Blog by Knowles Warwick
Most businesses will need to find sources of finance at some point whether for starting up in the first place, expanding when times are good, or being supported through difficult periods such as a recession. The most obvious solution to accessing finance used to be obtaining a loan, but the current climate has made banks more wary than ever of lending money, especially if the proposition is new or particularly ambitious. So if you need finance for your business, what should you do and how should you go about it?
The first stage in thinking about raising finance is to ensure that you have a business plan, which clearly states what you intend to do, how you aim to achieve it and how much it will cost. Large expenses such as buying or hiring premises and equipment will need to be included, in addition to any other bills and salaries if you employ staff (don’t forget to include a salary for yourself!) . A well-researched business plan will help you fine-tune your ideas and will also show any potential investors that you are serious about the business.
The next stage involves giving consideration to the most appropriate source of finance for your requirements. As part of the decision-making process, think about how quickly you need the money, because finance that is required urgently is usually more expensive to obtain. You also need to consider how risky your business proposition is, since you are less likely to gain finance for something that might not be profitable. If your proposition appears high-risk, you can help to reassure potential creditors by addressing this in your business plan and explain the measures you will put in place to help alleviate the issue.
There are several sources of finance that you can consider and most businesses use a combination of the following to obtain the money they need:
• Personal savings
This can be the ideal solution if you have enough money, as you will not need to gain approval or justify your expenditure to anyone. However, it can be high risk, as it could leave you with nothing to fall back on.
• Borrowing from banks, family, friends, investors
Think carefully about who to approach and use your business plan to back up your request. If you borrow from friends or family, explain the implications to them and make sure you pay them back when you agree to do so, to avoid resentment.
• Grants and government support
There is often strong competition for grants and you must fulfil the criteria to be considered. The application process can take a long time and you may only be able to use the money for a specific activity.
• Equity finance
This involves selling shares in your company, which can be an effective way of raising finance without having to repay the money or pay interest.
Raising finance can be a complex issue and it often helps to have an expert on your side to guide you through the process. Most good accountants will be able to help you with this and provide the information and support required.
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