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Funding for your business

Category: Funding | Jun 9, 2019

Seven funding tips for your business

Cash flow and working capital are amongst the most common headaches for businesses, regardless of their size, success and how long they have been established. David Rodick, of Beans Accountants in Crewe, shares his top tips for easing such burdens on your business and suggests where start-ups and other SMEs can turn for help…

1. Friends and family

More than anyone, your family and friends will know exactly how much effort you have put into starting your new venture – and exactly how important it is to you. They know you and, assuming they trust your judgement and your competence, they should be the first people to approach for both moral and financial backing! This is the most common source of backing for all new businesses, but you still have to take their commitment to you very seriously and deliver on your promises.

2. Your local friendly bank manager

Once you can convince others to share your confidence that there’s a market for your business idea, the second easiest option for funding your start-up costs – after family and friends – is to talk to your bank. There three main types of bank funding: a simple overdraft facility; asset finance which banks are always happy to discuss; and a loan which might prove a little more difficult. But before you discuss any of these options with your bank, do your homework first…You’ll need to be able to give them realistic cash flow forecasts and prove that you’ll be able to pay back any funding with interest.

3. Public funding (Grants, R&D tax credits and tax rebates in Year One)

Research and development (R&D) relief is a Corporation Tax reprieve that may reduce your business’s tax bill. But your company can only claim R&D relief if it’s liable for Corporation Tax. If your business is small or medium-sized, and not liable for Corporation Tax, you may be able to claim a tax credit instead, by way of a cash sum paid by HM Revenue and Customs (HMRC).

Your accountant should be able to advise on what you can claim. But in the meantime, have a look at:

4. Working capital and supplier finance

You will need working capital from the moment the business starts operating. Working capital is a financial metric which represents operating liquidity available to a business, and is calculated as current assets minus current liabilities.

The management of working capital involves managing inventories, accounts receivable and payable, and cash. One system that can often help is “supplier finance” which works by providing early payment to a supplier for an approved invoice, either by a bank or a factoring company, which is then repaid to the bank or factoring company by the business.

As a supplier, this allows quick payment of invoices and a low cost, low risk method of obtaining finance.  As a buyer, using supplier finance can allow you to support your suppliers and so maintain stability in your supply chain. Again, your accountant will know all about this method of operating a business.

5. Second tier lenders

Traditionally, the first port of call for new businesses looking for second phase funding is the first tier lender, the High Street bank. However, as most business owners will tell you, it is often difficult to secure such investment without a long list of stressful caveats. But don’t despair… your accountant can often introduce you to second tier lenders. The second tier lender is usually a regulated finance company which exists specifically to lend funds to businesses. Such loans are invariably secured by collateral and almost always by personal guarantees. Your accountant will have had dealings with such companies so consultant him or her for personal recommendations.

6. Crowd funding

Crowd funding – also known as “crowd financing” or “crowd-sourced capital” – involves a number of people each investing, lending or contributing small amounts of money to your business or idea, all of which is pooled towards your funding target.

This option provides an alternative to funding from conventional sources and can often raise finance relatively quickly, usually without upfront fees. But you need to persuade potential investors that your idea is a winner – for them as well as you. And by publicising your initiative to attract investors, it’s in danger of being copied if you haven’t already protected it with a patent or copyright.

7. Pension funding

Alongside loans from family and friends, from banks, via crowd funding, and help through supplier finance, business owners could consider tapping in to their pension pot as an alternative finance option. There is a huge amount of money in the UK pension system – around two trillion pounds – a significant proportion of which belongs to business owners, or those who are about to start their own business. So have a chat with your accountant to ascertain the viability of releasing some of your pension pot to cover your start-up costs.

Exploit every opportunity for solid professional advice – especially from those who have years of successful business experience under their belts. When starting your new venture, you probably feel as if it’s you against the world, but there are many organisations out there which can help.  Talk to your local chamber to commerce, your local business club and the various government-funded bodies which are there specifically to support small businesses. Such networking not only gives you the added reassurance you might need, but can often lead to solid new business!

You should also very quickly build up a relationship of trust with your accountant. He or she has a firm finger on the financial pulse of your area and obviously has a vested interest in the success of your business. Let your accountant come up with the financial answers to your cash flow and working capital headaches whilst you get on with what you are best at – running a successful business!

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