Essential Knowledge for new business – business funding

There is a saying ” the person that fails to plan — plans for failure “

Whatever business you want to run it is essential to create a business plan — look at it as a route map for a important journey in your company vehicle – there will be all sorts of challenges – twists and turns – bumps and potholes in the road — but one of the most important elements of any journey is having enough fuel to get your vehicle to the destination of your choosing

The fuel you need on your business journey is FUNDING to drive your vehicle  forward

Your business plan should include a forecast of the profit and loss account and a cash flow forecast for the early years of your new business —- through proper planning you will with your adviser determine the level of funding you will need to get your business moving

You will also have identified the purpose of the funding ie working capital — to fuel up your stocks payroll overheads — or for capital items — equipment tooling machinery vehicles

There is a wide range of sources for working capital and dependent upon the terms it can include :-

Your savings – equity release — pension draw down — some people have even used their credit cards to get them going

Family and friends are often the first port of call — on terms that can be very generous — but don’t forget that they may want the money back at some point in time — make sure you have a written agreement to confirm how the arrangement works

Good sources of working capital for the growing business is invoice finance or factoring your sales ledger debts — the facility can grow as your business grows — the arrangement will include charges for the funding and it is important that the collection or credit control is operated efficiently

For the purchase of equipment then asset finance is often route to go as it is better to pay for the plant over a period either through purchase or lease arrangement than to use up valuable working capital funding — you are matching the type of funding with the use or need of the funds

Crowd funding — peer to peer — business angels are always looking for a good investment — you will need to be organised with your business plan and proposition with a good presentation — an elevator pitch as you only have one chance to make a good impression — the terms of this sort of funding can include giving up some equity or giving security —- we all have seen Dragons Den

Depending on the scale and ambition of your new business you may approach the right type of Venture Capitalist —- these organisations are in for the medium term and can for the right business and the right people be extremely helpful — in exchange for their terms which will definitely include an equity stake

Bank funding via loans can be available for new business’s — and for the right proposition the Enterprise Finance Guarantee scheme is available from most of the major banks — the basic requirement for this facility ( the limit is now £1.2 m ) is that the business proposition has to be bankable with exception of available security —

Beyond the major banks there are developing new sources banks know as “challenger banks ” – newer banks in competition with the majors — there are also growing private funds being managed that are interested in the owner managed business market .

The developing business will need to be aware of the need for the provision of security — whether it be for plant — expect a personal guarantee — for an invoice finance facility – expect a personal guarantee — for a business loan — personal guarantee and charges over property — even if there is an equity investment there could be the requirement of guarantees to be put in to support the funds invested — there are always conditions to funding provision — so to guide you through the funding landscape avoiding the mine fields and other dangers — you need your Corporate Finance adviser — to take you through the process and beyond to help you achieve your business ambitions —— contact 

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