David Flower

Head of small business banking, HSBC

Recruiting people into the business will let Sam and Harry concentrate on marketing their brand to a wider audience. But taking on employees will add to the costs of the business so this needs to be considered and built into their cashflow requirements. It is not just the pure costs of monthly salaries they need to consider, but the additional legal and regulatory demands that new staff will put on their business.

With most start-ups spending more than they earn in the first two or three years of trading, the first step is to prepare sales forecasts for the next 12-24 months. The key is to avoid the temptation to grow faster than the business can support. Most businesses go bust not because they don’t make profit, but because they run out of money.

In forecasting sales and cashflow requirements, it is prudent to go for a worst case scenario and allow for some contingency funding throughout the year. It is far better to approach the bank with one request for funding rather than returning in three months looking for more support because sales forecasts were over-optimistic.

Like most small business owners, Sam and Harry won’t be experts at financial planning, so they shouldn’t be afraid to ask for help from a professional to do that for them, or at least to check their calculations and assumptions.

Andrew Cremin

Director, Saffery Champness

Corporate FinanceSam and Harry have rightly identified their brand as their greatest asset. Nurturing a brand and maintaining its integrity while steering the business through various stages of growth can be a challenging process.

For this reason, they should exercise care in the distribution deals they make and the sales platforms they choose. I suspect their brand will need to maintain some exclusivity, so too much expansion initially could harm its appeal and longevity.

Communicating brand values effectively is often key to the success of retail ventures. Sam and Harry share a clear enthusiasm with their target audience and the importance of this should not be underestimated. Ensuring new staff are equally enthusiastic and knowledgeable will resonate heavily with customers and help build brand affinity.

They recognise they will need extra funding at some point, and will have to make decisions on the type of finance. Too much debt at an early stage can limit growth. The focus of management in highly leveraged companies that are trying to do great things in short timescales can easily be diverted from the task of growing the business. An equity backer, preferably in the retail sector, could be a good source of funding and provide useful experience and contacts as the business develops.

David Mellor

Partner, Horwath Clark Whitehill

As Dressed To A Tee seeks to expand it will enter a period where cash control and sources of finance are critical. Recruitment of staff and expansion in orders are likely to increase both fixed and variable costs. Many businesses in this phase can fail because they burn cash too fast and have inadequate financing in place. Sam and Harry need a good cashflow model that can forecast accurately their planned expenditure and pipeline sales.

They should start looking for sources of finance early. Business angels are a good source of finance, particularly if they can find business partners willing to invest management expertise as well as capital. Business angels typically invest between £10,000 and £100,000 in start-up businesses. The government provides tax incentives for such investors through the Enterprise Investment Scheme.

When it comes to debt financing it is important to identify both short-term and long-term goals and arrange necessary financing for each. Short-term borrowing can be expensive when used to fund requirements of a longer-term nature where term loans may be a better alternative. Sam and Harry may find that the business has insufficient security for commercial bank borrowings because they have few tangible assets on their balance sheet. They should consider the Small Firms Loan Guarantee Scheme, which enables commercial bank lending with the government guaranteeing 75% of the loan.

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