Finances and Funding Overview

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Although it may not always seem like it finance is usually available, even to small and young businesses, but the process of gaining access to the right type of funding for your venture does have pitfalls that need to be avoided. It is therefore important to plan your moves carefully and research your alternatives thoroughly.

The key to making the right funding decisions is to stay one step ahead of the game: by developing and maintaining a comprehensive knowledge of the funding options that are open to you. You will be in a better position to make the right strategic decisions at the right time, which will give you a significant competitive advantage over any less well informed competitors. Also keep an eye on industry trends, the funding moves of your competitors and the success or otherwise of those moves.

Knowledge counts, so use any contacts you have - colleagues and acquaintances in your industry as they may prove to be an invaluable source of information.

Experience is also very useful in saving you time and heartache, so if you do not have financial skills and experience in your team - you may also want to enlist the services of an independent financial advisor, or your accountant if appropriate.

Use accountancy and finance to help frame the strategic mindset, research the competition, learn business models

Contents

Funding Needs

The key here is to first identify your funding needs and match them to the most appropriate type of finance. Funding needs can be broken down into:

e.g. the need for extra working capital to cover seasonal revenue fluctuations – perhaps financed through an agreed over draft.

e.g. finance for launching a new product – perhaps through a small business bank loan.

e.g. the purchase of a new business premises – perhaps financed through a mortgage.

This process seems quite straightforward but many businesses have ruined their chances of gaining funding simply because they have applied for the wrong sort of finance.The main point is to keep talking to your bank and other sources of finances at all times – and take them through your business plan. This is for two reasons:

  • Firstly there is an historical tendency for UK businesses to cover long term needs with short term debts when the economy falls into recession this over-gearing proves to be the downfall of many potentially profitable enterprises.
  • Secondly your bankers want your business to succeed and have expertise in the area. Therefore keeping them in the loop means that when you do hit a rough patch – which you undoubtedly will, they will be informed and there to help you as best they can.

Types and Sources of Funding

Equity

Equity funding involves selling a share of your business to a third party. This could be a friend or relative, a private investor such as a business ‘angel’, or a firm of venture capitalists. Equity funding has the advantage of not placing a burden of debt on the business. However for many business owners the downside is that control of the business can shared with the investor – as they now have an interest. This potential loss of control is seen as a negative that stops them using Equity as a viable fundraising option. Equity financing comes in many forms.

Unusual Funding Methods

Bootstrapping:

  • Rather than raising money, bootstrapping can help extend the existing funding that you have acquired.

People-to-people money lending sites:

UK
USA

Further Information

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