be worthless because they are not honest enough today to give you the basic, truthful, obvious answer. With regard to (B) business experience is a precondition to run any operation and specific sector experience is a requirement to succeed (or even survive) in that sector. Construction and allied trades is high risk, with long credit periods, stage payments and retentions.It is the subbies and their suppliers who get screwed and bear the losses. As a total newbie, with no skills or contacts, how do you think you can get credit from suppliers?
Furthermore the €50k you mention that you consider would be required is nowhere sufficient for any start-up that might have a hope of survival in the sector.

You possibly are a great worker with a great idea, but how can you think that any lender or investor would touch you? Get some experience first.

bucketybuck

Sounds like a bankruptcy waiting to happen, bluntly speaking. A guy with zero business experience supplying materials to the construction industry, an industry that is notorious for not paying suppliers in a timely fashion. Have you enough capital to survive the first 6 months where you won't get a penny from anybody? Is your book-keeping tight enough to record all the transactions to the various construction companies, so that you will be able to effectively chase those debtors?

Why is that other company leaving money on the table, why is it easier for you to enter the market than it is for them to expand and take the extra revenue? Do they know something you don't?

Everybody has to start somewhere and a lack of experience is not always a deal breaker, but if you want to supply materials to the construction sector then you really need to have your head screwed on, otherwise you will be standing there in a years time wondering where all your money went.

pnelly

pedroeibar1 wrote: »

Bluntly, you have no hope. By your own admission you have an idea (unproven, a concept), no money and no sector experience or knowledge. You add two other negatives – (A) “I have access to advice from former owners of a similar company but in this regard they couldn't say a preference” and (B) “I have no experience in business at all”.

With regard to (A), all advice from those people would be worthless because they are not honest enough today to give you the basic, truthful, obvious answer. With regard to (B) business experience is a precondition to run any operation and specific sector experience is a requirement to succeed (or even survive) in that sector. Construction and allied trades is high risk, with long credit periods, stage payments and retentions.It is the subbies and their suppliers who get screwed and bear the losses. As a total newbie, with no skills or contacts, how do you think you can get credit from suppliers?
Furthermore the €50k you mention that you consider would be required is nowhere sufficient for any start-up that might have a hope of survival in the sector.

You possibly are a great worker with a great idea, but how can you think that any lender or investor would touch you? Get some experience first.

Fair enough regarding some of your message, i.e. business experience etc, but nowhere did I state I have no skills, trade or contacts. On the contrary, I have worked in the installation end of this for many years. I have expressions of interests from a number of companies in the trade, companies that are owned by people I know. I am well aware of the pay delay in this sector, but as this particular service requires ongoing deliveries, the contractors tend to pay so they can get the next one. As a matter of fact, builders are having to pay up front in some cases so they have no delay. The reason the advisers didn't state a preference, is because they borrowed to set up their company so didn't have investors. They would have been less truthful to advise me of something they had no experience of.

pnelly

bucketybuck wrote: »

Sounds like a bankruptcy waiting to happen, bluntly speaking. A guy with zero business experience supplying materials to the construction industry, an industry that is notorious for not paying suppliers in a timely fashion. Have you enough capital to survive the first 6 months where you won't get a penny from anybody? Is your book-keeping tight enough to record all the transactions to the various construction companies, so that you will be able to effectively chase those debtors?

Why is that other company leaving money on the table, why is it easier for you to enter the market than it is for them to expand and take the extra revenue? Do they know something you don't?

Everybody has to start somewhere and a lack of experience is not always a deal breaker, but if you want to supply materials to the construction sector then you really need to have your head screwed on, otherwise you will be standing there in a years time wondering where all your money went.

Fair point, I do not have capital to survive long in a negative cash-flow scenario. As to why the big, established companies do not chase the niche I want to target, it has a lot to do with location and demand. When things are going well, they service the bigger jobs first and leave smaller guys waiting, there is room for a smaller operation. On top of this, the smaller operators tend to pay sooner, and the risk is smaller but still there. I wouldn't last long with a lot of overdue bills.

antoinolachtnai

To answer your original question, no one will lend you money for this business. Many reasons are outlined.

You need to find equity investment. This will be hard to raise because you do not have the management expertise. Managing this kind of thing is really about managing cash and credit. 'Domain expertise' is simply not enough.

You really need to find a partner, someone (well most likely an established company) who will put up the money and will have the expertise in the areas you lack. If your idea is really sound and your knowledge and contacts stand up to scrutiny, you will do some sort of deal where they will pay you for your contacts and expertise and buy you out on the basis of some agreed valuation in a few years if all goes well.

is_that_so

pnelly wrote: »

Fair enough regarding some of your message, i.e. business experience etc, but nowhere did I state I have no skills, trade or contacts. On the contrary, I have worked in the installation end of this for many years. I have expressions of interests from a number of companies in the trade, companies that are owned by people I know. I am well aware of the pay delay in this sector, but as this particular service requires ongoing deliveries, the contractors tend to pay so they can get the next one. As a matter of fact, builders are having to pay up front in some cases so they have no delay. The reason the advisers didn't state a preference, is because they borrowed to set up their company so didn't have investors. They would have been less truthful to advise me of something they had no experience of.

Have you talked to a LEO? They may have contacts but certainly will have lots of information. Look into SYOB too.

pedroeibar1

….this particular service requires ongoing deliveries, the contractors tend to pay so they can get the next one. As a matter of fact, builders are having to pay up front in some cases so they have no delay.

Very very few are PIA. Even if there is a small credit limit and tight credit control, you typically will be fed a line like ‘We just need the delivery of X to get paid, your non-delivery is holding up everything & payment, just get it here now and you will have a cheque when Jim/Mary/(whoever) is back in the office tomorrow’. Then you are sucked in and you will find that ROT is inoperative.

…....the smaller operators tend to pay sooner, and the risk is smaller

That is plain wrong. On that basis the small guys would have not been screwed by the collapse of builders in the last crash. Pierse, O’Flynn, Zoe, Flemings, McNamara, etc. to name just a few. Pierse collapsed owing over €200 million, more than 50 million of which was to unsecured creditors, mainly subbies and small suppliers (incidentally causing many to fail). Do not try to tell me the business has changed, it hasn’t. In case you believe history does not repeat itself, just look at the recent collapse of Carillion and see who took the brunt of the bad debts!
You asked for advice, you have it, goodbye from me and good luck.

pnelly

pnelly wrote: »

Hi,
I am attempting to start a business which supplies materials to the construction industry. In my effort to raise finance I am faced with 2 options, borrow the money or look for investment. Can anyone advise me as to which is the better option?

Investment will probably mean giving up a share in your business which means that you will answerable to you shareholders. For some people this defeats the purpose of going into business in the first place.

antoinolachtnai

If you borrow money you are answerable to the lender. Is there that much difference?

jimmii

brenbrady wrote: »

Investment will probably mean giving up a share in your business which means that you will answerable to you shareholders. For some people this defeats the purpose of going into business in the first place.

No one is suggesting they give up control just that bringing in a partner who has the expertise and access to funds that a business like this would need to even stand a chance theres a big difference.