Wealth Check: Can I start a pizza business without banks taking too large a slice?

Case notes: Bertie van der Beek, 23
Salary: Bertie does not yet have a consistent income. He currently earns around 150 every Sunday and is looking for more work.
Monthly outgoings: Bertie spends around 600 in living expenses.
Savings: Bertie has 400 in a HSBC current account.
Debt: Bertie has a student loan of 15,000 and an overdraft of 900.
Pension: 0
Mortgage: 0

Bertie van der Beek, 23, is hoping to open his own pizza takeaway shop in the next six months. He currently runs a pub kitchen franchise every Sunday, but is looking for other work to fill the rest of the week.

"At the moment I am just earning to pay my way until I can start up the business," he says. "I have spoken to the bank, started to write a business plan and secured 16,000 from private backers, but I'm still waiting for the perfect venue for the pizza shop."

Bertie is determined to work for himself and says that he is happy to take on the risks that starting up a new business entails. However, he is not certain about two particular aspects of owning his own business: how to acquire further financial backing and how to go about paying taxes correctly.

Three independent financial advisers help Bertie this week: Danny Cox of Hargreaves Lansdown, Adrian Lowcock of Bestinvest, and Aj Somal of Positive Solutions.

Starting a business

Bertie may find it difficult to start a business in the current economic climate. HSBC has offered him a 12 per cent unsecured loan, which the advisers agree is a very high rate. "Bertie should approach the other major banks to see if he can secure lending at a better rate," suggests Aj Somal.

Somal also advises Bertie to look for alternative sources of finance. "If Bertie can secure additional funding from friends and family rather than relying on the banks, then he should do this, as he will avoid paying interest charges," he says.

If Bertie does decide to opt for a bank loan, he will need to produce a comprehensive business plan. "Business start-ups are generally regarded as high risk by banks," says Danny Cox. "So they will want to see that he understands what he is doing via the business plan."

Cox adds: "Bertie's business plan will need to identify potential clients or customers who will pay for his services and deliver a profit in a realistic time."

Bertie needs to be clear about precisely how much money he will need to cover his cash flow requirements for the first year.

"If the amount of cash Bertie needs is less than he can get from his backers and the bank, he may need to save hard until he can finance the deal," states Cox. "Most small businesses fail in the first year because they run out of money."

Cox advises that Bertie should invest in a tax-free cash ISA, which will allow him to save up to 3,600 per tax year.

Lowcock agrees that Bertie should save up in order to self-finance the business. "Although waiting is not an attractive option, rent and loan rates may fall while he is saving up, making it cheaper to start a new business," he says.

Bertie should also consider three options provided by the Government to help new businesses. "The Enterprise Finance Guarantee helps business that would not normally quality for a loan, while Small Loans for Businesses offers loans of up to 50,000 to small and medium-sized businesses that have been refused bank finance," explains Lowcock.

"Finally, Finance for Business provides flexible finance solutions such as a loan or equity finance for businesses with a viable business plan," he says.

Business advice

The advisers agree that Bertie should seek out further business advice. He can obtain this from a number of sources, including the Chamber of Commerce, from a local Citizens Advice Bureau, and Business Link.

Lowcock also suggests that Bertie should contact other business people for advice. "He can tap into their experience and expertise in setting up a business," he says. "They will be able to provide worthwhile insights."

Tax

Bertie needs to register as self-employed with HM Revenue and Customs (HMRC). He must also complete his self assessment tax return for 2008/09 by 31 October 2009 or 31 January 2010 if he is submitting it online.

He will need to keep all business receipts and set up a system to keep a record of all financial transactions. "This is important for the successful running of any business," says Lowcock.

"It is worth Bertie going through his affairs with an accountant," says Cox. "They will be able to set him straight in advance of him setting up his new business."

Debt

Lowcock advises that Bertie pays off his debt while building up as much savings as possible.

However, Somal considers that Bertie should delay repaying his 15,000 student loan until after his business is up and running.

"He should concentrate on reducing or eliminating any short-term bank overdrafts, as these are more than likely to be incurring high interest charges," he warns.