Personal and Entrepreneurial Prerequisites

As an entrepreneur you need important qualities such as self-discipline, determination, willingness to learn, and creativity as well as self-confidence and risk awareness. In addition, successful entrepreneurs know their market and how to deal with their customers. You also need to be patient and take a long-term approach—this is the only way to overcome setbacks and transform them into positive energy. Even if they alone do not guarantee success: Check nevertheless whether you have these qualities.

Ask yourself the following questions:

  • What personal characteristics do I have that can help me achieve my goals?
  • What gaps would I have to compensate?
  • How do I compensate them?
  • Am I more of a “lone ranger” or do I need a team of partners around me?

Responsible use of money

As an entrepreneur you work for your own pocket. Many entrepreneurs face great difficulties in controlling the financial budget. Company cars, office space, wages—every investment needs to be well considered. In addition to the operating costs, plan the funds you require for your subsistence: Ongoing cost of living, social security and taxes. Be aware that you will need to tighten your belt, especially in the early stages. Check your handling of finances. If you have not been able to manage your finances well as an employee up to now, you will have even more difficulties as an entrepreneur.

Financial requirements

Good financing is the basis for the successful development of your company. The exact determination of capital requirements is therefore one of the essential tasks of every business founder.

Equity capital

The equity capital is your personal security and risk cushion, especially in the difficult start-up phase. With the equity capital you ensure that even small losses do not lead to insolvency or overindebtedness and thus to bankruptcy. Determine once again your willingness to use your own financial reserves to bail out your company.
Equity does not only include “cash and cash equivalents”. Machines, tools or a car can also be brought into your company as equity (“material resources”). Play it safe: Those who have doubts that they can bear the responsibility of a large income and wealth risk should refrain from becoming self-employed.

Credit standing

The capital requirement usually exceeds the company's own financial resources. Then you need to organise outside capital. The rule is: The higher the equity, the greater the chance of getting an additional loan from the banks. The minimum proportion of own funds is at least 15 to 20 percent of the investment costs. You can find out your credit score online. Many chambers and start-up funding institutions offer a free online credit score check. Consider whether your bank has already had bad experiences with you. Be aware that the lenders exert pressure. Make sure you are up to this.

Even if it may be unpleasant to think of negative things in the founding phase: Prepare a financial “Plan B” in case your self-employment does not work out. In particular, set yourself a financial pain threshold that you do not want to exceed in extreme cases. An unpleasant end is in any case preferable to an unending nightmare when it comes to founding a company!

Public funding

The federal and state governments and the EU support the start of entrepreneurial independence with special assistance programmes. Most of these are loans, but there are also non-repayable grants. Typical features of public assistance loans include favourable interest rates and long maturities. You usually do not have to start repaying loans immediately.

You normally apply for assistance loans via your house bank. The following applies: Always submit the application before starting your own business. No subsidies will be granted retrospectively (exception: investment grant). Applicants are generally expected to have sufficient technical and commercial qualifications and proof that the business start-up leads to a viable full-time job as the main basis for employment. Check whether you meet the requirements and whether you are entitled to subsidies.

Tip: Ensure you seek advice. This is the only way you can be sure which of the funding programmes is most favourable for you and what you need to consider when applying. An initial overview of the various funding models is available online at www.existenzgruender.de/en or directly at http://www.foerderdatenbank.de/.

Risk mitigation

If you feel that the risks are too high in your financial planning, consider what alternatives are available. An important way of limiting risk in certain constellations is, for example, not to set up a new company, but to invest in or take over an existing one.

Tip: The financial risk involved in setting up a business is high. A carefully reviewed financial plan provides stable security. Do not make plans with big sums, especially at the beginning. Be aware that you may have to start small and only gradually adjust your goals upwards.

Social conditions

The most important anti-stress agent is the support of family and friends. Your spouse in particular should be involved in the decision to found a company.

Self-employment changes not only your everyday life, but also that of your family. Household, childcare, marriage; even in “normal” working life, family obligations and a job are often difficult to reconcile. Parents are often confronted with exceptional situations at short notice, e.g. when the children become ill or school is cancelled. As a self-employed person, you will be hit by such short-notice incidents even harder—so take early precautions!

An intact social network is therefore an important building block for your mental balance and stress resistance at work. In order to balance the double burden of family and self-employment, you need good organisational and time management.

Before you set up your company, make sure that

  • your family are fully behind your project and support you in difficult situations, and,
  • if necessary, there is a reliable person who can take over the household and childcare if necessary.

Most founders underestimate the time and effort required to set up a company. The more you have to be considerate of your family or other obligations, the more you should consider whether it makes sense to start your own business directly.

If, for example, you only have a few hours per day available for your self-employment, make sure that

  • you can actually implement your business idea with this small number of hours, and
  • that both investments and running costs are as low as possible.

This way, you minimise your risk. You will then be able to develop the company further in due course.

Tip: Those who realistically estimate the time and effort involved are less likely to overburden their partner or family. Be aware of this and prepare yourself and your private environment in good time for the upcoming challenges.

Sample text: Personal and entrepreneurial prerequisites
The success of our company depends to a large extent on how reliably and punctually our services are provided. The time management skills we have acquired in our day-to-day work will certainly be of use to us in our self-employment. In our previous work, we have shown that we have good organisational skills. We are in a position to plan and optimise processes in a meaningful way, in terms of both costs and efficiency. We will make up for our lack of experience as self-employed persons with acquaintances and relatives who have already made their way into self-employment.