You’ve gone passed the bright idea stage and have launched your own business and low and behold, it’s actually doing pretty well. In fact, you’ve got some steady clients and good money coming in. You don’t want to settle for being a small start up for too long though because you’ve got plans and you’d like to get them rolling. There’s only one problem; you’ve not got the cash to take things to the next stage. So what can you do? How do you find the funds to take your small or medium sized enterprise up a notch?
Finding an investor could be the key to securing your company’s future fortunes, providing you unearth the right one. Of course, you could apply to appear on Dragon’s Den, but there are options that don’t involve potentially embarrassing yourself on TV. You could try attending pitching events to try and attract potential investors or seek the help of the UK Business Angels Association.
If you’re only looking for a low level financial contribution at this stage you may be able to find investment closer to home from friends or family. Just remember – wherever you source your investment from you’re likely to need to give up a slice of your future profits and perhaps even some of the control of your business in return. Finding a suitable investor is therefore about far more than getting your hands on extra cash, it’s a process that requires care, attention and forethought. You’ll need to think about potential clashes of personality or ethics and be sure you share the same vision.
Get a loan
Getting a business loan is perhaps the most obvious way to fund plans for expansion, though it’s not always an option that’s open to all. There’s a recognised SME funding gap in the UK with many smaller businesses reporting that they find it hard to get loans from banks. You’ll need to fulfil certain criteria and present a clear business plan in order to secure a loan and be sure you can afford to make those repayments. According to research, 80%-90% of small businesses fail because of poor cash flow, so if you do manage to get a loan it’ll need to go hand in hand with good cash flow management techniques. You’ll also need to be clear whether you or your business is liable for the debt should you struggle to pay as defaulting could have a serious impact on you.
For a good while crowd funding was the cool, hip way to get an injection of cash for the launch of a new product, branch or service for your business. Sites like CrowdFunder, CrowdCube and KickStarter give entrepreneurs the opportunity to pitch for investment. To secure those funds you’ll need a good business plan and potentially a slick video, and depending on your product, service or project you may want to offer a physical product to persuade potential investors to get in on the action too. For example, if you’re in the street food business and want to set up a second pitch or start marketing the sauces you use in your menu, you can take your idea directly to your customers and ask them to part with their cash, promising them a sample of the goods in return.
When you have plenty of clients on the books and know that future invoices would easily cover your expansion plans you don’t necessarily have to bide your time and save gradually. Invoice discounting is a way to access funds your company expects to be paid for invoices in the future, allowing you to increase your present cash flow and pursue those expansion plans. So, how does it work? You match with an invoice financing company who loan you cash against the invoices you send out to clients.
How much you can borrow will depend on the sales you make and the credit-worthiness of your clients but it could be as much as 90% of the value of the invoice. You’ll still need to enforce your own credit control to ensure the invoices get paid so that you can pay back the money you’ve borrowed. Rather than going into your company account the invoice will need to be paid into a special trust account, and, along with interest you’ll usually pay an administration fee. However, you get to stay in control of your finances and manage the relationships with your client yourself, which is what makes the process different to the similar sounding process of invoice factoring.
Is it time to push and really see where your business can go? Will you go down the traditional finance route and seek out a business loan or do something different?