Financing your business
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Presentation made to the Surrey Business Link - November 2005
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Financing your business
- 1. Financing Your Business How do you run your business and ensure you have enough money to run it
- 4. What Do You Do? 1
- 8. Grants 2 Not ‘free’ money
- 26. Other financing options 4
- 31. The business plan 5
- 44. Who can help? 6
- 47. The internet 7
- 49. Summary 8
Notas do Editor
- There are grants that are given for a specific project or purpose, and are often linked to business development. Many are cheap or free loans, not gifts, so you need a plan to pay them back. Getting financial support can be tough from government. Loads of competition, and the criteria are stringent. You stand most chance asking for a project award - and these projects can not have started at the time of the application or the time of the award (you should only be able to do the project with the money!). If the grant is a ‘gift’ you may still need to repay the money, if you are found to have broken the rules. Most grants are ‘fund matching grants’ - I.e. you put x in and they will match it. You can get grants from: The Government The European Union Regional Development Agencies Local authorities/councils or development agencies Through business links Chambers of commerce County Enterprise boards You can also find grants through colleges and the Learning & Skills Council. Grants can be awarded for: Research & Development Access to knowledge Training (Learning & Skills Council) Employing/training unemployed (New Deal) Youngster start-ups (Prince’s Trust for 18-30 year olds) - expand Economic regeneration (within assisted areas) - see Dti There are also private sector agencies that offer to get you grants, but they do not/cannot guarantee success, and can be expensive.
- You can locate your business in another county, or city if it means you get grants, but remember, assisted areas normally have problems. Rural areas don’t have the level of services, etc. SME grants are for companies of less than 250 employees. Some grants are only for companies with a certain level of proven turnover, and some for companies who employ others, so not for sole traders! The industrial sectors that are limited from receiving grants by the EU are: Retail (exceptions do exist) Motor Vehicles Synthetic fibres Shipbuilding - not a problem in Fernhurst, I feel! Coal & steel Agriculture and food processing Transportation - air, maritime, road, rail and inland waterway Grants are often awarded for purchasing specific machinery, improving offices (health & safety), or developing export markets. Check the grant bodies for compatibility with their goals
- Always ask for feedback if your application has been declined./
- Business are most vulnerable when they are young, and many fail. Accurate market data will prevent you being over-optimistic with your forecasts about your market share. Brainstorming with others can help your business, and can help develop your business. Get clues as to competitors activity from advertising, recruitment, press releases, trade fairs, etc BUT remember, your competitors could also be a channel to your market if you import and need retail outlets. Suppliers need money from you within a set number of days. You should be as ruthless with your customers - the law is on your side. Do credit checks, check bank references, give discounts for early/prompt payment, etc Stock control errors could mean you have old stock that is unsaleable, damaged, etc. Use JIT (Just in Time) to limit your exposure. Stock costs money to hold and to store. Don’t over invest in fixed assets - you can lease or hire purchase. Your employees are the key to your success - you need to know when to start hiring, and what qualities you are looking for. Don’t be put off hiring someone better than yourself, they can be an asset. You will gradually do less and less of the core work anyway - doing more management and top level sales (perhaps on the Golf Course). Delegate responsibility to the best employees!
- You must ensure your business plan is sound, and then use it to 1) attract and secure the funding you need, and 2) to track your business’ activity against the plan. You may need to tweek the plan every now and again. A contingency plan allows to plan for possible problems. Lack of customers, stock, interest rate rises, other cashflow problems. How long can you survive without customers, stock or cashflow, or if interest rates rise, say 2%? Accountants, mentors and consultants are a useful source of professional help. Talk to them. Buy an hour of their time - it will pay you back. Financially, accountants and independent financial advisors can help you find the most effective borrowing and money managing opportunities. Over optimistic forecasts can be a problem. You can have challenging forecasts, but if your financing plans are based on a certain cashflow, you may come unstuck. My rule is to try to keep spending down to 25% of your income plans. This excludes start-up costs. In subsequent years you can spend your ‘reserves’ or pay them out as bonuses. If you are a self-employed sole trader, keep at least 30% of all your income for tax. You need to pay National Insurance monthly, but keep your ‘tax’ payments in a high interest bank account - it could be a great bonus at the end of the year. You can always grow sales volume or market share by reducing the price, but this squeezes your profit. JEL example . Geographic or market diversification may be tempting, but this will stretch you. Keep a clear focus on the core business, and diversify when you can fund it internally, without risk to your core business. Plan, plan, plan! Business Plan, Marketing Plan, Sales Plan, Supplier Plan, Contingency Plan. And revisit them - they can guide your business and remind you why you are in business!
- If you do not have any of these skills (or you are not confident of them), you need to budget to buy them in. Financial Management: Cashflow planning; Credit-management; bank & accountant relationships. Product development: Long-term plans,; People; Materials; Processes; Competitor activities; Customer Needs People Management: Recruitment; Resolving disputes; Motivating Staff; Managing Training Business Planning: Strengths & Weaknesses of your company; Maintaining the plan Marketing Skills: Sales & Marketing Operations; Market Analysis/Research; Selling Points; Marketing Plan; Advertising; Sales Customer/Supplier Relationship Management: Identify suppliers; manage relationships
- Very few entrepreneurs can claim to be strong in all areas of this checklist, You need to pull in the expertise as needed, and to learn new skills.
- If you borrow from family & friends, you need to agree (preferably in writing) if there is interest payable, timescales for repayment, and what involvement the family member/friend wants in your company (passive or active partnership). Manage their expectations - don’t let them think they are active just to get their money - you can make enemies of them and they can demand their capital back. If you have been refused elsewhere, don’t then go to your family/friends. Your business idea may not be viable, and you will lose their money. Revisit your business plan and expectations, & tell them who and why other refused you money - be open. Banks can provide start-up loans, or loans for equipment. You can agree overdraft facilities. But they have strict terms & conditions and are not very flexible. NEVER use unauthorised lenders - if in doubt, contact the FSA Specialist Lenders: Prime - for people over 50 setting up a business Prince’s Trust - for 18-30 year olds setting up in business Industrial Common Ownership Finance (ICOF) - for co-operatives, employee-owned business and social enterprises Muslim banks - complying with Shariah law on interest.
- Clue - find local Business Links Chambers of Commerce County Enterprise Boards Charities/Trusts SEEDA
- Ordinary shares offer the highest financial gains, but associated with the highest risk - MedSol eg. A company cannot issue redeemable only shares
- Who can help?