Starting a business is easy, growing and sustaining the business is a tough job. As business evolves, so thus the finance needs changes too. Making financial decisions can be a daunting task. The businesses may fail if the financial planning is not done right. But through proper guidance and advice it may not be as difficult as it seems. Business needs finance so that it can grow sustainably.
As the business grows, you need to foresee the future. Circumstances change, things change. You need to analyze the new opportunities and challenges. At some stage, businesses needs to raise finance. How you wish to raise money will depend on your circumstances and nature of your business.
A weekly cash-flow forecast is essential in a growing business. It’s important to keep cash flow under control.
Some investors may take a minority stake in equity finance. It evolves selling a stake in your business. The common interest shared here is “Growth of the Business.’
This can support an aggressive growth strategy. Think about the future. In the long run, the value of the business will increase and so the shareholding. In a private company, the business owner can sell their stake privately to the private buyer or through flotation if the business is listed. Raising equity finance may be costly as it requires management time on a daily basis. There can be legal and regulatory requirements while investing in equity finance.
Business Angels are individuals who invest in high-potential business for an equity stake. Business Angels risk- high risk opportunities and a potential for high returns.
Businesses invest in ventures due to its high potential of returns- those with a unique product or services. Their focus is on the business strategy. This is a time-consuming and costly process. You will require a detailed business plan. Corporate venture capitalists is funding for small businesses.
This requires operational, financial and strategic abilities. A PE firm may sell their shares to a PE firm or a corporate trade buyer. It can alternatively publicly list the company.
This is becoming increasingly common. It is a means to connect the company with thousands of investors, some may be the future potential customers. This is done by matching companies with would be angels via internet. You need to produce a business plan and financial forecast to attract investors.
The next stage of growth for business is listing its shares publicly. London Stock Exchange Main market, AIM and ICAP securities and Derivatives Exchange are the UK Markets. This is a tedious process and requires an expertise but a great opportunity for the company to critically examine itself. This can be used to raise money for growth opportunities, rebalance the balance sheet, finance acquisitions and broadening the company’s shareholders base. Public Listing will increase the company's profile with a wide range of stakeholders, customers, suppliers.
Before investing, company should keep the following things in mind:
Debt can be used for long term investment or to fund working capital. It involves borrowing cash from a lender and paying back in full interest. It is predetermined. There is tax relief on interest payments and relatively easy to plan repayments.
Businesses use overdrafts to finance short term requirements and to finance working capital such as purchasing plant and machinery, computers or transport. The management should be able to convince the lender that business will generate income to repay the loan. Banks are worth a shot if you are creditworthy. Banks will require you to submit a business plan to ensure your business is viable and have a strategy for repayment and growth.
Peer to Peer is also known as crowdfunding. This is an innovation to lend money to businesses. This is where the interest platform is used to match lenders to the borrowers. This is an alternative form of online finance. This is the most popular way of funding as it provides the opportunity to lend and purchase equity and enjoy a good return. Here the benefit is that you don’t have to deal with the bank and its cheaper than bank lending. FCA regulates P2P lending.
Leasing and hire purchase are types of finance used by businesses to obtain assets- right from office equipment to vehicles. A leasing company buys the equipment and the company rents it for a predetermined period. If the business wants to purchase the equipment at the end of the agreement but there is a cash flow impact then “hire purchase” is the option. The finance company buys the equipment and business repays the cash with interest through regular payments. These agreements are usually on a fixed interest rates. A Chartered Accountant will be able to advise on this.
This funding is very useful for growing businesses. There are two types of Invoice Finance: Factoring and Discounting. In factoring- you pass your unpaid invoices on a third party known as a factor. In discounting, you ensure that the invoice is paid. The third party lends you money based on invoice.
When businesses export, they have to be sure they can afford to produce goods and that they will be paid. Export finance helps mitigate the export risk such as delayed payment. Manufacturers who import raw materials face different challenges. Suppliers want to be paid before shipping the raw materials this is where finance fills the gap between importing and the point where finished product is sold.
Trade finance helps businesses purchase goods from both domestic and international sellers, usually for shipment of goods for a specific period of time.
Business mentors should have knowledge and contacts to make the right choice in financing. Leaving the above finance options: friends, family and personal savings are the most popular finance options for small businesses. The advantage here is that you don’t have to deal with banks. It is expected that your closest will better understand your business and at a better rate than high street. This can be highly beneficial. To avoid misunderstandings you can seek professional legal assistance to help you draw the document.
It's a tough call which finance option to choose. Business finance is the lifeblood of the business for its growth and survival. The british bank is encouraging diversity and competition in equity investments market for smaller businesses in the UK by committing capital to investment funds. It is done through Enterprise capital fund, Venture capital catalyst fund, UK innovation investment fund and Business Angel Co Investment fund.
Now get free financial help and advice from government backed schemes. You can also get help with tax, with exporting, advice on writing a business plan.