Money Matters – Smart Investments
by Melanie Richardson
Are you looking to finance your business? Melanie Richardson goes through some of the financial options available
FINANCING AND FUNDING FOR YOUR BUSINESS
Raising funds to support your growth is essential to any business and in the current economic climate, can prove a major challenge for any organisation. There are many finance options available but deciding which is the best route and then collating the information necessary to secure funding can prove a tricky process. All funders will require a forecast cash flow and profit and loss account – without which they may not be able to lend.
For a new business, a grant can be a perfect way to kickstart your growth. However, with so many grants available and high levels of competition, how do you make sure that you have the best chance of getting one? Before you start the process it’s essential to have a comprehensive and up to date business plan and a clear breakdown of what you intend to use the grant money for. A solid view of your business history and an outline of how you intend to meet the grant’s objectives are essential as well. Grants often won’t fund the whole of your project, so sometimes it is necessary to look for additional investment sources.
A traditional way of funding your business is through debt financing or a loan direct from the bank. Usually banks will not fund start-up businesses because of perceived risk, but they will offer loans to existing businesses. If you are considering this option you need to be crystal clear on the reason for and the amount of loan that your business needs. You should take time to get your personal credit history in order as well, because if your business is less than three years old this may be taken into account. A good credit score will significantly increase your chances of securing funds.
You should review bank options as well, as you may have a greater chance of securing funds through a smaller, newer bank such as Metrobank, rather than one of the larger high street banks. Once you have selected your proposed lenders, you will need to prepare your business plan and pitch carefully before talking to the bank.
One financing option that is becoming more and more popular with new businesses is Angel Investing (equity financing). Angel investors are private investors who provide business capital to businesses in return for an equity stake – think Dragon’s Den. If they are going to invest in your business they will usually offer their expertise as well and you can secure a valuable advisor early on. You must make sure if you are considering this, that you are willing to have another voice in your business and be prepared to give up some of the equity for the advantages.
For larger businesses and in certain circumstances start-ups, Venture Capital may be a viable option. Venture Capital is usually provided by a professionally managed fund that invests in businesses deemed likely to provide high rates of return. A VC investor supplies funds in return for a stake in the business, but will expect to be able to sell their stake and make a large return within 3 to 5 years. VC funding might be attractive to businesses that are unable to secure business loans from financial institutions because of insufficient cash ow, a lack of assets for security or a high-risk profile.
CROWD FUNDING AND ALTERNATIVE FUNDERS
Crowd funding is a relatively new option available to businesses at any stage. Or you can go one step further and privately o er equity in your company to your customers. These non-standard financing options need to be carefully planned and the rules of each need to be strictly adhered to but can provide an excellent and innovative option for extra loan capital.
Raising finance in today’s climate is becoming more complicated while investors and banks want to have a lower risk profile than they once did. To maximise your chances of getting the funding you need make sure that you:
- Prepare business plans, cash ow forecasts and proposals to give to nance providers
- Create professional and exciting presentations
- Consider whether debt or equity is more preferable
- Investigate alternative options, such as invoice discounting or maximising working capital
Money Matters is written by Melanie Richardson – Managing Partner Swindells LLP Chartered Accountants & Chartered Tax Advisers.
Telephone: 01825 763366
As individual circumstances vary considerably from person to person, the views expressed in this article are meant only as a general guide, and any specific advice required should be sought from your own professional adviser or by contacting the writer at her place of work. No responsibility for loss resulting to any person acting as a result of any material in the above article can be accepted by the writer or Swindells LLP.