After spending much time and effort devising a business plan, entrepreneurs often become discouraged when they are faced with the numbers needed to get their company off the ground.
To create a successful business an entrepreneur will not only need a good idea, but more often than not, money to fund the business. One of the main reasons a business can fail completely or can struggle to grow is due to cash flow problems.
One area that many new business owners handle poorly is related to budgeting. When forecasting how much money will be required, this figure is often too low. Running out of money is a common problem for a new business and proper financial management is a key step to get right. So how do you ensure that you have enough money to run your business and grow it over time?
Ultimately, to avoid getting overwhelmed, entrepreneurs should be aware of their business financing options. You don't need to have gone to business school to become a successful entrepreneur and launch a viable business, but it is important to familiarize yourself with the basic concepts of the business and finance elements that you will come across on a daily basis when running a business.
Traditionally, banks were the first choice as a source of finance, but with the economy performing poorly in recent years, banking providers have become much stricter and stingier with the amount of money they loan and who they loan it to. For many entrepreneurs looking to launch and finance a brand-new business, to get a business loan from a traditional financial services lender either existing equity or a strong track record is often required to ensure eligibility for a loan or finance. This might work for a larger SME (small to medium enterprise) but not for a brand-new company.
Start-up loans are sometimes available from venture capital companies, but this is quite rare and will likely be more based on an individual with a proven track record.
The good news is when it comes to start-ups and entrepreneurship there is a range of alternative sources for business finance.
Grants are popular with start-up businesses because they often don’t require payback. However, the number of grants offered by the government and private organisations every year is limited, while the number of people applying for them is only increasing because of the global banking crisis. Furthermore, grant application processes are usually lengthy and complicated. Organisations want entrepreneurs to prove that their plans are serious, detailed and nearly fail-proof, and often times, they expect these small businesses to match their offer.
One of the benefits of a business grant is that often, there is no loan repayment required. This is therefore a valuable option to a qualifying business. However, not all business will be able to apply for a grant, due to any number of restrictions, and those that do qualify are faced with a lot of effort to apply from the loan. From the paperwork required, the criteria that needs to be met, and the time it often takes to complete the application and get a return from the process. This can put off a lot of new businesses and entrepreneurs who want to launch quickly and not wait for a grant to come through.
In the UK there are a number of business grants available for a new business depending on the type of industry or market that they operate in.
There are also a number of different organizations that support new businesses when they launch, and it can be a good idea to familiarize yourself with what is available.
Many grants in the UK support specific industries. These can range from anything the government wants to promote from banking, to aerospace, professional services, healthcare or even technology consultancy type companies. For example, one common area where grants are often available are around environmental programmes, green energy, and sustainability
Another key point to note is that in the UK, it is common to find different schemes operating in England, Wales, Scotland, and Northern Ireland. So, depending on where your business is based can dictate what grants and support is available to you. Additionally, many grants are also offered regionally. You might find that specific grants are available to support businesses in the capital, such as London, but also in other major cities in the UK such as: Manchester, Birmingham, Edinburgh, Cardiff, Belfast, or even at a county level.
- Access to finance - Greater Manchester and Lancashire - As the name suggests, a grant that helps with finance to businesses in and around the Manchester are. - AD:VENTURE - Leeds City Region - a scheme dedicated to helping businesses in Leeds. - Business Cash Advance UK - is a UK scheme to help fund small businesses and start up limited companies. - Development Bank of Wales - Dedicated to help support and finance businesses based in Wales.
All of these are Financial Conduct Authority (FCA) approved, who are a financial regulatory body in the United Kingdom, but operates independently of the UK Government.
This is just a selection; you should examine the governmental websites both nationally and locally to get an up-to-date rundown of all the grants that are available in a particular market.
Other areas where grants are sometimes available are to help employ people. This can be through subsidized payroll, work placement and helping fund training and tuition fees. Again, this can often be related to specific industries that a government is looking to grow and help expand.
Some organizations are set up to support a new business or entrepreneurship via help, advice and even start-up open days, but do not directly offer finance help. These can be a good source of advice if a business owner needs some additional help.
Lately, due to the coronavirus pandemic, there is a lot more financial support available for businesses. Some of these grants, loans and schemes have only been operating on a temporary basis but can help a business than needs additional help.
One financing option that is becoming more available and more popular is angel investments. Angel investors are private investors who provide business capital to start-up companies in return for equity. They usually offer their business expertise and contacts as well as funding and expect a reasonable return within five to ten years. Parties are matched up so that both the investor and the entrepreneur receive optimum benefits from the partnership.
This can be a good option for a brand-new business because often an angel investor is more willing to take a risk than a bank or traditional lender. Often, they will their own business or have had experience running one and they can sometimes even offer mentoring and business management support outside of just a financial contribution.
New businesses will need to still ensure that they have a good idea and sound financials (at least on paper) as any investor will want to examine this in detail before they decide to invest in your business.
You shouldn't expect an angel investor to be available full-time to help your business. Often, they are busy individuals and for some investors they are only able to make a financial investment.
Angel investors will also sometimes take an equity stake in your business in return for their financial contribution. Sometimes it is possible to make other arrangements with investors, but it is something to be aware of when going down this financing route.
The angel investment network in the UK is a global network that connects entrepreneurs with angel investors.
Entrepreneurs can sign up to the Angel Investment Network and connect with investors looking for business opportunities. You can upload details of your project, established business or even idea, and start having conversations to help move your business forward.
Investors can search for business ideas all over the globe and connect with entrepreneurs. Perhaps you are looking for a business located in the country where you are based, or even overseas. Our global network can help make those connections happen. Investors can search for entrepreneurs and business ideas covering a wide range of industries and markets.
AIN helps investors and entrepreneurs build lasting and profitable relationships to build better businesses and brighter futures.