Wealth Check: 'I am setting up a gallery but I don't want a large loan'

Hannah says: 'I feel more able to take financial risks, as I have no dependants or mortgage and only a small student loan.'

Hannah Stoney, 22, a fine art graduate from Staffordshire, wants to set up her own business, but is concerned about the initial costs of making such a big investment.

"I am about to set up a gallery space and craft shop in Cheltenham, Gloucestershire, which is where I have lived and studied for three years," she says. "But my main financial goal is to make this happen without having to resort to large business loans."

Hannah works at a restaurant in Cheltenham on weekends. "At this stage in my life I feel more able to take financial risks, as I have no dependants or mortgage and only a small student loan."

Hannah has seen two financial advisers in the past but has had two very different experiences: "The first adviser was quite patronising and made several comments about my age in correspondence ... I felt that this was very unprofessional and didn't help me at all, but the second adviser gave useful investment suggestions."

Case notes

Income: £300 a month
Savings: £8,500 in Isas; £15,000 in premium bonds

Offering advice this week are Alex Pegley of Calculis, Lorreine Kennedy of CareMatters and Danny Cox of Hargreaves Lansdown...

Hannah's enthusiasm will stand her in good stead when it comes to making tough business decisions, says Pegley. "She has managed to accumulate modest savings and is managing her student debt well," he says. "However I would recommend that Hannah leaves the student loan intact for as long as possible because the interest rate on the debt is very low."

He says Hannah is right to seek financial counsel at this stage to plan necessary start-up expenses.

Business planning

"I would urge her to speak with the Prince's Trust and Business Link, says Kennedy. "The Prince's Trust provides a wealth of information and practical help to those under the age of 30, offering advice on business and marketing plans, business training and sometimes even provide start-up grants.

"Business Link offer advice to anyone in business. Once Hannah starts her business it can be tough to find time to access outside help, so making the most of the free workshops offered by Business Link is advisable as these will provide her with practical suggestions to help generate and boost income.

"Hannah needs to put together a business plan," advises Cox. "This doesn't need to be volumes of pages, but it does need to be thought through carefully. Her business is likely to have several strands, ranging from higher volume, lower profit margin sales (art materials), to low volume, high profit sales (paintings)."

A good business plan should contain simple turnover and profit forecasts together with cashflow forecasts and is something which all business owners should become well accustomed to negotiating with care. "The banks can also offer a surprising amount of help and 'start-up' advice," adds Kennedy. "Barclays, for example, offer a free legal and accounting session with an accountant or lawyer and Hannah should take advantage of every bit of free advice."

Borrowing

Hannah's main aim is to set up her business without having to resort to borrowing large sums of cash, though this is not always plausible, and she will need most, if not all of the money available to her to set up her business. "Sometimes borrowing is a necessary evil, as the initial costs of setting up a business are almost always much higher than anticipated," points out Pegley.

All three advisers agree that Hannah should arrange for a good-sized overdraft facility on her business bank account as a "safety net" should she need to locate emergency funds.

Savings and protection

Hannah will need to have sufficient money to take on the lease of a shop and pay the rent. "In most cases the shop will be a bare shell," says Cox. "She will need to pay for fixtures and fittings which could run into several thousand pounds, as well as further expenses such as insurance, a till and staffing."

Should she have access to any spare cash, Pegley suggests that Hannah keeps an emergency fund of £1,500 in cash ISAs, so that that money is easily accessible if needed.

"Finally, all new business owners should be aware that it can take two or three years to achieve profitability," warns Kennedy. "Once the business is up and running, Hannah should become involved with social networking sites such as Ecademy or Linkedin as the online sites will provide an opportunity to voice business queries and converse with like-minded people."

For a free financial check-up, write to Wealth Check, The Independent, 2 Derry Street, London W8 5HF; or email wealthcheck@independent.co.uk